Business Advice

How customer behaviour and new trends are shaping the supply chain

- April 20, 2022 5 MIN READ

Companies large and small are struggling to meet demand shifts in business as consumption increases, production slows, and supply chains become more complex, writes Jake Rheude, Vice President of Marketing for Red Stag Fulfillment.

While each challenge has its own solution, the core causes circles back to consumer demand.

To understand where the industry is headed next, it’s important to look at today’s behaviours and how they’ve driven trends and supply chain efforts since 2020.

Retail operating like a warehouse

eCommerce was growing rapidly before COVID-19, but the global pandemic helped online shopping truly skyrocket.

Brands large and small have shifted to address this digital audience, which can be all the way across the world or just down the street. You’ve likely seen it in the messages and discounts hitting your email, as well as the inclination to order delivery via Instacart, Uber Eats, or other services — especially from new and local restaurants that never had delivery before.

The impact this has on the supply chain is that many retail locations are acting more like a warehouse than before. Clerks and store associates are now picking and packing orders as much as they’re selling on the floor. More locations are buying boxes, tape, packaging infill, and other materials needed for shipping orders. In some cases, this means slight easing on the supply chain upstream as freight shipments move to stores.

However, for most chains, there’s a significant increase in last-mile demands. More packages are moving to stores. Then, staff breaks down large orders into smaller units, stocking some but setting aside most in stockrooms-turned-warehouses. They then send out a flood of smaller packages with carriers.

Because many retail locations are small, this shift puts pressure on carriers that often use the same trucks to deliver shipments to the stores and then pick up orders and eventually bring them to customers.

This demand is one reason we’re seeing a growth in regional carrier adoption, but the added volume is what’s slowing down orders for everyone.

Storeman walking through warehouse

Getting inventory is becoming more expensive

The increased demand for goods reaches back through the supply chain to manufacturers, which are located overseas for many brands and sellers. That has put pressure on suppliers and carriers bringing goods across the ocean.

Increased demand coupled with periodic shutdowns of ports, facilities, and plants because of virus outbreaks has led to a shipping container shortage, making it harder to import goods.

The container shortage has led to container and ocean freight prices rising more than 300 per cent, setting records for the holiday peak season where most online sellers make the bulk of their annual revenue.

Nearly two-thirds of goods used globally are shipped across oceans in containers, meaning we’re likely to see sustained inflation and price increases even as investors target supply chains with funds to expand support and capacity. These costs come on top of increased domestic carrier fees – and many ‘seasonal’ fees added in the U.S. in 2020 and 2021 have been made permanent.

Carriers in all points of the supply chain are increasing costs, and few are predicting that we’ll see a decline to pre-pandemic rates anytime this year.

Capacity crunches hit inventory at multiple points

Companies are responding in a way that makes sense if you expect costs to keep increasing: they’re holding as much stock as possible.

This ‘just-in-case’ approach to inventory means companies are spending more to acquire and store goods in hopes that they’ll have items on hand when an order comes in — instead of having to wait for uncertain freight coming across the oceans and through ports with significant delays.

Domestic supply chains are under strain from this in a significant way. Warehouses are filling up, and more are being leased. The demand for warehouse space is quickly outstripping supply, putting pressure on company warehouses and those from third-party sources.

When every company stocks up as much as possible, there’s less room for new eCommerce brands and sometimes not enough room for new product lines and stock-keeping units (SKUs).

As a response, warehouses are trying to control inventory levels. Fulfillment service providers and third-party logistics (3PLs) generate most of their revenue when they move goods, not when products sit on shelves. The fast-paced nature of eCommerce means they’re built not as storage locations but as order fulfillment providers.

In response, we’re seeing industry-wide adoption of long-term storage fees and restrictions to encourage brands to carry what they need. The pendulum is swinging back, and it will be interesting to see how brands and their fulfillment providers reach a balance to keep orders flowing.

ordering stock on a tablet device in warehouse

Marketing and packaging respond to thoughtful consumption

One related pandemic shift that has caught some companies by surprise is a push for greater visibility by consumers.

While spending scaled during the pandemic, increases to costs across nearly all consumer sectors threaten to reduce this. Pre-pandemic spending already saw a greater focus on sustainability and corporate responsibility. Now, consumers have more time and access to research to make those informed decisions and potentially fewer places to put their dollars.

Gen Z makes up nearly one-third of the global population and tends to correlate with a higher focus on environmental concerns. Typically, inflation and recessions impact younger citizens more. As this new demographic group enters the workforce in greater numbers, they’ll control a larger share of consumer spending.

This will likely mean a continued focus on thoughtful consumption, where brands target their marketing and packaging to highlight environmental causes. The packaging itself will push to being more recyclable or biodegradable, increasing the demand for these materials as well as placing higher local demand on recycling and reclamation facilities.

The supply chain will need to respond at multiple points to support these packaging materials, improve recycling capabilities, and ferry raw materials between each step to reintroduce recycled or reclaimed options.

Fulfillment is more central to growth

Fulfillment is the crux of all these trends. Each is powered by the ability to move goods and materials across the supply chain in a reliable, consistent manner. Damage, shrinkage and delays threaten a company’s ability to serve their customers, whether these are other businesses or end-consumers.

The significant influx of venture capital funding in transportation and logistics systems points to the demand in place now and predicted for the future — money flows to where people see opportunity.

For your business to grow consistently, even during times of supply chain constraints, fulfillment needs to be reliable, efficient, and affordable. This will mean outsourcing to a 3PL for many, while some larger companies can manage their own shipments.

While the method used to tackle fulfillment challenges may differ, success here will be a top predictor of the ability to succeed in 2022 and beyond.

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