Lokad Warns Retailers: Third-Party Software Risks Are Quietly Eroding Margins

In April 2025, the retail industry is grappling with a confluence of challenges: geopolitical tensions, shifting consumer behaviors, and escalating cybersecurity threats. These factors are compelling retailers to reevaluate their inventory management strategies and technological infrastructures.

A significant concern is the vulnerability of third-party software systems. As retailers increasingly rely on a mosaic of niche applications, connectors, and APIs, the risk of cyberattacks and data breaches escalates. This fragmented technological landscape not only widens the cyber-attack surface but also introduces complexities in data handoffs, leading to potential operational disruptions. In a written reply to The Supply Chainer, Conor Doherty, Director of Communication & Marketing at Lokad, highlighted these issues:

"Retailers typically face four connected weaknesses. The first is third-party sprawl: a patchwork of niche apps, connectors and APIs that widens the cyber-attack surface and leaves data hand-offs brittle. Next come hidden business rules—critical logic buried in opaque spreadsheets or deep ERP customisations understood by only a handful of people. A third vulnerability is long-term tech lock-in, where ageing, heavily-modified platforms become too risky and expensive to upgrade, trapping companies in yesterday’s technology. Finally, traditional 'single-number' forecasts ignore uncertainty; the inevitable over- and under-stocks that follow quietly erode gross margin."

Conor Doherty, Lokad

To mitigate these risks, Lokad employs a cloud-native approach, utilizing version-controlled, auditable scripts for all calculations. This methodology ensures transparency and reversibility of changes. Moreover, their probabilistic forecasting models enable executives to stress-test decisions before capital commitment. Each client is paired with a dedicated supply chain scientist to align automation with business goals.

The broader industry is also taking note of these challenges. A recent article in Retail Insider emphasized the growing role of artificial intelligence in supply chain optimization. Kim Baudry, Market Development Director at Dematic, stated:

"AI can help make predictions and recommendations for where inventory should be placed. It can support planning for seasonal changes or unexpected surges in demand."

Baudry further noted that AI's ability to simulate supply chain scenarios is invaluable in navigating geopolitical uncertainties, such as shifting tariffs and sourcing strategies.

As retailers confront these multifaceted challenges, the integration of AI and the reevaluation of third-party software dependencies become imperative. By adopting transparent, flexible, and intelligent systems, retailers can enhance their resilience and adaptability in an increasingly complex market landscape.