Unwrapping Seasonality Challenges
All retailers and vendors want for Christmas is supply chain success. Using logistics technology, savvy shipping strategies, and better planning, many will get their wish.
Parents won't score any points telling their children they aren't getting this year's must-have holiday gift because of aging U.S. infrastructure, port congestion, a lack of truckload capacity, and faulty demand planning. Likewise, vendors don't stand much chance using these excuses with retailers.
The holiday shipping season is make—or—break time for suppliers and retailers—economic, geopolitical, and technology issues notwithstanding. Getting the right products to the right place at the right time is never more critical—or more expected—than in the months leading up to the frenzied holiday rush.
Suppliers and retailers must gear up to optimize their supply chains and distribution networks to deliver high volumes of product in record time.
During last year's peak season, for example, consumer electronics giant Hewlett-Packard shipped 10.5 million products to U.S. retailers in the first 25 days of November alone. The company provides the retail channel with 60 percent more printers and PCs, and twice as many cameras, during the holiday season versus other times of the year, according to HP spokesperson Laura Wandke.
Holiday stress is felt all along the supply chain—from manufacturers and retailers to third-party logistics providers (3PLs), transportation carriers, and infrastructure outposts.
U.S. ports, for instance, handled a record 1.37 million TEUs last October, traditionally the busiest shipping month of the holiday season. That number will jump 6.5 percent to 1.46 million TEUs this October, predicts the National Retail Federation.
"The holiday season puts great pressure on all U.S. supply chains because everyone peaks at the same time," explains Larry Ravinett, senior vice president of logistics and supply chain solutions for National Retail Systems (NRS), a Secaucus, N.J.-based 3PL specializing in retail logistics.
"Forty percent to 50 percent of revenue for the year is earned in this very short time period," he adds.
Because manufacturers depend on the holiday season to post large revenue numbers, they don't want to be "the one whose merchandise is not on the shelves," says Brooks Bentz, a partner with consulting firm Accenture's supply chain practice.
Adding to the stress for suppliers is the fact that amid these heightened holiday conditions—which are piled on top of the already challenging transportation market characterized by infrastructure woes, tight capacity, rising fuel prices, and a driver shortage—retail stores are particularly demanding about maintaining on-time deliveries.
Retailers hire additional seasonal labor, and "they don't want those workers standing around waiting for shipments to arrive," says Ravinett.
A NEW APPROACH
Surprisingly, many vendors are not as spooked by seasonality pressure as they have been in the past. Traditionally, the peak season cocktail of lax pre-planning, mixed with poor supply chain visibility and expensive, last-minute shipments, meant missed sales opportunities and a killer post-holiday revenue hangover.
Over the last several years, after enduring record port congestion, an ongoing driver shortage, and a 10-day West Coast port shutdown that backlogged more than 300,000 ocean containers, the industry has better prepared to deal effectively with seasonality challenges.
The ghost of these Christmases past has haunted supply chain professionals into accepting pre- and contingency planning as a way of life during the peak season. The industry as a whole is making a conscious move toward employing proactive strategies and technologies to overcome capacity challenges and achieve the velocity needed for holiday season success.
"Because of our long-term relationships with our third-party logistics and technology vendors, we do not expect many surprises this holiday season," says Steve Revere, vice president of information technology for Wild Planet Toys, a San Francisco-based company that receives 300 orders daily from large toy retailers such as Wal-Mart, Toys R' Us, and Target during the holiday season.
Why the more upbeat attitude about peak season from vendors such as Wild Planet Toys?
"Shippers and retailers have gotten smarter," says Ravinett. "They are diversifying—for example, using multiple ports, such as Tacoma or Oakland on the West Coast, as well as East and Gulf coast ports, to bring in freight.
"In addition, importers transporting ocean freight from Asia have learned to depend on a mix of steamship lines," he continues. "They can pick transit times from 38 days to 11 days, using the ship as a way of holding back or speeding up the freight as needed."
