In a typical year, U.S. retailers would be scrambling to ensure goods were available for Black Friday, Cyber Monday and other sales events leading into the holiday season. But 2022 is not a typical year. 

The global pandemic caused a series of bullwhip effects, funneling into the situation we’re in today. Imports are delayed or canceled as a result, in part, of a lack of warehousing capacity across the nation. For example, the warehousing areas outside of Los Angeles — home to the complex where approximately 40% of goods enter the United States — are near 98% utilization. There’s simply no room to store more goods.

But lack of space might not even be the biggest problem right now. The economic climate is stormy, with fears of a recession, inflation concerns and tremendous consumer uncertainty. In addition, there’s ambiguity surrounding labor agreements at ports and railroads in the United States and abroad. And this is all against the backdrop of escalating geopolitical tensions and war. 

Retailers probably wish they had typical peak-season problems, given the overall environment. However, for leaders within retail supply chains, it’s time to adjust and start planning to ensure a successful 2023 because a new wave of disruptions is on the horizon. 

Doubling down on S&OP 

We’ve all heard the word “unprecedented” far too often in the last two years, but the term aptly describes the impact of a pandemic during a time of large-scale global trade. Today, supply chain leaders face challenges surrounding inventory levels and trying to rectify what’s still “sellable” versus what should be written off entirely. 

It’s easy to look at Target’s situation — the company said it plans to sell many SKUs at a slim margin (at best) — as a cautionary tale highlighting the failures of the sales and operations planning (S&OP) process. But this approach is short-sighted. There are established precedents for how consumers behave when there are high interest rates, how shoppers tend to shift spending in the face of inflation, and what it looks like to enter into and out of a global recession.

In other words, S&OP leaders have historical data to rely on as they plan out their next one to two years. While it will require the incorporation of new inputs, today’s most advanced operators should be able to train and tweak analytics models to align with consumer behaviors. 

Expanding the S&OP Attendee List

The S&OP practice has been transformative across retail but also exclusionary to the individuals tasked with implementing the plans. For example, transportation and warehousing leaders generally have been offered a seat at the table during the post-mortem, identifying and discussing improvement opportunities instead of contributing to the plan’s creation. 

In 2023, it will be critical to include these leaders in the planning phase because warehousing and transportation are both about to undergo tremendous challenges. 

We’re witnessing the beginning of a trucking capacity shakeout, with carriers of all sizes about to close their businesses. There are several reasons for the purge. First, demand for trucking capacity has cratered over the last few months, while the cost of fuel — typically the second largest expense for a trucking company — has skyrocketed. In many cases, carriers struggle to find profitable loads, and large carriers are even accepting unprofitable loads to maintain their driver pool. 

Trucking is highly cyclical, and most large fleets have established this playbook. They understand that dipping into financial reserves will leave them well-positioned to grow when resource-strapped small fleets and independent carriers inevitably close their operations.

The trucking community is also staring down a monsoon of regulations that will dramatically change the industry. In California, Assembly Bill 5 (AB5) is threatening to make it harder for small trucking companies to operate some traditional models. Many small and independent operators are securing their Motor Carrier Authority and insurance as the first step in maintaining their businesses. 

However, adding costs to already constrained margins is untenable for carriers. Moreover, AB5 is being used as a blueprint for the national PRO Act, which would have similar ramifications for trucking companies across the nation. 

Worker classification is only one of many regulatory concerns around trucking capacity. California Air Resources Board (CARB) regulations, set to go into effect on January 1, 2023, will eliminate more than 20% of the trucks currently eligible to pull loads from the ports. Clean air and fewer emissions are, of course, welcome outcomes. But carriers are already staring down tight margins and might be forced to cease operations instead of purchasing new vehicles. In addition, many other states, including New York, New Jersey, Massachusetts, Washington, and Oregon, are following suit on clean air regulations, 

Compounding these challenges are potential rail worker strikes, the ongoing concerns of a work stoppage at West Coast ports while the Pacific Maritime Association and dock workers’ unions negotiate, a massive talent gap at warehouses and the looming risk of a new COVID variant that could derail the supply chain again.

In other words, the plans from an S&OP huddle will be delegated to a team facing more uncertainty than ever. Leveraging their experience in navigating uncharted waters will be the difference between creating a great plan and experiencing great execution.

Model for Exceptions

Next year brings tremendous uncertainty across various economic, geopolitical and labor factors. 

A recommitment to the S&OP approach, coupled with new inputs from the leaders tasked with implementing plans, will empower retailers to thrive. But retailers must expand their models to include the unexpected or fall victim to the same problems that blindsided them this year. This includes looking at new scenarios — for example, what a strike of rail workers might do to a company’s supply chain and expenses — or identifying other countries where they can find an additional source of basic good-warehouse-practice solutions. 

Building redundancy is challenging, especially when ordering goods that might be six to 12 months away from being purchased. However, backup plans and business continuity planning now must be layered into S&OP practices, with multivariate pricing and lead times accounted for in advance of agreement. 

While it’s suboptimal to miss a typical peak season, the break from the usual insanity might allow retailers to recalibrate their S&OP approaches to ensure a successful 2023 and beyond. 

Mike Bush is head of communications and brand at NEXT Trucking.

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• Source: https://www.supplychainbrain.com/blogs/1-think-tank/post/36088-retooling-s-and-op-for-a-successful-2023