Experts predicted supply chains would normalize in 2023 after a rough few years of pandemic-caused economic downturn and a huge shift in the way people shop. But we’re not out of the woods yet.
There’s no one reason why supply chain issues are still haunting both big and small retailers. There seems to be a perfect storm of conflicts, ongoing lockdowns, labor shortages, and financial downturns, all of which make it difficult to maintain healthy, predictable supply chains.
The effects of the supply chain issues are different for every business, but most are feeling the squeeze—in fact, some studies show disrupted supply chains have led to businesses losing 10% of annual revenue on average. Pair this with the increasing demands of today’s consumers, who expect next-day delivery, and it’s a tough time for retailers.
Here are the main supply chain issues ecommerce brands face and steps you can take to keep your supply chain as seamless as possible.
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What are supply chain issues?
Supply chain issues refer to disruptions or inefficiencies in the sequence of processes involved in the production and distribution of goods. These issues can arise from a variety of factors. For instance, a lack of raw materials can halt production, while labor shortages can slow down manufacturing or delivery.
What are the biggest supply chain issues today?
Global political unrest
According to a survey by SAP, retailers believe political uncertainty is the main cause of current supply chain disruptions. Of those surveyed, 58% believe the Russia-Ukraine conflict has a profound impact on the ability to source and transport materials and products.
The limitations on air freight transportation across Europe and Asia (where planes would usually pass through Russia), spill over in northern European ports. Disruptions to rail freight between China and Europe have all affected the way retailers can source and ship products to consumers.
Rising fuel and energy costs
The conflict in Russia and Ukraine has had knock-on effects, particularly when it comes to fuel and energy. Soaring energy costs have made it more expensive for retailers to store and ship products in their inventory.
Higher consumer expectations
The pandemic set a new precedent for next-day delivery. When brick-and-mortar stores closed, a huge surge of shoppers moved online and never went back. Today, more shoppers want their orders to arrive within two days, along with free shipping. This has put pressure on retailers who are up against rising costs while trying to maintain customer loyalty and satisfaction.
What is causing supply chain issues?
Supply chain issues aren’t caused by one single factor. A build-up of events has led to a situation where sourcing and shipping have become costly and limited.
These are the main causes of the supply chain shortage:
The Russia-Ukraine conflict
Increased energy prices and flying restrictions over Russia and its surrounding countries have made it difficult, and more expensive, for brands to ship and source products from China and Europe.
The expectation of fast, free delivery
Consumers got a taste of free next-day delivery during the pandemic and they want more of it. This puts pressure on how retailers fulfill orders, where they fill them, and how they are delivered. Some retailers have added more storage and fulfillment locations closer to their customers. A good solution, but the demand for warehouse space is high, which can make it more expensive and challenging to manage.
Broken supply chains
The transportation barriers paired with long wait times on materials and manufacturing have led to spotty supply chains with multiple moving parts. It affects the entire supply chain when one of those parts grinds to a halt. Patrick Frank, co-founder of Float Factory, is seeing these delays first hand.
“The largest supply chain issue that we are facing is that shipments from overseas are not lining up with the predicted timelines,” he says. “Even though the shipping prices have become significantly cheaper than in prior years and when we first started our business, the logistics of understanding where your container is or where your containers are at all times, is still completely broken.”
Supply chain bottlenecks
Retailers are still recovering from the pandemic, when there was huge consumer demand amid labor shortages and global uncertainty. These logistic bottlenecks are still there and many brands are still grappling with the ongoing effects. Ports in particular are still experiencing labor shortages, which leads to shipping and receiving delays around the world.
Dealing with supply chain disruption: Steps to take
Supply chain issues might remain but you can get ahead of them by taking four steps to minimize the impact they have on your business.
1. Hold more inventory
The most popular way to tackle the current supply chain crisis is to carry extra inventory. Since 2019, 3,000 of the world’s biggest businesses have increased their inventory and are holding products worth almost 1% of the world’s GDP.
Why? Because more inventory makes it easier to meet customer needs. It helps you avoid the dreaded “out of stock” sticker that can impact retailers’ bottom lines.
