Shipping Spree: Unlocking the Secrets to the Holiday Rush
In preparation for the peak holiday season, retailers and manufacturers reassess their supply chains to optimize planning and combat increased demand.
"The holiday season is the best of times and the worst of times for retailers and manufacturers," says John Heckman, president of the Augusta, Maine-based Merchant Shippers Cooperative Association (MESCA).
"It is great because everyone is busy and the economy looks good. But on the downside, capacity is tight, and shipments are extremely sensitive with regard to planning and replenishment."
But what may be a good business climate for carriers is not always ideal for shippers. Shippers always face volume issues around the holidays; this season four additional factors contribute to an increased drain in capacity, notes Heckman.
The first is a good up-tick in the economy. Second, the capacity of truck drivers is diminished. Third, the cost of fuel is on the rise and lastly, the uncertainty surrounding the Hours of Service Rule has limited what truckload carriers can accomplish with multiple stop deliveries.
The capacity crunch began with truckload shipments and has trickled down to LTL shipments, Heckman notes. This is bad news for those toy, apparel, and entertainment retailers gearing up for the holiday peak season. Timely deliveries are paramount and distribution channels must be filled simultaneously, leaving no room for errors or delays.
So how do retailers and manufacturers handle the challenges of product forecasting, increased demand, and expedited shipments during the holiday rush? It's no surprise they often rely on the help of logistics service providers to get them through the spiking demand the peak season brings.
Take KB Toys Inc., the nation's largest mall-based specialty toy retailer, for example. In an effort to keep up with the demand for toys and games during the holidays, the company decided to seek out a software solution that would allow it to improve global visibility and supply chain event management—and be ready to go live in time for the holiday rush.
KB Toys chose GT Nexus Enterprise Series 7 (ES 7) to manage all cross-border shipments in its global supply chain. The implementation was completed in time to provide the company with end-to-end supply chain visibility for its three-month, pre-Christmas peak season period, during which it ships the majority of its annual product volume, says Peter Weis, vice president, supply chain solutions, GT Nexus.
The implementation called for GT Nexus to configure and deploy a global private logistics network specifically for KB Toys and its supply chain partners, which include air, ocean, and truck carriers, third-party logistics providers, customs brokers, suppliers, and its five U.S. distribution centers.
With the solution, KB Toys can quickly and accurately identify exceptions in the supply chain, and then proactively manage them—a difficult but crucial process for retailers, notes Weis.
Effective supply chain execution is the difference between getting products to customers precisely on time to meet peak demand, and dealing with a shipment of goods that arrives late, he adds. KB Toys has seen an impact on its bottom line by reducing the amount of goods that arrive late to the retailer and then must be deeply discounted to move out of the stores.
Apart from the challenges associated with restocking shelves and keeping up with increased demand, toy retailers and manufacturers also have to deal with the increased pressure of congestion at the ports this season.
"Shipments from Asia are not being unloaded as quickly as manufacturers and retailers would like," notes Reyne Rice, a trend specialist for the Toy Industry Association (TIA), a New York City-based trade association for U.S. producers and importers of toys, games, and children's entertainment products.
"Once these shipments are offloaded, getting goods on the rail or on a truck is also very challenging because many carriers are overbooked," she says. Rice also points to the issue of getting the empty containers back to Asia, which has proven to be a "difficult task," she says.
Backups at the docks are a huge challenge for many retailers and manufacturers during this time of year, agrees Susan Warfield, secretary of the American Specialty Toy Retailing Association and owner of Retail Specialties, a toy consulting and sales representative group in Ely, Minn.
"As considerably more product continues to come from overseas, it becomes harder and harder to schedule shipments accurately," she says. "As a result, many retailers and manufacturers find their shipments sitting on the docks waiting for dock space to open up."
Because 50 percent to 60 percent of toy business for the entire year is accomplished in the fourth quarter, delays during the peak season can be devastating to toy manufacturers' and retailers' bottom lines.
Toy manufacturers must come up with innovative ways to combat the delays and get their products to stores on time, notes Rice. Companies will use expedited air service or reallocate orders when necessary.
"Savvy manufacturers will even watch to see when a competitive product has an out-of-stock position on a retailer's shelf," she says. "The manufacturer will then try to get the retailer to replenish the shelf with its own product."
Toy companies are not the only retailers that have to deal with the unique logistical challenges the holiday rush brings on.
For companies such as Olympia Sports, a retail sporting goods store with headquarters in Westbrook, Maine, and more than 120 stores throughout the Northeast, the holiday season "is like getting 10 pounds of material into a two-pound hole," says MESCA's Heckman.
With demand way up for Olympia Sports during the holidays, Heckman works with the retailer to review shipping and storing options for the last quarter of the year.
"The time from back-to-school until Christmas is the busiest time of year for Olympia Sports," notes Heckman. "We work with carriers to get storage trailers for Olympia so it can receive larger orders and get at those goods quickly when they are needed."
MESCA Freight also works with the retailer and its carriers to increase receiving hours and help the company manage its shipments so freight is not backed up at the ports. "During this time of year, companies can't get products on the shelves fast enough," says Heckman. "If the consumer walks in looking for something and it's not there, that customer is going somewhere else."
