Holiday Holdup: Can We Solve Our Supply Chain Problems?
The disruptions to the global supply chain hold lessons for both companies and consumers, say Wharton professors Santiago Gallino and Barbara Kahn.
During standard times, companies look for ways to make their supply chains operate more efficiently. But these aren’t regular times.
Scenes of cargo ships circling ports, offloaded containers with no truck drivers to deliver them, and stores bereft of merchandise this holiday shopping season result from global supply chain disruptions that may take months or perhaps years to resolve.
Yet, the chaos rippling through wholesale, retail, transportation, and labor is an opportunity for companies to rethink their core operations.
“When you make decisions laser-focused on efficiency,” said Gallino, a professor of operations, information, and decisions, “you might be missing on resilience.”
Galliano explains if it’s one shock that lasts a relatively short time, companies can manage and take the hit. But when shortages go on for months, companies need to think about building a resilient and scalable operation that is flexible for the future.
And while this year’s disruption can be traced back to the pandemic, it’s different.
There’s a deficit of parts used to make products, such as the computer chips that go into everything from iPads to automobiles.
Labor is scarce, with a record 4.3 million Americans quitting their jobs in August 2021.
And there’s inflation. The Consumer Price Index has risen 5.4 percent since last year.
The White House has responded with measures that include 24-hour operations at the Port of Los Angeles, a critical entry point for nearly 40 percent of the shipped containers coming into the U.S.
Big retailers such as Walmart and Target have also stepped up hiring and labor to ease congestion. Still, it’s not enough to solve the profoundly complex issues with the supply chain.
“Many of these actions will mitigate to some extent the problem,” Gallino said, “but it’s at a scale that’s not easy to adjust.”
The broken supply chain is already creating challenges for holiday shoppers. And retailers are already warning customers about product shortages and encouraging them to buy even earlier than usual.
Black Friday specials typically reserved for after Thanksgiving started popping up at Macy’s, Nordstrom, Kohl’s, and other department stores earlier this month.
“It’s going to be interesting for retailers to navigate this holiday season,” Gallino said, “and for us, the customers, to be able to find what’s on the shopping list.”
Gallino’s colleague Wharton marketing professor Barbara Kahn — a retail expert and author of The Shopping Revolution — said neither product shortages nor inflation will keep people from purchasing this year, whether in-store or online. And retailers are doing whatever they can to meet pent-up demand and entice customers.
“Although we may see rising prices,” Khan said, “there are several factors that indicate this will not be a serious concern.”
She explains that some retailers are offering fewer promotions because of the lack of stock, and they are masking price increases by shrinking the size of the product or using other marketing tools to make price a secondary consideration.
“The biggest response we are seeing,” Khan said, “is expressed messaging to get consumers to buy earlier.”
She cited a Deloitte survey that showed 68 percent of respondents planned to shop before Thanksgiving this year, compared with 61 percent last year.
Khan and Gallino also offered tips for holiday shoppers who want to squeeze the most out of supply chain snags:
- Shop early to take advantage of the best selection and promotions.
- Be flexible and consider alternative choices.
- Be prepared for higher prices.
- Buy less and consider experiential gifts.
Ultimately, what’s happening with the supply chain at the moment serves as a teachable moment — and not just for firms involved in operations and logistics.
“The pandemic taught us that you can never really predict the future,” Khan said. “But those retailers who were following trends, for example like the growing importance of digital commerce or direct-to-consumer marketing, were in the right place when the predictable happened.”
While retailers who backed themselves up with alternatives now have more flexibility, the winners in the retail game will be companies that solve short-term problems while also tackling long-term ones.
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