Retailers need better planning and an improved infrastructure to support the changing habits of the retail customer.
As we all are well aware, the holiday shopping season seems to be starting earlier with each passing year. It was October 21st when I saw the first commercial advertising for the 2017 holiday season. To my surprise, however, I didn’t see many stories this year about people camping out for a week in the parking lot of a store waiting for the best Black Friday deals. There could be any number of reasons for this, but what we do know for sure is that retailers are now providing more options to consumers earlier in the shopping season than in previous years.
While holiday shopping patterns in retail stores is something we may all notice, there are other areas within the business that may not be as visible to the customer, but just as impactful on the business. The one thing that I have witnessed firsthand is how this new strategy is affecting the supply chain. “Peak,” as it is referred to, is the time leading up to Christmas when holiday order volume increases dramatically. That’s roughly fourteen weeks of what is now becoming pure chaos for logistics providers.
The official numbers for the 2017 peak season have yet to be tallied, but based on projections this is going to be a record season for retail, with a large percentage being attributed to online sales. While overall this may be good for business, this is nonetheless having a profound impact on the domestic supply chain because the infrastructure supporting all these parcels simply cannot keep up with the volume of products being shipped.
Here are three key areas where the industry is failing to keep up with the changes in holiday shopping habits and some basic steps that can be taken to solve this growing problem.
Volume Projections: It’s a guessing game
Most retailers have analytic models that produce estimated volume projections to determine the number of orders that will be passing through the supply chain network. This information is passed on to its contracted transportation providers, allowing them to plan for the staffing models necessary to handle the anticipated product volume.
Despite all the computer analytics being used, the one thing that cannot be easily forecasted is how online ordering can be affected by the unpredictability of human behavior. This is especially true from Thanksgiving Day through Cyber Monday. In talking with my loss prevention peers in both retail and transportation, consumer sentiment was grossly under-estimated going into the 2017 holiday season. So, regardless of the current political atmosphere, the federal reserve raising interest rates, or the potential that North Korea may launch a nuclear bomb, U.S. consumers were ready to spend money this holiday season.
This buying atmosphere creates both a positive and negative scenario for businesses in the supply chain. The obvious positive results in an increase in revenue. However, a less-than-ideal result follows when unplanned volume cripples the infrastructure that moves parcels along the supply chain. This would be the equivalent of a dam breaking 50 miles up-river with all the towns down-river being flooded as a result—except the flood comes in the form of packages.
SOLUTION: To avoid this type of catastrophe from occurring again, retailers must do a better job of preparing for a potential spike in online sales and projecting product volumes in real-time. This may be challenging since most of these online orders are being placed during the Thanksgiving holiday when the majority of corporate America is out of the office. One solution would be to have retailers streamline the flow of information to logistics providers by providing daily volume-trend monitoring that is communicated immediately to transportation providers.
Transportation, bottlenecks and a tangled infrastructure
The majority of retailers that do business online don’t have their own transportation infrastructure. This means they have to contract out transportation companies to move freight. One of the most costly services in business is transportation. Therefore, most companies will look for the most cost-effective way to move that box from the warehouse to the client. This cost will vary greatly depending on several factors, which would include:
- The time it takes to deliver the package,
- The distance the package has to travel, and
- The method of delivery.
Typically, the more convenient the process is for the customer, the higher the transportation cost will be for the retailer. As a result, most companies will look for a balanced approach that will satisfy both the customer expectation and the costs associated with transporting the order.
What this means is that everyone is ultimately contracting with everyone else and parcels can easily transit multiple companies before reaching your doorstep. With each touch point is an exposure to a parcel being lost or stolen. It is difficult to investigate losses in this network when volumes are normal. Add 50 percent or greater volume in a very short time span and investigating loss becomes nearly impossible.
Some of the contributing factors to this loss include lack of management oversight, mis-shipped packages, and theft that is camouflaged due to operational failures. It is critical for transportation providers to be able to plan and manage this volume appropriately.
SOLUTION: The most common areas where loss occurs during peak is during the morning launch of drivers. This is when the terminal has the most amount of freight on the floor and the least amount of management oversight. Transportation managers should also focus on conducting spot audits of drivers prior them launching. This will not only keep the drivers honest but also allow management to find mis-loaded packages that occurred by mistake.
A Tight Labor Market
The labor market in the supply chain has increasingly become very tight. If you look at any major fulfillment or distribution company, everyone is fighting for the same contracted employee. This becomes a booming industry for staffing agencies, but also poses a challenge for them on finding suitable people to fill open positions.
To try and gain an edge, we are now seeing companies during peak season reducing or even eliminating their applicant screening process to get employees in the door. This may result in your contracted labor having criminal backgrounds, financial issues or drug problems. In year’s past, jokes would be made in the loss prevention community that staffing agencies are resorting to hiring people on the steps of county jails after they bond out from a weekend incarceration. In recent times, these types of jokes are becoming more a reality.
SOLUTION: Enforce your background check process instead of skipping this important activity. Reducing or eliminating the background check process can have major impacts to your organization resulting in lower productivity rates, criminal activity within your operation and a greater likelihood of theft.
People say there are no guarantees in life. I tend to disagree as it relates ecommerce. The trend has been and will continue to be unprecedented growth. With this growth brings numerous challenges to an infrastructure that was not designed to move millions of packages in a short time period such as peak. Without substantial investment and planning Peak Season in 2018 will be just as challenging for industries that are tasked with getting that holiday gift to the consumer.
Glenn is the Co-Founder and inaugural Chairman of the ISCPO. He currently is employed with Newgistics as the Director of Loss Prevention and as an Adjunct Professor at Texas Christian University. He has over 20 years of Loss Prevention experience both domestically and internationally with companies such as Motorola, Henry Schein and Office Depot. Glenn’s educational background includes a Master’s Degree in Criminal Justice from the University of Cincinnati and Bachelor’s in Criminal Justice from the University of Texas-Arlington.