How Can DTC Brands Manage Global Supply Chain Issues In 2022?

January 9, 2022
11 min read

Today's global supply chain issues can feel incredibly overwhelming for retailers. So, here's how to mitigate risks and keep these disruptions from slowing down growth.

Everyone is talking about global supply chain issues. And after two years of upheaval, chances are good that you're borderline bored of it. 

Stories about these disruptions are all over the news, filling up most of your social media feeds. Even your parents are talking about it (they probably shopped early for the holidays because they'd heard so much about products potentially going out of stock). 

But while you likely don't want to talk about the supply chain breaking anymore, you also know it directly impacts your brand's bottom line and future. So, you can't afford to tune this information out.

Some leaders in the logistic space are calling these disruptions "a global supply chain  crisis ." And one way or another, every retail brand under the sun has been affected. 

For some, this meant the procurement of raw materials became near impossible. For others, their manufacturers closed down temporarily, and the delayed shipments these closures caused led to widespread stockouts. 

On a larger scale, these disruptions led to backlogs in container ships and countless fulfillment difficulties popping up. And brands were forced to either find new, creative ways to fulfill consumer demand or disappoint their customers. (The second obviously wasn't a real option.)

So, how can brands manage these issues? First, it pays to understand what's really happening with the global supply chain.

(Spoiler: If you're a brand trying to scale from single digits to $50M+ in revenue, pay close attention. We have a special section just for you below. 😉)

What is the global supply chain?

The global supply chain is the worldwide system that businesses use to produce goods or services. It includes different types of companies, suppliers, entities, and resources—all who contribute an essential part of the system.

From hubs in China to ports in Long Beach, California and everything in between: all parts of the world contribute to the worldwide system. From truck drivers in New York to providers of raw materials in Asia, everyone matters.

For retail brands, the focus is on the global supply chain in regard to the production of physical goods they can sell to their customers.

Each step in the system takes products one step closer from creation to the end consumer’s hands. And retail brands depend on these steps in their supply chain so they can reduce their costs and remain competitive in the business landscape.

No retail brand can take a product from idea to production all on their own, right? All brands depend on others to make their business work, albeit in different ways.

The most important thing to understand about the global supply chain is that if one link is broken, the entire chain is broken. And if the chain is broken, the entire system suffers.

And there’s still a way to go to fixing the system. How can retail brands deal with the fallout?

Why are global supply chain issues happening?

To better understand how brands can manage the disruptions, it’s fundamental to first grasp what began the supply chain unraveling and what’s causing the aftermath to continue to plague businesses.

Of course, there’s the pandemic.

Nobody saw the pandemic coming. (Well, most of us didn’t.) The pandemic was that kind of black swan event that happens only every so often—a complete surprise to the world’s economic system and a catastrophic threat to business as we know it. But there were a few issues affecting supply chains even before the pandemic broke out.

Here are some reasons why issues started and continue happening:

  1. The past two years have seen factories shut down due to COVID outbreaks, sick workers, and lockdowns. This lack of manpower has massively decreased the manufacturing industry’s output, particularly in Asia.
  2. These outbreaks and lockdowns have also caused a decrease in access to raw materials for manufacturing products. For example, India witnessed a shortage of oxygen, which is often used by automakers, because it reserved its oxygen supply for COVID patients.
  3. The Ever Given blocked the Suez Canal for six days until it was finally dislodged, but, in that short time, hundreds of ships were blocked from traversing the waterway.
  4. Natural disasters like winter storms in Texas, Hurricane Ida or frequent wildfires in California affected food supply chains and logistics networks.
  5. Congestion at certain key ports was a shock to retail brands’ planning at different points of 2021. June saw a massive backlog of containers in Vietnam, and September and October brought more dwell time for containers in Long Beach, California. This particularly affected DTC brands’ holiday sale plans.

These are some causes we can identify in hindsight, but they don’t guarantee that new reasons for disruptions won’t pop up in 2022.

How global supply chain challenges affect all stakeholders

Because the global supply chain is a system of links, when one link breaks down, all links feel the fallout.

All stakeholders in the global supply chain are feeling the burn from the subsequent challenges. Let’s walk through how the supply chain challenges affect a few parties of the retail business world: suppliers, retail brands themselves, and consumers.

Suppliers:

As we discussed earlier, manufacturers are facing labor shortages when outbreaks happen at their factories. The same goes for truckers and companies focused on moving goods from ports (mainly in California) to other parts of the country.

This results in reduced output and productivity. As a result, the cadence of new orders and services they are capable of providing is negatively affected.

One of the main ways retail brands are managing the uncertainty is by diversifying their manufacturing (more on that later), which means suppliers hit by delays may be at risk of losing customers in the short- and long-term.

