Avoiding a 2014 Holiday Supply Chain Meltdown Requires Managing Customer Expectations

Stephen DeAngelis

November 24, 2014

Some of us have blessedly short memories when it comes to recalling unpleasant events in our lives. Golfers are even advised to enhance their ability to forget so that they are not thinking about their last poor putt as they address their ball on the next tee. However, having a short memory in business is not a good idea. Jim Tompkins (@jimtompkins), founder and CEO of Tompkins International, reminds us, “Holiday 2013 was a disaster for final delivery. The debacle was the result of the perfectly brewed storm, combining forces from inadequate delivery capacity, lack of discipline at several points in the supply chain, over-promised delivery times by retailers, and poor weather conditions across the U.S.” [“Holiday 2014: How to Avoid Last Year’s Disaster,” The Network Effect, 9 October 2014] He then asks, “Are we fully prepared to tackle Holiday 2014 in a better way?” If you are just now asking yourself that question, the most important thing you can do is manage customer expectations.

 

By all accounts, the upcoming holiday season is going to be busy one. Sam Jermy (@SamJermy) reports, that UPS anticipates an 11 percent increase in the volume of packages it will handle compared to last year. [“UPS forecasting record Christmas holiday deliveries,” Digital Supply Chain, 29 October 2014] UPS claims it is ready to handle that increase and it has had a year to think about how to ensure its optimism is justified. Dan Gilmore, Editor-in-Chief of Supply Chain Digest, notes that UPS was one of the companies that had difficulties last year. Back in February, he wrote, “I assume virtually everyone has heard there were some troubles with UPS — and to a much, much lesser extent FedEx — getting last minute ecommerce orders to customers before the end of Dec. 24 (2013), the day before Christmas, as were promised by the etailers to consumers based on service classes by the carriers. I do not know if there has been an official number, but I have heard as many as 5 million parcels did not make it under the Christmas tree.” [“Supply Chain News: Free Advice to UPS to Avoid a Christmas Fail in 2014,” Supply Chain Digest, 14 February 2014] Since Gilmore’s article was published on Valentine’s Day, I’m guessing he was trying to show a little love towards UPS rather than simply pointing fingers at its shortcomings. In the end, Gilmore said that the problems may have been unavoidable. Tompkins previously mentioned the unexpectedly harsh weather conditions faced by shippers. Gilmore notes there was also an unexpectedly large increase in last-minute shopping. He explains:

“The proximate cause was UPS having too few aircraft to move boxes in the final days before Christmas. But it might be fair to say that even after having added a couple of dozen planes for the holiday season and having other ‘hot spares’ available, UPS can’t be blamed for not bulking up for the what transpired: ecommerce sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics. On Monday Dec. 23, growth in online orders spiked by 63%, according to Mercent Corp. UPS was expecting an 8% year over year growth in volumes.”

As a result of those dramatic increases in last-minute shopping, it was inevitable that over-promised delivery times by retailers were not going to be met. Gilmore writes, “Retailers such as Toys ‘R’ Us Inc. and Dick’s Sporting Goods told customers they could place on-line orders as late as 11 p.m. on Monday, Dec. 23 and receive goods by the end of day on Tuesday. Are you kidding me?” Apparently they were. Having explained all that, Gilmore nevertheless concludes, “UPS cannot allow it to happen again in 2014.” I’m sure that is good advice for every organization that was involved in last year’s fiasco. The most important thing that retailers and shippers can do is make realistic promises to customers. I dare say that most plans for the holidays have already been put in motion by the large shippers. Jerry Hempstead (@GMHempstead), a former DHL executive, told Gilmore, “A carrier can’t just hire 100,000 people and lease 100 planes just in case more volume comes than the forecast provided.” Some companies have made significant efforts to meet growing demand. Amazon, for example, “has built 38 new fulfillment centers in North America over the past year and a half and an additional 15 ‘sortation centers,’ a new category of smaller warehouses where packages from the fulfillment centers are sorted by Zip Code. The sortation centers allow Amazon to ship packages directly to customers, rather than to the busy hubs of carrier partners like UPS, FedEx (FDX), and the U.S. Postal Service, Amazon’s partner on Sunday delivery.” [“Amazon’s Grand Plan to Avoid Holiday Delivery Snafus Again,” by Brad Stone (@BradStone), Bloomberg BusinessWeek, 26 September 2014]

 

Even with added capacities, companies need to ensure that customers have reasonable expectations. Tompkins told Gilmore that shippers like UPS, and the retailers that use those shippers, should “clearly define [customer] expectations … and be certain sufficient contingency (for weather and emergencies) is in place to 100% achieve those expectations. Based on the expectations, set clear limits for each … customer and do not allow customers to overrun those limits.” Admittedly, keeping customer expectations in check around the holidays is not going to be an easy task.

Toby Paxton, multichannel supply chain lead partner at Deloitte UK, was another analyst who watched customer expectations fall short last holiday season. He was telling retailers and shippers last February that it wasn’t too soon to begin planning for 2014 holiday shopping season. [“Comment: Preparations for Christmas 2014 need to start now,” Essential Retail, 12 February 2014] He wrote:

“[The] online retail revolution continues in full swing and supply chain is proving to be the key. Retailers, whose supply chain was not ready this Christmas [2013], suffered with delivery issues and costs hindering their performance. Even retailers that performed strongly, from a sales point of view, had their supply chain and customer service functions overwhelmed with many customers leaving it later than ever to order goods. Consumers’ confidence in flexible and fast delivery options has increased and demand over the festive period was so high it challenged even the largest carriers. It shows getting it right is harder than ever. Retailers must ensure they have enough stock in the right place, offer the right delivery options to meet customer expectations. All these factors must be addressed while still protecting profit margins. Those which failed to do so during the [2013] holiday season experienced increased supply chain costs, disappointed customers and lower margins. … The clock is ticking. Preparations for Christmas 2014 need to start now if retailers want to be able to deliver the reliable, flexible and efficient fulfilment service that consumers will expect. Time is already running out both for those catching up and for those who want to stay ahead of the retail revolution.”

Fairway Fulfilment & Logistics, a fulfillment and distribution firm, agrees with the analysts that key to success this holiday season is ensuring that customers understand that the magic of Christmas won’t get their packages to them on time. Making that happen will take a little pre-planning coupled with reasonable expectations. “Much of the debacle last year was simple bad supply chain management,” the company states, “failure to get orders out the door in time, and over-committing resources by several parties in the chain. This year, it is hoped, we have all learned to say ‘No, we can’t deliver another order on time, and we are unwilling to try’. Still, expect some disappointments, and make sure all of your suppliers and carriers are on board with the realistic strategy. It only takes one bad link after all.”