The Holiday season finished recently. And the next Holiday season may seem far away. But in the area of E-Commerce Fulfillment it will be here before you know it. Now is the time to begin implementing the improvements and strategies you need to make this coming Holiday season more successful than last year.
Having gone through the ups and downs and stresses of several Retail Holiday seasons myself, one January I gave this direction to my team. For the upcoming Holiday our theme was that we were going to have a BORING Holiday season … from a Supply Chain perspective.
By BORING I didn’t mean that we were going to see a lack of growth or revenue declines. I hoped and expected that the company would see unprecedented double digit growth. And we would deliver a great customer experience.
But by BORING, from a Supply Chain perspective, I did mean that we were going to do all of the necessary planning. And we would make all of the required changes to ensure that the Supply Chain was fully prepared for the overwhelming demands and pressures that come along in the heat of the Holiday season. As such when we were in the midst of the Holiday season the Supply Chain would be able to respond efficiently to whatever came our way.
If we planned and executed correctly then we would be able to handle an unprecedented level of revenue and volume growth without breaking a sweat. We would be able to handle the inevitable growth that invariably always exceeds already aggressive plans. And during the Black Friday/Cyber Monday period we would be able to respond on a dime to merchandising promotions and astonishingly high volumes.
To create a BORING Supply Chain Holiday season we had to start planning immediately after last Holiday. These are many of the key initiatives we undertook:
Conduct a HOLIDAY Post-Mortem
It is critically important to take the time to meet with your Merchants, Merchandising, Buyers, Distribution Centre teams, Human Resources, Finance and your E-Commerce channel leadership. The Post-Mortem should be a forum for everyone to share their experiences from the prior Holiday season. What worked and what didn’t work, or didn’t work as well as it should have? This should set the basis for defining what needs to be fixed. Implement the changes needed to ensure that problems do not reoccur.
Most importantly listen to the feedback from your Customers. In E-Commerce, a disappointed Customer will take their business somewhere else. And they will tell others not to entrust their business to you. Focus on your key cost, quality and delivery metrics. Raise the bar on your future performance.
Plan Beyond your Growth Objectives
E-Commerce is one of the fastest growing channels anywhere in the world. Double digit growth is commonplace. Every year there are plans for huge year to year growth. And there is skepticism as to whether this growth will materialize. But without exception we always see demand even higher than those lofty growth plans. The message is: set your capacity and throughput plans even HIGHER than what your official company plan may be. If you design a highly flexible and variable Supply Chain you can do this without adding excess cost.
More acutely, the Black Friday/Cyber Monday demand is exponentially higher than at any other time of the year. At least 30% of annual demand in Retail occurs in the 4-5 week period between Black Friday and Christmas. Your Distribution Centre management will implore you to smooth out this demand. The reality is the Supply Chain must be designed to handle the demand from this peak Holiday and Promotional period.
Merchant Strategy Synchronization
By January your Merchants have finished, or are close to finishing, product selection for the end of year Holidays. They know which products and categories did well or didn’t do well in the prior period. And they are adjusting their merchandising plans accordingly. There may be product categories that are being discontinued or being started.
Whatever these changes may be, it is critical to have a close relationship with your Merchant team. The Supply Chain team must understand the number of skus being planned and the volumes anticipated. They must understand the physical size of those skus, the promotional strategy, and the supplier sourcing, delivery and replenishment plan. This will enable you to create the resource, capacity and business process plans you will need.
I’ve seen many examples where the Distribution Centre is surprised because they were not informed about a Promotion. They were not told about the physical size or volume of a set of skus. Or they were given planning numbers inconsistent with the volume of product ordered from Suppliers. This miscommunication hurts the company’s ability to respond to customer demand which will only damage future growth.
