Though the pandemic has officially ended, its ripple effects continue to disrupt global supply chains, keeping retailers on edge. Many in the industry had hoped for a return to pre-pandemic norms, but the reality is far more complex. While there have been positive developments—such as the clearance of backlogged inventories and the resumption of factory operations—retailers are still grappling with a host of supply chain challenges that threaten their profitability and overall stability.
A recent PwC survey underscores the gravity of the situation: 34% of U.S. business leaders view supply chain disruptions as a significant threat to their organizations, and 70% are prioritizing efforts to bolster supply chain resilience. The issues facing retail supply chains are vast, rooted in global challenges that are often beyond the control of individual companies. To secure their businesses’ futures, retailers must adopt proactive, innovative strategies to address these problems head-on.
Top Challenges Impacting Retail Supply Chains
Before retailers can devise solutions, it’s crucial to grasp the scope of the hurdles they face. Here are the biggest challenges currently plaguing supply chains:
- Labor Shortages
One of the most pressing issues today is the lack of qualified workers across the supply chain, from manufacturing to shipping. According to MHI, 57% of supply chain executives in 2023 ranked hiring and retaining skilled labor as their top challenge. Human labor powers nearly every stage of the production cycle, and without sufficient workforce support, supply chains risk grinding to a halt. Automation offers some respite, but there’s still a significant gap when it comes to skilled labor. - Climate Change and Extreme Weather
Global warming’s impact on supply chain efficiency is undeniable. In 2022, heat waves and droughts forced many Chinese factories to close, significantly disrupting the production of goods. More recently, the Panama Canal, one of the world’s most critical trade routes, experienced severe shipping restrictions due to drought-induced low water levels, reducing the number of ships passing through by 36%. The World Economic Forum found that 66% of experts consider extreme weather to be the top global risk, and these events are becoming more frequent and unpredictable, wreaking havoc on supply chains. - Rising Operational Costs
Inflation continues to inflate supply chain costs. In 2023, labor costs in supply chain operations—whether staffing factories or paying workers—rose by an average of 5.2%, and this upward trend is projected to continue. Rising fuel costs, transportation expenses, and material prices are also contributing to the challenge. These mounting operational costs pressure retailers to absorb the expenses or pass them on to consumers, neither of which is an ideal solution. - Lack of Supply Chain Visibility
In today’s data-driven world, real-time visibility into supply chain operations is paramount. Yet, according to an IDC Global Retail Survey, 45% of companies cited a lack of transparency in inventory availability as a critical challenge. Without clear visibility, companies are left in the dark, unable to make informed decisions about inventory levels, distribution, and production. This lack of insight can cause delays and reduce a retailer’s ability to respond quickly to disruptions, putting the entire supply chain at risk.
Building Resilient Supply Chains: Solutions to Consider
While these challenges are far-reaching and complex, retailers are not without options. By employing forward-thinking strategies, businesses can strengthen their supply chains and reduce the impact of disruptions. Below are four key approaches that can help bolster supply chain resilience:
- Supplier Diversification and “Friendshoring”
The pandemic underscored the dangers of over-reliance on a narrow group of suppliers. To mitigate these risks, many retailers are diversifying their supplier base. “Friendshoring” has emerged as a popular strategy, in which companies move their sourcing to countries that share their values and are geopolitically stable. By spreading risk across multiple suppliers and regions, retailers can reduce their vulnerability to disruptions in any one part of the world. - Reshoring and Nearshoring Production
Some companies are bringing manufacturing closer to home by reshoring or nearshoring operations. By moving production back to domestic or nearby locations, retailers can reduce lead times, lower transportation costs, and have greater control over their supply chains. This approach also allows companies to be more responsive to market changes and consumer demand, all while minimizing their exposure to international disruptions. - Investing in Talent Recruitment and Development
With labor shortages being a significant obstacle, attracting and retaining a skilled workforce is crucial. Companies that focus on enhancing their talent pipelines by investing in training, offering competitive wages, and improving working conditions are more likely to build stable, efficient supply chains. In the long run, this investment in human capital can reduce the risk of bottlenecks caused by understaffing and help meet the growing demand for skilled labor. - Leveraging AI and Supply Chain Technologies
Technology holds the key to unlocking greater supply chain efficiency. Artificial intelligence (AI) and machine learning, in particular, are becoming game-changers for retailers looking to improve visibility, forecast demand, and streamline operations. Gartner reports that half of supply chain executives plan to implement generative AI this year, with 14% already in the process of doing so. These technologies allow companies to quickly identify potential disruptions, optimize inventory management, and make real-time adjustments to their supply chains. AI can also automate routine tasks, reducing operational costs and freeing up human workers for more complex roles.
Proactivity is the Path to Success
Retail supply chains remain under significant strain, but there are ways to mitigate risk and build resilience. By diversifying suppliers, reshoring production, focusing on talent recruitment, and leveraging AI technologies, retailers can better navigate the complexities of a globalized world. As we move forward in a post-pandemic landscape, proactive strategies will be the key to staying ahead of disruptions and ensuring long-term success.
With smart planning and innovative approaches, retailers can not only keep their shelves stocked but also turn supply chain challenges into opportunities for growth and competitive advantage
