How to Manage Unpredictability in the Supply Chain

1. Supply Chain Disruptions

In recent years, many businesses were severely affected by global supply chain issues, resulting in longer, often unpredictable lead times for receiving inventory. The professionals interviewed said that this added complexity has led to two key challenges:

Inventory Risks

The Problem

Today’s shippers sometimes wait two to three times longer to receive products than they did a few years ago, making long-term planning and strategizing difficult.^[2] One interviewee said their company’s once-normal lead time of 10 days for a certain product has increased to a whopping five weeks.

To handle such extended lead times, many of the retailers interviewed said they often retain inventory for longer than initially planned, resulting in higher inventory holding costs.

The Solution

To better address these challenges and create more streamlined inventory processes, many of the managers interviewed said that their businesses are ordering products much earlier in advance of expected sales to offset potential delays.

Local sourcing has also become more popular, as supply chain managers seek to minimize delivery distance and time. The interviewees emphasized that working with partners nearby can help ensure inventory comes in quickly, with fewer potential hiccups during transport.

Local sourcing practices may even help draw in new customers and improve overall brand perception, as 65% of consumers say they support small or local businesses whenever possible.^[3]

“Our inventory holding costs have gone up about 25%. But it’s what we’ve had to do to ensure adequate supply, and there have been several times where we would have run out of product otherwise. It’s almost like insurance.”

— CEO at a pet food supply company

Regional and Last-Mile Uncertainty

The Problem

Very few of the supply chain professionals interviewed said they were motivated to use regional or last-mile providers, since they found little to no benefit in doing so.

These carriers typically do not serve many ZIP Code™ areas, so unless there’s enough shipment volume to justify the contract, supply chain managers don’t have much incentive to work with them. The interviewees also said that most regional providers do not offer competitive pricing.

The limitations of local carriers’ reach cause many of the retailers interviewed to feel “stuck” with the large carriers they currently work with—reluctantly accepting their higher costs in order to serve more customers.

The Solution

Although costs are usually higher when working with national carriers, some of those interviewed said they still look to save money by engaging regional carriers for the last mile only.

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2. Higher Costs

The shippers interviewed also emphasized that global supply chain issues have resulted in higher costs for their business. More specifically, shippers are facing two main financial challenges:

Shipping Costs vs. Reliability

The Problem

In the past few years, ocean shipping rates have more than doubled, making it prohibitively expensive for some companies to transport products by sea.^[4] Yet despite the higher prices, inventory is delayed far more often than it was in the past. Additionally, some raw materials are in short supply, making planning ahead even more difficult.

The Solution

As shipping rates increase while delivery times remain uncertain, many businesses are simply retaining higher levels of inventory to reduce the risk of running out of stock, helping to ensure customers remain happy—meaning loyalty is not jeopardized and revenue can remain consistent.

Some brands are also seeking alternatives to raw materials that have now become harder to obtain; though this can often serve as a viable workaround, it can also necessitate higher spend.

“We’re building up our inventory because [we’re anticipating that] the supply chain won’t be anywhere near ‘back to normal’ until at least mid- to late 2023.”

— Shipping manager at a paper goods company

Shipping Surcharges and Risk Mitigation Costs

The Problem

Certain shipping surcharges, such as those implemented for fuel, residential shipping and extended area shipping, also contribute to the rising shipping costs. An interviewee said they feel at the mercy of FedEx and/or UPS—which they perceive to be an industry duopoly.

Surprise surcharges can also make it difficult for shipping managers to accurately plan an annual budget—and if they miss their target, they may run into issues with higher-level executives. New or bolstered risk mitigation strategies are also driving up costs, as shippers seek ways to protect their businesses from disruptions and uncertainties.

The Colography research showed that shippers who focus more on B2C tend to be more cost-conscious, as the specific surcharges applied (e.g., residential and fuel) make shipping to residential addresses more expensive than shipping to businesses.

The Solution

Many companies have been renegotiating their contracts with major carriers—often implementing contract changes that extend for several months at a time. Some shippers are also investigating potential risk mitigation specifically for the final leg of delivery by working with local carriers solely for the last mile. Since the start of the pandemic, 62% of businesses have undergone a significant transformation in their shipping operations.^[5]

In general, the shipping managers interviewed said that carriers should act with more transparency, accountability and consistency.

3. Customer Retention

As companies continue to be challenged by supply chain issues and rising costs, customer retention comes further into focus. Agreeing that keeping customers happy is ultimately the only way to stay afloat, the interviewees called out two main issues related to customer retention:

Shifting Customer Expectations

The Problem

Today’s customers expect free, speedy and easily trackable shipping. Many customers have grown accustomed to ordering items last minute, and following the delivery progress every step of the way through real-time updates.

To meet these demands, the shippers interviewed said they now must focus on finding ways to balance customer expectations with logistics costs.

The Solution

To help maintain a steady revenue stream, many interviewees said their business has increased its focus on customer satisfaction—making it priority number one to ensure they meet expectations.

Having customer service representatives on call via various channels, such as text, phone and online chat, can help keep customers happy, providing reassurance that a business is committed to providing help as quickly as possible.

To account for shipping costs, some brands slightly raise the cost of products—therefore allowing them to still advertise “free shipping,” an attractive perk for many consumers. Other brands offer free shipping only after a certain purchase amount has been met.

Companies are also recognizing the need to offer flexible shipping options and speedy, reliable deliveries. Providing customers with choices can help set a business apart from the competition and maintain customer loyalty.

After-Sales Support and Returns

The Problem

The interviewees emphasized the serious consequences that can come with late or damaged packages—including customers’ loss of trust in a brand and their subsequent switch to competitors.

Customers are also steering away from companies that don’t offer a frictionless, seamless return experience, with options that work for their needs. Nearly one-third of consumers say an easy return experience is the factor most likely to make them come back to a brand.^[6]

The Solution

If a customer reports an item has been damaged in transit or even stolen after delivery, some businesses may immediately send a replacement—without requiring them to show proof or return any damaged items. This can help retain trust and loyalty while boosting public brand perception.

While it’s true that businesses cannot be sure if a customer is lying in order to receive a free item, the cost usually outweighs the risk; in the age of social media, bad publicity can cost companies much more in the long run than the cost of an unmerited replacement product.

With customers now expecting the added assurance of easy, frictionless returns, many brands have revamped their returns experience entirely. For example, some businesses include a prepaid return sticker in all deliveries, so customers don’t need to worry about printing the label at home or spending money at a print shop.

Offering the tracking number and providing real-time shipping notifications can also help customers keep track of their returns, so they have a better idea of when they may receive their credit or refund.

“A lot of big brands offer frictionless returns, which means the public expects that now. I don’t want the returns process to be a deterrent [to customers considering buying from us].”

— Shipping manager at a custom merchandise company