It’s important to get your inventory balance right, though. There’s a fine line between holding more stock and overstocking, which can lead to increased storage costs. Instead, look at your sales data, and use it to forecast your inventory based on product popularity and customer demand.
PRO TIP: Consumer spending power is low right now, so avoid holding on to too many high-ticket products. Instead, keep your inventory of low-cost items well-stocked.
To prepare for product delays and increased demand, The Natural Patch, an Australian brand selling insect repellents for children, keeps a buffer of 20% (or three months’ worth) of inventory in stock. “Our rule is we cannot run out of stock,” says founder Michael Jankie. “It’s not just about turning off marketing for a product. It’s winding things down; it messes with our finances.”
2. Diversify product sources
Brands with resilient supply chains gain a competitive advantage. That means anticipating delays, preparing for periods of limited materials, and closing as many gaps as possible from manufacturing to delivery.
One way to do this is to diversify where you source your products from. This makes you more resilient to unexpected supply interruptions—like global conflicts, natural disasters or rising energy costs—because you have other sources to fall back on. Shopify research found 30% of merchants have sought out new suppliers, and 29% now get their products from multiple suppliers or countries.
Having a good relationship with your multiple suppliers can also help prevent delays.
“Working with suppliers on forecasts and giving earlier bookings and commitments for orders has helped us decrease some of the longer lead times that have been a challenge lately, says Robert Felder, founder of Bearbottom Clothing.
Robert and his team found success in working with suppliers to get fabric ready, so they can make quick decisions when they are ready to place new orders.
“Implementing and improving these best practices has helped save cost while supporting the growth of our manufacturing partners at the same time,” he says “This approach benefits us both, fostering a mutually beneficial relationship.”
3. Tackle excessive return rates
High acquisition costs have reduced the lifetime value of each customer, but they’re not the main reason. Returns are to blame. Ecommerce customers return between 4% and 10% of purchases, depending on the category, which has a direct impact on retailers’ bottom lines.
As well as happier customers, fewer returns lead to less pollution, less strain on the supply chain, and better inventory management.
Here are some ways you can minimize the number of returns:
- Detailed product descriptions: Set customer expectations from the start by providing clear and accurate descriptions of products. Provide a clear list of measurements, specifications, and features.
- Customer reviews: Reassure shoppers with social proof from past buyers. Include testimonials and photos of happy customers using the item.
- Bring products to life: Include demonstration videos, 360-degree photos, and even augmented reality visuals to provide total product transparency.
- Charge a return fee: Zara’s UK branch deducts a small fee from mailed returns, but it still allows customers to return products for free in-store.
4. Digitize supply chains
Supply chains call for quick responses—something that’s tricky to do manually. Shopify research revealed one-third of brands plan to digitize manual processes within their global supply chains.
What does that look like in action?
- Using scanning apps to automatically move products from one stage of the supply chain to the next and keep track of all inventory.
- Using inventory and supply chain management software to automatically order new stock and monitor stock levels.
- Relying on machine learning or artificial intelligence (AI)-based solutions to handle load pooling, dynamic rerouting, and other issues.
- Using technology to gain visibility and greater insight into the deeper tiers of the supply network.
Manage inventory from one back office
Shopify POS comes with tools to help you manage warehouse and store inventory in one place. Forecast demand, set low stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.
Future supply chain issues: Where will the effects be felt in 2023 and beyond?
It’s safe to assume the current supply chain disruption will continue. Disruption in raw materials like the industrial metal supply affects multiple industries, including automotive, construction, and medical.
Inflation rates may reduce consumer spending. This will impact the demand for imported goods and slow sales of high-ticket inventory. For retailers, it’s a time for change, even if it’s just to keep up with consumer expectations.
The SAP survey revealed the majority of brands plan to strengthen their global supply chains by adopting new technology, implementing contingency measures, holding more inventory, and diversify product sources.
Supply chain issues FAQ
How did the supply chain issues start?
How bad are the current supply chain shortages?
Why are some products easier to find than others?
What impact does the Russia-Ukraine war have on global supply chains?
How and when will the supply chain issues end?
- Diversify your supplier base
- Invest in technology to more effectively track and manage your supply chains
- Build up inventory levels to weather unexpected disruptions
- Reduce returns made to your shop