An article in the Wall Street Journal (October 1, 2014) titled “UPS, FedEx Want Retailers to Get Real on Holiday Shipping” describes pleas by the carriers FedEx and UPS to ecommerce retailers to stagger their promotions, avoid promising free overnight shipping, move sales to earlier in December and provide volume projections. This is is response to the close to 2 million packages that did not arrive on time last year. But competition among retailers is bound to push deals until the very last minute on December 23, with volumes forecasted to increase by 14% this year. Will threats to stop pickups once capacity limits are reached by carriers be sufficient to manage this year’s package volume surge ? Can customers be enticed to order early with appropriately chosen discounts rather than wait until the end ? Can “marketing and logistics be expected to work closely” this Christmas to enable it be a profitable holiday in addition to be a high package volume event ?
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Global Supply Chain Musings 
Within the retail space, there is a very long chain of individuals involved in the downstream e-commerce process including the customer. Customers’ demand must be forecasted and it is affected by promotions, but it is also affected by need. Often, customers realize that they are still in need of certain products before Christmas day. This uncertainty will lead to one opportunity for late demand. Additionally, another chain member, the retailer, is also trying to sell all its winter stock or year stock. By significantly lowering the prices during a time of last minute gifts and high impulse buying according to retail training services, companies can significantly affect sales. As a result, neither group has a strong motivation to buy/sell early. With both the buyers and suppliers having high power during the holidays, it is unlikely that the carriers will be able to stop pickups. They will need to make accommodations to retain this business revenue.
The retailers will always be in the customer acquisition mode till the time only one or two big players survive.So every holiday season will experience the rush and chaos in terms of delivery.The strength of the business lies in actually sailing through these seasonal uncertainties and the customer sticks to the most reliable retailer.No single player of the supply chain can bear the heat alone it’s the coordination among different parties which actually makes a delivery happen. The marketing team should work in close coordination with 3PLs and the projections should be clearly communicated. At the same time, the retailers should take steps to mitigate the excessive pressure on 3PLs.
One of the ways can be to actually offer good discounts if the customer agrees to get the delivery after the peak period.As there is a substantially large proportion of consumers who actually purchase items not for the gift purpose but for their own use.They do the shopping during the holiday season because of discounts and they will not mind long lead time if they get some more discount.This is what retailers can offer.
At the same time, the 3PLs can lower the profit margins on deliveries before the holiday season which encourages the retailer to pass on good discounts before the season even starts.This will actually be traded off with the penalty the 3PLs pay for the breach of SLAs.
Key is to make efforts towards distributing demand uniformly through promotions and communicate the predictions efficiently up and down the supply chain.
The holiday rush cannot be avoided, but better forecasting of expected sales volumes can help alleviate the problem of late deliveries to some extent. Retailers can work with their logistics partner to increase the capacities during the holiday seasons. Rather than not picking up packages beyond the capacity, the carriers can think of increasing their capacities during holiday season by hiring temporary staff and renting more resources and can pass on that cost to the retailers. If the retailers are offering last minute deals during holiday season, they should be strategic about the offset between revenue from increased sales volumes to cost of delivering the packages. Also, the customers should be made aware while placing the orders to expect delayed deliveries if they are ordering products under holiday promotions or any last minute deals. Promising free overnight deliveries is setting unrealistic expectations and might lead to customer dissatisfaction, in turn loss of business for all parties involved.
For me, the key here is chain integration. Carriers should advise Retailers in advance that they won’t be able to deliver at the same speed during such surges as in Christmas and Thanksgiving. And if Retailers still want the same service, they would be charged more, or even exponential, in order to accommodate peaks in demand that were predictable.
The Retailer by himself can perform some sales actions in order to keep demand “flatter” during the period, encouraging customers to buy in advance and save more, with confidence of receiving on time for the celebrations.
Proposing an agreement on sales/profit revenue during those peaks, would also motivate the entire chain to perform at its best, by encouraging players to help each other and succeed as one.
It is not uncommon during festival season, sales goes upwards. Sales trend is predictable but the magnitude of spike is difficult to predict as it is influenced by several factors such as purchasing power, competition, trend, stability in economy etc. Companies will try to maximize their revenues by offering discounts, promotions etc. Hence, it is not viable for courier companies such as Fedex, UPS to directly control the orders taken by retailers during festival season. But, they can charge a premium for orders taken during peak days (week before Christmas) and orders exceeding a particular threshold for each retailer based on retailer’s order history. This way, retailers are motivated to offer discounts early in December to maximize their profits.
Marketing of e-commerce retailers and courier companies can advertise to customers of higher shipping charges for orders placed during peak days (week before Christmas). By doing so, customers will be motivated to book orders early rather to wait till end of festival season for better deals. Coordination between retailers and customers is the key to make the season pleasant for all stakeholders in the supply chain. This process of distributing demand throughout December may not be completely successful due to several other factors such as customer’s pay day, Christmas season gifts, holiday plans, customer’s priority etc. Hence, companies such as Fedex, UPS shall pull off resources (manpower, vehicle fleet etc) during off-peak days and ensure complete availability of resources during peak days. By efficient resource planning, these companies shall respond to spikes during peak days in an effective manner.
The last minute promotions to sell leftover products, always creates problems when forecasting demand and coordinating the supply chain with third party logistics (3PLs). But, the delayed deliveries can be reduced on peak seasons with good coordination within supply chain management.
I don’t think threats from carriers to stop pickups once capacity limits are reached will be sufficient to prevent the surge. Carriers should act more robustly to solve the problem. I agree with Nikhil’s suggestion that lowering the profit margins on deliveries before the holiday season can entice retailers to start discounts earlier. But, UPS and FedEx may not be willing to offer this solution. Because, they will have more negotiating power in holiday season and they will use it for their interests. Instead of lowering the profit margins before holiday season, UPS and FedEx can increase the profit margins on excessive delivery requests on holiday season to entice the retailers to make promotions earlier. Additionally, 3PLs can tell to the retailers that who make the promotions earlier will have the priority for excessive delivery requests on holiday seasons.
If marketing and logistics work together in good coordination, they can analyze ways to evenly distribute customer demands over the holiday season to prevent the surge because of last minute promotions.
In the absence of any financial incentive for the retailers, the retailers would never seriously consider staggering holiday promotions or rolling back their deadlines for guaranteed delivery by Christmas. Coordination via revenue sharing agreements between shipper and retailer may provide more of an incentive to coordinate deliveries in time for the holidays. Perhaps the technologies that are being explored to solve the “last mile” problem can also take care of the “last minute” problem. For instance, the free pickup option Wal-Mart is currently offering takes care of the last mile problem, but also the last minute problem; their warehouse-to-store shipping bypasses the UPS/FedEx/USPS networks. Without a coordinated supply chain, the retailers will always be at the mercy of the shippers, who are very consolidated and wield extraordinary power. Hence the ability of the logistics suppliers like UPS to draw up package delivery quotas and hold retailers accountable to them. Maybe the time is right for a market entrant who promises instant delivery up until Christmas to extract as much surplus as they can from the “last-minute” online shoppers who are not as price sensitive, and are a different market segment from the holiday discount shoppers who order well in advance of the holidays to get the best deals.
