Simple Strategies to Plan Ahead and Avoid Supply Chain Blues this Holiday Season
We’re headed toward the holidays at an alarming speed – and with that comes anxiety for our industry. For shippers, anxious to meet their biggest sales goals of the year; for customers demanding deliveries at warp speed anywhere and everywhere in the country; and for carriers who are expected to meet on-time deliveries under the most challenging market conditions. This is a time of year when competition is fierce, shipping and transportation budgets are challenged and customer expectations are never higher. Too many holiday hiccups in your supply chain and you can irreparably damage your brand and your business for the long haul.
Add to this mix, the unique complications and pressures of doing business amid Covid-19 and the 2020 holiday season just became an unmatched and enormous headache for shippers and their supply chain partners alike. So what can be done to reduce stress on yourself and your business?
Understand Market Conditions and Buyer Demand
Improving efficiency comes down to framing the factors that can drive sales opportunities as well as present logistical challenges up and down the supply chain. The pandemic drove shoppers online earlier this year, and that pattern isn’t changing. For shippers, the key to seasonal success is going to lie in mobilizing efficient operations earlier than usual to match shifting consumer buying patterns - now versus November - as well as being ready to manage appropriate inventories to meet the expected surge in online buying.
According to Adobe Analytics, year-on-year U.S. online sales of $60.4 billion are up 43 percent with more than a third of retailers expecting the holidays to bring a further 24 percent increase in sales. We're already seeing online retailers reframing their sales promotions to both take advantage of this increased online buyer activity but also spread the traditional Black Friday bottleneck throughout November and, in some cases, into October. Target, Kohl’s and Walmart all announced Black Friday store closures, driving online-only sales (although curbside pickup will be available), while brands like Home Depot have moved to online holiday deals for the whole months of November and December. Amazon’s Prime Day was extended to two days earlier in October, Target announced Deals Days and other, upcoming, promotional windows will continue to drive frenzied customer demand in the coming weeks and months.
Carriers are in the Driving Seat: Expect Unavoidable Rate Increases
The advent of Amazon Prime eight years ago began the process of recalibrating customer expectations on expedited delivery times. Fast forward to today and two-day or same-day delivery is the bar that everyone must meet, with additional factors like Covid-19 now pressurizing and disrupting the supply chain like never before. DTC shipping has doubled in the past two years and this is set to surge by almost 25 percent according to an eMarketer study. The growth has spurred steep rate increases from carriers as well as surcharges when shippers are now forced to parcel-ship any, and especially, oversized items to residential addresses just to meet fast turnaround delivery deadlines. We’re at a tipping point where market capacity for carriers is so tight they are beginning to turn away business. Expect this to continue throughout the season and get ready to have some tough negotiations with your carrier partners now, and then in January, after holiday returns have been processed, assess your overall strategy and plan early for contract renewals which are scheduled for mid to late 2021.
Short Term Strategies and Must Do’s
Having the right carrier – or carriers – in place as true partners is critical. It’s too late in the year to necessarily add new carriers now, so focus on optimizing everything you and your established, contracted carrier base do in order to maximize efficiency and keep costs down. If you haven’t already, consider moving available budget into the increased costs associated with DTC shipping, whether those come from increased residential deliveries or from a swing to more BOPIS. Offer discounts and promotions throughout the holiday buying season to help avoid a late surge in purchasing – and the logistics challenges that come with that. More sales ultimately mean more returns too - billions of dollars worth. Optoro, the returns processing giant, puts income lost by retail returns at $50 billion annually with $10 billion worth of that loss as needless shipments. The 2021 return volume will undoubtedly be larger still, so prepare now for returns throughout the end of January. Budget appropriately and make the process easy for the consumer, providing online, printable labels and clear, simple instructions that don’t tie up customer service support resources with enquiries at the busiest time of the year.
If you are operating a multi-carrier program, work with each of your carriers and be realistic in accurately forecasting peak volumes. Meet with them now to discuss how to best optimize operations and strategies to avoid congestion and to understand which decisions will impact transportation costs and other variables. Most importantly, at this time of year, it’s essential to stay flexible, to plan as much as possible, but dynamically shift between carriers if volume surges and fulfillment capabilities change suddenly.
Data Drive Decisions and Long Term Planning
When you’re out of the trenches and able to think about 2021, quickly put in to place plans that can optimize operations for the long run. Choosing the right inbound suppliers is critical as well as bringing a global sourcing perspective to immediate and long term needs. Source inventory strategically based on pricing, manufacturing stability and shipping efficiencies. Then look to an appropriately-diverse network of global suppliers to mitigate risk when world events disrupt that global supply chain.
If you do anything, invest in two things. First, a multi-carrier program and execution platform that allows you to operate with a degree of fluid flexibility and shift between carriers if and when supply, congestion or pricing fluctuations threaten your business. Secondly, invest in technology and a good data partner. Putting the right programs, partnerships and analytics in place can help drive truly strategic decision making even during troubled times like these. Must-haves include a comprehensive, multi-carrier warehouse management system that gives you transparent visibility of all supply chain operations from distribution to store shelf; and KPI’s that can help you monitor, measure and assess carrier performance, time in transit and overall compatibility with your long term mission and service quality standards.
Carrier Landscape Shifts to Know About
There are other changes coming to the carrier market that every shipper needs to know about as we get into the crush of holiday buying and shipping. American Shipper predicts a surge of shipper business is already headed toward regional carriers as the nationals – FedEx and UPS – work to strategically optimize margins while demand remains high. Several key things are happening here. Large, longtime shippers, who have traditionally received healthy volume discounts from FedEx and UPS, are being told to trim their peak volumes by as much as 20 to 30 percent, freeing up national carrier capacity to accept other business. For business that remains with the nationals, expect to pay more. The recently published tariff rate increase from FedEx, for instance, will range from 4.9 to 5.9 percent for 2021. Additionally, increases on 40 other surcharges are also planned for 2021.
The shifts are already impacting the regional networks where companies like OnTrac have added 20 percent capacity and LSO is reported to be expanding its network reach. If your business is vulnerable to these kinds of rate increases, if you’re in the position of parcel shipping large, singular or costly items, or if you’re being asked to cut your volumes, it’s absolutely time to seek regional carrier support and get a plan in place quickly.
Other Strategies to Think About
Are there other strategies and short term tactics that can help? Combining pool distribution and/ or zone skipping can help reduce shipping costs. This is the practice of consolidating individual parcels or larger less-than-truckload shipments (LTL) destined for the same geographies into full truckloads and then hauling the consolidated shipments to pool distribution centers in less expensive shipping zones. Items are then re-sorted at the centers and delivered to retail locations and residential customers. What about packaging costs too? Are you paying to ship dead space along with every product? Making a switch from carton to polybag shipping or utilizing on-demand packaging solutions – as has happened across many industry categories – can help you optimize carrier capacity and save as much as ten percent of your costs in some cases.
The Road Ahead: Final Takeaway
Covid-19 has taught us a valuable long term planning lesson. You have to be ready for anything and everything in supply chain management. Worldwide disruption, weather and geopolitical events, pandemic and unforeseen pitfalls. In shipper terms that means operating an omni-channel model, where the customer enjoys the same excellent experience across every retail channel, web and social interaction. For true long term success, we must all shift to a more advanced industry operating standard, where technology that informs strategies, omni channel execution that ensures quality of service and customer experience, and predictive, flexible planning can put us in the best possible position. A position to be informed, agile and able to handle any anxiety-causing issue that heads our way, whether that’s during the holidays or any time during the business year.