The ongoing disruption to critical supply chains in both the manufacturing and retail space has seen businesses having to respond quickly, turning to data, analytics, and new technologies to better predict and manage ‘real-time’ business disruptions.
To find out more about how COVID-19 has impacted the manufacturing and retail industries Vijay Raja, Director of Industry & Solutions Marketing at Cloudera sat down for a round-table discussion with Michael Ger, Managing Director of Manufacturing and Automotive, and Brent Biddulph, Managing Director, Retail and Consumer Goods at Cloudera.
Hi Michael, Brent, Thank you so much for joining us for our round-table discussion on how the Covid-19 pandemic has impacted the Manufacturing and Retail sectors. To kick us off can you talk to some of the changes you’re both seeing from a supply chain perspective and what this means for both industries?
Due to COVID-19, retailers world-wide had their e-commerce capabilities put to the test with entire countries being in lockdown for weeks, even months, due to the pandemic.
Data and analytics
Much of the changes we’re seeing from retail and consumer goods leaders in terms of impact are centered around the use of data and analytics. What they have learned is that often their legacy Machine Learning models (e.g. demand forecasting) based solely on historical transaction data – really missed the mark. Without incorporating external ‘demand signals’ such as global demand impacts, their own critical business decisions such as replenishment and fulfillment based upon local pre-pandemic consumer behavior, no longer applied.
COVID-19 has had a lasting impact on global supply chain business processes due to the sustained nature and ‘borderless’ scope of the pandemic. Perhaps more importantly, the pandemic has radically changed consumer behavior (shopping) in ways we haven’t seen in decades.
For example, the historical data retailers were using simply did not account for things like panic buying. A good example is the panic buying of hand sanitizers, toilet paper, and OTC cold and flu products that we saw at the start of the pandemic.
Broader data sets
The pandemic has taught businesses that they can’t only rely on historical transaction data they’ve been using up to this point. That is no longer good enough. The need to start better leveraging external data, working with broader data sets inclusive of incremental ‘demand signals,’ is no longer a ‘nice to have’ in order to improve forecast accuracy and inventory optimization.
The whole idea of integrating external data and ‘real-time’ demand signals will drive significant change and innovation and response capabilities. COVID has shown how critical external and edge data is in terms of better predicting surges in consumer demand and enabling much better (and competitive differentiation) in responding to necessary shifts in inventory sourcing and logistics prioritization to minimize the impact of out-of-stocks (lost sales) and overstocks.
A critical call to action here is that retail and consumer goods companies must incorporate a broader set of ‘demand signals’ than what they may have at hand, including external data sets like weather, geopolitical implications, local event calendars, demand transfer, and healthcare data.
One of the things that the pandemic has forced the industry to revisit is supply chain networks and scenario planning. If businesses have significant increases or changes in demand, or a country is going to be crippled because the workforce isn’t able to function as a result of the disruption caused by the pandemic, they need to be able to analyze whether they’re overly at risk by having too much supply chain capacity focused in one part of the world versus another.
On the supply side in the manufacturing sector, we’ve seen recent research and analysis that indicates that 35.5% of companies said they will be facing supply chain disruption as a result of COVID, however, roughly two-thirds of that, or about 64.5%, said they’re not.
On the demand side of things, COVID was a hard event to foresee, in fact in order to do so, as Brent mentioned, you would have had to look outside of the four walls of the business. For example, when assessing potential consumer demand, companies need to start leveraging new data sources, for example, data from the Center For Disease Control (CDC), and begin looking more closely at global megatrends.
Companies are also shifting their technology investments. 48% of manufacturing companies surveyed recently said they’re moving toward greater IoT integration which will allow them to better respond to real-time data and feedback and monitor broader, external datasets that they hadn’t traditionally been using. There is also a huge investment drive in AI with around 45% of companies saying they’re stepping up investment in new AI technology. This is enabling another crucial part of the supply chain in automation and sensor-enabled real-time feedback from robots.
We’re seeing bigger investments in automation in the plant and material handling equipment, there is increasing investment in warehousing equipment too. This all ties back to supply chain network design to reduce the risk of location and demand disruption across diverse geographical locations and help build a more resilient supply chain. Being able to leverage ever broader datasets and increasing business reliance on automation are the key learnings that manufacturing companies are taking away from the COVID-19 pandemic.
You both talked about the type of disruptions we’re seeing across the supply chain, how has this relatively widespread disruption impacted business operations from a manufacturing and retailer perspective?