First, the package carriers should not threaten to stop pickups after they’ve reached capacity. Instead, they should focus on increasing their capacity during the holiday season as needed. Additionally, I don’t believe it feasible to shift consumer holiday shopping earlier with discounts unless these discounts are quite significant. There were simply always be people who procrastinate during the holidays. FedEx and UPS should either increase their capacities or charge customers more for shipping to disincentivize larger volumes of smaller packages.
Rightly said..Its tough to shift consumer holiday shopping earlier with discounts as most people do shopping because they are supposed to do during the festive seasons.However increasing the capacity is a also tough call to be taken as it’s a capital intensive process and that too for short duration.There are certain segment of people who don’t require things urgently and would be happy to avail extra discounts in return of late delivery.In today’s competitive market,threats to stop pickups once capacity limits are reached by carriers will not be sufficient to manage volume surge as competitors are always there to increase their market share.
It should be quite complicated to project the surge in sales during the peak seasons for e-commerce companies. However, a detailed study of the sales at holidays season in the 5-10 years can at least provide a figure for the shipping companies. Using this data and forecast, despite too many variables and uncertainties, shipping companies can take extra measures by either increasing their workforce capacity or charging more and bring the late deliveries down to a reasonable level.
Threats of any kind will not solve anyone’s problem. The year of 2013 showed what lost sales meant to retailers and they would not budge away from offering last minute sales every year. If we look at the 4Cs, capacity and coordination seem to the major causes for concern here. Starting with capacity, 2 million packages did not arrive on time in 2013 and with an expected 14% increase in sales, there is no guarantee that efforts by multiple carriers in expanding their loading spots or increasing their hiring of seasonal workers would do the trick. What might help is pushing a percentage of sales earlier on by providing customers with bigger discounts or cheaper or free shipping before mid-December. This would not move a major chunk away from ordering late as David rightly pointed out that there will always be people who would procrastinate during holidays and order late but it might move some traffic away. Other thing that could be done is retailers offering pickups from their local stores(in case of brick and mortar retailers) or setup a local locker system (similar to Amazon at PMU) and utilize that. This might enable some customers to go out and get their packages any time they want and it might reduce some traffic off the carriers as well.
Coordination – Both the retailers and carriers would have to improve their forecasting techniques and information flow among them. This would enable carriers to optimize their supply chain considering their capacity to the best possible solution. It would require marketing and logistics departments to work very closely with the information flow between them taking huge precedence.
Conditions such as bad weather can still ruin any efficient supply chain and hence it becomes even more important to coordinate as quickly as possible and as accurately as possible.
Due to the limited capacity of carrier services and increasing number of shipments during black Friday and Christmas holiday season, it is logical for logistics companies to charge extra. The idea of advance promotional sales before the holiday season may work only if online retailers can promise that the price of products will be higher near the holidays. One way to solve this problem is to encourage customers to show an intent of purchasing a product before the peak period and online retailers can use that information to provide price choices just like the airline prices. Customers who don’t care about discounts and promotions can pay a premium and who want to save can plan ahead. Basic economic theory suggests that when resources are scarce someone is always willing to pay more. This way the logistics companies can reduce peak load and retailers can benefit from variable pricing.
Adding capacity can also be a possible solution. Big retailers like Amazon are taking alternate routes such as adding their own delivering capacity, crowd-sourced delivery and increasing number of pickup points in neighborhoods. But excess capacity needs significant investments and ultimately customers will end up paying more. Considering extremely narrow window of these high volume sales, companies may be better off not investing in traditional delivery methods but invest in evolving technologies like drones.
Holiday season is a time that everyone looks forward to … almost everyone. It is a time when the cash bells rings and a lot of gifts are purchased. It is this time that the supply chain network and its efficiency is tested to the peak. This strain on the supply chain can be eased by looking at a few alternatives (in addition to the ones mentioned in the article):
1. Having a small inventory of the high selling items at different points in the supply chain effectively increasing the timely delivery but increasing the total supply chain cost.
2. Partnering with Uber/Lyft to see that deliveries can be made as part of the ride by the cabs
3. As the last mile delivery is the one that has the highest $/mile cost, customers can be encouraged to pick up the goods from a local warehouse or pickup store and probably also offer credit for the same.
4. Having a pre holiday season sale, to distribute the demand over a period of time seeing to it that no sales are lost by the end of the season.
The above strategies would considerably decrease the delay in timely deliveries and also seeing to it that the customer is delivered what was promised.
Threats to stop pickups once capacity limits are reached to manage volume surge may not be a good idea in terms of building a supply chain to be responsive. Both retailers and carriers can coordinate in order to increase storage capacity in the warehouse and shorten lead times for incoming deliveries. According to an online article by Relex Solutions, to manage the “Christmas Supply Chain”, running out of stock is okay depending on the date. Around December 23rd or 24th, last day shoppers would simply look for an alternative and would buy something rather than nothing. By running out, this prevents having to deal with excess after Christmas which are sold at low margins.
Indeed.
Additionally, threats to stop pickups once capacity limits are reached may prove to be detrimental for business in long term as well by impacting the relationship. The retailer will have to search for other options and may not get the level of service and carrier will also end up losing business.
Also, the items which go waste once the holiday season is over (incase of festivals) will either be have to retained till next year, increasing inventory holding cost or go to waste(unused investment).
With higher level of discounts provided by the retailers/e-commerce website, it is very common for sales to surge during the festive season. This naturally pushes the pressure on the logistics partner to provide a timely delivery as promised. The capacity of the logistics partner is overlooked by the retailer. When a good is not delivered to a customer with in the promised timeline, there is always a risk of looking them. The retailers can mitigate this risk by increasing the time frame of festive discount sale from one week to one month and offer discounts on a few category of goods at a time with a same delivery timeline. An e-commerce giant in India offers mega sales twice a year and the products available at a discounted price would be exclusive to each sale. This was strategised after they failed to meet the customer demands in the first mega sale which was the only sale offered for that year.
