Preparing Your Business for the Holidays? Don't Forget These Supply Chain Essentials

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:

• Start forecasting early. Check inventory and monitor consumer reports to predict which products are going to be in demand.

• Fix communication issues early on and perform stress tests. Communication with suppliers, manufacturers, logistics, etc. should be ironed out. There should be a game plan for unexpected hiccups, and everyone should be on the same page with regards to deadlines in order to avoid preventable chaos.

• Make sure your seasonal workforce is prepared with the same tools and knowledge as your regular workforce. They should be properly trained for anything that may go wrong and should have everything they need to be proactive in pressing logistical situations.

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.

• Check your current contingency plan and when it was last revisited. If you find yourself blowing the dust off old binders, you likely won’t find relevant information. Furthermore, it is much easier to make tough decisions on trusted protocols and standards. Contingency planning doesn’t only help increase resilience, but it helps companies take decisive preventative actions before disaster strikes. It is also important to revisit your contingency plan after the fact to assess how your current protocols fared. Don’t be afraid to revise your process as you measure it against reality.

• Be ready to master new information quickly. When in the face of disasters, it’s easy to let chaos reign. But this approach will halt your remedial efforts and result in missed opportunities. Remember your goal: customer satisfaction. With that value as your beacon of light, you can master the necessary information to move at-risk shipments, for example, or purchase dwindling materials from alternative suppliers to seize limited resources before competitors. Mastering the information will put you ahead of the chaos tornado, rather than getting swept up in it.

• Make information available as you rally your troops. Transparency will help you mobilize the the necessary agents through a centralized communication system. This will help you harvest brainpower and jump into action, rather than bouncing emails back and forth, wasting time and energy, and increasing the risk of operational impacts. Don’t try to resolve the problem in siloes or through personal heroics. The more connected your supply chain is across functions and the more information you make available, the faster your teams will move toward resolution.

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:

• Take precautionary measures throughout your operations; minor, risk-mitigating actions (e.g., data backups) taken in the present can payoff immensely in the long run.

• Consider your suppliers' contingency planning strategy when selecting vendors, and test them regularly with different scenarios. They should be able to answer the following questions: How will they ensure continuity of supply should a disruption occur? What alternative plants/factories/sources of supply do they have at their disposal?

• Communicate with customers to keep them informed of any delays, changes, or other relevant information that could impact their brand experience.

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:

• Flexibility — Even after a disruption occurs, you can’t be sure how it will unfold or what aftershock effects will transpire. Give employees the tools they need to transition quickly into recovery mode under shifting circumstances.
• Specificity — Create an actionable crisis communication plan that leaves no questions unanswered. By assigning clear roles, you can prevent resource-draining miscommunications on the ground.
• Systematization — Your contingency plan is of little value unless all relevant stakeholders are trained on it and prepared to jump into action when a disruption does occur. A strong, detailed plan can provide workers with the big picture rather than a series of disconnected steps.
• Awareness of vulnerabilities — Every business is unique; factors like product mix, geographic location, and the structure of your supply chain will all determine which pain points your own particular plan should address first.

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:

• Have an effective labelling system to organize returns by product type and quality. This will help you determine whether products can be returned to shelves or should be outsourced to a third party, as well as identify the channels through which to resell them. Developing quality standards and tracking items with barcodes will help to streamline this process. This should be an early step in the reverse supply chain and will require close coordination with your distributors, as well as dedicated facilities for sorting.

• Know your forward supply chain so you can coordinate logistics around your return supply chain. Just like you need to have accurate predictions about demand, being able to estimate the volume and nature of returns each year will help you prepare in terms of workforce and facility space. To be able to do this, you need to capture reliable data about the flow of goods across your supply chain and to your customers.

• Consider refurbishing products that can’t be directly resold. For certain industries and product types, this can be an incredibly practical solution — but it will require flexibility at the manufacturing level, as supply and demand for refurbished goods is less predictable and involves more variables. Invest in research to explore new markets for refurbished or recycled goods at a lower cost.

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.