Distribution Centre Business Process Optimization
The post-mortem will help identify areas where the Distribution Centre process will need to be improved. Catalysts will be the need to improve service levels, shorten delivery times, improve quality and lower costs. In our prior posts on E-Commerce we discussed how to improve warehouse slotting (E-Commerce Fulfillment First Principles (Part 1) – Optimize Warehouse Storage Locations) and how to improve process flow and speed (E-Commerce Fulfillment First Principles (Part 2) – Move The Material To The People, Not The Other Way Around!).
You should conduct Lean kaizen events and redesign your business processes to support the objectives of improved service at lower cost and higher volumes. There are a myriad of automated and semi-automated solutions available in the marketplace to enable your improvements.
Further there may be changes needed in your IT systems or your Warehouse Management System (WMS). These will all take time to change and you need these implemented and proven out well before Holiday starts.
Generally the single largest resource constraint that you will experience during the Holiday period is that of Labour. Remember that at the same time of year most every other Retailer, Distributor, and Competitor is looking to hire a dramatically large number of employees. Your ability to attract, hire, train, motivate and retain this new workforce among all of these competing companies will likely be the key determinant as to whether you are or are not successful.
Certainly any work you can do to reengineer your Distribution Centre business processes to reduce your dependency on labour to support growth increases your capacity and flexibility. Always remember the Theory of Constraints. You need to minimize, if not eliminate, the gates in your process.
Work with your Human Resources team to ensure you have a Labour management strategy. Otherwise, trying to respond at the last minute when you are in the middle of the Holiday season and scrambling to get product shipped will mean higher cost, disappointed customers and disappointed stakeholders.
You may have other capacity constraints. All of these need to be addressed, tested and stressed well before the actual Holiday season starts. And while you are doing these process flow simulations ensure that you stress test the different variables that will impact your ability to process customer orders.
Manage Your Logistics Network
End to End Supply Chain visibility is critical!
With your Suppliers you need to know in great detail when products are arriving at your Receiving docks. Having trailers parked and unreceived outside of your Receiving docks means that this product does not show as stock and is thus unavailable for your customers to purchase.
With your Shipping partners you need to understand what their pick up times are so that you can optimally schedule your order picking tasks to get goods picked, packed and shipped to every geography as quickly as possible.
And with your Customers you want to provide them with the visibility as to where their orders are. When it’s a few days before Christmas and a Customer is still waiting for their order to arrive it is much more comforting for them to know when they will get their product.
Learn From Your Competition
E-Commerce customers want fast, error free delivery at the lowest possible cost. They want to receive a great customer experience. Even if you are selling unique products online there are still other E-Commerce companies competing for your Customer’s share of wallet who are doing something better in terms of cost, quality and delivery.
Customer surveys, market research, social media connections and other forms of data gathering are great sources for learning what others are doing in the area of E-Commerce fulfillment . You don’t necessarily need to be on the leading edge of new industry capabilities, but you do need to have an excellent offering. Learn from your competition!
Consider Your Omnichannel Fulfillment Options
Depending on your circumstance you may be with a Retailer that has brick-and-mortar stores as well as an Online Channel, or you may be with an Online channel only Retailer. Regardless there are several considerations for your E-Commerce Fulfillment service offering.
Even if you have your own Distribution Centre at some point your product demand may exceed that of your facility. There are many options some of which are:
- Expand your existing operation. But unless you can grow into contiguous space the splitting of your facilities will lead to some sub-optimization.
- Outsourcing. Many Logistics and Distribution companies offer an E-Commerce service, including Fulfillment by Amazon
- Implement Ship To/From Store Capabilities. If you have brick-and-mortar stores there are positives, and negatives, in enabling them to fulfill E-Commerce orders directly out of their locations.
- Implement Drop Shipping with Suppliers. You may find that either geographic proximity or physical product size makes it more cost effective, and customer engaging, to route orders to your Suppliers to fulfill directly.
All of these strategies take time to implement, hence the reason why NOW is the time to start getting ready for Holiday 2017. At the busiest time of the year it is much more productive to have a well running operation handling the tremendous volume of orders efficiently and effectively with as little stress as possible.
In short, it will be busy but BORING!