A United Parcel Service (UPS) driver gets into his truck while on his delivery route. (Photo by ... [+]
This holiday, some consumers will be getting IOUs from retailers facing broken supply chains and a shipping capacity crunch.
Last week, The Wall Street Journal reported that UPS told its drivers on Cyber Monday to stop picking up packages from six retailers that had reached the shipping capacity limits the company had set for its US customers during the peak holiday season. The restrictions UPS imposed on Nike, Macy’s, Gap and others were reportedly temporary, and the shipper was expected to begin pickups from these retailers again as soon as more capacity became available. In the meantime, the retailers and their customers simply had to wait—or find some other solution to get their packages to their destination on time.
The story highlights the bind many retailers and brands find themselves in this pandemic holiday: even if they’re benefiting from strong consumer demand and a colossal increase in e-commerce orders, their inventory might be stranded in the wrong retail location, stuck in a warehouse just beyond the last mile, or grounded at a factory, unable to be shipped to market because there’s a shortage of land, sea or air cargo capacity. Santa may be able to transcend the challenges of ubiquitous last-mile delivery, but he’s facing some serious supply chain issues that are limiting the amount of gifts he can deliver as he makes his rounds.
The Pandemic Still Has the Supply Chain Tied in Knots
We all knew there would be a shipping shortage this holiday due to the massive, pandemic-fueled increase in e-commerce. Adobe Analytics predicts US online holiday sales will rise 33% year over year, while Deloitte puts the figure at 25%–35%. The record growth in exports reported by China last month is an indicator of how consumers have shifted their spending toward physical goods while they’re unable to consume services like big-screen movies and restaurant meals. Yet retailers and brands face a tragedy of demand, with insufficient shipping capacity and continued volatility across the supply chain putting them at risk of disappointing customers and losing market share to competitors that can meet delivery expectations.
Many brands tried to lessen the crunch by offering early promotions to pull holiday sales forward and spread out their online deliveries over more weeks. Some also set earlier-than-normal order cutoff dates for standard delivery by December 24. Etsy and REI are suggesting US customers order by December 17, while Abercrombie & Fitch’s cutoff date, December 4, has already passed.
UPS, FedEx and the USPS have pegged December 15 as the last date for US ground shipments meant to arrive by Christmas Eve. But the shipping capacity shortage will ensure that many consumers’ holiday packages won’t arrive until January or even later in 2021.
The pandemic hasn’t stressed only the final delivery link of the supply chain. The sourcing and manufacturing parts of the system are also facing continuing challenges, nearly a year after the coronavirus first began to snarl global supply in Asia. Sporadic lockdowns and spiking case numbers have impacted staffing and closed or curtailed operations at factories and transportation hubs. International air and shipping capacity has become severely strained. Even companies that have ample manufacturing capacity may not be able to get raw materials to their factories, given the contentiousness of the shipping market.
All We Want for Christmas Is a Bit of Data Intelligence
Some global brands are attacking these problems by bulking up inventory across the chain, mitigating the risk of stockouts and creating the flexibility to fulfill orders from alternate sites if there’s a logistics bottleneck. But holding lots of inventory is an expensive and unsustainable measure. Margins are already squeezed due to all those e-commerce orders and retailers and brands taking this route may end up with unsold goods that become out of season—an issue many companies struggled with in the spring, when pandemic lockdowns first shuttered stores. For most smaller retailers and brands, producing, shipping and warehousing excess inventory isn’t even an option.
The better solution is for companies to invest in data intelligence that provides the real-time supply chain visibility they need to be able to respond quickly to demand, supply and logistics challenges. Traceability technologies make it possible for retailers and brands to gather data from physical products throughout the supply chain and at the point of sale, providing near real-time visibility of the flow of goods and consumer demand and identifying bottlenecks, surges or lulls. These solutions function somewhat like Google Maps and Waze, which crowdsource data from phones to provide a real-time view of traffic conditions that drivers can rely on to gauge the best way to get to their destination. Indeed, this kind of visibility provides the data intelligence to build predictive models that can help companies both anticipate and preempt problems.
Item-level tracking has become possible thanks to tagging and labeling technologies such as QR codes, watermarked labels, and RFID and NFC tags linked with digital identities or digital twins in the cloud. These systems are able to gather tracking data from items, pallets or collections of items across their journey from factory to consumer. Individual products can be scanned in-line as they’re produced, move through warehouse and logistics hubs, and enter retail stores and distribution centers, as well as at the point of sale and by end customers themselves.
Puma, Ralph Lauren, Levi’s and Reckitt Benckiser are among the companies that have invested in strong digital infrastructure that gives them an advantage over competitors. Puma has used digitized products to engage with consumers both in-store and post-purchase, creating a path to e-commerce and reorder. Brands whose business is dominated by wholesale with both brick-and-mortar and e-commerce retail channels can use digitized products to gather data about what’s happening at the point of sale and to build a direct channel to consumers for reorders or additional purchases that they can guide to either their own e-commerce platform or to other retail partners, depending on inventory and fulfillment logistics.
All-Seeing, All-Knowing
The best-positioned retailers and brands are those that are able to aggregate and connect their own sales data with data from supply and shipping partners, giving them the end-to-end visibility that lets them anticipate, identify and quickly respond to challenges.
Resilience360, an intelligence platform developed by DHL, aggregates data from across the company’s shipping and transport network to provide customers with a risk-management tool. Other players in the logistics marketplace are developing similar tools to help customers avoid delays in shipping and plan their routing more effectively. The challenge, of course, is that each logistics provider’s view of the world is informed by what they know about their own network and, to a much lesser degree, other logistics networks.
The Chief Supply Chain Officer of a global agricultural products business I spoke with recently lamented the continued challenges posed by a fragmented view and the need to pull together data from multiple logistics and transportation providers in order to plan effectively in what remains a very disrupted global supply chain system. Being able to combine this kind of logistics intelligence with item-level sales data as well as capacity and sourcing data from suppliers, in near real time, will define who wins in 2021.
Volatility in the supply chain is not going to disappear after Christmas. The massive consumer shift to e-commerce and the attendant need to fulfill home deliveries are unlikely to roll back. An already stressed system is going to be under even greater pressure in the spring, when much of the world’s logistics capacity will be enlisted to support global vaccine rollouts. The bidding wars over shipping cargo capacity that we’ve seen throughout 2020 will only intensify. Retailers and brands that are able to keep their promises and deliver the goods to both consumers and shareholders will be the ones that figure out how to use data gathered from across their ecosystems to mitigate risks in the new year.