Business during holiday season requires in-depth planning. In order to sail through it, it is important to forecast sales and the additional sales because of competition (approximate) and make sure that both the retailers and the carriers are in sync regarding the same. As the retailers cannot stay behind in the battle to be the best, it is important that they create a strategy to deal with the same. They may consider providing options of higher rates and faster delivery and lower rates for longer delivery. This may shift some customers to the latter option and help them ease the pressure of fast delivery. A similar strategy can be made for pickups. The retailer may give an option of pickup from some specified locations at lower cost for the same product. This will help ease last mile delivery pressure from carriers especially in major cities. It will be convenient for the retailers too as they will be saving on the transportation cost. Unable to meet customer expectations may impact image of both the firm and the carrier and therefore the carriers/retailers should have a backup plan to provide delivery solutions in case the sales exceed the forecasted sales. This may be done by contracting with an additional supplier. Additionally. if the retailer is expecting a surge in demand, the same should be conveyed to the carrier (follow the principle of coordination) as it will give them additional time to be prepared for the hike in sales.
Adding to Bryan’s idea, revenue sharing and Take-or-Pay would be options for the whole supply chain to consider. Especially Take-or-Pay agreement. Retailers promote the last-minute products because they know that after Christmas day, all those products’ salvage value will be 0. Thus, if manufacturers could make contract with retailers about buy back, this problem might be solved. The benefit for manufacturer is that they could stock those products and resell them next year, or make some simple change and sell them as other purpose. For retailer, since those products’ salvage value will not be 0, they would rather sell them back to manufacturers rather than promote at low price to customers. For transportation companies like UPS, they could compensate the shipping cost from retailer to manufacturer.
Since this article was published, this delivery question has gotten both more complicated and has found additional solutions. The ecommerce market has continued to grow at an extremely rapid pace, and is projected to continue growing from $450 billion in 2017 to $650 billion in 2021. Additionally, there are other key factors resulting in this acceleration- demographics (younger consumers that expect faster delivery), urbanization (more shipments into confined geographical areas), increases in home delivery and the expansion of cold chain logistics (although the cold chain has been historically less important during the holiday season). This trend proves that the demand for capacity is growing, but solutions have grown as well.
Over the last several years, more truck and fleet carriers have entered the “final mile” space, which focuses on delivering goods to the homes of the customers. As more carriers are entering this space, the capacity of shippers to meet this demand increases significantly. This expands shipping options for companies beyond simply using UPS or FedEx. Now, with many national carriers and hundreds of regional truck fleets, manufacturers and retailers have increased options to coordinate shipments with. This helps to take some of the load off of UPS, FedEx, and USPS while still allowing customers to have their demands of faster shipments at less cost met with each delivery.
I don’t think threats to stop pickups once capacity limits are reached is the best way to manage the package volume surge around the holidays. It doesn’t make sense to limit your business when there is more demand to add to your revenue stream. Instead of cutting off demand when you’ve reached capacity, try to find ways to increase capacity or coordinate efforts from marketing and logistics to meet demand as efficiently as possible. UPS learned to do this after the problems they had with the 2013 holiday season when surges around Christmas caused 2 million packages to not be delivered on time. To correct for this problem the following year, UPS spent $500 million to add capacity during Christmas season through new software, tightening forecasting processes, and making sure retailers were aware of realistic delivery dates. UPS added an extra day to its delivery commitments and had hard cutoff dates for retailers for packages to be delivered by Christmas. This forced stores to raise shipping prices closer to Christmas since they would have to rely on air shipping to get the packages delivered by Christmas. This sort of coordination seems more realistic and effective than if UPS would just stop picking up packages once their capacity has been reached.
Here is the article about UPS fixing the capacity issue in 2013: http://www.scdigest.com/ontarget/15-01-04-3.php?cid=10099
It would be irrational to assume that retailers are not going push for sales and promotions till close to Christmas. Festival season is retailer’s opportunity to generate more and more revenue. Having said that retailers should consider increasing customer service and taking carriers together with them. To meet objective of high sales demand with happy customer and carriers it is quite obvious and logical that retailers and carriers work in coordination. Customers are going to order late hence improvement in forecasting sales demand would provide carriers fair idea about how much preparedness (in terms of labor, trucks etc.) is required at what stage of festive season. Retailers can also keep some minimum dollar amount to be eligible for one day delivery. This would promote customers either to buy early or go for other delivery options. But this should done keeping competitors in mind and considering that fact customers may not turn away from site. So, previous years’ customer buying pattern can be analyzed to decide minimum dollar value.
The threat to stop pickups when capacity is reached will not be sufficient to stop surge. As listed in this business insider articles, FedEx and UPS has to implement lot of new solutions to improve the on-time delivery. Solutions such as adding seasonal employees, transportation, technology are required to deliver holiday season packages. http://www.businessinsider.com/ups-fedex-holiday-shipping-plan-new-technology-2016-11
At the same time, marketing team has to improve their forecasting method to find the volume that would be expected to ship this year. This forecasting will help to add required capacity to the delivery supply chain. Also, a well-coordinated and route optimized logistic system is required to eliminate the transportation waste to improve on-time delivery metrics. There is less control to change the way customers are ordering products. Maybe, throughout the season if the e-commerce companies keeps the deals fixed without changing, then the customers will develop the tendency in coming years to order sooner than later.
Retailers might not be affected by such a threat, and they might be backing their behavior by a strong historical data set. Meaning, retailers might not care about the 2 million packages that did not arrive in time as they are nothing but a fraction of their aggregate sales, let alone the desperate customers that did not mind a late arrival or did not request a return/refund. If a giant retailer like Macy’s or Amazon is evaluating their returns during the season that were due to late deliveries, most likely the percentage of those returns for a single retailer might NOT be alarming. However, the aggregate of these returns for all retailers might be alarming to the carriers.
Another approach the carriers can take is maybe making deals with the retailers that account for the most late deliveries and customizing their approach to different retailers instead of making a plea to all retailers in general.
It is not a good idea that threats to stop pickups once capacity limits are reached, especially during the holiday season. Doing a close forecasting for the holiday demand is a better option to prepare for the surge demand during the holiday season. The marketing department need to take past few years demand to prepare for the upcoming season. The forecasting may not by accurate, but still will be a good option to prepare for peak season. Also, the forecasting will giving the carrier a better idea about how much labor they need at certain point. And even on-time delivery is important for the business, but most of the customer will not return their order or complain about that one day delay, and the customers knows that the shipping company will experience a heavy duty during holiday season, but some of them still choosing to shipping at the last minutes as long as there is a promotion for their desired product. So, instead of change the customer’s idea, the company and carrier should work together to forecasting the market demand and improve the on time delivery.
Threats to stop pickups when capacity volumes are reached would not stop retailers from booking sales because the retailers job is to sell as much as they can with the maximum profits and retailers are relying on UPS and Fedex on the logistics part and they are paying for it.
Customers cannot be enticed to order early unless the discount is substantial and the product is very lucrative otherwise customers will always wait for the appropriate time.
Coordination always helps to up the efficiency parameter so that more parcels are delivered on time .Coordination using speculative capacity can help in these situations.
