Supply Chain Challenges during the Retail Recession

Supply Chain Challenges

Last summer we were having dinner with some friends. One of the people at the table worked for DineEquity, the parent company of Applebee’s. He proceeded to tell us about the current initiative to redo the cooking equipment in all Applebee restaurants with wood-fired grills. They were going to introduce wood fired steak, chicken, pork chops, etc.

At the time I told him I thought it was a terrible idea because that would not draw me into an Applebee’s. If I wanted a mid-level steak I would go to a restaurant specializing in that type of food such as a Texas Roadhouse or Longhorn.

I am not a restaurant predicting savant but my prediction turned out to be correct. The addition of wood-fire grilling to the menu was an absolute $75 million dollar disaster. Applebee’s posted its fourth straight same-store sales decline in the period, down 4.2 percent.

Operational Inefficiency

Applebee’s is just one example of many in the declining restaurant business. The cracks in the retail economy started to show several years ago in the restaurant industry. In 2011 alone, Quiznos closed 334 locations, Starbucks closed 310 shops, KFC closed 275 restaurants, Arbys closed 86 restaurants, Sbarro closed 70 units, and Burger King closed 33 restaurants. In 2016 restaurant chains posted some of their weakest results since the recession as sales and foot traffic continued to decline. Those filing for bankruptcy protection included Logan’s Roadhouse, a Nashville-based casual steakhouse chain; Last Call Guarantor, which has Champps and Bailey’s Sports Grille; and Garden Fresh Restaurant, the San Diego-based parent of the Souplantation and Sweet Tomatoes buffet chains.

In the last few years, the retail recession has spread to industries outside of restaurants. Continued declining sales is forcing many retailers to close locations as well. Business Insider listed 6400 closures in a September 2017 report .

Macy’s said in a press release that it plans to close 100 stores and concentrate on better performing locations. Macy’s had already announced it was closing at least 90 stores. Office Depot closed 168 stores in 2014, 181 in 2015, 400 in 2016 and plans to close another 50 this year. Walgreens is closing 200 stores, Sears and Kmart closed 142 stores, Sports Authority Filed Chapter 11 bankruptcy and Hancock Fabrics filed Chapter 11 bankruptcy after 59 years in business.

Retailers today are faced with unprecedented supply chain challenges – retail formats are rapidly evolving from the traditional brick and mortar stores to on-line, rapidly-changing technology, an abundance of choices and a tough economic environment.

Arguably one of the most pressing supply chain challenges facing retailers is Operational Inefficiency -lack of communication, collaboration and consistency across organizations are hampered by silos of information and lack of visibility across key supply chain functions. Dependency on manual and cumbersome processes holds companies back and operations running on spreadsheets are not scalable. According to a 2013 Supply Chain Benchmark study from Boston Retail Partners:

“46 percent of North American Retailers use static spreadsheets to manage their supply chain planning.”

Key Supply Chain Strategies

The retail environment is expected to be tough for the foreseeable future so meeting the challenge of operational inefficiency is crucial for survival. There are several key strategies to meeting this challenge:

Streamline Operations

In order to respond quickly to increasingly unpredictable consumer demands and rapidly changing complex retail markets, retailers must build a fluid collaborative supply chain. Building a more efficient supply chain involves optimizing resources, accelerating product cycle times, reducing inventory and enabling greater communication and collaboration with vendors. Retail supply chain process improvements supported by best-in-class technology allow you to enable true end-to-end supply chain collaboration.

Manage Supply Flows

Supply chains have become highly complex in recent years making proper management of supply flows through network management more critical than ever. Running a static Network Design model every two years is no longer sufficient and running it without expert guidance is risky business.

Accurately Forecast Demand

As margins continue to be squeezed, accurate forecasting is critical to ensure the right products are available at the correct time and in the correct quantities. A monthly Sales and Operations Planning Process is no longer a nice to have it is must have to survive and Integrated Business Planning Process with suppliers and vendors are just as critical for everyone’s survival.

Optimize Supply Chain Costs

Control over the supply chain is critical for competitive performance in the retail sector. What parts of your supply chain give you a competitive advantage? Focus your efforts on optimizing those parts first then work on the other standard processes. If you are not sure or have just made major structural changes to your business then do a Business Optimization Assessment to analyze your supply chain and identify options that will drive improvement in key areas such as total supply chain cost, supply chain agility, customer service and other strategic business initiatives.

As the retail environment continues to evolve, those who refuse to change will most certainly be left in the ruins of the past.

About Deanna Wenstrup

Deanna has 28 years of experience in production scheduling and planning, linear program and expert systems design, development, implementation, and interfacing to external databases.

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