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Home Supply Chain Navigates Backlogs & Plans for Post-Pandemic Demand

Over the past year, the home has become the hub for everything from work and working out to socializing and entertainment. And in response, the demand for home goods heated up, leading to significant sales increases.

“Almost immediately at the start of the pandemic, we saw customers investing in their homes to refresh their spaces and in many cases make them more comfortable and cozy,” said Ariel Kaye, CEO of direct-to-consumer brand Parachute. “We also saw an increase in new movers—shoppers purchasing new homes or moving to new cities.”

Charles Gaenslen, CEO of manufacturer Loftex, referred to the past year as an “unprecedented period of sustained consumer demand.” Although this boost has been good for companies’ bottom lines, it has also created some challenges and backlogs in the home supply chain. “There was really no playbook for this sea change, and supplier-manufacturer-brand relationships were tested along the way,” Gaenslen added. Currently, he says the situation has evolved to being “tight, but reasonable.”

Following lockdowns that froze production, firms had to ramp back up to meet order volumes. Saad Ali, general manager strategic marketing at Liberty Mills Limited in Pakistan, explained that at the start of the pandemic last year, customers became conservative with their buying. But after the shutdown ended, the mill reopened to an uptick in orders. It took about two to three months to completely catch up to demand, with orders rising to and remaining at 25 percent over the usual volume. “A lot of capacity went offline,” said Ali. “It came back online slowly and took its time, so that has caused a bullwhip effect on the overall supply chain.”

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Even if production is running smoothly and on-time, logistical hurdles including port backups and container shortages mean goods might not make it to the store or warehouse in a timely fashion. “I’ve seen multiple cases where we’re shipping 100 percent on-time in full and on a sustained basis, and our partners may have out-of-stock levels as high as 20 percent,” Gaenslen said. “And there’s just no reason for it other than logistics backlogs.”

Kaye explained that Parachute had minimal delays. “While others were canceling purchase orders, we increased our POs and, in many cases, accelerated some product launches to keep up with demand,” she said. However, what did cause disruption were staffing shortages, including at the distribution center. “So much of the backlogs were people related,” she added. “If you are down people, or working with limited capacity, there will be significant ramifications when it comes to production and logistics.”

In addition to finished goods, logistics issues are affecting the movement of raw materials. And companies are also grappling with high prices for cotton. “We decided to secure raw materials in a very strategic manner, taking advantage of the availability of any bulk deals,” Ali said.

Delivering on demand

To navigate the obstacles thrown at them over the last year, companies had to focus on production efficiency. Gaenslen noted that Loftex has ensured that looms remain active. If a client order is late, the machine will be used in the meantime for another PO. Loftex is also working more closely and regularly with its private-label retail clients to align production forecasts with their demand. “We’ve spent far more time collaborating with our retail partners on what true demand really means for them, and especially with our largest and most strategic retail partners,” Gaenslen said.

In response to increased demand, Liberty has ramped up its capacity across spinning, weaving, dyeing, printing, and cut and sew, including investments in new facilities.

An increased focus on digitization and automation is also helping create more efficiencies. Ali said that artificial intelligence is being used more to monitor outputs, and decisions are being guided by data. “Since the supply chain is so strained, we cannot take a hit on the efficiency side of the business,” he said.

Pre-production, companies can achieve better efficiencies with technology such as product lifecycle management (PLM) systems, which connect design, product development, merchandising, sourcing and manufacturing teams on a single platform. Breaking down these silos and switching from manual communication like email to a single platform keeps all the data in one single place. And as a result, companies see a boost in speed to market, sales and margins, added Trevor Bremner, sales director at Centric Software.

“We’re hearing from the marketplace that there is a big need to find ways of getting rid of the bottlenecks and just being more efficient and more productive in order to get product out to market faster, especially now that the demand is higher,” Bremner said. “If customers lag in terms of technology and the ability to keep up with their competitors, that can be a big competitive disadvantage if they’re not able to get their products to their customers quickly enough.”

For instance, PLM helped Centric furniture client Four Hands navigate the switch to fully remote work with no travel, since it connects more than 100 of the brand’s users across the United States and Asia. In 2020, the company achieved double-digit growth. If a firm is facing disruption, PLM also has the capabilities to anticipate risks, such as a delayed raw material shipment or a closed factory, and plan workarounds.

Soft goods softening?

As the saying goes, what goes up must come down, and some insiders do see the demand for home textiles eventually leveling off in the future. Consumers will go back to the office and resume activities like dining out. Ali pointed to inflation as another factor that could flatten demand.

But even though consumers are returning to a level of normalcy and will likely shift some spending to experiential categories, the drop-off likely won’t happen immediately. According to projections from NPD Group, home products are expected to remain hot for 2021, with unit sales and sales revenues up a respective 15 and 25 percent over the 2019 figures.

Ali has seen consumers willing to spend on luxury and trendy items in particular, and he expects shoppers’ prioritization of home spending will continue through the end of the year. “In 2021, we see that demand will still continue ramping up solidly,” he said. “It’s not softening up.”

“People will continue to prioritize their home and comfort in new ways,” Kaye said.

According to Gaenslen, most 2021 figures are on par or higher than the same week of 2020. “We’re starting to see some leveling off, but it’s been pretty modest so far,” he said. When demand does eventually ebb, he expects it to stay above pre-pandemic levels.

If demand flattens to a point in between 2019 and 2020 levels, it would be a “Goldilocks” scenario, Gaenslen said. This would enable Loftex to have some excess capacity to adjust to spikes in production for existing clients or go after new business. After depleting its greige safety stock due to unprecedented demand this past year, a flattening would enable the manufacturer to build up its reserves to speed up production turns.

Trevor noted that even if demand does lessen, companies will be more prepared for the next spike because of what they’ve been through in the past year.

As companies face uncertainty, data can help them pare back procurement and production to avoid overstocks of raw materials or finished goods. “You’ll get materials and raw materials cheaper if you buy them in bulk, but obviously if you’re trying to plan for a potential dip in demand, you don’t want to be overstocked,” Trevor said. “So the benefit of having a system like Centric and all the reporting capabilities, is that you can ask better questions of the data that you do have, and you can plan and forecast a little bit better from a merchandising perspective.”

After the rollercoaster of 2020, in which retailers cancelled and then quickly began purchasing again, 2021 is looking different. “The way they’re buying the inventory at this point in time is very sensible and it has minimum peaks and valleys,” Ali said. While there might be some surpluses if demand falls, he doesn’t foresee significant overstocks.

Ali has a positive outlook for Pakistan’s home textile industry due to factors including the diversification away from China and the nation’s focus on manufacturing entry-level and mid-tier priced items, which are less susceptible to demand fluctuations.

Kaye is similarly optimistic, and Parachute isn’t planning for a demand drop. Instead, the company is focused on building assortments that will resonate with changing consumer needs. “People will continue to prioritize their home and comfort in new ways,” she said. “While we might be spending less time at home, the pandemic has created an even greater appreciation of design that is not only aesthetically pleasing, but also functional. The home category has a real opportunity to innovate and evolve with the customer.”