In my point of view, it will be a win-win situation for both UPS and FedEx and retailers if the retailers offer discounts earlier not only the last days. By doing this, the holiday season may extend since it starts earlier. And the customers will spend more days to do some online shopping, which may lead to customers buy more staffs and spend more money. Also, many customers will buy products earlier, so the last minute order will reduce. In the meantime, the UPS and FedEx will not suffer too much pressure.
Threats to stop pickups once capacity limits are reached will not stop retailers from continuing to offer late season deals. The shipping companies need to move beyond the threat and take action on their threat. Retailer’s primary concern is sales. They do not care if goods are sold one month or one day before a major holiday. Customers can certainly be enticed to order early with up front discounts. Black Friday is a perfect example of early holiday ordering based on large discounts. Logistics departments for consumer goods manufacturers can and should work with marketing teams to devise a way to eliminate late season surges. Fewer end of season discounts, increased late-season shipping charges, and increased consumer communication can help this issue.
I think that technological advances over the last few years has improved this issue. Looking at Amazon and how they show a “count down for delivery” and product availability, businesses are longer bound to blanket promises. Allowing customers to see this information may create an urgency to order earlier. It’s reasonable to speculate that this information could be manipulated to push customers towards buying earlier.
I think culturally we are past the point of retailers self policing sales and promotions. Consumers want to wait for the lowest price. One solution, like a buy back, retailers could offer a refund of the difference for purchases made between say December 10-15 if prices drop lower before Dec 25th. This would remove responsibility of last minute price drops and incentivize earlier purchasing.
The package services could adjust their rates in a way to incentivize a longer lead time or earlier sales promotions while making last minute deliverys more costly. It`s important retaikers understand resource limitations of delivery srrvices. While capacity caps may work, along with higher rates this may drive retailers such as Amazon to enter the space of support a competitor.
Communication and coordination are key. This must extend past the retailer, distributor, and delivery service to include the customer. I think technology has improved this tremendously.
I totally agree with your viewpoint and suggestion, Mark. The whole supply chain has to work as a team to deliver value to the customer. There may be independent decisions taken by each supply chain partner to propagate their individual self-interests as in this case between e-commerce retailers cashing in on last-minute sales and logistics providers’ difficulty in making these deliveries on time. However, these disruptive actions should be dealt with tactfully by each member of the supply chain, making way for having a win-win deal for everyone. As suggested by you, spreading out the discount period for 5-10 days early before Christmas and a higher markup in logistics service near December 25th would encourage customers to purchase early and help spread out the sales of gift items, preventing capacity overload for logistics providers.
Speaking of Amazon, they do incentivize customers to accept longer delivery times by offering them gift cards or discounts for future purchases (these longer delivery times are usually about 1 extra week).
Karim,
Do you think the discounts are to reduce transportation cost(from the products location to end customer)? Or based on Amazons ability to use this information to better forecast and move inventories to fill the request in the given time frame. Also, do you think this helps with capacity when the time period has a fixed end date, in this example Christmas. My feeling is that with a limited capacity the best solution is to maximize capacity in the days leading up to Christmas, reserving capacity for last minute purchases. I guess their ability to supply from a warehouse with a longer lead time in this situation may help by keeping last minute inventories close to the customer……. your thoughts?
The question here is about e-commerce websites and retailers promising fast shipping (which they cannot control) when the courier cannot live up to those expectations because of a high volume of deliveries. It is easy to say that the sellers only care about maximizing sales and dumping the delivery load on the courier, but when the courier fails to deliver on time, the customer blames the seller. Companies like Amazon benefit a lot from a relationship with their customers based on trust, and we have all heard about the Christmas gifts that never made it on time.
On the other hand, couriers understand the surge in deliveries around holidays and should be able to better prepare for them. If sellers have such a high demand for on-time deliveries that isn’t being met, then the couriers are opening up the market to penetration from a new firm.
When it comes to companies that handle their own logistics, the same logic can be applied. I have never heard of a company placing a cap on their sales, and I doubt it will ever happen. It is logistics’ job to keep up with the increased sales, sales will never purposely slow down to match the pace of logistics.
Karim, I absolutely agree with your point that logistics needs to be able to maintain its standards on meeting customer demand and providing on-time deliveries. Given that this is a recurring issue, retailers and carriers need to adopt new practices in order to tackle the problem and be better prepared for them. At the end of the day, retailers and carriers need to turn this issue into an opportunity for them to make more money, even if it means incurring costs to be prepared and use new methods to make sure customer receives the package on time.
But what would the retailer’s role be? What information would they share? Besides forecasts (which are usually off), how can they truly coordinate to yield significant results?
I agree with you, Kareem. Logistics should never become a bottleneck for the retailer companies to deliver the products on time. Logistics companies should have the ability to forecast earlier and accurately considering the time they have spent in the market and the cost which the retailers are paying to them so that the products reaches the customers on time. Thus forecasting the resources required to meet the peak demand can benefit all the stakeholders involved in the process. In a service sector, one should always be worried about its peak capacity. Further, Logistics company can hire part-time workers and rent fleet services to attend the peak demand requirement and may charge the retailer companies for the same since they in-turn will be charging the customers.
Yash,
Your statement about hiring part-time workers and renting fleet services makes perfect sense. Carriers should look at the situation as an opportunity to increase sales and innovate. Any strategy to promise retailers a timely delivery could give carriers competitive advantage that could potentially change future partnerships. So, carriers should collaborate with retailers to gain more information regarding forecasts and improve processes accordingly to meet the demand.
The issue that is described here has a lot to do with capacity constraints for the shipping carriers during the holiday season and not being able to match their standards during this peak demand. I think the key here is to improve the integration of the supply chain between retailers, carriers and customers. Sure, one way to help the issue would be by having the marketing department try and promote sales before the last minute so that customer purchases even out and not all sales are made at the very last minute.
I had actually talked about this issue with a supply chain professional in the past and he told me that last-minute shoppers should take advantage of newer options for deliveries and tools from carriers. In addition, retailers may want to promote such new delivery options so that the flexibility of the process increases. For example, he told me that many FedEx packages can be delivered more quickly to many Walgreens stores than homes. Also, customers in many cases can choose to have their packages delivered to a local UPS Store instead of their homes. The carriers have apps that can help customers track their packages and be notified when they arrive at the local pick-up stores. Therefore, even if a shopper wants to purchase something at the last minute, it would be faster for him/her to order the package to Walgreens or other pick-up store which makes the whole process more efficient and better for all stakeholders.
I think even though this strategy may not be as “convenient” for a customer as compared to receiving the package at home, if it can be combined with promotional activities from the retailer’s side that can motivate shoppers to use the new delivery options, it can certainly improve the situation.
