Coronavirus-hit grocers struggle with supply chain modelling

The Coronavirus crisis has hit many industries hard, but those grocers expected to keep the nation fed and watered have been criticised in recent weeks for not being able to handle the surge in demand.

The self-isolation advice and eventual lockdown across the UK has led people to stockpile certain key items, putting a serious strain on ‘just in time’ replenishment models not prepared for such spikes in sales – especially while dealing with staff shortages that cut available manpower by as much as a quarter.

So what can these retailers do to adjust their supply chains to make sure the right amount of produce is on shelves during these unprecedented times?

Retail Systems spoke to a range of experts to find out how technology can help keep the populace from going without loo roll, pain killers and booze.

Oliver Guy, senior director for industry solutions at Software AG, explained that they work with a number of large UK grocers and healthcare companies to connect their systems with suppliers and ensure business continuity.

“There is a perception that much of what we’re seeing in UK supermarkets is a result of panic buying – while this may be part of this issue, we must remember that up until a few weeks ago, a typical family sourced its meals from a combination of outlets,” he pointed out. “With the closure of restaurants, offices and schools, the majority of meals must now be sourced from the supermarkets alone, placing a newfound responsibility on them.”

Issues also relate to a supply chain phenomenon known as ‘the bullwhip effect’, where demand signals are distorted as they travel up the supply chain, meaning the lag between increased demand at the supermarket and the supplier being alerted is longer than many might like.

“Improvement could be aided by providing suppliers with increased visibility over the retailer’s sales and shelf inventory data in order to give a better view of forward demand,” said Guy.

“Elsewhere, analytics can help retailers to forecast demand and calculate the appropriate replenishment quantities,” he continued, adding that it is critical that the inventory and sales data retailers use for this is both accurate and timely. “This is the case under normal circumstances, but becomes even more relevant under current conditions.”

Sucharita Kodali, a retail analyst at Forrester, said that the challenge with data and analytics is that it works really well when you have lots of datapoints to model, but when there’s a one-time shock to the system with completely unique characteristics that an algorithm has never seen before, the ability to predict the future gets much weaker.

“To some degree you can look at trends in China or Italy, but those markets are different to begin with, so it likely isn’t easy to extrapolate,” she stated.

“Traditional planning based on what facts you know right now about sell throughs and demand is what is driving replenishment at the moment – I’d like to see more science around pricing, but there is so much sensitivity around price gouging that there is little ability to test elasticity right now.”

Kodali noted that out that despite disappointing customers with empty shelves at times, the fact that items are regularly selling out means the grocery sector is doing really well – backed up by Nielsen data showing sales in the UK for the week to 14 March increased by 22 per cent compared to the same period in 2019.

Helen Dickinson, chief executive of the British Retail Consortium, said its members are working hard to ensure consumers have access to the products they need.

“Even where there are challenges, retailers are well-versed in providing effective measures to keep retail sites running smoothly, and they are working with suppliers to increase the supply of goods,” she stated. “Retailers are currently facing a rise in demand for certain products unprecedented outside of the Christmas period, however, this is largely been limited to hygiene and longer shelf-life food products.”

A spokesperson from Zebra Technologies said that demand for via ‘buy online, pick up in store’ (BOPIS), as well as curbside and home delivery channels that aid with social distancing, has risen sharply.

“There are several ways to successfully navigate this new challenge, but they all start with the same first step: identifying and understanding true demand and the ability to sense demand as close to real time as possible,” they said.

True demand is now based on date, time and geolocation, which is the location to which the demand should be attributed rather than consumed. The rise of BOPIS, ship to store, direct home shipping from warehouses and even drop shipping from manufacturers has forced both bricks and mortar and e-commerce retailers to assess inventory availability, fulfilment trends and consumption patterns in an entirely new way.

“This is where prescriptive analytics has a key role to play,” said the Zebra spokesperson. “Actionability is crucial in supply chain situations like this - don’t forget that demand planning is just that - it does not give retailers or their fulfilment partners directives on what to do in the moment to adjust demand.”