The industry as a whole has experienced a 3-5 year acceleration of digital transformation strategic plans – driven by a sudden and immediate surge of consumer demand and digital execution expectations. From e-commerce and direct-to-consumer all the way to fulfillment, we’re witnessing retail execution capabilities being put to the test in real-time.
From an industry standpoint, the impact essentially breaks down into two high-level sectors – General Merchandise & Apparel (GMA) and Food, Drug, Mass (FDM). The implications of COVID on the broader retail sector is generally a tale of 2 sectors, the ‘essentials’ vs the ‘non-essentials’.
GMA suffers, mostly dependent upon e-commerce business
First, the generally ‘non-essential’ General Merchandise & Apparel (GMA) sector – specifically, apparel, specialty, and department stores were impacted heavily, with their doors having been shut for two (or more) months. Consumers were not able to walk into physical locations in most countries. This means that they have been 100% dependent on e-commerce channels. Fortunately, their e-commerce and fulfillment capabilities have been solid compared to other sectors, primarily due to early competitive threats from Amazon and other pure-play digital retailers.
So with their brick-and-mortar doors closed, customers were restricted to buying a company’s products only from their e-commerce platform, as a result, dormant brick-and-mortar locations rapidly became alternate fulfillment centers serving e-commerce orders to help offset fulfillment costs, keep some staff employed.
The drop in demand meant that GMA (not counting Home Improvement retailers, classified as ‘essential’) retailers now needed to move huge amounts of excess inventory. Faced with closed stores, drastically reduced sales and the need for massive markdowns on inventory created an immediate impact.
The real one-two punch of COVID-19 was the very seasonal nature of this retail sector. By March, most had also already bought, paid for, and were in process of shipping the next season (Summer) inventories out to stores (not to mention sunk promotion, advertising, and creative investments). This ultimately became a crushing blow to cash flow and we’ve quickly seen bankruptcy filings as early as June from some very well-known brands like JC Penney, Neiman Marcus, and J. Crew.
FDM comes out on top, but with its own unique challenges
From a Food, Drug, Mass (FDM) perspective the issues were much different because this sector was classified by governmental authorities as an ‘essential’ business early on, and as a result, many of these companies enjoyed record-setting sales revenues – and consumer demand – due to the closure of businesses offering dine-in eating, entertainment, bars and the collapse of pure-play e-com grocery players like Amazon’s Pantry with little inventory depth. Because consumers were locked down, people were now cooking from home – completely reversing a trend of over a decade ago.
Grocer e-commerce capabilities were simply not prepared for the tremendous surge in e-commerce orders. They went from online orders making up 5% of their business to 20% almost instantly and they did not have enough windows, or staff to meet the demand for online grocery shopping, and this impacted fulfillment capabilities significantly.
For a retail sector that has traditionally been laggard in e-commerce capabilities, leaders like Walmart, Target, Kroger, Ocado, and Tesco whom have been investing heavily to improve capabilities in website search, BOPIS (Buy Online, Pickup In-Store), and delivery options – these investments were instantly recognized by consumer demand in the era of a pandemic with 300%+ ecommerce growth and a significant (and lasting) change in consumer grocery shopping habits. COVID has essentially justified (and demanded) that grocers get sharper and move faster on e-commerce capabilities globally.
There’s little doubt that COVID has accelerated the trajectory of those who had already embraced digital transformation, companies like Walmart, Target, Kroger, Tesco, Ocado, Best Buy, Lowes have done well because they generally recognized data as an asset, and have been investing in people, processes and technology in order to turn that data into capital.
It all comes down to building a more resilient supply chain network, automation, broader, and more real-time market surveillance. Businesses need to be analyzing what is happening geopolitically all around the world and be looking at what the CDC is saying and the data they are publishing.
Most manufacturers are pretty good and they have generally done well, they have very tightly integrated supply chains in terms of advanced shipment notices and forecasts, and traditional sources of data and analysis.
I think where they haven’t done as well and where they have potentially been caught off guard is in scenario planning in terms of being able to rely on production in China.
All companies are trying to diversify somewhat, it’s not that they hadn’t been considering it before, but this pandemic is a call to action to be more diligent in this area. This was a once-in-a-lifetime type of disruption and companies are now looking at what will best help reduce risk to their supply chains in the future.
To get more of Michael and Brent’s insights into how COVID related disruption is shaping the future of manufacturing and retail, keep an eye out for Part II of our in-depth round table interview where they’ll be talking about how companies can leverage big data and analytics and how businesses can stabilize supply chain disruption.