Peeyush,
Do you think the final mile solution could be to use a different industry? Do you think that Uber could capitalize on this and offer pick-up from Walgreen’s/UPS Store/Amazon store and delivery to homes? I would see this most likely happening if the purchase is a gift being delivered to a different address than the purchaser. Thoughts?
It is obvious that a supply chain integration should be implemented in this case. As difficult as it seems, it is the “best way” to avoid all these issues regarding the procrastination of people shopping in holiday season. If we are honest, even if there are specials, offers, sales or any kind of discounts before the Christmas season, we wait till Christmas because we always think there will be better deals. This can also be seen in the black Friday, all the offers start from a week before but we wait till Friday 4 am thinking they are going to be better.
In my perspective, no forecasting will be good enough to get even near to the sales during this season. It will always be way more than a forecast shows. With an integration of retailers during the whole year with its shippers (FedEx and UPS) some trends could be developed and a better transparency could be attained. This season will always be a headache for deliveries until drones or some kind of new shipping methods are created.
With most of the eCommerce retailers putting up the sale at the same time and then the retailers offering the similar products at the competitive rate, the few things which makes the make or break the opportunity over the other player is the delivery schedule. The supply chain of the company is as strong as the weakest link of the chain, which as the article suggests is the 3PLs. I believe the eCommerce retailers are considering to strengthen/support 3PLs as well by opening temporary warehouses at the location where the demand is forecasted to be more (in India this strategy is implemented by Flipkart). Other than this, with the advancement in real time monitoring, several algorithms are deployed by the eCommerce retailers which track the availability, the order placed and accordingly updates the delivery time on the order page. With these things into consideration I believe the eCommerce websites are doing justice to every part of the value chain.
Any threat by the 3PLs to stop pickups will not serve any good to anyone viz. retailer, 3PL & customer. There are a few other things which happen when high demand is there during sales period like, customer end up buying more than the actual utilization or sometimes buy several items just as to try and later return the ones he/she didn’t liked. Because of this there is a huge forecast error and a lot of time of logistics partner and retailer gets wasted in providing the reverse logistics. I believe the decision to increase the delivery tariff during sale period might hurt the revenue of eCommerce retailer. Rather, to distribute the demand during sale period eCommerce retailers can work on the making amendments to the return policy like increasing the return period, postponing the return initiation option to few days after the sale is over or by compensating the consumer for the charges he incurred while shipping back the products. This will relieve some pressure from the logistics partner and they can work more efficiently and deliver more products with given capacity.
In my opinion, holiday shopping sessions happen. Avoiding the peak shipping period is hard. Or say, if UPS or FedEx entirely cancel the holiday shipping, they are going to lose the whole logistics market. Marketing and logistics have to work more closely. In the future, the high package volume events will be more. Signing contracts with retailers to design specific shopping mode or promotion is a meaningful way to help both retailers and deliveries boost their business and manage the possible situation customers cannot get their products on time.
Hello Chiao-Ya Lin,
In my personal point of view, I feel that marketing shouldnt get involve in the logistics operations, they will always increase forecasts for sales and will drive the real demand from what it should be. What type of contracts are you suggesting retailers you go for? Customers will always procrastinate and buy gifts til the last moment waiting for the “big” sales that they think are going to happen so what type of promotions are you suggesting?
Regards,
Carlos M. Pelaez
Chiao-Ya Lin,
I think that it may be possible to help ease this problem with negotiations and coordination among the retailers and shipping companies as you describe, but ultimately it is going to be dependent upon the variability of customers and their purchasing habits. Moving up promotions and trying to stagger marketing efforts to ease sales volumes could work for some but many customers are still going to wait until the last minute to make their purchases.
Adam McKinney
Clearly, we can see today that the threats from carriers such as FedEx and UPS have resulted in Amazon taking the move to start its own logistics and delivery service. Additionally, the freight carriers did not foresee e-commerce establishments such as Amazon to become self-reliant by creating its own logistics network. This addresses the concern of increasing profitability by cutting costs and catering to the demand during the holiday season where logistics costs go out of control. To a certain extent, customers can be enticed to order slightly earlier depending on the type of product seasonality. Yet as mentioned in the comments above some customers do not order until the Christmas season. One way to mitigate this is to understand through marketing the purchase motives and enticements in a buyer’s market specifically during the holiday season and how much of this can be replicated before the holiday season.
From my point of view, I think this problem is because the shipping and the retailer are two different companies. In other word, the retailer’s job is to make sure they get as much volume as possible rather than thinking about actually distributing to the customers. As a result, there is problem here when it comes to the holiday season. I think it is possible that this Christmas is a profitable holiday for both sides if they two can work together, working together in terms of marketing and logistics side. This is because it is hard to expect the customers to order early even with the discounts offered. Therefore, if both sides could think more “internally” or negotiate well, this could be a win-win situation.
Festival season is retailer’s opportunity to generate more revenue and customer’s to get the best discounts. In-depth planning, proper coordination, and right communication are the key. With technological advancements, the focus should be on getting the true forecast. Logistics must not be the deciding factor. It leads to lost revenue, both to the retailers as well as the vendor and customer at the end has to suffer. Rather, vendors must increase their capacity to handle such mass volumes, though it’s capital intensive. Innovative or creative strategies must be implemented and rewarded for faster delivery, lower rates for delayed delivery and for encouraging pickups.
online retailers are becoming more and more competitive in not only the pricing but the services in delivery. Since Amazon is able to conduct 2-day shipping and has held this convention for a long time, customers are expected to receive the same service from other retailers. With such high maturity of this industry, companies will certainly have to move toward strategic alliances with 3LP or 4LP. This will increase the service quality and customer satisfaction. On the other hand, firms should also obtain more data analysis tools to figure out the demand and the purchase pattern for each customer.
This is how I look at it – UPS and FedEx are not just carriers but crucial stakeholders in the value chain. In case of delayed/missed deliveries during the holiday season, the negative perception of customers will be more on the e-commerce retailer than on UPS/FedEx. Therefore, I believe it’s in the best interests of e-commerce retailers to help smoothen things out for the carriers.
Special demand forecasting and planning for excess capacity will anyway be done by the carriers for the holiday season but it’s next to impossible to anticipate abnormally extreme surge, the most likely cause for 2 million missed deliveries. In these situations, it’s a good idea to leverage tactics that even out the demand during the season. Essentially, these tactics will shift some of the extreme demand that is due to occur during the later part of the month to an earlier time. This demand shift will help ensure that demand during most periods falls within the capacity of the carriers.
Therefore, I believe that a good solution to this problem will be one which involves marketing and logistics working together to launch marketing campaigns that encourage customers to shop earlier/more evenly throughout the season. Analyzing past data and examining the relationships between different types of promotions and customer responses will help design appropriate campaigns that help reconcile demand with shipping capacity better.