Tom Charlton, UK operations director at supply chain systems provider RELEX, said that the crisis hit retailers with little or no warning, which has led to them needing to take unprecedented steps to mitigate the stress it has put on supply chains.

“Forecasting models need to be reset to work far more reactively, if they can be used at all, and in many cases human intervention is needed,” he explained. “Stock delivered into depots is not enough to cover demand, so highly intelligent methods of allocating that scarce stock to the hungriest mouth is essential, as old and outdated ‘first come first served’ pick routines simply don’t work.”

RELEX has opened it algorithms and models for those with the skills to work with them, meaning that analysts are able to manipulate the brain of the system when unprecedented situations occur and manually control if needed for quick and decisive actions.

“Retailers can see the capacity constraints on the network in moving the products to the shelves and are making tough decisions on what products or product groups to de-prioritise in order to meet the demand for the most critical,” said Charlton.

“Sales figures are constantly evolving as shopper behaviour transitions from initial panic-buying to levelling back out into ongoing pantry loading - because of this unpredictability, retailers need near-real time visibility into demand changes relative to their predictions to they can react and adjust quickly.

Alex Mills, sales and marketing director at warehouse management solution provider ProSKU, admitted that supply chains are under tremendous pressure.

“Demand should level off once the recent overbuying seen in supermarkets has worked its way through the system,” he suggested. “Greater collaboration between stakeholders - including using capacity currently not needed in the food service and hospitality sectors - is designed to ensure deliveries of food and other essentials to retailers are maintained.”

Looking ahead, Mills said it is possible that a requirement might emerge for temporary or ‘pop-up’ warehouses to meet significant spikes in demand or to support new short-term supply chains.

Supply chain and logistics consultancy SCALA has announced the start of a COVID-19 supply chain emergency working group, bringing together companies supplying the grocery retail sector to ensure that the industry can keep up with demand.

The working group has already had commitments from over 20 of the UK’s leading grocery manufacturers and will initially bring together many of the UK’s foremost manufacturers and suppliers of food, drink and other consumer essentials, to expand rapidly and link with retailers, food service and logistics companies.

John Perry, managing director at SCALA, said: “The UK is relying on the supply chain industry arguably more than ever before, and no-one should underestimate the efforts that will be required from drivers, key warehouse staff, planners and management teams over the coming weeks.”

Will Broome, founder and chief executive of Ubamarket, commented: “I am very interested to see how supermarkets across the country will be able to come together, collaborate and share their market insights and resources for the greater good, now that competition regulations have been relaxed.”

With the help of retail tech, supermarkets can access far more in-depth and accurate consumer data, helping them to assess behaviour, manage stock more efficiently, whilst being able to effectively communicate directly to the consumer base. “By effectively using retail technology, retailers will be able to better prepare and deal with unpredictable consumer behaviour and spikes in demand, preventing such a drastic loss of stock which we see today,” added Broome.

As for the supermarket chains, little detail has been given in recent weeks on what changes have been made to meet demand and ensure supply - with announcements concentrating on measures to support staff, cater for vulnerable, elderly an NHS staff; and maintain social distancing.

Sainsbury’s stated it would work collaboratively with suppliers to support them with vital cash flow where needed. “The move will help businesses to increase production volumes quickly so they can meet customer demand – support will also be available to suppliers who find themselves in distress as result of the ongoing uncertainty.”

Asda also confirmed it would pay small suppliers immediately to help them keep their business operating and is to provide a ‘rent free’ quarter to around 250 small business tenants in its stores who are

Tesco statements noted that in product areas where demand is particularly high, the company has simplified ranges to get more of the most popular products on shelves.

Morrisons moved to immediate payments for its smaller suppliers and temporarily re-classified a smaller supplier from those with £100,000 of business-a-year with the company to those with £1 million of business – meaning that an extra 1,000 small food businesses will qualify for the new payment terms.

Environment secretary George Eustice said: “We already have a highly-resilient food supply chain in this country and I am continuing to work closely with Morrisons and other retailers on their response to Coronavirus.

“The government has pledged £30 billion in this year’s Budget for those affected and we’ve been clear that we will do whatever it takes to support people and businesses.”

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