How the Holidays will Impact Your Supply Chain

The holiday shopping season, which traditionally begins on Black Friday, tests even the best supply chain. “As the holiday season approaches,” writes Roddy Martin (@RodM2016), a global supply chain thought leader, “supply chain teams should be well on their way to gearing up for the big business holiday season test. They should be proactively assessing the risks involved in reliably meeting this year’s market demand and aiming to continue strong growth trends from the past several holiday seasons.”[1] Martin is correct; but, when he asserts “supply chain teams should be well on their way to gearing up for the big business holiday season,” he is understating reality. Gearing up for the next holiday season should begin on the heels of the last holiday season. Waiting until a few weeks or a few months before the holiday season could put supply chains in a bind and in an uncompetitive situation.

The Difficulty of Planning for the Holidays

As I noted in a previous article, while getting a head start on the holiday season — like starting in February — is a good idea, it also places retailers in a bit of a conundrum.[2] Early in the year, retailers don’t yet know what items are going to be hot during the upcoming holiday season. This lack of certainty makes planning and preparation difficult. I went on to note, “Manufacturers can assist by helping retailers understand what products are going to be available and which products they think will be their big sellers. Manufacturers can also let retailers know what kind of promotional campaigns they intend on conducting and when they will be in effect.” Things have only become more complicated as the beginning of the holiday shopping season has crept ever earlier — with many shoppers now seeing Halloween as the beginning of the holiday shopping season. Analysts from Kewill note, “It is the most stressful time of the year for retailers and e-tailers from all over the world to fulfill these gift orders. … The increasing trend of cross border trade has only made everything more complex.”[3] They continue:

sgifts“Even with historical trends and analytics, it is difficult to accurately predict the demand for goods. The end of year period has a demand spike or fall depending on which part of the world you are in. Furthermore, the supply side has its own challenges. Storing too much inventory equates to high carrying costs, carrying too little inventory results in the loss of potential sales and unhappy customers. Keeping track of the varying lead times of different products from different suppliers is another headache altogether. Few retailers have the capacity to truly contemplate the environmental impact of transportation on their carbon footprint. The nightmare does not stop here. After the goods are packed, they are shipped to logistics providers who deliver them to the end customer. Unless retailers are able to access the logistics providers’ system, they have to rely fully on what they are told with no idea what is in the black box.”

Every supply chain professional wants better visibility (with end-to-end visibility being the target). Unfortunately, that kind of visibility remains difficult to achieve. “With consumers procrastinating less,” writes John J. Boucher, President & CEO of ModusLink, “companies that want their products wrapped and ready for the holidays need to start earlier — even as early as 12 months ahead of time. In actuality, in a well-performing supply chain, when the consumer clicks buy, the product is already nearing the end of its journey. To do this successfully and not return an ‘out-of-stock’ message to consumer searches, a visible supply chain is necessary.”[4]

Putting the Customer First

Even if your company gets the planning part correct and your shelves — real and virtual — are filled with desirable products, you’ve only met half the problem. Actually getting those products into the hands of consumers remains a challenge. With consumer expectations getting higher every year, retailers must ensure they don’t over-promise and under-deliver. That is particularly important this year because PwC analysts predict consumers are ready to open their pocketbooks.[5] Andrew Schmahl (@AndrewSchmahl), a partner at Strategy&, explains, “Today’s empowered shoppers are demanding more (e.g., lower costs, increased control and more options).”[6] This puts added pressure on manufacturers, retailers, and transporters. “Gone are the days,” Schmahl writes, “when logistics companies could get by simply focusing on operations. The ability to provide on-time deliveries now meets only a minimum standard of success, despite extreme weather and increased volumes going through the same infrastructure.”[6]

