As Pandemic Winds Down, Supply Chains Prepare for the Holidays

Stephen DeAngelis

June 25, 2021

The 2021 holiday shopping season could be hugely successful if recent trends continue. For example, overall retail sales in April rose by 51.2% year-over-year. Michael Brown, a Partner in A.T. Kearney’s Consumer Products and Retail Practice, asserts, “Retailers need to review forecasts and inventory commitments for Holiday 2021 which could be a blockbuster. Waiting to see what happens this Spring will be too late for retailers to react.”[1] Greg Miller (@GMJournalist), Senior Editor at FreightWaves and American Shipper, agrees with Brown. He writes, “Christmas is still months away, but start worrying now about whether you’ll get what you want under the tree. It might end up stuck at the docks in China that morning.”[2] Both Brown and Miller base their predictions on the U.S. Census Bureau’s March retail trade report, which predicted a booming holiday season. Miller notes the Bureau’s numbers “highlight the enormity of the import challenge in the coming peak season.” Miller continues, “Despite the unprecedented boom in containerized imports over the recent months, the retail inventory-to-sales ratio has sunk to a new all-time low. And as retailers struggle to catch up, imports could be capped in the months ahead by a trans-Pacific shipping network that has reached its limit. That, in turn, implies more premium charges and even higher all-in costs for importers racing the holiday clock, which practically speaking, may be already ticking.” At the other end of the supply chain — the last mile — retailers should also be concerned about booking carriers to deliver all those goods once they have been purchased so they actually get under consumers’ trees in time for the holidays.

 

Avoiding the Shipaggedon Sequel

 

Heading into last year’s shopping season, Matthew Guffey, who oversees Global Strategy at UPS, observed, “Shoppers are buying more — and more often. More than ever before, customers enjoy e-commerce’s quality, convenience and security. More stores with their own loyal customers are also moving online, establishing and reinforcing new brand affinities. With the e-commerce boom, the logistics surrounding available products have become arguably as important as products themselves.”[3] Unless you suffer from a short-term memory problem, you remember the logistics nightmare — termed “shipaggedon” — that plagued the 2020 holiday season. Traditional last-mile delivery carriers, like UPS, FedEx, and DHL, were booked to capacity months ahead of the shopping season and retailers that failed to book carriers ahead of time searched in vain for alternatives. Even the U.S. Postal Service couldn’t help meet the demand. An estimated 700 million packages didn’t arrive in time for Christmas. Even strategists like Guffey didn’t anticipate the dramatic increase in online shopping due to the pandemic. Despite the fact that the pandemic is easing and brick-and-mortar retailers are opening back up, the 2021 holiday shopping season could see a shipaggedon sequel as consumers continue to shop online in record numbers.

 

Although the reopening of physical retail stores might help ease the logistics problem during the coming holiday season, I wouldn’t count it. Many analysts believe consumers are unlikely to give up their online shopping habits, even when the pandemic ends. Last September, Guffey noted retailers and carriers were like sailors who relied on the stars for navigation but were sailing under cloudy skies. He notes, “The COVID-19 clouds moved in fast, and they obscured the view.”[3] Timing couldn’t have been worse and shipaggedon was the result. Guffey writes, “It would be nice for us to have familiar guiding stars these days. Instead, we must rely on smart planning and smart contingencies: Plan A, then Plan B and so on. If COVID has taught us anything, it’s that flexibility and adaptability are necessary for survival now.” So what should be in retailers and carriers plans and contingency plans this year? At the very least, Guffey suggests, “Pay scrupulous attention to supply chains, inbound and outbound. Make foolproof arrangements for shipping your goods … and do it early.” Right now is not too early.

