Supply Chain Challenges in the Retail Industry

Posted on February 27, 2024
Supply Chain Challenges in the Retail Industry

Retailers keep tens of thousands of different items on their store shelves to fulfill diverse customer demands. Yet, customers still demand products that are tailored to their unique tastes and preferences. To improve customer satisfaction even further, retailers offer a larger variety of products online, making it possible to see millions of different items offered to customers online. This increases the complexity of supply chains in the retail industry. On the supply side, procurement teams must work with many suppliers to make products available for customers. On the demand side, customers’ demands must be fulfilled either in store or by quick delivery for online orders. Matching supply with demand is very challenging in such a dynamic and complex environment. 


Cost of Supply-Demand Mismatches 

In the retail industry, the failure to match supply with demand causes colossal costs of supply-demand mismatches. According to an IHL study, the mismatches in the retail industry are estimated to cost $1.7 trillion (about $5,200 per person in the US) worldwide in 2023, which is more than the annual GDP of Australia in 2022 (the thirteenth largest economy in the world). 


The Complexity of Supply Chain Management in the Retail Industry 

Retail supply chains involve several partners with activities from procurement to fulfillment. Retailers often develop omni-channel strategies such that online orders can be fulfilled from local stores or directly from regional fulfillment centers, which adds up to the complexity of supply chains. Senior executives often fail to manage such complexities due to their narrowed focus on operational activities. 

The main perspective in the industry is to position supply chain management as the practice of having the right product at the right time to the right place to fulfill customer demand without keeping too much inventory. This perspective lacks the coordinating mechanism of supply chains. We cannot separate supply chain management from information technology and cash management. A better description of supply chain management would be the practice of coordinating operational, information, and capital flow between supply chain partners to maximize total profit. 


Supply Chain Interfaces  

It is very difficult to understand and improve supply chains without considering the interfaces between supply chain management, information technology, finance, and marketing. For example, luxury retailers concentrate more on the interfaces of supply chain management, information technology, and marketing.  

Some brands formed the Aura blockchain consortium to improve supply chain visibility and circularity efforts. The coffeehouse chain Starbucks focuses on the interface between supply chain management and finance. According to an analysis by the Wall Street Journal, Starbucks had $3 billion (about $9 per person in the US) in its app uploaded by their customers. The result is several companies having more deposits than many banks in the US. For that reason, supply chain activities are aligned with the objective of having more cash in the app to generate non-operational profit. 


Supply Chain Leaders of Tomorrow  

Supply chain leaders must be transformational, so their teams can improve the digital and physical aspects of supply chains. Additionally, supply chains should be better aligned with the business models and wider business objectives.  

Schulich ExecEd’s Masters Certificate in Supply Chain Management understands this reality. With a unique curriculum designed by renowned supply chain experts, the program gives leaders a better understanding of the interactions between supply chains and other business units such as information technology, finance, and marketing. The focus of this specialized Masters Certificate is to create effective transformational leaders and to open the doors to career opportunities for participants.   

To learn more about the Masters Certificate in Supply Chain Management program, visit the program page or speak to a program and career advisor today. 

Written By

Isik Bicer

Isik Bicer, Ph.D., is an Associate Professor of Operations Management and Information Systems at the Schulich School of Business, York University. His current research focuses on analyzing the impact of operational factors on financial parameters (e.g., stock price, capital structure, and return on assets) and designing operational strategies to ensure high customer-fulfillment rates in economically feasible ways.

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