Other strategies, such as blending domestic and import freight, using DC bypass, and improving the flow of supply chain information via technology and automation, have also helped ease some of the holiday burden for vendors.
On the service provider side, 3PLs and freight forwarders are contributing their knowledge at the point of origin, and nudging shippers to embrace effective inbound logistics practices. This has helped start the peak shipping season even earlier, as companies strive to mitigate congestion and avoid paying the highest shipping rates at the busiest times.
"Peak season now starts in late June or early July," says Bentz. "Companies are trying to position themselves to capitalize on the retail marketplace's desire to drive sales. Christmas merchandise appears in stores by August, so vendors naturally say, 'Let's start earlier.'"
Retailers—both online and off—have jumped on the early holiday trend. Nearly 40 percent of Internet merchants, for example, plan to start promotions earlier this holiday season than last year, with more than 62 percent beginning before Nov. 5, according to the eHoliday Mood Survey from Shop.org and BizRate Research.
EASING HOLIDAY HEADACHES
Suppliers and retailers that fare best in this holiday environment are those that make the necessary strategic changes and enhancements to their information, process, and technology capabilities, says Bentz.
Rather than dealing with seasonality challenges as they occur, companies must develop effective, long-term strategies that focus on inbound logistics practices.
Peak season shippers should position themselves to succeed in the following areas, according to Bentz:
Transportation network management. Develop a comprehensive, real-time view of the supply chain and of available transportation alternatives, including service options, cost/service trade-offs, and preferred providers.
Strategic transportation services sourcing. Use a holistic, multimodal approach to procuring transportation services, and leverage overlapping capacity and demand networks to optimize costs and service.
Demand planning and forecasting. Feed updated demand data to all trading partners, with enough granularity—such as specific information by day, week, or month—to enable proactive planning to meet capacity and service requirements.
Supply chain visibility and event management. Provide real-time visibility at the SKU level so inventory can be tracked, diverted, or reallocated as needed. By doing this, shippers can detect potential disruptions and identify and address bottlenecks.
In addition, vendors should open the lines of communication with their retailers and third-party partners. While many companies pay lip service to the importance of constant communication, actually executing on it makes a world of difference during the challenging peak season.
Take, for example, NRS' work with kids clothing retailer The Children's Place. "The Children's Place executives give us constant product and shipment updates," says Ravinett.
In its extensive pre-planning stage, The Children's Place shared its carton forecasts, volumes, and projections with NRS, and together the companies formulated new holiday distribution strategies including merging import and domestic freight, and shifting some order volume to NRS distribution centers.
The Children's Place also gave NRS, in advance of peak season, a container of freight to run through its system to test label reading, pre-scanning, and EDI messaging capabilities.
"We also work closely with FedEx, one of The Children's Place's major carriers, so we are all on the same page. Communicating and working in tandem is crucial," says Ravinett.
Effectively communicating demand to carriers is imperative for securing holiday season capacity, agrees Bentz. It also lands shippers in carriers' good graces because it helps carriers more accurately organize their schedules. And the more detailed information shippers provide, the better.
"Telling a carrier you expect to ship 50 loads per week during the holidays is not clear enough," Bentz explains. "If you tell a carrier you have 40 loads on Monday and 10 loads on Tuesday, the carrier can adjust to that schedule, or tell you it can't accommodate your freight. Sharing that level of information gives carriers an opportunity to deliver the service you need."
While the very nature of seasonality means the peak shipping season will always come with its fair share of headaches, savvy vendors and retailers work closely with their supply chain partners to maintain high performance during the most demanding time of year.
Here is a closer look at two companies that have optimized their supply chains to conquer peak season issues.
If your kids are between five and 12 years old, there is a good chance something from Wild Planet Toys is on their holiday wish list.
Best known for its SpyGear line of spy toys and its collection for the TV show SpongeBob SquarePants™, Wild Planet sells its imaginative products in nearly all major U.S. mass retail chains, as well as mom-and-pop toy stores, directly on its web site, and through distributors in 15 countries worldwide.
