Sunday, August 31, 2014
Are supply chains ready for the holiday season?
No one can predict the future, but if one wants to manufacture right, sell the right products and be profitable, the formula to success is to forecast accurately. With increasing global competition, demand is no longer certain. The environment today is dynamic which has led the firms to realize the importance of understanding demand and linking the supply with demand. If the supply chain forecasts are wrong, the effects can be felt throughout the process. Forecasting is the key to reduce costs, however despite the developments in the field of forecasting methods, IT, machine learning etc most firms do a poor job of incorporating demand uncertainty in their planning process.
During the holidays, supply chains are under tremendous pressure to fulfil the extraordinary demand and volume of shoppers. Last year the average consumer spent $243 on Black Friday and Amazon saw 7.7 milllion unique visitors. The holiday season always puts a crunch on supply chain planning and strategy but with only 27 days between Black Friday and Christmas to coordinate all the activity happening between manufacturers, suppliers and logistics providers, a short season leaves little room for error. Even one or two fewer selling days during the holiday season can have a negative financial impact in retail if not prepared, so it's necessary for retailers to open early, clear lines of communication with manufacturers and logistics providers for demand forecasting, inventory needs and delivery dates. Timely communication and information flow is absolutely critical.
Companies should have a dedicated holiday supply chain strategy in place at least 6 months before the holidays. Firms use the idea of using the supply chain as a competitive differentiator. A flexible supply chain will allow the retailer to adapt to the swings in consumer demand and guarantee faster delivery. The reverse supply chain to handle returns should also be in place as it will improve customer experience, customer loyalty and satisfaction. This will also help to increase the value from returned products by processing them quickly and channeling them back into retail or alternate sales channels.
However holiday supply chain disruptions are inevitable and one cannot plan for every possible scenario. One cannot predict severe weather disrupting shipments or massive swings in demand but there are certain factors which are within a retailer’s control. Rigid supply chains do not allow companies to react to unexpected events and pose a risk of losing out on sales and damaging the firm’s reputation. Last year, Nordstorm had to tell about 1000 customers they would not be able to deliver their packages on Christmas day. UPS estimated it will handle 4 percent more U.S. packages over the holidays thanks to an expected 15 percent increase in online retail orders. They also estimate they will pick up 34 million packages on peak days. However they were victims of not forecasting properly and integrating the uncertainty in demand in their supply chain process. In UPS' case, the bottleneck was the number of aircraft it had in its service, which was not enough to meet the last minute volume spike. UPS had been forecasting an 8% average rise in its daily shipping volumes during the holidays versus 2012. However, ecommerce sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics.
I feel that today, with retailers training their customers to wait until the last minute to get the best deals, retailers offering convenient online shopping and same day deliveries, they must pay special attention to the forecasting techniques they choose and identify firm level variables which cause variability in the supply chain. Big data and analytics tools can help but equal importance should be given to an adaptable supply chain strategy.
Are the supply chains ready to deal with the wide range of convenience shopping options, increased volume of shoppers and increased consumer demand during the holiday season?