Retail Inventory Glut Is About To Get Ugly

The retail industry kicked off the crucial fourth quarter of 2022 weighed down by the same jnventory imbalance that greeted it in the first quarter, with the added prospects of subdued holiday sales and an anemic first half of 2023. The latest casualty of note is Nike, considered among the best-managed brands in the apparel category. Nike gear had been hard to find at the start of 2021 as new merchandise was anchored in containers offshore. Big box retailers like Walmart and Target have been speaking about bloated inventories since the second quarter, when they reported increases of 32% and 43%, respectively. More broadly, the Census Bureau's index of retail inventories to sales ratio had hit a three-year high in July, since just before the pandemic shutdown began. This problem is sometimes described as the "bullwhip effect," a magnified ripple of demand that travels up the supply chain.

Source: Petro (2022)

Question 1

Question 1 .1 Consider the problems described above. Argue whether or systems thinking and a systemwide view could have alleviated the inventory problems faced by retailers.

Question 1.2 As a supply chain specialist, what strategies would you recommend to the major retailers to manage the bullwhip effect? Explain how these can be implemented

Question 2

Companies are stockpiling inventory to withstand shocks.

This comes at a cost A successful supply chain does not make the news. By nature, supply chains should be invisible to the consumer, except perhaps briefly in supermarkets as stock is unloaded from crates onto near-empty shelves.

Near-empty, rather than empty, is important to note because efficient supply chains are designed for goods to arrive just in time. This "just-in-time" system of inventory management is characteristic of what is known as a lean supply chain. Lean supply chains are efficient, cost-effective and have traditionally worked well when circumstances were predictable and reliable.

The last two years have not been predictable or reliable. Instead, "supply chain disruption" is a now-familiar phrase. The COVID-19 pandemic upset supply as manufacturers and logistics operators struggled with labour shortages and lockdowns.

That was compounded by the unprecedented surge in demand as consumers, locked in and working from home, transferred their spending from services to goods. This contributed to surging shipping prices, backed-up ports and companies scrambling for warehousing space to store extra inventory.

But even before COVID-19, supply chains were adjusting to accommodate the changes e-commerce demanded. In place of lean supply chains, "agile" supply chains with their higher inventory holdings located closer to the customer were increasingly being used to meet the demand for two-day, same-day and two-hour deliveries.

While this agility helps withstand shocks, it also comes at a cost. Single-item fulfilment makes economies of scale and consolidation difficult to achieve and results in partially full vehicles often delivering along congested or inefficient routes. The extra packaging required for single-item versus bulk delivery is also evident to anyone who has ever ordered online. Multiple attempted deliveries and a high level of customer returns compound these challenges.

Source: Foster (2022)

Question 2.1 Use a diagram to discuss why lean is suitable under conditions of predictable demand?

Question 2.2 Analyse the agile approach outlined in the case study. How is this more inefficient in terms of delivery? Appraise the suitability of this approach given the nature of demand.

Question 3 Provide an opinion on whether the agile approach lends itself to higher service levels in the face of a growth in servitisation.