Supply chain trends 2023

Just-in-time (JIT) manufacturing became standard fare since Toyota modeled it as a way to cut down on storage costs and waste in a post–World War II economy. Like the name suggests, the JIT approach aims to get products sourced, manufactured, assembled, and shipped just in time to meet the customer's demands. Companies across the globe adopted JIT principles over the last half-century.

Meanwhile, supply chains became more complicated and spanned more territory, quietly threatening the ideal of continuously flowing production. JIT relies on everything in the supply chain working without any hiccups. The more links in the chain, the more places it can break. The pandemic exposed that vulnerability on a massive scale. Global supply chain disruptions more than tripled from 2019 to 2021, and most companies were almost immediately unable to cope.

Some brands patched their supply chains, hoping to just get through the pandemic. But for many, the pandemic was just the beginning of the breakdown. Disruptions cost businesses around the world an average of $184 million USD in 2021 alone. Shipping ports are still backlogged in 2022, especially in China, where COVID policies remain in place. And since the onset of the war, millions of products are being rerouted by sea to avoid their usual path by train through Russia.

1. Hold more inventory

Carrying more inventory is the most common way Shopify Plus merchants are battling the supply chain crisis. And eight out of 10 companies McKinsey surveyed in the spring of 2022 had already started upping their inventory in 2021. The world's 3,000 biggest businesses now keep the equivalent of 1% GDP more inventory holdings compared to 2019.

More available stock makes it easier to meet customer needs, but there's a balance: Cushioning inventory doesn't mean overstocking. Brands that increase inventory holdings little by little (depending on cost, space, and demand) lower their risk of trapping funds in inventory they can't sell.

Also, because most buyers have less spending power right now, brands need to watch how many higher priced items they keep on hand. In the second quarter of 2022, the inventory-to-sales ratio spiked for items priced over $100 for some Shopify merchants, probably because shoppers are responding to inflation by choosing cheaper options. So it's crucial to manage inventory closely.

3. Shrink return rates

Brands are losing a record average of $29 for every customer they acquire—a 222% increase in the last eight years. Aside from steep customer acquisition costs, returns take a lot of the blame. Customers return 20–30% of online purchases, compared to only 8–10% of in-store purchases.

Whether the returned item ends up being resold in a brick-and-mortar store, repackaged in a distribution center, or sitting in a landfill, it matters as much to the modern consumer as it does to a business' bottom line. Fewer returns mean happier buyers, less pollution from transportation and packaging, and less strain on a key aspect of supply chains: inventory management.

To minimize returns, customers need to be confident what they see online is what shows up at their door. Detailed product descriptions, customer reviews, and 360-degree views of each product help set customer expectations and reduce return rates. Bringing products to life for customers through augmented reality is becoming a viable option as more consumers around the world adopt the technology.