This year supply chain pressure could be exceptionally high. “Serendipitously,” writes Ann Grackin, from ChainLink Research, “Christmas and Chanukah fall at the same time this year. So, there will be no spreading out of the pain that retail logisticians and retail bean counters will feel about getting all those packages to customers on time to make them happy, and to recognize 2016 revenue.”[7] And with customers increasingly using the digital path to purchase, Grackin insists that putting the customer first demands a first-class omnichannel strategy. “Ecommerce sales continue to be the main factor in the overall retail growth,” she writes, “with current channel sales increase of 11% over last year. For many retailers, ecommerce is becoming a major part of their business, as much as 25% to 50% for strong brands. Some of this growth is also due to the growth of mobile sales, a source of promotional marketing/impulse decision making and price analytics.”

Technology to the Rescue

The one thing most analysts agree upon is that technology can help supply chain stakeholders meet some of their most pressing challenges. Grackin asserts retailers are spending money on technology but not fully leveraging its capabilities. “Retailers spending on tech, facilities, store makeovers and process transformation have gone through a lot of phases on the road to Omni, from website redesigns, new logistics strategies and warehouses,” she writes. “But not enough of the science methods that technology can offer is being adopted, such as forecasting based on this new reality.” The “science methods” to which she refers include predictive analytics and other advanced capabilities found in cognitive computing solutions. Cognitive computing systems can discover relationships, provide actionable insights, automate routine decisions, and improve optimization. Because cognitive computing systems can successfully handle many more variables than older computing systems (as well as structured and unstructured data), they are idea for today’s complex business landscape. Martin explains:

“The key, critical factors in the decision-making processes that shape market demand could be as simple as choosing colors, styles, sizes, models and demographics. Or, they can be as complex as selecting supply of inventory with long lead times, such as holiday fashion goods assembled overseas, or toys consolidated and assembled from parts made around the world that will need to be delivered directly and on time. More organizations are tapping into analytics and insights from social media to provide proactive insights into what people want and will buy. All of these elements have a profound impact on supply chain performance, and make it difficult to manage the many variables, trade-offs and supply chain complexities that organizations often face.”

Schmahl notes, “The advent of new technologies in recent years has made it possible for both retailers and logistics companies to simultaneously offer same-day delivery, click-and-collect options, and curbside and third-party location pickup. Although 72 percent of respondents still prefer home delivery of packages, our survey found that an increasing number of shoppers are open to various last-mile options they haven’t tried before, with 33% saying they would test curbside pickup and 28 percent saying they would test pickups at designated locations. What does that mean? Consumers are embracing new ways to shop, and logistics companies must follow suit. … In addition to using technology to help optimize delivery locations, logistics companies must also leverage new technologies to optimize delivery methods.”

Summary

Manufacturers, logistics firms, and retailers all feel the stress of the holiday season. That stress can be decreased if they ensure their supply chains are demand driven from the outside in and if they leverage new technologies — like cognitive computing — to help deal with the many complexities involved. Letting technology bear much of the burden should help supply chain professionals enjoy the holidays more.

Footnotes
[1] Roddy Martin, “Holidays: It’s the Time of Year to Test the Resilience of Your Supply Chain!Supply & Demand Chain Executive, 1 November 2016.
[2] Stephen DeAngelis, “Preparing Your Supply Chain for the 2015 Holidays,” Enterra Insights, 26 February 2015.
[3] Staff, “The Perfect Gift for Retailers this Christmas,” Kewill, 28 October 2016.
[4] John J. Boucher, “Why You Should be Planning For the 2015 Holiday Season Now,” SupplyChainBrain, 9 February 2015.
[5] Steven J. Barr, Allison Stone, and Krystin Weseman, “2016 Holiday Outlook,” PwC, 2016.
[6] Andrew Schmahl, “How Technology Is Driving Logistics This Holiday Season,” Forbes, 27 October 2016.
[7] Ann Grackin, “The Holidays Are Here. So Where is Your Omni Strategy Now?: Part One,” ChainLink Research, 26 October 2016.

Follow me on Twitter