Out of the 4C’s, competition is the deciding factor here, especially in the festive season. Retailers will not avoid the opportunity to acquire more customers and get more revenues. The middle man in the chain i.e. the logistics provider should also see this as an opportunity. UPS and FedEx should implement innovative strategies for faster deliveries. If they will not come up with the right coordination mechanism and faster turnaround time then the retailers have an option to move to a different partner or start their own logistic service. New logistics companies such as Rivigo are coming up with strategies which can use roads to deliver at an equal rate of air but at a lesser cost. The threats to stop picking up the deliveries will not serve the desired purpose, it may just cost the company a huge business.
As far as enticing the customer is concerned, shipping lead time is one of the keys to keep the customer loyal. If Amazon is not able to provide the ease of ordering and receiving at the end moment and the local e-commerce player such as Flipkart in India is able to provide it, then as a customer I will got to Flipkart. Again competition is the key.
Because of these reasons it is imperative for the logistcs organizations to work closely with the marketing team and use new technological advances of bigdata to predict and keep the appropriate capacity ready for the seasonal demands.
According to me, Both, the eCommerce retailers and the carriers have to work hand in hand on this rather threatening and not supporting. Both of them are in the market to earn profits and be better then their competitors. And Festive season is the most profitable time for eCommerce retailers (considering sentiments of customer with the festivals and purchasing for self and gifting others during this time) and in turn for carriers. Festive Sales, fast and free deliveries and return policies are some of the major points which drive the customers towards them. Letting go of any of these will not only let the business down but also the reputation of the eCommerce retailer also, being the front face of everything.
The way it should work is, the retailers should provide a better forecast and geographical buying behavior of the customers to the carriers so that the they can plan and prepare well in advance for the surge orders. Also what type of products are going to see high demand and in which areas so they can prepare appropriate mode of transportation accordingly. This information can be gathered from retailer’s planning, marketing and sales teams. I agree with the point suggesting on temporary fleets and employees.
This is an issue that can helped be alleviated by enhanced coordination and collaboration between the retailers and the carriers. It seems in the current situation that eCommerce retailers and carriers are acting in individual silos and not in coordination, so both are left to deal with each others consequences. Insufficient capacity for the carriers and unfulfilled promises to consumers by retailers. While staggering of promotions will not be able to completely change consumer habits, it will help entice some consumers to shop at different times at the end of the year and potentially lighten the peak load faced by carriers. The potential threat posed by carriers seems like a lose-lose situation where they not only lose the potential revenues from delivering the orders, but also could lose future business from eCommerce retailers as they could retaliate and use a new carrier in the future. The best solution going forward would be for both parties to share forecasts of the holiday season and work together on strategies to distribute the load in order to maximize on-time deliveries in order to remain competitive in the ever changing eCommerce landscape.
Hi Adam,
I agree with your point about reducing the order loads during peak seasons by advancing the sales. But are you sure that complete sharing of information is the solution for this? This business is such that a retailer might interact with multiple carriers and vice versa, there is a potential risk for both parties in losing vital trade information if there’s competition using the same vendor. The rescheduling of sales seems a good move for both the retailers and carriers to even out their annual sales and hence meet the demand with the supply. One approach could be to introduce slightly more attractive sales before the holiday season. This way, we still will have the procrastinating customer group ordering right before the holiday but the penny-wise customer will take the effort to order during the more attractive sale.
If FedEx and UPS threaten to put a cap on pickups, they will open the market for their competitors. Instead, they should expand their capacities by hiring temporary staff and resources to address the increase in package volumes. They can also benefit by charging a premium price to the companies for on-time deliveries.
Early discounts can benefit in cases where the customers withhold their shopping for a particular sale to kick-off or any other planned shopping. Such orders can be fulfilled earlier and thus, the balance the volume-load. A customer’s visits’ on the product-pages can be factored-in to forecast these demands and estimate the number of days the discount be offered in advance.
Marketing and logistics can work together and come up with strategies for alternative supply chain during the peak-sale seasons. For example. the impulsive shopping trends can be analyzed using the customers’ data over years and across different geographies and the nearest warehouses can be stocked with the in-demand products. Thus, lowering the lead time.
The fierce competition amongst the online/offline retailers serves them with an opportunity to leverage the festive sale season in making not just huge money, but also strategically position their brand ahead of the competition in terms of quick delivery, returns/exchange, brand loyalty etc. Expecting a change in their scheduled season sale policies in response to threats from fleet couriers seems very unlikely. However, a forecasted increase in volumes this year is crucial to be taken into account while planning for the season. Retailers can try to reconcile their contractual terms and form new ones to secure the forecasted capacity with their carrier partners. This shall bring in better coordination amongst logistics and marketing to bring in more insights into the capacity requirements for geographical load map, warehousing plans, temporary RDCs, fleet movement, new hires, etc. But the fact that forecasts can turn out to be highly unpredictable, is a big challenge to overcome with.
However, if the anticipated demand spikes can be flattened and spread over a longer time duration, this can help distribute and reduce the capacity loads both on the seller and the transit agency. Reference to the local market examples around us such as happy hours, Dominoes’ Tuesday offers, early bird discounts etc. Similar innovative marketing campaigns for discounts, different sale dates state/s wise, category wise, pickup and/or delayed delivery discounts, group offerings etc. can attract early purchase from the customers. The business viability of investing in such marketing campaigns and discounts w.r.t the loss of sales, credibility, is a risk worth assessing before such campaigns can be enrolled.
Once UPS, FedEx stopped pickups due to overwhelmed capacity, both customer and retailer will be disappointed for their bad performance. Different strategy could be adopted to ensure sales and logistics.
As for retailers, sales volumes can be predicted by advance-selling, in this way, not only can retailers prepare their stocks but also inform approximate volumes to UPS or contract with more shipping company to reduce pressure.
On the other hand, the courier company should increase manpower by taking on some strategy. They can make some concessions and changes, such as pre-expanding the venue: expansion, temporary leasing; improve transportation capacity by purchasing and reserve transportation tools, pre-preparation to recruit more employees- including a large number of temporary workers, add some equipment to improve efficiency, etc. Thus, they could gain well reputation for people will praise for their overnight shipping under this enormous volume surge condition.
I think the holiday season can be challenges and opportunities for both merchants and logistics companies. First, logistics companies should find a solution to solve the massive package problem instead of merely refuse to accept parcels. For example, logistics companies can hire temporary workers in advance according to past trends to complete the surge in workload.Logistics companies should also prepare emergency plans in advance to prevent various natural disasters from affecting logistics.Secondly, the merchant can introduce a sales strategy so that the customer does not concentrate on purchasing goods at one time. And merchants can work with logistics companies to create additional common warehouses to ease the pressure on logistics.
Coordination between e-commerce retailers and operators ensures on-time delivery.