While its product lines, revenues, and sales channels have continued to expand since the company was founded in 1993, Wild Planet was saddled with a stagnant distribution process that made its busy season, which runs from August through January, anything but child's play.
"We make two-thirds of our sales for the year from September through right after Thanksgiving," says Wild Planet's Steve Revere. Keeping up with this volume was challenging because of a major bottleneck: its manual, multi-person ship-fill process.
Each day, Wild Planet employees printed a report detailing orders that didn't ship because items weren't in stock, then crosschecked it with inventory reports from its third-party logistics provider, Hayward, Calif.-based Orion Logistics, which handles the toy maker's order fulfillment.
Wild Planet clerks would then select orders for shipment, and enter them manually into the distribution module. The manual process introduced the possibility of human error, such as incorrect or duplicate order information.
In addition, workers had to repeat the process the next day to ensure these orders appeared correctly on the actual shipment report sent by Orion.
"Due to this manual process, we were never really sure what we had in stock," says Revere. "As a result, we sent orders to Orion that couldn't be filled."
SEARCHING FOR AUTOMATION
Realizing this outdated system was impeding its flow for the crucial holiday rush in 2000, the company began searching for an integrated distribution solution. Wild Planet wanted a system that would automate the entire ordering process—including returns—as well as support electronic data interchange, and provide accurate reporting.
It chose Epicor for Distribution, an enterprise solution offering order fulfillment, inventory tracking, customer relationship management, financial management, and reporting capabilities, from Irvine, Calif.-based business solutions provider Epicor. Since implementing Epicor for Distribution, Wild Planet has increased its fill rate by 40 percent to 85 percent, and now usually fulfills orders in 24 hours if it has inventory, according to Revere.
Under its new streamlined ship-fill process, the Epicor system matches orders to available inventory and, once approved by a Wild Planet employee, generates an order file to send to Orion. After Orion ships an order, it sends a file back to Wild Planet, which the Epicor system automatically matches up against outstanding orders. This way, Wild Planet receives accurate inventory information and knows exactly where orders are in the shipment process.
Having a ship-fill process it can depend on has allowed Wild Planet to approach the peak season more strategically, particularly when it comes to inventory planning, notes Revere.
"The biggest pressure we face during the holidays is determining who will take the inventory risk—us or the retailers. It is hard to predict what toys will be hot each season, so major customers such as Wal-Mart and Target usually place small orders at first, and hope that we will have in our warehouse whatever products become popular," he says.
In order to accommodate this model and capitalize on sales when its toys become popular, Wild Planet's supply chain must be nimble. Today, it is able to keep a close eye on product demand and boost production and shipping when necessary to provide retailers with additional inventory.
Coordination among its San Francisco headquarters, Hong Kong office, Asian contract manufacturing facilities, third-party providers, and retail customers is now electronic, allowing for seamless communication of demand information. The company pulls inventory data from its retailers daily and, "if we see a product with more than just a slight uptick in sales, we start ramping up production as much as we can," Revere explains.
In addition, the new system allows Wild Planet to balance inventory across its customers, and easily shift inventory concentration where it is most needed.
This strategy of "robbing Peter to pay Paul" helps boost profitability, says Rodney Winger, director, product marketing, manufacturing, and supply chain management for Epicor. "If Wild Planet's margins are better with Kmart than Wal-Mart, it can shift inventory away from Wal-Mart to the higher-margin store. That flexibility is important."
The company also has a better handle on demand planning and forecasting, which is crucial for any supplier during peak season. While predicting which products will become the year's must-haves is never an exact science, the additional reporting information Wild Planet gets from Epicor for Distribution has helped it create historical forecasts that work for both existing and new products.
"Last year, for example, the Wild Planet Lazer Tripwire spiked during the holidays. So the company can take that item's run rates and apply them to another product they feel is the hot ticket this year to forecast the new product against a previous one," explains Winger. "Wild Planet can use historical trends all the way down to a product group or individual SKU as part of that advanced forecasting process."
