Smoothing the Peaks: Navigating Capacity Optimisation in Retail

Retail supply chains are in for an uncertain year. The BDO’s recent survey of business leaders gave a stark message: British businesses are expecting a tricky 2025, and supply chain challenges are the greatest risk factor. Against this backdrop, retailers can’t afford costly operational inefficiencies in their supply chains that further undercut sales revenue. Capacity challenges are an unwanted burden on retail companies — but they can be overcome. A key solution retailers can employ to strengthen their operational efficiency and bolster their bottom lines is achieved through capacity optimisation.

In retail supply chains, “capacity” refers to the maximum amount of goods a supply chain can store, transport, or process at any given time. When we talk about optimising capacity, we seek to smooth the flow of goods within a business’ constraints in the most cost-effective way.

Addressing the Challenge of Uneven Demand in Retail Operations

Perhaps the most significant hurdle retailers face concerning capacity is managing uneven demand peaks.

Consumers are problematically ‘uneven’ with shopping patterns. They tend to show up to stores every week on Fridays, Saturdays, and Sundays more than, say, a Monday or Wednesday. But this tendency toward routine causes demand to spike on those days, which causes many retailers to schedule a higher volume of deliveries for the end of the week.

When retailers see increased demand on the horizon, one tactic is to pull forward some demand from the weekend into the week to smooth the flow. However, as storage space is finite, this can risk filling up the backroom and increase the cost of replenishment when deliveries do not fit on the shelves. Ordering and stocking a huge quantity of goods at any given time is inefficient and makes managing inventory levels effectively quite difficult.

The alternative strategy is to increase labor to meet the demand. While this allows better ‘just-in-time’ replenishment decisions, this tends to be neither cheap, infinite, or instantly and reliably available.

Navigating Seasonal Demands

It’s not just weekly routines, either. Across any given year, certain buying habits and trends ahead of certain seasons or holidays cause huge spikes in demand for particular product categories. Despite a slightly muted 2024 Christmas period for retail in the UK, grocery spending hit 1 record-breaking £13.8 billion according to Kantar.

Retailers know they’ll need to move a massive amount of product ahead of a given season launch or peak event/holiday, whether it’s chocolates ahead of Valentine’s Day or bulky garden furniture ahead of the summer season. Digital solutions aside, retailers don’t have a lot of good options for addressing the inevitable wave of demand and associated deliveries coming their way.

Say you’re a general merchandise retailer ahead of Christmas. If you order purely based on customer demand, you need to build your capacity to handle the biggest peak day of the year. But all this extra capacity would be used for nothing the rest of the year. You might even be looking to outsource it.

Another option involves hiring temporary labour to address the temporary capacity needs for the day before Christmas, but stiff competition from other retailers is inevitable. There is rarely that kind of immediate tap of ad hoc labor available in the market.

Forecasting for Success: The Cornerstone of Effective Capacity Management

Good long-range forecasting is table stakes in retail. If you can’t foresee what’s coming with high accuracy, you really don’t stand a chance of wrangling capacity issues. Retailers need a planning solution that automatically forecasts for seasonality, holidays, local events, and similar peaks because manually trying to account for so many variables is extremely inefficient.

It’s worth mentioning that capacity optimisation and promotion planning go hand-in-hand. Successful promotions increase demand. The difference between a promotion-based demand increase and one caused by external factors is that a retailer knows the spike is coming.

In practice, inventory and planning teams often lack visibility into planned promotions, which makes proactively anticipating those shifts impossible. There’s a very real and tangible value in allowing AI and machine learning technology solutions to simplify complex plans like this, which leads to better internal visibility and supports collaboration across teams.

Balancing Deliveries with Delivery Flow Smoothing  

From there, retailers need to figure out how to distribute their deliveries more evenly, whether through any given week or in the weeks ahead of a major event.

Digital solutions help to evenly distribute stock across a single week or multiple weeks, recognising demand patterns and adjusting order quantities in a more cost-efficient way. For example, minimising shelf breaches, or maintaining the same overall number of deliveries to not incur the extra handling or transport costs. Smoothing should also be aware of commercial considerations such as protecting item launches from smoothing (nothing looks worse than a new product launch without the product). This approach can prevent teams from ordering too much stock that would exceed shelf capacity and combine multiple orders for the same item into a more efficient and less expensive single order. This visibility and control helps to minimise excess stock and unnecessary handling costs.

Embracing Automation: The Key to Efficient Capacity Management

If that all sounds complex — it is. Rather, it is if you’re doing it manually. No retailer still forecasting and manually ordering will see anywhere near the same level of success as they would without advanced supply chain planning.

Retailers need to make changes before bottlenecks can occur in stores and distribution centres, and they must do so in a smart, automated way to ensure operational costs don’t weigh on them with a challenging year to come.

Capacity optimisation is achieved in a very narrow band between waiting, and risk ordering too much at once, or pulling too much forward as a manual fix in advance. Inaccurate information, limited supply chain visibility, and reactive manual adjustments can also result in stockouts, which hurt retailers as well.

With the cost of everything from products to transportation continuing to skyrocket and geopolitical pressures straining supply chains, retailers need to use every tool they can to cut costs and carve out a profit for themselves.