Over the longer term, retailers need to identify better ways of working and build resiliency for the next crisis, to be able to mitigate risks to the extent possible and gain the time and flexibility to respond to challenges without falling into a panic. Such activities include:
1. Change and challenge your midterm forecasting
Many retailers base their business plan on achieving incremental growth from the prior year and then working backward from the targets. That planning mechanism has been dramatically disrupted, and rethinking what you’re going to sell 6 to 12 months from now – something that’s nearly impossible to do at this point - has large implications on supply chains.
On the demand side, new mechanisms are required to either create or pressure-test your forecasting methodology and reorient it to be outside-in, combining macro factor with very granular household or ZIP-code-level financial and consumption data, perhaps from your loyalty program. Planning will require adjustments to accommodate a richer mix of omnichannel fulfillment, promotions and seasonal merchandise.
On the supply side, you need superior visibility and control along your value chain. COVID-19 has been unique in that it’s impacted both consumption and production. You can’t take for granted that your vendors have the capacity even if you’re able to meet the demand in the stores. The more control you have over your end-to-end supply chain, the easier it is to see whether you will have production disruption before it happens. Supplier diversification — in Asia, Africa or South America, depending on the industry — is also worth exploring.
2. Perform a strategic review of your supply base
Understand where you can squeeze out additional value. Are there vendors you can negotiate with? Some vendors will cut you off because they can afford to, while others don’t want any of their customers to go under. Additionally, focus on goods not for resale and be ruthless about taking a zero-based budgeting approach to those costs.