SOP is a key piece of managing holiday e-commerce activity for supply chain stakeholders

As reported in the LM online newsroom, with the holiday season coming soon, there is a fair amount of high expectations, when it comes to ascertaining the impact of holiday shopping on the e-commerce supply chain.

To be sure, weather was a major factor last year, as were retailer promotions and lack of assets, and fewer delivery days, among other things.

In order to get a better perspective on how things can be better in 2014 than 2013, I spoke with Dr. Victor Allis, CEO of Quintiq, a supply chain vendor specializing in a single optimization and planning platform.

Allis provided a unique perspective of the challenges faced last year by various supply chain stakeholders, one of which was managing demand with some help from sales and operations planning (SOP) processes.

One reasons for this, he explained, was that many shippers have standard customers that order the same types products over time and typically see similar growth patterns over a certain amount of time.

But when disruptions occur, is where problems kick in, and this leads subsequently leads to scrambling and struggling to get things done. This is where solid SOP kicks in, said Allis.

“If your demand changes, so do your resources,” he explained. “This leads to needing more materials or capacity. If you look at supply chain planning, this is where SOP is important to prepare for larger complexities in terms of what is available for capacity, and what you can do is very different from the daily challenges, too, where you focus more on things like sequence and [asset management].”

With SOP people, Allias said shippers look at the various levels of their planning process and tend to have a longer look as their products they make that tend to have a longer lead time and may take the whole cycle being a few days, weeks, or months, as these companies always work with different planning levels.

When it comes to logistics planning during the holidays, Allis said that the overall capacity level within the supply chain for any type of provider that does home deliveries are based on the average amount of capacity needed throughout the year, and there often is just not enough available capacity during the holidays.

“FedEx, UPS, and the USPS struggle with finding sufficient support capacity to help deliver packages ordered online to customers, and the challenge here is not just a lack of planning,” said Allis. “It is also a lack of overall capacity in the system and that is more apparent when there is a shift in the market, with more e-commerce activity. There is a transition phase with more people buying online and expecting items to be delivered and because you don’t know how much capacity is needed. Estimating capacity correctly will be easier over time, but this year again is likely to be very difficult.” 

In the event retailers push the envelope this year for late shopping promotions, Allis said it is likely that UPS and FedEx increase overall capacity, which puts them in better position to contract with the retailers they are servicing.

It also applies for retailers as far as they can influence demands, and with some of their promotions they can help make things better or worse by running promotions that effectively utilize capacity at that point in time without thinking of the consequences that can lead to bigger problems.

“These promotions can be done smartly and designed in a way to use capacity without stretching things out,” said Allis.

Along with that comes the total amount of capacity available, coupled with how to forecast and influence demand as opposed to randomly running promotions without thinking about it and then focusing on the execution.

“When you have the contracted capacity, and even if some systems break down, you know what needs to be done i.e the more you do something it gets easier to handle,” he said, “and is where big data calculations comes in. If you want to respond faster to things out of ordinary, like the holidays, being able to use all the data you have available in an automated decision making process is a huge advantage because people are really good at executing the same things they have done before time and again and automation can help.”

Coming on the heels of last year’s holiday season, Allis said it stands to reason people expect results and things to be resolved. And big data as part of the solution to make fast and real time decisions is going to gain in importance but he cautioned most people are not ready for that yet.

“There will be more pressure for that and last year’s wake up call helps but it is not all capacity related; you have to do more things smarter,” he said. 

Because of this, he said, retailers are realizing the effect of demands they can influence through things like promotions and secondly reserving capacity in the same way that carriers are ramping up capacity so, in essence, they will be better prepared than last year which is a good thing. 

SOP and managing capacity and demand will never go out of style, especially with online shopping growing at a very quick clip. Hopefully, the weather is a bit more mild this year, which will result in more fluid networks and deliveries, but at the same time it is clearly not a given either. We all shop online enough to get a sense of things so we will have to see how it all shakes out.