The Retailer’s Guide to Supply Chain Management

Retail supply chain

Supply chains are under intense pressure around the world. Shipping is expensive, orders are backed up, and brands are losing production time due to global disruptions. 

These disruptions even led retail industry giant Revlon to default on its $3.7 billion debt and file for bankruptcy in June 2022. 

In response, retailers are turning to experienced specialists to lead their logistics operations, hiring chief supply chain officers and other experts to mitigate delays and solve inventory challenges. 

In the face of the supply chain crisis, what can small retailers do? The following article provides an overview of the entire supply chain, as well as tips and trends to take advantage of in order to keep your products in stock. 

What is the retail supply chain?

The retail supply chain is the flow of processes involved in the production and distribution of your products. There are various discrete components of a supply chain, such as warehousing, inventory management, procurement, order management, carrier partnerships, and more.

What is retail supply chain management (SCM)?

Retail supply chain management refers to the way you handle the inbound and outbound logistics of a good, from raw materials to delivering the final product to a customer. Supply chain managers optimize supply-side activities to cut costs, deliver products faster, and gain a competitive advantage in the market. 

Why is retail supply chain management important?

  • Manage inventory costs
  • Avoid stockouts
  • Build customer trust
  • Gain competitive advantage

Let's look at each of these benefits individually.

Manage inventory costs

Inventory costs include any expense associated with ordering and holding inventory. It is one of the largest expenses retailers incur: for every dollar a US retailer makes, they have $1.35 worth of inventory in stock

Proper supply chain management helps you reduce inventory costs in the following ways:

  • Improve demand forecasting. 
  • Find the right balance among purchasing, ordering, and storage. 
  • Optimize storage costs. 
  • Avoid stockouts and high carrying costs. 
  • Getting rid of dead stock.
  • Streamline order management. 

Retailers rely on inventory as a buffer against supply and demand volatility. With an effective retail supply chain management strategy, you can keep just the right amount of stock in the right place at the right time across your distribution network. 

Knowing inventory costs is extremely important, because they affect the majority of decisions one makes as a retailer.

Abir Syed, co-founder of ecommerce accounting firm UpCounting

Take the guesswork out of restocks

Only Shopify helps you make smarter inventory purchasing decisions. See your most profitable and popular items, forecast demand, get low stock alerts, and create purchase orders without leaving your POS system.


Avoid stockouts

A “stockout” occurs when you run out of inventory for a specific item. Out-of-stock events can happen anywhere along the supply chain, but they impact retailers’ profits the most because they prevent customers from purchasing desired products. One survey found that 30% of consumers feel stockouts hurt their shopping experience. 

Recent data shows that stockouts were up 250% in October 2021, compared to pre-pandemic levels.

Stockouts can happen for many reasons:

  • Inventory miscounts
  • Demand surges
  • Delayed suppliers
  • Limited cash 

Whatever the reason, it’s disheartening as a customer to experience a stockout. SCM helps you manage logistical challenges and forecast more accurately so you can reduce stockouts and see higher profits. 

💡 PRO TIP: When you use different platforms to run your online and retail stores, inventory discrepancies are more likely to happen. This can lead to more frequent inventory counts to reconcile differences and ensure stock levels are accurate.

Build customer trust

As noted, good supply chain management means more products on shelves and happier customers. If shoppers can find what they desire, they’ll likely shop with you in the future. 

The opposite is also true. Some 37% of consumers who experience a stockout will shop with another brand, and 9% will buy nothing at all. If you’re proactive with your SCM, you can deliver on commitments–and be transparent if you can’t, which is critical to providing a great customer experience.

Gain competitive advantage

Retailers can also use the supply chain to gain a competitive advantage. Efficient SCM leads to cost savings, and cooperation among supply chain elements leads to higher profits. 

Planning technology allows small businesses to respond and readjust to disruptions in real time, sometimes faster than their large competitors. That way, they can still deliver on customer expectations and make sales. 

Getting the correct tools and software to track inventory in real time is one of the best things you can do for your inventory tracking. The last thing you want is for errors and mistakes to cause issues further down your supply chain.

Daniel Hedegaard, Head of Press at Cool Parcel

Retail supply chain challenges

A few major challenges associated with the supply chain include: global shortages, shipping congestion, and economic sanctions.

Global shortages

The pandemic has disrupted nearly every element of the global supply chain. Shortages have affected everyone from aid groups to nonprofits and retailers, making it hard to get supplies and inventory. Shortages haven’t been this bad in 50 years, and it’s likely going to get worse, given China shutting down production facilities and reducing the global supply of goods.

