Supply Chain Management: The holiday shipping wars
January 03, 2014 - MMH Editorial
“Don’t let your mouth write a check your rear can’t cash.” That’s a phrase I used to hear in the blue collar bars near the steel mills outside of Youngstown, Ohio. Mostly, it referred to guys who shot off their mouths after one too many boilermakers.
I was thinking of that after reading about the holiday shipping snafus that left thousands of customers with empty stockings on Christmas morning while their packages stacked up in UPS and FedEx logistics hubs. What I wondered is whether our retail customers – and the order fulfillment systems we’ve created for them – have written checks our rears can’t cash? I’m also wondering if there isn’t a cautionary note there for the new frontier of same-day delivery.
Looking back, this was an unusual holiday season. Much has been written about the fact that there were only 26 days between Thanksgiving and Christmas to shop. Perhaps that was a factor, but let’s get real: Everyone knows that Christmas falls on December 25. No one says to their loved ones, “sorry I didn’t get you a gift, but I only had 26 days to do my shopping.”
The truth is that if you look inside the numbers, many, many shoppers put off shopping until the week before Christmas, especially online shoppers. IBM Digital Analytics estimated that “web sales jumped by 37% from the year before” during the weekend before Christmas.
And why wouldn’t they? Retailers have trained shoppers to wait until the last minute in order to get the best deals. At the same time, customers have been told that ordering online is so much easier than buying in the store. What they haven’t told them is that the ordering is easy, but order fulfillment is hard. And order fulfillment is where the rubber hits the road: Marketing departments are promise makers. Those of us who work in distribution and transportation—especially the final mile delivery—are the promise keepers.
And, that’s where our mouths may have written checks our rears can’t cash. As we push out order cut-off times, it gets harder to keep those promises, especially during peak season. With same-day delivery, it will only get tougher. I took away a couple of lessons from watching this year’s season that I think are relevant going forward.
Order fulfillment doesn’t end at the shipping dock door: At least one high profile retailer – Nordstrom – told its customers that it had gotten their orders packed on time but its logistics partners didn’t get them delivered. I doubt that was much comfort on Christmas morning. The reality is that when it comes to e-fulfillment, we really are part of a supply chain process that doesn’t end until a package is placed in the customer’s hands. In the future, as we promise more aggressive order cutoff times, managing that entire supply chain process – including the last mile - is going to become more important for distribution center managers.
The best-laid plans are still subject to the weather: When a snow and ice storm hits major sections of the country, few of us are surprised that our friends and family are stranded at airports, bus stations or highway rest stops. We all know bad weather tangles up transportation networks and that it sometimes takes days to untangle them. Yet, we were somehow surprised that the same weather that grounded commercial flights this holiday season also slowed down the delivery of our parcel packages. The lesson: No matter how much UPS, FedEx or the USPS plans for the peak holiday season, planes, trucks and delivery personnel are subject to the same mechanical breakdowns and weather delays that strand the rest of us. In fact, UPS has said that it began to get backed up when an ice storm hit Texas, on December 6.
We need to carefully think through our same-day delivery promises: Much has been written about how parcel delivery services were over-whelmed by this year’s peak volume. When it comes to same-day delivery, every order is a peak delivery, with little or no room for error or recovery. What’s more, very few customers are going to want to wait for delivery between 7 AM and 4 PM, the way we have to wait for the cable guy. If same-day delivery to households is going to work, we have to devise systems that can fulfill and deliver an order in some kind of reliable time frame.
Last week, when the e-commerce wounds were still fresh, I ran some of my takeaways by Jim Tompkins, CEO of Tompkins International (http://www.tompkinsinc.com). Over the last year, Tompkins has written extensively about Amazon’s impact on e-fulfillment for the past year. This year’s breakdown was not a surprise to Tompkins. His takeaway: “We have designed materials handling systems to maximize speed and minimize variability inside the four walls,” he told me. “But outside the four walls, we can control the speed of delivery only to the extent that we can control the variables of demand, capacity and weather.”
Tompkins says that retailers need to realize that when the days they have for recovery go down, they have to plan for excess capacity. And, when everyone has been trained to wait until the last minute to order, with promises of Christmas Eve deliveries for orders placed on the 23rd, those variables were just too much to overcome. “If last year you promised delivery for orders placed by the 20th and you expect volume to spike, you need to reduce your promise and plan for the 18th,” he said. “Instead, we promised delivery if orders were placed by the 23rd. There were no days to recover.”
As to same-day delivery, Tompkins thinks retailers are focusing too much on the competition and too little on their customers. “If you look at the research, most customers have said they’ll take same-day delivery if it’s free, but they’re not willing to pay for it,” he said. In other words, we’re competing to provide ever more expensive service levels to customers won’t pay for that level of service if we try to recoup our costs.
His advice? “I think we’re going to find that same-day delivery is going to become unnecessary,” Tompkins said. “There are some people who will want same-day delivery for some things and will be willing to pay extra. For the rest of us, I think big things are coming, like pick up points where I can go to one place and pick up everything I’ve ordered from multiple retailers. We need to start thinking about what the customer wants, and not what we want.”
In other words, we need to write checks our logistics rears can cash.
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