The year-end holidays present supply chain management with both opportunity and challenge. Many companies do an outsized percentage of sales in the final quarter. But to make the most of the upsurge in demand requires having the capacity to match it. And that calls for strengthening and fine-tuning the supply chain.
“You need to ensure there's enough capacity in-house and enough capacity with suppliers and enough logistics capacity to ensure delivery," says Suman Sarkar, partner at Three S Consulting in San Francisco and author of The Supply Chain Revolution.
Timing and location are critical components of holiday supply chain management.
“You have to have stuff sitting in the right place so you can get it to customers for the holiday season," Sarkar says. “If you miss Christmas, people don't want it afterward."
At the same time, ordering too much or too far in advance of the holidays also carries a financial penalty.
“The cost of carrying inventory is something you have to consider," notes Rick Blasgen, president and CEO of the Council of Supply Chain Management Professionals, a Lombard, Illinois-based trade association. “Once you produce inventory and put it on your books, there's a carrying cost."
Plan First
The process of tuning up a business for the holidays starts with supply chain planning, says Michael Gravier, professor of marketing and global supply chain management at Bryant University in Smithfield, Rhode Island. And that begins with examining what has happened in holidays past.
“Go back and look at the historical record and see where the spikes are," he says.
To reveal more about what's likely to happen this holiday season, Blasgen suggests asking questions about channels.
“Am I seeing a big shift of my product going through ecommerce channels or direct to consumer?" he asks. “If last year 5 percent of my sales were through e-commerce and this year it's 15 percent, does that mean my product positioning has to be different? Does it need to be closer to customers?"
Since the future rarely turns out exactly as planned, it's a good idea to include a way to monitor trends and build flexibility into the plan.
“Even if you're diligent and watching, the market can move faster than the supply chain can," Gravier notes. “The market may change its tastes in three weeks, but it may take a month to get product designed and delivered to your store."
Communicate With Suppliers
Best practices call for copious communication with suppliers while building your supply management plan and after it's done. That includes letting them know what and when you plan to order, and getting their feedback on what they can do.
“A good supply chain leader is going to share their requirements and do that well in advance," Blasgen says. “If I need to have 1,000 widgets available on October 15, I have to start sharing that a number of months ahead."
Transparency is central in supplier communications during the holiday build-up, Sarkar says. Ideally, all the components of the supply chain will be working toward the same goal.
“Show them what you're producing and what the demand looks like so they know they have to gear up to support you," he says.
Finally, while it's always a good idea to have alternate suppliers, it's also wise to avoid having to turn to them in the middle of the year-end rush.
“During the holiday season you want to work with suppliers that are tested and proven to work with you and your systems very well," Sarkar says.
Stress Test Systems
After the planning is done and before the holidays are at hand, test the systems that have been set up to see if they'll be able to meet the surging demand. “Stress testing systems and your supply chain is critically important," Sarkar says. “You don't want things to not happen when customers want it."
You can simulate a holiday crush by placing rush orders with suppliers and seeing how well they perform.
“Things do go wrong," Sarkar says. “If that happens, you need the supplier to step up and fix it."
Also look at your own systems, Gravier advises. Run a role-play exercise with company leaders to see how they'd respond to worst-case scenarios such as overwhelmed ordering systems, delayed shipments and crashed websites.
“No company is ever ready for everything, so don't let anybody tell you not to worry because they have everything under control," Gravier suggests. “Instead, make them tell you what they'd do. If they can't articulate, then they don't have a plan. Make them describe specific steps, and why those steps, and what the expected outcomes would be of applying those steps to the worst-case scenario."
You'll be glad you took these steps for your supply chain management.
Other Holiday Concerns
A well-tuned holiday supply chain accounts for a myriad of factors. For instance, smart business owners ensure not only that they have the financing they need, but that suppliers have adequate lines of credit to fulfill orders, Sarkar says.
Business owners thinking longer term are looking into modern technology for their supply chain management needs , Gravier says.
“Research shows that less than half of companies have adopted the internet to manage supplier and customer relationships," he says. “If you're in the majority of companies that have not adopted internet-based supplier and customer relationship management, you should investigate order management systems for your small business."
The way things are going, a supply chain ramped up to meet holiday demand soon may be necessary year round.
“We've got a consumer base that thinks they should be able to think about something, order it and have it be here in an hour," Blasgen notes.
During the holiday season you want to work with suppliers that are tested and proven to work with you and your systems very well.
—Suman Sarkar, partner, Three S Consulting
And, as Sarkar puts it, “It's important to be able to meet customer demand all the time, whether it's the holiday season or not."
Read more articles on risk assessment.
Photo: Getty Images