Shipping congestion

Another challenge retailers are facing is shipping congestion in major ports. These long delays are increasing shipping times and creating longer wait times to unload at ports, despite handling less cargo. Active container shipping supply has also reduced due to congestion, removing about 16% of global container ship sailing capacity compared to September 2020.

Shipping supply congestion
Source
Average container schedule delays doubled globally from 2020 to 2021, and increased 6x on the Far East and North America trade.

Economic sanctions

Economic sanctions have also strained the speed of supply chains. Countries continue to issue sanctions and regulatory changes on business and individuals, and they aren’t slowing down soon. The US, UK, and EU are considering tighter trade sanctions on Russia and other parts of the world like China, Asia, Africa, India, and South America, which will continue to impact business operations. 

How to improve retail supply chain management

  • Integrate retail systems
  • Account for reverse logistics
  • Increase accuracy of forecasting
  • Partner with a 3PL
  • Explore innovative fulfillment options

Let's examine these various ways to improve your supply chain management.

Integrate retail systems

Business growth brings a whole new set of problems that demand solutions, especially when it comes to your supply chain. A good supply chain system oversees the entire production process, from raw goods to manufacturing and sending to customers. The success of your supply chain depends on integrating your retail systems.

At any given time, you’ll have to communicate with:

  • Planners
  • Producers
  • Distributors
  • Wholesalers
  • Customers 
  • Carriers

When all these players work together, errors are reduced and money is saved. Automation technology allows you to connect all your systems— like point of sale (POS), inventory management, accounting, CRM, and ecommerce—and streamline processes without human intervention. 

That way, you’ll get real-time visibility into all areas of your business, avoid overselling stock, and spend less time reconciling inventory. Plus, your supply chain managers will become more efficient and successful. 

Read more: POS Integrations: How to Sync Your Point of Sale with Shopify

Account for reverse logistics

Reverse logistics is an SCM tactic that involves moving products from customers back to the seller or manufacturer. Processes like returns or recycling require reverse logistics. It includes return labels, inspecting returned items, processing refunds, and shipping out new items for exchanges. 

Reverse logistics flowchart
Source

Reverse logistics aims to regain value from products or dispose of them. Since returns are a necessary evil, and 95% of customers say a poor returns experience will make them less likely to shop with a brand again, reverse logistics is an important process to get right. 

Read more: How to Deal With Retail Returns Professionally and Profitably

Increase accuracy of forecasting

Demand forecasting projects future revenue and what products shoppers will buy. It also helps you make decisions about product offerings and inventory, reducing stockouts and maintaining positive cash flow. 

Historic sales play a role in forecasting, but it also takes into account factors like economic trends, customer feedback, and data from your POS. 

There are two main types of forecasting:

  • Quantitative. Using hard data from your store, including revenue, marketing analytics, and economic indicators.
  • Qualitative. Using expert opinions, market research data, and consumer demand predictions. 

Each has its own methods you can use to determine demand. To learn which is the best method for your store, read How to Forecast Demand for Your Retail Store (and Why You Should)

With Shopify POS Pro I can take orders in-store, fulfill the order from our warehouse, and ship the order directly to customers. That’s huge for us because we’re not always going to have stock on hand—especially for larger items that take up a lot of space in our backstore—but can still transact in-store and offer customers next-day delivery.

Dustin Kroft, Principal and Lead Designer, Kroft

💡 PRO TIP: Shopify POS comes with tools to help you control and manage your inventory across multiple store locations, your online store, and warehouse. Forecast demand, set low-stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.

Partner with a 3PL

A 3PL (third-party logistics) provider is a company that helps merchants manage their supply chain. It includes services like warehousing and inventory management, order fulfillment, shipping coordination, exchanges and returns, and more. 

Rather than manage your own warehouse and distribution, you can store inventory in a 3PL’s warehouse. When you receive an order online, the 3PL will pick the order, pack it, and ship it with a carrier like FedEx, UPS, or USPS. 

Finding the right outsourced fulfillment partner is essential, but all are not created equal. You want to find a partner that supports returns, integrates with your software, and has warehouses close to your customers—all at a fair price. 

📌 GET STARTED: Shopify Fulfillment Network, Shopify's very own 3PL, was built with merchants in mind. We offer two-day shipping on most orders across the United States, simple pricing, returns support, full integration with your Shopify store, and much more.