Having greater visibility and flexibility in ship-fill, inventory optimization, and demand forecasting has Wild Planet expecting a happy holiday.
Though dealing with the holiday season is difficult enough by itself, some companies face seasonality spikes during other times of year as well. Yuba City, Calif.-based dried fruit processor and distributor Sunsweet, for example, must make it through the busy fall harvest season before it can even plan for the Christmas and Easter demand cycles.
After growers harvest their fruit in August, Sunsweet's Yuba City processing plant—the world's largest for dried fruit—works in overdrive during September and October to dry and store the fruit so it can be processed and shipped throughout the year to retail grocery customers such as Albertson's and Wal-Mart.
To make matters more challenging, Sunsweet is a grower-owned marketing cooperative, so it faces high variability in terms of the volume, size, and quality of fruit it receives from each grower. It must process and package 20 different sizes and grades of prunes alone. And, Mother Nature being what it is, each year's weather brings variations in crop yields that greatly impact the business.
"We had two disastrous crop years back to back in 2004 and 2005; prior to that, we had 10 years of inventory surplus," says Harold Upton, vice president, strategic business processes for Sunsweet. "This year, we can't get the prunes in fast enough because we haven't had enough during the last two years.
"Ours is definitely not a just-in-time business model," he jokes. So, how does a company handle sales and demand forecasting to meet seasonal needs in such a volatile market? Very carefully.
To reduce inventory and transportation costs, improve order lead time, and increase supply chain efficiency, Sunsweet depends on Zemeter S&OP, an integrated supply chain planning suite from Supply Chain Consultants (SCC), a business process and technology firm with offices in Wilmington, Del., and Belgium.
Before implementing Zemeter, Sunsweet often racked up warehouse labor overtime to ramp production and maintain its 98-percent customer fulfillment rate during seasonal demand spikes. Sunsweet now prepares for its harvest and holiday seasons incrementally, which helps reduce additional labor costs.
PREPPING FOR PEAK
"By helping us accurately plan demand, Zemeter allows us to gradually build inventory up to a peak in October, using a static workforce," explains Bryce Treese, Sunsweet's supply chain director. "Keeping our labor force level throughout the year and reducing overtime is a key benefit."
The S&OP portion of SCC's software suite is crucial because it helps Sunsweet make effective decisions on how to deploy assets to meet demand projections. Sunsweet's planning and forecasting was previously done using complex spreadsheets, which inhibited planners from making frequent changes or testing different scenarios, and made collaboration with other internal departments difficult.
What used to be a quarterly sales forecast now happens weekly, allowing the company to react in near real time to marketplace changes such as better-than-expected sales of a new product, or a successful promotion with a specific retail partner.
"Our whole team—supply chain, sales/marketing, and procurement—meets every week to revise operational forecasts based on the data we receive from Zemeter," says Upton. "We are considering using this collaborative forecasting with our sales brokers as well."
Sunsweet has also improved its peak season transportation planning by analyzing data from its new system to take advantage of several cost-cutting strategies.
"We have minimized truckload shipments and cut freight costs by using intermodal more often," explains Treese. "Previously, we moved about 10 percent of our shipments to the East Coast via full truckload. In our last fiscal year, we reduced that number to less than 5 percent and increased intermodal loads."
The savings add up. Sunsweet's transportation cost per pound is up by only 12 percent this year, despite the 30-percent-per-gallon fuel price increase, Treese reports.
Sunsweet has also largely eliminated the need for costly, last-minute airfreight shipments to meet customer demand during peak seasons.
"Because we now have the ability to plan and build up inventory over a longer time period, we ship product over three or four months instead of two weeks," notes Upton.
Overall, Sunsweet is better prepared to meet—and prosper from—the demands of several seasonal spikes, while hedging against the inevitable uncertainty that characterizes its business environment.
By strategically utilizing its new visibility and forecasting capabilities, the company is well-positioned to enjoy the sweet taste of seasonality success.