The Fallout of Holiday Peak on Supply Chain
By Glenn Master
As we all are well aware, the holiday shopping season seems to be starting earlier with each passing year. It was 21 October when I saw the first commercial advertising for the last holiday season. To my surprise, however, I didn’t see many stories last year about people camping out for a week in the parking lot of a store waiting for the best Black Friday deals. There could be any number of reasons for this, but what we do know for sure is that retailers are now providing more options to consumers earlier in the shopping season than in previous years.
While holiday shopping patterns in retail stores is something we may all notice, there are other areas within the business that may not be as visible to the customer but are just as impactful on the business. The one thing that I have witnessed first-hand is how this new strategy is affecting the supply chain. “Peak,” as it is referred to, is the time leading up to Christmas when holiday order volume increases dramatically. That’s roughly fourteen weeks of what is now becoming pure chaos for logistics providers.
Based on projections, this is going to be a record season for retail, with a large percentage being attributed to online sales. While overall this may be good for business, this is nonetheless having a profound impact on the domestic supply chain because the infrastructure supporting all these parcels simply cannot keep up with the volume of products being shipped.
Here are three key areas where the industry is failing to keep up with the changes in holiday shopping habits and some basic steps that can be taken to solve this growing problem.
Volume Projections: It’s a Guessing Game
Most retailers have analytic models that produce estimated volume projections to determine the number of orders that will be passing through the supply chain network. This information is passed on to contracted transportation providers, allowing them to plan for the staffing models necessary to handle the anticipated product volume.
Despite all the computer analytics being used, the one thing that cannot be easily forecasted is how online ordering can be affected by the unpredictability of human behaviour. This is especially true from Thanksgiving Day through Cyber Monday. In talking with my loss prevention peers in both retail and transportation, consumer sentiment was grossly underestimated going into past holiday seasons. So regardless of the current political atmosphere, the Federal Reserve raising interest rates, or the ongoing tariff wars, United States consumers appear ready to spend money this upcoming holiday season.
This buying atmosphere creates both a positive and negative scenario for businesses in the supply chain. The obvious positive result is an increase in revenue. However, a less-than-ideal result follows when unplanned volume cripples the infrastructure that moves parcels along the supply chain. This would be the equivalent of a dam breaking fifty miles upriver with all the towns downriver flooded as a result—except the flood comes in the form of packages.
To avoid this type of catastrophe from occurring again, retailers must do a better job of preparing for a potential spike in online sales and projecting product volumes in real time. This may be challenging since most of these online orders are being placed during the Thanksgiving holiday when the majority of corporate America is out of the office. One solution would be to have retailers streamline the flow of information to logistics providers by providing daily volume-trend monitoring that is communicated immediately to transportation providers.
Transportation, Bottlenecks, and a Tangled Infrastructure
The majority of retailers that do business online don’t have their own transportation infrastructure. This means they have to contract out to third-party transportation companies to move freight. One of the most costly services in business is transportation. Therefore, most companies will look for the most cost-effective way to move that box from the warehouse to the client. This cost will vary greatly depending on several factors, which include:
- The time it takes to deliver the package
- The distance the package has to travel
- The method of delivery
Typically, the more convenient the process is for the customer, the higher the transportation cost will be for the retailer. As a result, most companies will look for a balanced approach that will satisfy both the customer expectation and the costs associated with transporting the order.
What this means is that everyone is ultimately contracting with everyone else, and parcels can easily transit multiple companies before reaching the consumer’s doorstep. With each touch point is an exposure to a parcel being lost or stolen. It is difficult to investigate losses in this network when volumes are normal. Add 50 per cent or greater volume in a very short time span, and investigating loss becomes nearly impossible.
Some of the contributing factors to this loss include lack of management oversight, misshipped packages, and theft that is camouflaged due to operational failures. It is critical for transportation providers to be able to plan and manage this volume appropriately.
The most common areas where loss occurs during peak are during the morning launch of drivers. This is when the terminal has the most amount of freight on the floor and the least amount of management oversight. Transportation managers should also focus on conducting spot audits of drivers prior to them launching. This will not only keep the drivers honest but also allow management to find misloaded packages that occurred by mistake.
A Tight Labour Market
The labour market in the supply chain has increasingly become very tight. If you look at any major fulfilment or distribution company, everyone is fighting for the same contracted employee. This becomes a booming industry for staffing agencies but also poses a challenge for them on finding suitable people to fill open positions.
To try and gain an edge, we are now seeing companies during peak season reducing or even eliminating their applicant screening process to get employees in the door. This may result in your contracted labour having criminal backgrounds, financial issues, or drug problems. In years past, jokes would be made in the loss prevention community that staffing agencies are resorting to hiring people on the steps of county jails after they bond out from a weekend incarceration. In recent times, these types of jokes are becoming more of a reality.
