Supply chain disruption remains for retailers in 2022, but contracts can help

Retailers have been through the wringer over the last two years with one shoe dropping after another. Massive breakdowns in supply chains are affecting businesses everywhere, ranging from container shortages to inaccurate demand predictions to unfilled orders.

In India, 73 percent of organisations had difficulties in demand planning due to lack of data on fluctuating demand, a Capgemini study showed. As retailers head to navigate the new year, an obvious prediction for the retail industry would be to “expect the unexpected.”

However, based on trends over the last couple of years, and with the help of modern technology, certain developments will come to pass in 2022.

The race to find new suppliers and products in 2022 will challenge retailers and potentially increase risk.

Right now, there’s immense pressure to find products and many retailers are not taking into consideration the risks inherent in working with new suppliers. More pressing on their minds is whether they can procure goods consistently and at an acceptable cost (price), coupled with the fear of stock shortages and empty shelves.

The disruptions have forced retailers to engage across multiple fronts, such as competing with rivals to manage volatility and ensure products are available to meet consumer demand.

The competition with rivals may even encourage shortcuts to close deals. The due diligence that retailers typically perform when arranging deals with a new supplier will get cut short or skipped altogether.

In India, a report by Capgemini Research Institute indicated that over 65 percent of organisations plan to segment supply chains according to demand patterns, product value and regional dimensions post pandemic and more than 50 percent plan to rely on analytics and AI-machine learning for demand forecasting going forward.

In 2022, expect instances where retailers won’t even create contracts because of the rush to close deals quickly and ensure inventory on their shelves. Skipping this step opens them up to a great deal of risk.

Beyond the obvious financial risk and potential for inferior quality goods on shelves, other potential issues may include managing vendor relationships with unreliable suppliers or ensuring that suppliers perform ethical sourcing and supplier diversity.

While contracting new suppliers (and sometimes unvetted), retailers are forced to choose between compliance and efficiency. The blowback from these outcomes could adversely impact the retailer’s brand long term.

These risks are why, even in times of uncertainty like the present (and maybe especially in times of uncertainty), contracts are critical – they ensure retailers protect their brands.

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Product shortages and price increases in 2022 will escalate the decline in consumer loyalty.

Accenture’s 16th annual “Life Reimagined” survey stated that 71 percent of those surveyed in India are coming out of the pandemic having reimagined their behaviours and values as consumers. They have re-evaluated what is important to them in life and are increasingly focused on their personal purpose.

An additional 22 percent of consumers in India seem to have evolving values and purchasing mindsets while the unprecedented experience of the pandemic has had no impact on the buyer values of only 7 percent of consumer respondents.

Clearly, consumer loyalty has already declined throughout the pandemic, in part, because brands don’t align with their values, but also because limited product availability impacted by ongoing supply chain challenges has shifted the way consumers shop – consumers are becoming more open to buying new brands.

People can’t be brand loyal when they don’t have a choice in what they’re buying. If only Product A is on the shelf, then it’s Product A that’s being purchased.

Likewise, we’ve already seen a global once-in-a-generation spike in inflation over the last 18 to 24 months. The price of everything has increased, from food to consumer goods to the cost of fuel.

Expect consumers to become even more price-conscious with these inflationary trends set to continue into 2022. The combination of these factors will be a one-two punch to consumer loyalty as brand preference is sacrificed for availability and affordability.

Retailers and CPG brands must ask themselves how much they should spend on marketing in 2022 while also ensuring they have the products available to sell. Suppose retailers promote a product and don’t have it available for purchase.

Imagine a customer places an order online only to receive half their purchase while the rest remains backordered. This predicament is not only going to kill the ROI on ad spend, but also upset customers, decrease loyalty, and drive them to shop with competing merchants.

The watchword for 2022 will be caution. Contracts regulate supply chain integration and everything that flows within them. However, retailers frequently overlook to acknowledge the necessity of contracts in business operations.

If retailers prioritise managing suppliers with contracts, they can reduce their risk of supply chain disruption and carefully focus marketing efforts on products they know will be available. With caution, retailers will be able to weather the ongoing challenges in 2022.