If the retailer can’t provide forecast data during the promotion, and there is no threshold to promise free overnight delivery, this will be a disaster for the operators, because they have no way of knowing how much capacity they should prepare in advance, in this case, when there is a large spillover of demand, there will be a backlog of goods that will affect the consumer experience. When the retailer obtains the corresponding transaction forecast through the pre-sale activity, it can provide the operator with reference data and prepare the corresponding operational capability in advance, which can avoid a large number of transaction delays. Even if the fierce competition of retailers increases the demand of consumers, they can prepare it rationally in advance.
In China, every November 11th is a carnival of e-commerce. From the zero point of this day, sales may show an exponential growth. During the 24 hours of November 11, 2017, China’s total network sales reached 250 billion yuan, and the huge transaction volume will be continuing for a long time before they tend to be normal. As the major e-commerce giants will start propagating one month in advance, and they will offer pre-sale options to count possible need in order to provide the data to the logistics service provider. Express companies such as SF will start preparing for huge transaction volumes several months in advance. Therefore, even if the transaction volume generated temporarily is very large, major operating companies can smoothly handle the existing problems.
If the operator reaches the capacity limit and stops providing more services, it may lead to customer loss, and this phenomenon is irreversible. From the perspective of the supply chain, it will be affected not only by the retailers, but also by the upstream and downstream manufacturers of the supply chain. Logistics service providers are affected, so this method cannot be used to control the volume of transactions.
Above all, e-commerce retailers and logistics service providers should adopt closer cooperation, predict the balance between demand and supply through a series of contracts, and improve their service capabilities in order to achieve better development.
In my opinion, the main reason of package volume surge is that retailers want to attract more customers and promise the punctual delivery of packages even at Christmas. Therefore, to solve this problem, the key is to convince customers to shop ahead of time, a week or longer before the Christmas eve. In fact, customers have no motivations to purchase gifts ahead of time for some reasons. To begin with, if customers don’t receive goods at the set time, they will be compensated by merchants, including coupons and small gifts. Thus, to customers, even if they can’t receive goods in time, they will have little loss. What’s more, some customers have memberships at some e-commerce platforms and they can enjoy shorter delivery time service. Take Amazon for example, customers who are Prime Members can enjoy two-day shipping service, which means they can receive their goods in 2 days, even if at festival. Therefore, it’s hard to entice customers to not wait until the end. To solve volume surging problem, the logistics and marketing should corporate in demands forecasting and information sharing. What’s more, some novel modes of transportation may be tried by logistics.
To begin with, simply threats to stop picking up in certain circumstance is totally unaccepted, since it will vandalize the companies reputation and only benefit the competitors which doesn’t adopt this policy. For FedEx and other carriers, the most important thing is to expand their own capacity and figure out ways to solve this sudden increase in December. Chinese carriers once met similar problems in during China’s ‘double 11 shopping festival’, at first the packages are always delayed, but after several years development, Chinese carriers figured out ideas to face this sudden boom in orders: they hire more temporary drivers and delivery man in advance, build distribution center specifically for the festival and try to predict the customers demand in advance. Which ease the trouble to some extent. From my perspective, encouraging customers to purchase in advance seems like a good idea, just like customers can get discounted air ticket if buy it in advance, If the carriers can not immediately increase the capacity, then distract the order will be a good idea. Marketing can work with logistics department together by sharing in time information and marketing projections. But the problem is, since the demand of consumers can be driven by various information and issues, it is pretty hard to realize accurate prediction.
Kaiyue,
Do you think the increase in digital marketplaces and delivery services that use personal vehicles may be a solution to this problem? Do you think the carriers pay for this to add capacity within their network or the retailers such as Amazon to handle only their packages for the final mile? Or do you think its too risky because the capacity/supply of these “drivers” may be to volatile?
I think the coordination between e-commerce retailers and carriers, like providing discounts earlier, might appeal a small fraction of customers, but not the majority of customers. Retails always give the best offer till the last moment, which makes customers develop a thinking model that best deals are in the last moment for a long time. Changing people’s thinking model is not easy, but we can change it by developing a new strategy. For example, retailers can promise customers that they will get the best offer in the year by reimbursing the money if customers pay more than the lowest price in the year. Then customers will always get the best deal and not care about the time issue. Meanwhile, logistics need to improve themselves as well. They can build an emergency system to handle big and unexpected events, like holiday season or weather by adding more workers or trucks. Also, logistics should keep improving their demand forecasting and getting prepared in advance.
In my opinion, the coordinate between the e-commerce retailer and carrier will help a lot with the on-time deliveries even it is the Holiday season. As the consumers are used to shopping more in the holiday season, they will not mind shopping only one or half month earlier as long as the discount and sales of the e-commerce are attractive and cost-efficient enough. Actually, Taobao, which is the top 1 e-commerce retailer in China has implemented this strategy and it prove to work well. In this way, consumers begin to shop earlier and can receive their package on time. And the pressure carrier has to take can be released to some degree, which will make the on-time delivery much more possible. I believe that marketing and logistics can work together to achieve the win-win situation.
I believe that it is in the best interest of both parties to work together to find an equatable solution to the problem. If Amazon and other E-commerce companies wont come to the table to bring forth ideas on how to smooth capacity over the holidays than making the threat of not picking up after capacity has been met should be made in order to get there attention. Both parties stand to make more money collectively if they work together to maximize the over all profits of the supply chain. I also think that eCommerce retailers can smooth out volume by having different promotions leading up to the holidays. There is only so much money to be spent and if the offer deals with longer lead times they are opening up the window for the delivery to happen when the capacity is free. This will allow distribution companies to take advantage of slower days and get caught up on excess volume. Another idea would be to incentivize eCommerce companies for making more accurate forecast. instead of threatening there business by not delivering offer them a performance bonuses on being within a certain percent on there forecast. This will allow both sides to have better planning and will allow for better final delivery to customers.
I think that the surge is unavoidable and cannot be effectively managed by threats to stop pickups by carriers. Rather than threatening to stop pickups, the carriers need to coordinate with the retailer in a way so that they can appropriately increase their capacities based on promotions offered to customers by the retailers.
I also believe that it is possible to entice customers to order early if the discounts are heavy enough and well-marketed. However, for the most part, I think that the vast majority of customers will still wait until the end because shopping at this time is just more convenient for them.
In addition, I think that marketing and logistics can work closer to make their combined operations during Christmas more profitable by sharing forecasts and shipping strategies. However, there is always going to a high amount of demand variability during this season, so having an overall “profitable” holiday with a high package volume event is never really a guarantee.