Reducing or eliminating the background-check process can have major impacts on your organisation, resulting in lower productivity rates, criminal activity within your operation, and a greater likelihood of theft.
The Impact of Shipping Globally
Add into this ongoing impact on domestic transportation, retailers are now taking e-commerce orders globally and shipping across borders. According to several recent marketing surveys, by 2021 global e-commerce sales will reach a staggering $4.5 trillion.
The result of this evolution on the supply chain is the development of the end-to-end service provider. These logistics companies support retailers as a hybrid solution, providing services that range from distribution, customs clearance, transportation, and final-mile delivery. It can include a mix of their own proprietary distribution centres and trucks mixed in with a vast network of contracted transportation providers, which can also incorporate national post offices in the final-mile delivery. If this sounds confusing, it’s because it sometimes is. However, if done correctly, it is a very sound and cost-effective method for the retailer to ship a customer order to someone who may be located on the other side of the planet.
For example, picture a consumer in Seoul, South Korea, ordering a pair of shoes from a US-based retailer. The order will be picked, packed, and shipped out of the retailer’s distribution centre in Atlanta, Georgia; however, the retailer is contracted with an end-to-end logistics provider. The parcel arrives at the provider’s US distribution centre, is scanned in, and then placed with other retailers’ packages all destined for Seoul. The end-to-end provider then uses a large network of contracted partners that will handle that parcel as it moves from the US to Korea. The key to this type of solution is volume. The more volume the end-to-end provider can get from the retailer, the lower the cost is to the retailer.
Having a Proactive LP Plan
Based on this very complex network, one may ask how anything resembling loss prevention can be incorporated into this model. The answer is simple. The shear growth of e-commerce is creating industries and sub-industries that did not exist five years ago. With retailers worldwide continuing to look for cost-effective shipping solutions and customers demanding more flexibility, it was inevitable these type of hybrid solutions would be created.
If the retailer has a direct contract with the end-to-end solutions provider, then the loss prevention responsibility will fall on that solutions provider. Remember that once the parcel is received, the provider essentially owns it. With a high probability and depending on how the contract is worded, responsibilities may include labelling, customs clearance, tracking, security of the parcel, investigation of losses, and claim liability if the package is lost or stolen. Therefore, it is essential that a comprehensive loss prevention programme is in place with the end-to-end solutions provider.
However, it doesn’t stop there. What about all these contracted companies that are used? Here is where the rubber meets the road and where loss prevention must have a proactive plan in place that consists of the following elements:
- A comprehensive security protocol that the contracted carriers must adhere to.
- A robust auditing programme that reviews compliance in the areas of security, scanning, and inventory control. As with most auditing, the basis is going to lie with the contractual verbiage that’s in place.
- Loss analytics that can identify trends by country, company, route, and final mile. The foundation of this reporting is looking for package exceptions where the scanning stops, or what is commonly known as “going dark.” This is very similar to what retail loss prevention uses when running exception reports, except you are looking for trends for all touch points in a global supply chain. Regardless of whether a package circulates the globe and touches five different companies, with a scan required at each touch point that can be reviewed through analytics, you can see where losses are occurring.
- Proactive communication with the carrier’s facility management, so they understand your expectations, loss trending analytics, and method of investigation. You will be surprised how receptive they will be to accept help and identify problems before they get out of hand.
The one caveat is that unlike dealing with transportation companies in the US, there are specific government laws in each country that may limit the ability to conduct certain audits. This is more directed at specific actions, such as reviewing criminal-background checks or drug screenings for employees verses operational processes. However, as a good rule of thumb, you should always check with your legal department and enquire about country-specific laws related to the transportation industry.
As e-commerce continues to evolve, so will loss prevention. We have literally entered a new era in how the consumer shops, and retailers must continue to figure out ways to ship these orders. This is true year-round but even more critical during peak season. What was once a supply chain dominated by a few large, proprietary companies is now expanding into a multi-faceted approach that involves a myriad of companies that must all work together to support this growth.
Glenn Master is a recognised industry expert with over twenty years of experience in loss prevention and security management. He has worked both domestically and internationally specialising in supply chain, transportation, and logistics. Master has held executive and management positions with companies such as Pitney Bowes, Newgistics, Office Depot, Henry Schein, and Motorola. He is cofounder and current board director of the International Supply Chain Protection Organization (ISCPO). He is also an adjunct professor at Texas Christian University teaching undergraduate courses in criminal justice, security, and LP management. He can be reached at Glenn.Master@pb.com.