Your customers want products to be available every day of the year. But when the holiday season arrives, their anxiety about having that perfect gift or deal — on time — puts enormous pressure on your brand.
By approaching efficiency as a year-round problem and organizing your operations around the guiding light of product availability, you can turn the stress of the holidays into an opportunity to show customers your mettle. In this special edition of Chain Reaction, we're taking a look at the fundamentals of readying your supply chain for the busiest season of the year.
How to Get Your Operations Ready for Black Friday
The holidays are without doubt the biggest shopping season of the year. And people are buying more every year. In fact, shoppers in the U.S. alone are projected to spend $465B on gifts and other seasonal activities this year.
Each year, every player in the supply chain rallies its forces to give shoppers what they want. The United States Postal Service, UPS, and FedEx combined delivered a total of 1.8 billion packages in the last months of 2016. To provide the extra manpower needed for increased operations, 738,800 new employees were hired by retail and shipping companies. USPS, UPS, and FedEx hired 180,000 people. Amazon alone hired 120,000. These numbers show just how inflated demand becomes during the holidays — and consequently, how alert businesses must be to cash in on the retail spirit.
While the holidays in the U.S. officially begin on November 1, 25 percent of Americans report that they start shopping even earlier than that. Things get really serious on Thanksgiving Day, followed by Black Friday and Cyber Monday — both major opportunities for stores to offer discounts and get shoppers flooding their aisles.
With so many opportunities for customers to shop, the biggest problem brands encounter is predicting and meeting customer demand. Forecasting demand and having airtight communication is vital for success year-round. But it’s never more important than during the busiest shopping season of the year, when the stakes are higher for lost or late shipments. Vendors must be prepared for communication issues, weather-related problems, and supply chain disruptions. They also need to have flexibility when encountering such issues, since no two supply chain mishaps are alike.
In order to deliver on brand promise and make sure that products are readily available, here are some tips for businesses to secure the holiday season:
By forecasting demand, reinforcing on-the-ground labor, adapting with flexibility to issues as they turn up, and integrating communications across all operations — in other words, by running a tight supply chain — retailers will ensure that their products are in customers’ eager hands, and not languishing in distribution centers.
How to Make a Supply Chain Contingency Plan
In the last section we touched on a few ways businesses can be responsive and agile to capitalize on end-of-year demand surges. Let’s get more in-depth about one of the most essential components of a well-prepared supply chain — your contingency plan.
Weather disruptions, port closures, and human or system errors are just some of the things that can go wrong when you’re trying to move greater quantities of product, faster. Companies need to be smart about bracing their operations for disruptions — because they are essentially deciding to reorchestrate a new supply chain in a matter of days. A few operational best practices can help keep priorities aligned and keep teams proactive rather than reactive.
While these can be considered the three “pillars” of a great contingency plan, there are additional actions you should be driving across your teams to support these pillars:
Implementing Your Contingency Plan
After you identify your greatest sources of risk, it’s time to lay out a plan. Even the most carefully laid blueprint isn’t guaranteed to protect every aspect of your operations when put into action. But conducting regular dry-runs to test the readiness of your internal teams, and encouraging partners to do the same, can help to test the practicality of your disaster plan against real-world variables.
A strong contingency plan will have these components:
Remember that investing in a supply chain contingency plan is like buying insurance — time, manpower, and resources will be allotted towards something that your company will hope to never utilize. But as supply chain professionals know all too well, disruptions are a part of doing business. A contingency plan will help minimize production losses, fortify operational resiliency, and boost product availability and customer satisfaction — year-round.
How You Can Increase Your Profits Instead of Throwing Out Goods
It wouldn’t be fair to talk about preparations for the holidays without addressing the elephant in the room — all the returns that are going to inundate your reverse supply chain in January.
The National Retail Federation reported that last year more than 174 million Americans shopped from Thanksgiving through Cyber Monday (a mere five day window), exceeding their projection of 164 million. This translates to a 16% rise in holiday spending from the previous year.
Along with more purchases this season, consumer reports predict more returns — and most retailers' disorganized strategy for dealing with them will both sacrifice profit and send thousands of unused items to landfills.
“National Returns Day”
Americans send back more than $260B in goods each year according to data provided by Optoro, a logistics company. $69B of this, or over 20 percent of the total, occurs just after the holidays. In 2016 UPS alone predicted that it would ship 5 million packages back to retailers in the first week of January. And that’s not to mention returns through FedEx or USPS. Some industry leaders are even dubbing January 6 “National Returns Day” as it’s the day that seems to see the highest volume of returned packages.
Lost profits and growing landfills
Though the process of returning items has become streamlined from the consumer’s perspective, for retailers the growing amount of returns is cause for concern. When products are returned retailers achieve just 12-25 percent of what they would have originally earned. Unwanted items don’t come back to the seller through the same supply chain that brought them to the consumer. Instead, a separate — and inefficient — industry of reverse logistics exists solely for this purpose. Due to the high cost of processing returned goods through the systems most businesses currently have in place, most of them don’t end up back on shelves for purchase. The majority are sent to landfills or liquidated — sold at a discount to third party sellers.
In reality, as much as 70 percent of returned merchandise can be suitable for resale if companies have the right infrastructure in place. It’s vital to have well-staffed distribution centers where trained employees determine which goods can be recirculated, and rehabilitate those items. According to the Harvard Business Review, “companies that have been most successful with their reverse supply chains are those that closely coordinate them with their forward supply chains [...]. For example, they make product design and manufacturing decisions with eventual recycling and reconditioning in mind.”
Here are some tips for creating a reverse supply chain that serves your bottom line:
The holidays are a heady combination of all the things shoppers crave — big discounts, the ease offered by online retail, and no-strings-attached purchasing. But the billions of dollars worth of goods being returned each holiday season suggest that neither consumers nor retailers are always getting what they want. Retailers can minimize waste and earn back a profit on returned goods by having a plan for the inevitable.
Have A Plan of Action for Every Season
When talking about supply chain during the holidays, it’s easy to narrow in on the idea of contingency planning. It is vital to have a plan for when the reality of your supply chain doesn’t match the needs of your customers. However, contingency planning and other special measures should not be viewed as solutions in themselves. In other words, if you find yourself falling back on Plan B time and time again, it might be time to work on your Plan A. Year-round, your goal should be to provide for customers with enough precision that you don’t waste money over-inundating your operations with inventory. This is the only way to truly break the cycle of firefighting and unlock unprecedented speed in your supply chain.
To learn more about how to build a supply chain that is always ready for the unexpected, head over to our Supply Chain Best Practices page.
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