It is usually a normal phenomenon for e-commerce and logistics company. In China, there is also a e-commerce holiday that most stores on the internet will will give great discount to consumers. In the big day, people would safari on the internet just like hang out the in the supermarket. People buy not only they need but also cheap or attractive goods. It is estimated that the sales of biggest company in China got 20 billion dollars. So in some ways I can say it is a strategic for e-company although it cause a big pressure to logistics company.
Before the big day coming, every retailers must have a high expect or so overabundant inventory, which due to their eager idea of chasing profit. The point is, although logistics company do some effort to limit and manage this year’s package volume. They are must some retailers who cannot sell all their goods and start do price war which definitely attract more customers. In final, cause a heavy load to logistics company. There is also a conflict between marketing and logistic which reflect the conflict between profit and capacity. So in this case, the FedEx and UPS could corporate together and make announcement to retailers. What’s more, a pre-information could be tell to customers and give a basic balance to customers. Retailers could longer the discount days which can also release the pressure of logistics.
The point where you mention that retailers will reduce the price more towards the end of any festival as they will not prefer to have left over inventory is worth thinking upon. Since retailer would like to sell more, customers will prefer to buy at lesser prices – and the 2 phenomena will primarily happen towards the end of the festival week. So basically it is a cycle that is difficult to avoid (unless retailer is ready to keep the extra inventory). So the delivery companies should focus on working out a solution rather than threatening to stop deliveries
I bielive this method will achieve the expected effect because the decision of taking the christmas special offer is on customers’ hand. Even the retailer make the offer ealier, customer will always thought that the lower price will be at the end. I think a better way to solve the problem is that make the a special lower price delivery only with the bundle of early order. which will not cause retailers lose prifit but drive amount of demand earlier.
he carrier companies may threaten the retailers but the way customers order, it’s difficult to control the increase in number of orders placed during Christmas.
The carrier company and work with retailers to identify the trend and forecast demand.
They can either categorize materials based on standard deviation and value of sales, promising faster delivery, or they may work on the Domino’s concept i.e. promising a guaranteed delivery by Christmas if ordered certain days before Christmas.
They can charge an extra price for timely delivery, if orders are placed on the days around Christmas.
To summarize, since the volume is highand it directly impacts the business – splitting the products in different ways may help to cater to customers.
Threatening to stop pickups upon reaching the capacity limit will neither reduce the volume surge nor is it going to do any good to the reputation of the carrier. They should just figure a way out to come up with a better deal that will not only help customers get their products on time but also do wonders to increase the profits of the carriers. They can prepare themselves to handle such a surge in the volume by working closely with the marketing team.
On the other hand, recent trends suggest customers order early with appropriately chosen discounts rather than wait until the end. This is mainly because of the extended wait times experienced in the past even upon choosing the fastest shipping option. So, from a management’s point of view, the quicker they come up with enticing discounts, the better it is for them to attract more customers.
There are several strategies that can be adopted to address this issue..threatening to not pickup packages might not be good for the reputation of the carrier. Instead they can focus on increasing their capacity during the holiday season. They can charge additional shipping during that period to demotivate retailers from last minute schemes. The retailers on the other hand could start offering bigger promotions earlier in the season to encourage people to buy early. If they continue with the same trend of giving last minute discounts and promising overnight or 2 day delivery and the carriers fail to fulfill on the delivery promise, even the retailers loose customer trust. So they should be cognizant of the issues faced by the carriers and try to avoid it.
By increasing the promotional period, the demand surge decreases and finally becomes flat. Walmart has every day low prices, this makes sure that there won’t be any demand surge. Due to increase in demand each year during holiday period, it is becoming more and more difficult for carriers to delivery on time. By having better coordination between ecommerce and carriers, increasing the promotional period a bit more than the usual always helps the retailers to deliver products on time as they promised, satisfy customers and carriers at the same time.
The retail industry is highly competitive, there would always be the urge to continuously outdo the competition, so I don’t see the retailers easing off on last minute deals and promising free overnight shipping. Staggering the promotions seems like a good idea, but personally, it would have to be a really good deal that I believe cannot be matched closer to Christmas to get me to do my Christmas shopping earlier in December. Without the benefit of a survey, I also cannot confirm how effective staggering the promotions would be. I believe the carriers would also be losing some business if they are not able to increase their capacity to meet the demand from the retailers during the Christmas period.
A solution to this quagmire lies within looking at the chain structure to find the areas where the carriers can increase capacity in an efficient way without creating excessive or unrecoverable costs. The carriers would need to get accurate forecasts first to know how much capacity would be needed. From the article we know that they can expect a 14% increase in the sales volumes and we believe they would make capacity plans based on this. If the supply chain is structured in a way that the carriers pick up the items from the retailers’ warehouses and transfer them to their local sorting facilities, then move the items to another sorting facility based on the location of the customer before delivery to the customer, then I recommend that the carriers outsource the entire logistics to a 3rd party provider and fulfill only the last-mile delivery to the customer. Another option would be to hire vehicles and temporary staff for this period, enough to meet the demand and remain profitable.
There may also need to be some form of co-ordination among the suppliers during this period. I am not certain of the criteria used by the retailers to select the carriers, but the carriers could co-ordinate based on who can deliver the package more efficiently and at a lower cost based on their lanes. They could also co-ordinate based on their capacity and transfer the business if they cannot meet the delivery time set by the retailer. The co-ordination may include commissions paid for transferring the business and would entail that they share the information on who will be the last-mile carrier to the retailer. This may seem farfetched, but it provides a win-win situation for the entire supply chain and prevents loss of business as there is the possibility that the customers who did not get their packages delivered on time may just decide to walk into a regular retail store the next time they want to do their Christmas shopping.
I think the delivery companies can try their best to coordinate promotions with the online retailers and may find a substantial amount of early sales due to promotions at the beginning of the season. It won’t eliminate the rush or need for last-minute gift giving, however. A massive amount of holiday sales are done last-minute, so there will always be high uncertainty regarding that demand, but retailers have fairly good data to show the trends in last-minute holiday sales. The shipping companies just need to have a solid grasp of what their capacity is last minute and make sure that is being communicated to the retailers. It seems to me to be more of a communications issue rather than a logistical one. Keeping the customer informed will lead to improved service levels and they can consider alternatives to having their items shipped, whether it is pick up in-store or at a local depot.
The retail industry is highly competitive on pricing during the promotional periods of Christmas, Thanksgiving etc. Many of the retailers wait for their competitors to price their products on sale first so as to compete with them during the actual sale. This closeness in competition, however healthy for the customer, turns out to be a menace for the carriers. Increasing the period of promotional offers by the retailers could at least shorten the spikes in demand as well as plan on the pre-orders (if any) with the carriers. Retail stores such as Walmart and Best Buy do not face such huge issues as the former works on EDLP and the latter Price Match guarantee. Due to this, their customer demand forecasting are not planned heavily based on competitor analysis but rather on their own past customer buying trends and inventory holding.