Retail brands:

Brands are facing dramatically higher prices when it comes to shipping their products from manufacturers (usually from China or somewhere in Asia) to the US (mainly to California). Add to that prolonged shipping delays.

This is not a good combination. Costs are up and stockouts are more frequent, meaning less revenue, too. 🥴

Over one-third of the small businesses that closed in 2021 attributed their failure to a "lack of capital." According to Flexport, around two-thirds of respondents to a recent poll said the difficulty and cost of moving goods is the main concern for their business.

While some retail brands had the working capital to weather the storm, the financial implication of these challenges had disastrous consequences on some brands.

Consumers:

The global economy has been shaken by COVID-19, but consumer demand has bounced back strong. On top of that, the global market for goods has way surpassed that for services.

But shipping delays and their resulting stockouts have left customers disappointed and dissatisfied at times. Overall, though, consumers have become accustomed to longer wait times.

In some cases, consumers are facing higher prices for goods. As shipping costs go up for retail brands, there are some businesses that have found themselves in the situation of having to adjust prices in order for their business to remain viable.

How long will these issues last?

The latest data projects supply chain issues could last another 2 years, but if there’s one thing we know for sure is that nobody can predict the future.

All the latest projections on when and how these issues will be fixed are guesses and shouldn’t be counted on. Instead, forward-thinking businesses should adapt to this “new normal” as best as possible.

Because now that we’ve experienced how vulnerable the global supply chain is, it’s unlikely it’ll ever go fully back to normal.

Consumers are demanding goods over services, so congestion is not likely to ease too much this year. 

Initiatives that would truly move the needle on easing the disruptions—like fulfilling new ship orders, building out ports, or developing self-driving trucks—takes longer than we can afford to wait. And as supply chains become more complex, the effects of disruptions may become harder to unravel.

Here’s what the CEO of Flexport has to say about it:

It will take a while to understand all the bottlenecks in our supply chains and manage them accordingly. In the meantime, let's dive in to tactics and strategies modern brands are implementing to come out of this stronger than ever.

Strategies for dealing with about supply chain disruptions in the meantime

Solving the supply chain crisis isn’t as simple as 1-2-3, but there are a few strategies your brand can implement on the marketing side, others than be tried on the operational level, and some that need to happen on the logistics side to ameliorate the fallout from the disruptions.

Let’s start with the tactics that require the smallest lift to implement: marketing.

Marketing

While the overall crisis will take longer to resolve, there are interim solutions that can be implemented on the marketing side to eliminate the risks posed by stockouts.

These strategies will buy time for supplier shortages and alleviate consumer frustration. If implemented correctly, they can increase brand affinity and grow your customer base at the same time.

Imagine that.

On the marketing side possible interim solutions include:

  • Back-in-stock notifications: When your products are out of stock, allow your customers to sign up to be notified when the product is available again. Note that conversion rates for back-in-stock notifications are not stellar: between 5-15% is what we’re hearing from our partners.
  • Sell on backorder: Using a tool like Cogsy allows your customers to purchase the products they want, regardless of whether or not they’re on hand at the moment. The trick to selling on backorder successfully is setting expectations from the get-go, letting customers know the estimated shipping date on the product page, checkout and email receipt. Fortunately, conversion rates for backorders are much higher than back-in-stock notifications—products on backorder sell nearly as well as products that are in stock. This happens because selling on backorder allows you to strike when the iron is hot and convert the customer’s demand in the moment they’re ready to purchase.
  • Gift cards: When a product goes out of stock, you can offer a gift card, instead. This is particularly useful for consumers who are looking for gifts for others. Consumer’s adoption of gift cards as presents are on the rise. On the whole, selling a gift card helps you avoid losing out on revenue.

Some of these tactics will make more sense for your particular brand and your specific needs and product types. In general, these marketing strategies help reduce the risk of missing out on converting customer demand.

Fulfillment

On the fulfillment side, here are some tactics and strategies put forth by Flexport on a recent webinar:

  • Maximize container space. While you may never use exactly 100% of the available space inside a container, get as close as you can. Ryan advises considering a change to packaging to further optimize container use. Failing to do so is both a waste of money for the shipper and a waste of capacity for the industry at large.
  • Stick to cargo ready dates. Canceled bookings create havoc for you and the industry as a whole. Coordinate with suppliers closely to ensure cargo ready dates are consistently met.
  • Ensure suppliers’ factories deliver on time. Around 30% of bookings pre-pandemic had been cancelled due to late availability of cargo. That in turn led carriers to overbook their vessels, leading more latterly to challenges with space availability.
  • Be prepared for contracts that reward reliability. It is likely that new types of contracts will pop up, including mechanisms that reward customers that are reliable—in terms of not cancelling, fulfilling contract terms etc.—with better rates or improved access to expedited services.
  • Consider flexibility on routings. For example, less-than-container load contracts typically specify a destination point but not a specific routing. A similar approach for full-container load bookings provides more flexibility in delivery, e.g. avoiding heavily congested ports.
  • Access and understand your data. Be attuned to where the bottlenecks are, whether that be at ports, on shipping vessels or other modes of transportation including ports or trucks.

