Retailers are set for months of disruption to supply chains ahead of Christmas, with leading academics at Bayes Business School (formerly Cass) describing the recent troubles in receiving goods as ‘the tip of the iceberg’.
This year has seen logistical and supply chain issues across multiple industries, with the toy sector the latest to make clear that it expects challenges to continue into the festive season.
Challenges at home and in Asia means toy retailers face narrower product ranges and less discounting than during previous winter holidays. Problems include commodity inflation, high shipping costs, container sourcing issues and restricted factory capacity, as well as bottlenecks in Chinese ports. Gary Grant, the founder and executive chair of The Entertainer, which operates more than 170 toy shops in the UK, said this week that he had “never seen such conditions in over 40 years of selling toys”.
Toys not the only item to be impacted
Professor ManMohan Sodhi, Professor of Operations and Supply Chain Management, and world-leading expert in the field, has cited the chips shortage affecting the automotive industry as “the tip of the iceberg”.
“Covid has disrupted supply chains worldwide. That shortage has spread to the auto industry because the chips’ manufacturing capacity is shared. Likewise, other shared ‘resources’ are impacting many industries with long supply chains and labour, impacting recovery in many sectors. Add to these supply constraints the fact that, for many retailers, 40 per cent of the demand comes in the pre-Christmas sales, we face two months of struggling supply and peak demand. Toys are not the only items that will be affected.”
Using Zara as a model for success
Dr Florian Lücker, Senior Lecturer in Supply Chain Management, said commodity products, whether it be beer, or toys, are often produced and delivered to end customers using cost-efficient supply chains. As these supply chains are designed to deal with a stable pattern of demand and supply, when either is disrupted product shortages are an unavoidable consequence.
But he believes there is hope for suppliers, despite the challenges, and that it is possible for resilience and cost-efficiency to co-exist – using high-street seller Zara as an example of a model for success.
“My recent research points out that it can be optimal for a firm to move some production closer to the customer rather than off-shoring all production. Zara produces some apparel shortly before the selling season customers to deal with swings in demand, while bulk production is still offshore. Note that Zara performed much better during the pandemic than its competitors such as H&M, which does not have local production sites.
“Likewise, toy producers could consider moving some production closer to the customer to allow for emergency production in case such disruptions occur again in the future. The additional benefit of having some production in the UK would be that in case of demand swings, such as during sales seasons, a flexible UK plant would also be helpful to meet customer demand with much shorter transportation times.
“While an additional production plant in the UK would increase production costs, it provides benefits in case of a disruption but also in the absence of disruptions.”
Dr Canan Kocabasoglu-Hillmer, Reader in Operation Management, added that consumers must appreciate that toy retailers often stock up on goods well in advance of sales seasons, such as Christmas.
“What consumers might not realise is that retailers start planning for and stocking up their warehouses in preparation for Christmas up to a year in advance. Therefore, on some products they have already seen shortages in their inventory positions relative to their plans.”