Managing Cross-Border Shipments
Matt Zaycer knows all too well the importance of satisfying the customer during the holiday season. As the Internet shipping and online customer service manager for David and Goliath, a small, Florida-based clothing and gift retailer, Zaycer receives approximately 300 online orders a day during the peak holiday shipping season in November and December. Of those orders, 30 percent are shipped outside the United States.
In seasons past, that slew of orders was more than Zaycer could handle. "Every time international orders came in, I would have to prepare the orders for shipping, which included filling out individual customs forms by hand," says Zaycer.
He would then load each package into his car and drive to the post office, where he waited in line and handed each order over the counter, one at a time.
"It would take two or three minutes to get each package ready to be shipped," he says. This is not the most optimal process at any time, and proved even worse with sales heavily skewed to the last quarter of the year. When David and Goliath started receiving more than 50 orders a day during the peak season, the company knew it was time for a new strategy.
With the company's previous shipping method, as much as 30 percent of packages were lost during shipment, resulting in replacement items or refunds to customers. And for those orders that made it to their international destinations successfully, it took up to eight weeks—clearly too long for shipments that needed to arrive for the holidays.
To successfully handle the increased demand, the company decided to implement UPS WorldShip software on Zaycer's desktop, allowing him to generate the requisite paperwork and shipping labels instead of filling out customs forms. Now when orders are ready to be shipped, a UPS driver picks them up and sends them via UPS Worldwide Express to reach all of David and Goliath's international customers.
The new solution allows the company to ship internationally in four to six days, or rush shipments in two days.
The switch from manual shipping to the software-based solution has allowed David and Goliath to make strides in its global business. The company is expanding its product line and plans to open more stores around the world.
Zaycer says the switch was necessary to help David and Goliath handle the spike in orders the company experienced during the peak season. Does he miss spending his afternoons waiting in line at the post office? Hardly. "It has been heaven," he says.
Just-in-Time for the Holidays
Holiday challenges may prove to be less of a headache this year for retailers employing just-in-time inventory management. Supply is becoming more in line with demand—a big help to retailers trying to forecast demand and manage inventory during the holiday rush, explains Peter Kopp, international product marketing manager for UPS.
As supply and demand become better aligned, the business models are beginning to change for retailers, he says.
"The retail season used to kick off in September and goods would come in from overseas to get stocked in warehouses for replenishment throughout the peak season," he says. "Now, companies order product up to the end of the Christmas season and use just-in-time inventory to match supply to demand."
Accurately matching supply to demand, however, sometimes requires the help of a third-party logistics provider, as in the case of Vancouver, British Columbia-based LUSH Fresh Handmade Cosmetics. The company produces luxury bath and beauty products for a catalog and e-commerce market and sees a huge surge in orders right around the holidays.
With international orders increasing by nearly 80 percent during December, LUSH uses UPS' Trade Direct Cross Border solution to help streamline and speed order processing and fulfillment.
The solution helps LUSH consolidate multiple orders at a UPS Supply Chain Solutions facility in Canada and move bulk shipments to the border, cutting the company's transportation costs. After obtaining clearance through customs, the bulk shipments are received at a UPS SCS logistics facility in the United States, where they are broken down into individual orders and delivered to customers at domestic rates.
In addition to cutting costs, the process accelerates order fulfillment and gives LUSH greater control over its inventory, minimizing the consequences of overstocking or running out of popular items—something the company benefits from during the peak season rush.
Finding enough employees to manage the extra inventory and order fulfillment process can also be a challenge during this time.
"We've reduced staff time spent tracking customer orders by 90 percent," says Sam Azad, LUSH's web and mail order development manager. "The entire process is very fast and seamless. U.S. customers rarely notice that they are ordering from another country."
While apparel and consumer goods are different from toys in that retailers usually have some idea of what they will be pushing this time of year, the holiday rush can wreak havoc on any supply chain not adequately prepared for the excess volume that comes with the peak season.
"When the tidal wave of orders hits, retailers need to be able to tell their suppliers, 'We need more, we need it now, and we need it fast,'" says Matthew Rizzo, senior solutions consultant for Rockville, Md.-based Manugistics, a provider of demand-driven supply chain management solutions.
"Companies that were shipping on a weekly basis, or even bi-monthly during the year, are now shipping at a much higher frequency—maybe even daily—and they need resources to help them plan and expedite shipments as needed," he says.
While the best planning may mean being able to forecast the hot item of the season, it can sometimes amount to no more than a guessing game—even for the most experienced retailers. "Forecasting that one big item seems to get harder and harder each year," says Warfield. "I recommend that retailers get product in early, in August, and give those toys a test run so they have time to put in another order before the holidays."
For retailers that tend to hold off on ordering until the last minute, staying in tune with vendors during the rush period and knowing their options can be the next best thing.
"The sooner retailers get in touch with vendors and service providers to tell them what's going on with their products, the sooner they can help determine a solution to best meet their demands," notes Kopp.
Being proactive is definitely the best advice, agrees Heckman.
"The time to plan for the holiday rush is Jan. 2," he adds. "Retailers should sit down with their transportation department or consultant in the beginning of January and analyze last year's problems. Ask, 'What can we do to plan for the coming year?' They need a backup plan in place for next year so they can avoid the issues that affected them this season."
After all, it's not just the retailers' business that's on the line, says TIA's Rice, taking a no-bah-humbug approach. "This is a very important part of a child's life so there is added responsibility to ensure that product is on the shelves and those kids are not disappointed."