It is peak season again for retailers. The retail community is heads down deploying final projects for this development season. This time of year also brings excitement of acquiring new customers, delighting existing customers, and hopefully making a big splash for the brand.
In our recent post on the evolution of logistics in retail, we noted that logistics is emerging as a competitive weapon for retailers. But yet, it is hard to forget the strain on the carrier infrastructure from last holiday season. Delivery failures caused many customer expectations to fall short, impacting retailers’ brands.
There is no time better than now to make sure history is not repeated. Retailers brands can emerge as a clear winner, not only with the shoppers wallets, but also their hearts and minds.
The battle for the shopper’s heart is where everything begins. As shoppers, our brand loyalty runs thin and our tolerance for disappointment is lowest during the holiday season. Following through on delivery times continues to represent a considerable challenge. The reality is that this is not a function of poor planning or lack of awareness. The problem is due to the complex variables and capacity fluctuations that the carrier network faces during peak season. Pivot Freight analyzed a large set of data from the past holiday season and found some relevant insights.
During the months of September to November, transit days (estimated transit days vs the actual transit days) on average took half a day longer than expected. Not only was supply strained, but consider safety stock and inventory costs also increased dramatically.
We also found that there are opportunities beyond last mile outbound. Supplier inbound, specifically vendor compliance and the use of non-optimized, static routing guides, not only cost retailers high margins, but also affect supply lines that can bottleneck an organization at the most crucial time of the year.
If a retailer has perfect awareness and control over rates and carrier decisioning, they are empowered to build highly effective holiday marketing campaigns around shipping costs. These shipping promotions are met with more leniency with the customer’s willingness to plan further ahead and accept longer delivery timelines.
Proactively Managing a Volatile Situation
When things do go wrong there is an opportunity to make a positive customer service impact. The challenge is that a company must first be alerted in order to recognize there is a problem.
By analyzing holiday data from last year we found that there is a spike in carrier exceptions around peak season. Savvy retailers understand that selecting the low cost carrier is not always the best option and other important metrics are considered. For example, looking at deliveries before exceptions (DBE) can save retailers much more than the lowest cost option.
With this spike in exceptions, most retailers do not have a framework to efficiently capture and standardize these metrics. All carriers report these metrics differently, making it more difficult. A prepared retailer uses an efficient application that proactively aggregates and normalizes exceptions. This creates an extremely efficient customer service team that can elevate brand status in the eyes of the customer.
A New Era
Carrier infrastructures are quickly evolving to solve for volatility in their industry. This holiday season retailers will see new pricing strategies such as dimensional pricing. To prepare, audit all packaging and materials to ensure they comply with the new dimensional pricing guidelines. Maximize cubes, reduce packaging size and use multiple shipping modes to reduce costs further. Lastly, consider new contracts with suppliers to lower packaging material costs based on the new requirements.
A Retailers Checklist for a Seamless Holiday Season
Focus on increasing warehousing and customer service employees at high volume locations. Account for spikes that require more people to handle inbound and outbound shipments. Plan on a high amount of returns so that they do not interfere with daily logistics operations.
Evaluate current distribution centers and augment if necessary to handle the expected volume. Consider short term warehousing contracts or partnerships with other companies that have capacity. Proximity to carriers, suppliers, and workforce availability are important factors when calculating DC placement.
Managing suppliers ensures inbound raw materials, finished goods, or drop-shipped products arrive on time.
Now is a great time to audit supplier performance and segment into tier 1, 2 and 3 categories. Begin speaking with all tier 1 suppliers to make sure they can handle demand for the upcoming season. There may be a premium to guarantee supply, but consider this a low cost alternative to angry customers who move to the competition when stock-outs occur.
Consider backups in case weather or other unforeseeable events occur. The west coast port shutdown this year forced many companies to react to avert failures. Consider all points of the supply chain and walk through common what-if scenarios. If a truckload of inbound materials encounters a snowstorm, what is the alternative? Suppliers in warmer regions, even if more expensive, can prevent disastrous bottlenecks.
A health check on technology is an absolute must this time of the year. Website and shopping cart functionality is the obvious place to start. It is also important to look at ERP, WMS and TMS software to ensure inbound, outbound, warehousing ops and customer service are all streamlined. Address pains in any processes now vs waiting until peak holiday season.
Customers, suppliers and operations are islands without vital logistics pipelines. Logistics are the main arteries between suppliers and customers that can cripple a supply chain if not optimized. This problem amplifies during peak season considering how reliant retailers are on the profits from this period.
First, determine appropriate modes for inbound and outbound logistics, factoring in expected volumes. Intermodal and full truckload (FTL) are low cost options for large volumes planned in advance. Less than truckload (LTL) allows much more flexibility, making it ideal closer to peak holiday season. If parcel is the preferred mode, consolidate orders into LTL shipments for a more efficient and lower cost distribution. LTL shipments are pooled into FTL line hauls and distributed via LTL carriers at regional hubs for amplified results. Do not forget to plan shipping deadlines and make sure that all carriers are able to meet them before informing customers.
Strong contracts and relationships with carrier partners are instrumental in a smooth supply chain. Rate carriers based on performance, cost and speed and be sure to compare prior holiday seasons. Tier 1 carriers receive the majority of shipments and secondary positions should remain backups in case of failures. A strong mix of regional and national carriers are a great strategy, but avoid spreading volume too thin across many carriers. Honoring contracts with strategic partners will prove invaluable during times of peak capacity.
This is the busiest time of year for requests for pricing (RFPs). Submitting an RFP now gives ample time to publish pricing before the holidays. It can be immensely beneficial to outsource an RFP to experts that have deep pricing knowledge and connections within the freight industry. Consider fees and charges that will affect the upcoming volumes. Shipping to consumers will require many residential and notification charges. Business moving through the northeast will incur many protect from freezing charges. Making note of services needed will allow the correct carrier mix and focus negotiations on what matters the most. If shipping many products from many suppliers, consider an FAK (freight all kinds) that can cut down on freight bill discrepancies. Be sure to research all carriers that are a good fit and use a strong historical data file to achieve optimal pricing. Pricing contracts are usually good for one year, so make it a habit to perform these annually around the same time.
There are high expectations for ecommerce and retailers this holiday season. Along with the explosive growth, comes enormous amounts of complexity and potential hazards. Understanding and planning for customer demand is just the beginning. Executing the plan requires operations, suppliers, and carriers working together. If successful, retailers can drive customer loyalty, increase profitability, and distance their competition.