Operations

Historically, brands have moved toward leaner, just in time processes. While this has been beneficial under normal circumstances, it’s wreaked havoc during this supply chain upheaval. With no excess or slack in the supply chain system, there's little buffer for things going wrong.

The solution to this is building muscle around the ability to act quickly and proactively. Here’s how:

  • Build capacity to ramp up and down. With suppliers, you must understand what their capacity is and their timeline to ramp things up or down. Never assume unlimited capacity. If you've got a supplier with a factory, assume that if you're ordering 10,000 units from them per month at this stage that they can easily scale up to 30,000. Those things need to be negotiated. So never assume that. 
  • Create a feedback loop. Internally, ask yourselves: what does our data look like? How do we need to communicate with our suppliers? How do we change things when they’re not working? Questioning the plan is essential to avoiding pitfalls. Understanding that on a qualitative level with your suppliers and then building a system to shorten that feedback loop is important.
  • Be tolerant to elasticity. You want to figure out to what extent a process or a tactic is elastic. How far can you stretch it before it breaks? And as you stretch it, what are the counter or the reactive forces that it creates?
  • Track your forecast accuracy: To figure things out in the short term (for the next 30, 60, 90 days), track sales today and compare it to what the forecast was 3-6 months ago. This serves as a kind of momentum indicator for how far off the plan was: are you under or over on the growth plan? By constantly tracking where you’re at today, you can analyze where you should reconfigure the plan made in the past. What were your assumptions then, and how are they playing out now? This gives you the levers to play with the plan.
  • Consolidate your data sources. One of the biggest challenges most brands face is disparate data sources and the effect it has on planning. It’s unfortunately common for brands’ teams to take an extremely long time–some longer than a week–to extract their data from different sources, put that data into the growth plan, tweak their model, and then iterate all over again. 
  • Shorten the time it takes to create a plan. If brands can’t manage their planning in even semi-real time, there’s no way to be proactive when things go awry. If you had a product to ingest all that data and have it available in real time, creating a growth plan could be done much quicker. Making a new plan and updating that plan could be nearly instantaneous versus what most brands do now, which is tracking daily sales and comparing that to the original plan and trying to extrapolate incorrect assumptions made in the past.  And while any algorithm or machine learning won’t ever be perfect to make these crucial decisions, it’s incredibly useful to speed up the decision making process and take it from guesstimate to near-target. A human who knows the business will always be necessary in order to decipher the data and make ultimate decisions. There will always be that nuance of industry knowledge to layer on top of any tech product. A product like Cogsy does the hard work and then a human is in the position to make a really informed decision and then take an informed action on those things.
  • Understand your numbers. The biggest levers a brand has in their business is understanding their cash conversion cycle and how that relates to their working capital and burn rate. Having those numbers monitored on a constant basis in a very accurate way is the biggest lever that most brands have for growth. 

These are just a few of the strategies that we recommend for doing your very best to manage the supply chain crisis’s effects on your retail brand.

You’re ready to revamp your supply chain management

While the future of the global supply chain is uncertain and we can’t guarantee 2022 will continue at the same pace of port congestion and disruptions, we do believe brands can prepare for the worst by following some of these guidelines.

As you get ready for this new year, take a moment to revisit every link in your own supply chain and reevaluate how you can mitigate risks in the future.

You’ve got this!

Remember:

  • Maximize container space.
  • Stick to cargo ready dates.
  • Consider flexibility on freight routes.
  • Access and understand your data.
  • Offer customers alternate ways to purchase out of stock items.

After reading this, we hope you feel empowered to anticipate bottlenecks and build muscle around your DTC brand’s supply chain management, amidst but also regardless of the pandemic.

And there’s more where this came from.

We’ve written an entire guide on jump-starting the year by fine-tuning your retail brand’s operations. If you’re interested in shoring up your business against inevitable uncertainty, optimizing your operations is where to start.

It’s called The Ultimate Guide to Optimizing Your Retail Operations in 2022.

The Ultimate Guide to Optimizing Retail Operations, by Cogsy

Sign up below to receive our guide free in your email:

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