Preventing Supply Chain Disruptions Amid the Coronavirus Outbreak

Impacts on supply chain due to the Covid-19 coronavirus are happening quickly.  Depending on your business, it is safe to assume that there will be 10-30% (or more) of incoming merchandise impacted by supply disruptions or delays.  In addition, due to the diverse impact of Covid-19 by US geography, demand patterns are being disrupted as well.  Smart, proactive planning is critical at this time.

Many retailers are planning to rush the incoming merchandise to stores as soon as it arrives at the Port or DC.  We believe this is a mistake in most cases and especially problematic for retailers without ship from store capability for Ecommerce support.  Instead, consider lowering the initial store allocations.  Our experience shows this will ultimately maximize sales and margin available from the slowed supply chain. It is counter intuitive!  By increasing the DC inventory levels it will be possible to simply replenish stores that are actually selling the merchandise.  Smaller, more frequent replenishment of the stores will reflect actual demand and ensure that the extra holdback inventory is allocated to the “best” selling stores or channel for a specific SKU.  The advantage is that those stores selling the items will be the ones resupplied.  There will be less trapped inventory in stores/channels that have lower sales rates for the specific item and likely less markdowns later in the season.  The inventory not allocated initially will be quickly sent to the “best” stores or channel for this SKU.  This extra holdback will likely ship within a few weeks of arrival at the DC.  It is our experience that the sales and margin lines should only be positively impacted versus deploying inventory to stores that are experiencing the largest adverse comps due to local outbreaks.  This increases the supply chain expense slightly but it is minor compared to the potential margin gains.  This approach will only slightly lower overall store / channel inventory levels but will get the merchandise to the stores most likely to sell at the highest margin.

We are conducting workshops on this topic for client teams.  For more information contact our supply chain leader, Fred Hajjar at fhajjar@mdretail.com