Explore innovative fulfillment options

The changes in shopping behavior during the pandemic are here to stay. Customers expect certain conveniences and safety measures. Supply chains are a mess. All of which requires retailers to fulfill orders in new ways. 

Some innovative fulfillment options to explore include:

  • Curbside pickup, where customers pick up an order without going into your store. 
  • Buy Online, Pick-Up In Store (BOPIS), where customers place an order online and pick it up at your store. 
  • Dropshipping, where a third-party supplier fulfills online orders.
  • Local delivery, where you deliver online orders to a customer’s home.

Our retail store removes a lot of design restrictions around larger items. With in-store pickup, we can design and sell a series of products that don’t need to ship to California, which helps us be more economical with our order fulfillment for bigger, higher-price-point items.

Dustin Kroft, Principal and Lead Designer, Kroft

💡 PRO TIP: Shopify local delivery is a set of flexible tools that let you offer shoppers local delivery options at checkout. Set delivery zones, add pricing conditions for each zone, manage and prepare orders for delivery, and create optimized delivery routes for drivers from Shopify.

Trends and the future of the retail supply chain

  • Local pickup
  • Brick and mortar for fulfillment
  • Increasing inventory reserves
  • Recommerce

There are a number of trends shaping the future of the retail supply chain. Let's take a look.

Local pickup

One trend retailers are taking advantage of is not using a carrier at all. Consumer trends show a rise in shopping with local, independent businesses, and they are happy to pick up their goods safely at your shop. 

Local pickup has many benefits for retailers. For example, it eliminates the costly last mile delivery, and, at no extra charge, outsources the delivery to the customer. 

Learn more: How Kowtow Unified Its Online and Offline Channels and Grew In-Store Sales by 30% With Shopify POS

💡 PRO TIP: Offering in-store pickup as a delivery method at checkout is a great way to get more online shoppers to visit your store. To get started, enable local pickup availability in Shopify admin to show online shoppers whether a product is available for pickup at one of your stores.

Brick and mortar for fulfillment

Another way retail brands are curtailing the impact of supply chain disruptions is through “micro-fulfillment”, or fulfilling orders from a local warehouse or store. Stores are becoming a new fulfillment point, taking advantage of their close proximity to customers and lower shipping costs, versus shipping from a distribution center. 

While micro-fulfillment is not a new term, awareness of its importance has increased due to recent trends and shippers raising the prices on last-mile delivery. This also makes it easier for retailers to offer curbside pickup, BOPIS, or other local delivery/pick up options. 

Increasing inventory reserves

Retailers traditionally keep inventory lean because of supply chain efficiencies. Once the pandemic hit, however, some 60% of companies planned to increase inventory supplies from May 2020 to 2021 in order to reduce stockouts and poor customer experience. 

Companies are not only increasing inventory reserves, but also finding new, regional suppliers and distributors, rather than relying on international ones. 

Regionalization remains a priority for most companies. Almost 90 percent of respondents said they expect to pursue some degree of regionalization during the next three years.

Recommerce

Recommerce, or reverse commerce, refers to selling previously-owned goods through physical and online channels. With 77% of US consumers concerned about the environmental impact of their products, retailers are revamping their supply chains to improve sustainability and bottom line. It’s safe to say, resale is going mainstream.

The recommerce and resale market is growing at a rate 11x faster than traditional retail. The market is expected to reach $84 billion by 2030, almost double the market size of fast fashion. 

Retailers like Lululemon and REI have launched resale operations over the past few years, and we’ve seen the growth of marketplaces like ThredUp and StockX. You can take advantage of this trend by creating a buyback, trade-in, or upcycling program in your store. 

Read more: The Rise of Recommerce: All About Buyback, Trade-In, and Upcycling in Retail

Protect your retail supply chain

The supply chain is often completely invisible to the end customer, and that’s by design. The typical local customer experience is that they choose from available products, pay for them, and go home. Online experiences are similar—shoppers browse a range of items, pay for what they want, and the goods turn up a day or two later. 

In both cases, the supply chain customer experience is that everything happens as expected. All the effort you’ve put into ensuring consumer choice, availability, resilience, low costs, and fast delivery results in a quick, satisfying, and effortless customer experience. 

Using the strategies above, you’ll be well on your way to building a more resilient supply chain that helps you keep items in stock and sell more.

Manage your inventory with confidence

Only Shopify POS helps you manage warehouse and retail store inventory from the same back office. Compare inventory costs to revenue, see which items are selling out or sitting on shelves, forecast demand, and more.