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The pandemic may be in the rearview mirror for consumers, but for retailers, pandemic-era changes to the supply chain are still a major challenge. Retailers were forced to quickly accelerate their omnichannel plans. They increased fulfillment options, such as curbside pickup or ship from store, and reinvented how they thought about their warehouses, creating complexity across both their supply chain and revenue streams.
Retailers are also facing new risks and challenges. Uncertainty around geopolitical issues, inflation, cost of living, and a shift in consumer spending has forced retailers to rethink their approach to supply chain management (SCM), and inventory management as they work to create a more resilient and agile supply chain going forward.
Good SCM — which is the management of the flow of goods within your business — along with the processes put in place within your supply chain, can set your business up for long-term success. Taking the time to develop a supply chain plan that details the resources, suppliers, and products required to meet your customers’ demands will not only help your business steadily grow, but also protect your margins by reducing operating costs.
Let’s discuss the steps to take when planning your supply chain:
- Set objectives and create a plan to customer demand
- Define and adjust your demand forecasting
- Understand the role of inventory in SCM
- Identify and track the most relevant KPIs
1. The planning phase
Supply chain planning helps you closely forecast and meet your customers’ demands, without sitting on excess stock, which can hurt your bottom line.
In order to effectively manage your supply chain, you first need to understand what your goals are by setting objectives and identifying what key results are required to meet those objectives. Incorporating measurable goals around SCM can help improve operational effeciencies, optimize inventory levels, and help you quickly identify when you need to course correct—all cost-saving measures that will improve your business’s profitability.
Supply chain planning objectives for retailers include timely delivery of products to customers, managing inventory to reduce liability and maximize revenue, developing collaborative relationships with accountable suppliers, and being able to recognize and respond quickly to changes in your forecast.
These goals should be part of a comprehensive plan that identifies metrics to measure the success of your supply chain at every critical point. Your plan should also make note of all resources (i.e., technology or labor), processes, and vendor partnerships that will aid you in meeting your goals.
2. Accurately forecasting demand
Once you’ve determined what you hope to get out of SCM, the next step is assessing customer demand. Demand forecasting is the process of predicting what products your customers want and resourcing against that demand with the right amount of inventory. Done well, demand forecasting will help you make better buying decisions to replenish your stock at the right time.
Determining what your customers want, when they want it, and how much they want is no easy task. Analyzing your business’s historical data, coupled with the rate at which your business is growing today (i.e., online and offline traffic and corresponding conversion rates), will help inform your future inventory needs. In addition to understanding your business’s growth trajectory, you’ll need product-level sell-through data. When analyzing your sell-through data, take into account variables like seasonality, promotions, or other events that may have influenced sales. There will almost always be a margin of error, but the closer you can forecast, the better you’ll be able to maximize profit.
Utilizing analytics, software, and technologies such as artificial intelligence (AI), which uses real-time data to predict demand, can improve the accuracy of your demand forecasting and save time. The case for AI is especially promising, with AI-driven demand sensing shown to reduce inventory errors in supply chain management by up to 50%, according to McKinsey & Co.
Square for Retail can help forecast demand with features such as accurate stock reporting to make data-informed decisions. You can use the on-the-go inventory counting tool to quickly scan or search items and update stock levels across all locations instantly. You can also leverage smart reporting insights, like low stock alerts and stock forecasts, and sync inventory and sales data across in-store locations, online, and on social media.
Accurately forecasting demand sets the stage for the rest of the planning process. Good demand forecasts are pivotal in helping businesses make better, more-informed decisions to help reduce costs, increase profitability, and edge out competitors.
3. Setting inventory levels
As we’ve learned, accurate demand forecasting helps avoid costs associated with poor inventory management. These costs can include backorders or stockouts and rushed logistics.
Inventory management is often considered the heart and soul of good SCM. It involves tracking the liability of holding inventory and the costs of lost sales due to insufficient stock. This is most often achieved through data-driven decisions backed by demand forecasting and intelligent inventory management systems. Square for Retail provides built-in inventory management reports, including sell-through, vendor, and product sales reports. Businesses also look at factors like lead time, safety stock, reorder point, and carrying costs when managing inventory.
Point-of-sale data is also ahelpful input retailers rely on to balance inventory. This information can be shared with upstream vendors so that as stock levels decrease, the retailer and supplier vendor can work together to effectively manage inventory replenishment.
The Square suite of automated inventory management tools makes it easy to manage inventory, vendors, staff permissions, and more from the Retail POS or any first-party or personal device and have it sync instantaneously from anywhere. Additionally, Square for Retail data syncing means no more double work is required to see all your data in one place.
Square seller Nappily Naturals & Apothecary uses these features to easily manage their large number of SKUs.“We use the Auto Create feature whenever we have inventory that comes in that is already pretty much ready to go with a barcode and an SKU. It easily allows us to scan the product. It predicts the information and easily allows us to put new items into inventory without having to go into the Dashboard,” said Lilly, general manager at Nappily Naturals & Apothecary.
4. Supply chain key performance indicators (KPIs)
The final step in the planning process is identifying the most relevant KPIs to measure the success of your supply chain plan. Supply chain KPIs act as benchmarks that enable you to monitor how effective your business practices are at achieving your goals. These KPIs should be simple and transparent metrics that can be easily understood and communicated across your business and amongst partners and vendors.
Establishing and socializing supply chain KPIs is especially critical for omnichannel operations, which can be incredibly complex with many moving parts across channels, platforms, and vendors. Using Square for Retail, businesses can track sales, projected profits, and COGS reports across channels; dive into specifics with filters; and download reports that provide actionable real-time insights.
Implementing SCM and planning practices are a great first step, but if you are not measuring their effectiveness, it is difficult to know what is working and what areas still need to be addressed.
Creating your supply chain plan
It’s never been more important to plan or re-evaluate your supply chain to keep everything running smoothly. Mapping out your process and identifying critical components, such as reliable vendors, customer demand, and areas of risk, is the first step in creating a more efficient supply chain. Establishing supply chain KPIs will hold vendors accountable and keep your business on track.
Strategic supply chain planning is pivotal to the success of your business, ensuring customer satisfaction by meeting demand at the right place and time and securing customer loyalty for years to come.
