Handling the Seasonal Peaks in Retail Supply Chains

by Michael Stockdale on 2013-01-06

Michael Stockdale Most supply chains contain some degree of seasonality, but few more so than retail with its numerous events each year such as Eid, Christmas, and Diwali. These events create enormous spikes and troughs in their respective consumer demand cycles.

The range of retailers affected is broad, stretching from the local coffee shop operator to automobile dealers. Not only does demand increase exponentially during the Christmas season, but the urgency attached to that demand by the consumer is likewise increased exponentially.

Behind the scenes, each organisation large and small must plan, prepare, implement, and oversee their supply chain strategies to handle these peaks in demand; blow it and it may cost the organisation dearly, perhaps fatally; get it right and the organisation benefits not only financially (some retailers make half their annual profit in December), but in its brand perception, customer loyalty, and team morale.

With a combination of increasing competition, the GFC bearing down on financial performance, and the introduction and growth of the e-retailers, the pressure on getting seasonal supply chains right has never been more intense. The old adage of “right product, right place, right time” now has some additions; “in the right quantity, at the right price”.

Many of us are well versed in the “7P’s” philosophy; “Proper Planning and Preparation Prevents Particularly Poor Performance”, or its similar variation.

Observing this philosophy, nearly every large retailer around the world will be taking steps each and every month of the year in the planning and execution of their festive season supply chain. Indeed, handling an event of this magnitude may be a full time job for an individual or an entire team in some organisations.

Their annual diary may pan out something like the following;

JANUARY; When the Christmas and New Year Sales are done and the dust settles, the management team or dedicated task force makes their analysis of the entire event; the effectiveness of the planning, the implementation, what worked, what didn’t work, where were the bottlenecks, what risks were not foreseen, what inventories are left over and where, financial performance, and so on. Overstocks must be addressed and learning’s taken into account in the next years planning.

FEBRUARY; Plans start to be outlined for the next festive season, and some purchase orders (PO’s) may even be placed with overseas manufacturers (production and delivery lead times can be up to 18 months for some items).

MARCH; Demand forecasts are generated for normal ranged items and for seasonal lines. If relevant, this years “buzz” lines are identified and all sales and order forecasts are reviewed by the stakeholders (marketing, finance, supply chain, operations).

APRIL; PO’s are placed on vendors or indicative forecasts sent. Anticipated stock on hand figures are calculated for the period, store allocation quantities and schedules determined. Resources such as storage space, MHE, and manpower are reviewed and additional support arranged.

MAY; PO’s may continue to be placed and supply commitments taken from the vendors.

JUNE; Business Continuity Plans (BCP’s) are raised for any anticipated possible business disruption.

JULY; Stock-builds at the DC’s may begin as early as July, with deployment of the seasonal product range into the frontline stores commencing around September.

AUGUST; Transport schedules are planned in consideration of changed traffic patterns and increased volumes. After-hours receiving into stores needs to be arranged for access and labour availability. Expense budgets must be constantly monitored to ensure that the many additional costs fit in with the annual budget that was submitted to Finance Department late last year.

SEPTEMBER; The initial allocations of stock are made into the stores, generally light and designed to simply demonstrate the range to customers, to let them know “we are in the Christmas business”.

September is also the time when many of the recruitment drives are ramped up to bring on the army of temporary workers to handle the increased workloads. This goes for retailers, e-retailers, 3PL’s and couriers. For example, this year in the US alone, Amazon hired over 50,000 additional workers for their fulfilment centres, Toys-r-Us hired 45,000, UPS hired 55,000 and Walmart 50,000. The sourcing of specialist skills such as MHE operators, the overall application process, selection, training and induction of temporary staff is a mammoth project on its own.

OCTOBER; Security is bolstered, and more stock-builds into stores are made.

NOVEMBER; Final allocations/stock-builds are made into stores

DECEMBER; Its “all hands to the pump” as the entire team races to keep up with demand. In many organisations, even Head Office staff will be deployed into stores in the final week to help out with gift wrapping, moving stock, and assisting customers.

And then the annual cycle starts again.

While the demands of seasonality continue, the retail landscape continues to evolve. As competition increases each year, larger organisations are seeking advantage through scale and technology.

For example, in order to drive responsiveness to customers requirements, Amazon have designed a global supply chain network with a regional approach, opening 18 massive Fulfilment Centres (FC) this year alone, some exceeding 1 million sq ft in size. Each FC uses a pick-by-hand approach, facilitated by handheld readers, but after the packaging stage, nearly all processes are automated using lengthy conveyer systems and automated sorting.

Other large retailers, using cloud technology, constantly monitor their inventory levels within their many stores and DC’s, managing stock levels by moving prices or redeploying inventories within their network.

Over a third of the world's population now have access to the Internet, and mobile phone uptake has increased by more than 600 million in the past year to over six billion. As a result, the supply chain is under more pressure as it is stretched across multichannel requirements.

The e-retailers, while coping with their already substantial growth, are discovering that traditional supply chain practices don’t work for them, and are also very much exposed to the seasonal demand peak at this time of year.

For some, the absence of a network of “bricks and mortar” stores may remove one element of complexity from the supply chain, but new challenges arise; without stores, the extra storage space they could provide is not available. The additional single item picking, VAS and packaging required to satisfy customer orders increases far more than simply picking an outer shipper box for a store, and handling the volume of direct-to-consumer deliveries and their accompanying customer enquiries is a challenge in itself.

But its not all about scale and technology. The most important thing in any organisation, large or small, is teamwork. “In my experience you need to have the right people, people who really enjoy the detail and rigour of master data and planning. If you have a business where the people engaged in this area work as a team all playing for the team and not the individual department then it will all come together” says Steve Doyle, Managing Director of the hugely successful Super Retail Group.

Seasonal peaks also present a challenge for carriers and couriers. Emirates SkyCargo plans well in advance based on previous and current trends, managing additional freighters to match the anticipated demand. Ram Menon, Senior Vice President Cargo at Emirates advises 3PL’s and supply chain managers to “anticipate and advance purchase the capacity as early as possible or else risk finding last moment capacity which generally comes at higher premium”.

To illustrate what the peak means in the volume of parcels for couriers, UPS alone will deliver 527 million packages in the four weeks leading up to Christmas this year, peaking on 22nd December when they will be delivering 300 parcels per second. This required UPS to arrange an additional 400 flights per day for the period.

Regardless of whether the organisation is a retailer, e-retailer, 3PL, carrier or courier, handling the festive season logistics requires a combination of;

- realistic demand forecasting
- careful and consultative planning
- a resilient supply chain with “sense and respond” capability
- continuous monitoring
- risk management
- team effort
- customer focus

So when you are being squeezed in the crowded malls, waiting in line at the store checkouts with gifts in hand, or waiting for your special parcels to be delivered to your door it is easy to forget about the vast efforts that so many teams of great professionals have made to get your items to the right place at the right time in the right quantities at the right price.

Michael Stockdale
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