 

William Salter, CEO and president of Paragon Software Systems, observes, “Last-mile fulfillment is no longer simply the concern of the transport department tasked with driving down fuel costs and increasing first-time delivery. Every department needs to take responsibility for the customer getting the best service, particularly as it is the final, and in some cases only, direct contact a retailer will have with its customer. Getting this critical touchpoint wrong could damage the overall brand experience and ultimately have dire consequences for customer satisfaction and loyalty. Never is this truer than during the holiday season.”[4] Few things can be more devastating to a retailer/customer relationship than having a package arrive late for the holidays. Salter suggests taking five steps to prepare for the holiday season. They are:

 

Step 1. Use historical data to plan ahead. Since the pandemic resulted in a retail paradigm shift, this may be of limited value unless you are using very recent data. Salter recommends creating “what-if scenarios.” He explains, “By modeling what would happen if additional vehicles and drivers were used for two weeks, or deliveries made during the evenings and weekends, it is possible to see what the impact on your home delivery service would be with the same volumes from last year, or a 10% increase in orders.”

 

2. Make sure you have the right resources in place. Insufficient capacity plagued last year’s holiday season and could affect his year’s season as well. Booking capacity as early as possible is a good idea. Working with traditional carriers, retailers should discuss where the pain points were last holiday season and work out plans to avoid them this year.

 

3. Only promise what can be achieved. The old maxim “under promise and over deliver” is probably good advice when it comes to holiday order fulfillment. Keeping consumer expectations in check will help preserve customer loyalty. Encouraging them to order early is also good advice. Salter notes, “Over three-quarters of consumers say that they don’t feel pressured to shop early because they are confident that retailers will guarantee on-time delivery. There is enormous pressure to offer tight delivery time windows during the holiday season, but what’s really important is to deliver within the specified timeframe. Setting customer expectation correctly is crucial.”

 

4. Offer customers alternatives that remove the pressure on your delivery service. Encouraging consumers to use alternative fulfillment methods is also wise. Journalist Cathy Morrow Roberson (@cmroberson06) explains, “While there is much uncertainty about what post-pandemic shopping will look like, the definition of the last mile was already expanding prior to 2020 to accommodate consumers’ changing lifestyles and demands. Retailers and last-mile delivery carriers will continue to introduce new options not only to satisfy consumers’ needs but also to manage costs and improve efficiencies.”[5] Salter adds, “If your delivery operation has created a bottleneck in previous years, it might be worth incentivizing customers to pick up their orders from your stores. Click-and-collect at your own brick-and-mortar stores, or in conjunction with other non-competing retailers, could reduce the cost of your distribution considerably and may even be seen as a more convenient delivery option by many customers.”

 

5. Get your returns process in shape. Increased online sales also means increased returns. Salter observes, “We know that an increasing number of customers won’t purchase from a retailer if they don’t like the look of their returns policy. A returns policy needs to encourage consumers to buy, but it also needs to be backed by a process that ensures goods are available for resale as quickly as possible. If returns aren’t tackled swiftly, then a large amount of expensive inventory is either lost or left sitting in the warehouse, without any means of showing that it is available for resell. Make sure you have a process in place that inserts inventory back into the system as quickly as possible.”

 

Concluding Thoughts

 

In many ways, retailers and carriers are still navigating under the cloudy skies of Covid-19. What is fairly certain is that e-commerce will still be heavily involved in the 2021 holiday shopping season and retailers and carriers need to prepare now to meet the crunch. Undoubtedly, carriers will once again institute peak season surcharges, capacity will still be in short supply, and late shoppers could be disappointed when their purchases arrive late. All the indicators, with the exception of growing inflation, are that this will be a great holiday season for retailers. In order to ensure it’s also a great holiday season for consumers, every effort needs to be made to ensure the products they want are available and delivered to them on time. As Guffey writes, “Let’s candidly discuss challenges, risks and peak approaches.”

 

Footnotes
[1] Patrick Burnson, “Supply Chain Experts Share Analysis on New U.S. Census Bureau Report,” Supply Chain Management Review, 17 May 2021.
[2] Greg Miller, “Time to start prepping for Christmas shipping capacity crunch,” FreightWaves, 17 May 2021.
[3] Matthew Guffey, “A Peek at Peak 2020 … and a Plan of Action,” Longitudes, 15 September 2020.
[4] William Salter, “Is Your Fulfillment Operation Ready for the Holidays?” Material Handling & Logistics, 13 October 2017.
[5] Cathy Morrow Roberson, “Outlook 2021: Retailers redefining the ‘last-mile’ through expanded contactless fulfillment,” The Journal of Commerce, 15 January 2021.