As we all are well aware, the holiday shopping season seems to be starting earlier with each passing year. It was October when I saw the first commercial advertising for the holiday season.
While holiday shopping patterns in retail stores is something we may all notice, there are other areas within the business that may not be as visible to the customer but are just as impactful on the business. The one thing that I have witnessed firsthand is how retailers’ new strategy of providing more options to consumers earlier in the shopping season is affecting issues in supply chain management.
“Peak,” as it is referred to, is the time leading up to Christmas when holiday order volume increases dramatically. That’s roughly fourteen weeks of what is now becoming pure chaos for logistics providers.
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Here are two key areas where the industry is failing to keep up with the changes in holiday shopping habits and some basic steps that can be taken to address the growing issues in supply chain management.
Volume Projections: It’s a Guessing Game
Most retailers have analytic models that produce estimated volume projections to determine the number of orders that will be passing through the supply chain network. This information is passed on to contracted transportation providers, allowing them to plan for the staffing models necessary to handle the anticipated product volume.
Despite all the computer analytics being used, the one thing that cannot be easily forecasted is how online ordering can be affected by the unpredictability of human behavior. This is especially true from Thanksgiving Day through Cyber Monday. In talking with my loss prevention peers in both retail and transportation, consumer sentiment was grossly underestimated going into the holiday season. So regardless of the current political atmosphere, the Federal Reserve raising interest rates, or the potential that North Korea may launch a nuclear bomb, US consumers were ready to spend money this holiday season.
This buying atmosphere creates both a positive and negative scenario for businesses in the supply chain. The obvious positive result is an increase in revenue. However, a less-than-ideal result follows when unplanned volume cripples the infrastructure that moves parcels along the supply chain. This would be the equivalent of a dam breaking fifty miles upriver with all the towns downriver flooded as a result—except the flood comes in the form of packages.
To avoid this type of catastrophe from occurring again, retailers must do a better job of preparing for holiday issues in supply chain management. It’s crucial to be ready for a potential spike in online sales and projecting product volumes in real time. This may be challenging since most of these online orders are being placed during the Thanksgiving holiday when the majority of corporate America is out of the office. One solution would be to have retailers streamline the flow of information to logistics providers by providing daily volume-trend monitoring that is communicated immediately to transportation providers.
Transportation, Bottlenecks, and a Tangled Infrastructure
The majority of retailers that do business online don’t have their own transportation infrastructure. This means they have to contract out transportation companies to move freight, which can cause additional issues in supply chain management. One of the most costly services in business is transportation. Therefore, most companies will look for the most cost-effective way to move that box from the warehouse to the client. This cost will vary greatly depending on several factors, which include:
- The time it takes to deliver the package,
- The distance the package has to travel, and
- The method of delivery.
Typically, the more convenient the process is for the customer, the higher the transportation cost will be for the retailer. As a result, most companies will look for a balanced approach that will satisfy both the customer expectation and the costs associated with transporting the order.
What this means is that everyone is ultimately contracting with everyone else, and parcels can easily transit multiple companies before reaching your doorstep. With each touch point is an exposure to a parcel being lost or stolen. It is difficult to investigate losses in this network when volumes are normal. Add 50 percent or greater volume in a very short time span, and investigating loss becomes nearly impossible.
Some of the contributing factors to this loss include lack of management oversight, mis-shipped packages, and theft that is camouflaged due to operational failures. It is critical for transportation providers to be able to plan and manage this volume appropriately.
The most common areas where loss occurs during peak are during the morning launch of drivers. This is when the terminal has the most amount of freight on the floor and the least amount of management oversight. Transportation managers should also focus on conducting spot audits of drivers prior to them launching. This will not only keep the drivers honest but also allow management to find misloaded packages that occurred by mistake.
Learn more about the third key area where the industry is failing to keep up with changes in holiday shopping habits in the full article, “The Fallout of Holiday Peak,” which was originally published in 2018. This excerpt was updated February 6, 2019.