2020 Holiday Season a Logistical Challenge at Every Stage

This year, because of coronavirus, millions of Americans are spending the vast majority of their time at home, leading to big increases, whether to enable their remote work, at-home schooling, or to satisfy their entertainment needs. The rise was first noted shortly after the lockdowns started taking effect in cities across the country in March. The Federal Reserve Bank of St. Louis reports that e-commerce retail sales as a percentage of total sales in the U.S. rose from 0.8% in the first quarter of 2000 to a peak of 16.1% in the second quarter of 2020, when it reached $211.6 billion.E-commerce and shipping companies responded to the surge by going on a hiring blitz, navigating a patchwork of federal and state-level social distancing guidelines, as well as the health and safety concerns of their workforces. It soon became customary for retailers to warn about potential order fulfillment and shipping delays due to COVID-19 complications.And that was well before this decidedly unconventional holiday season, as the surge in digital shopping amid the pandemic runs up against companies’ limits to keep inventories stocked and have last-minute orders reach their destinations in time. The twin challenges of inventory and shipping are related to retailers and shippers alike underestimating shoppers’ online demand as they spend more time at home this year.According to a McKinsey & Company survey conducted Oct. 23 to 27, about half of all respondents said they would conduct more holiday shopping online this year than they did last year. The survey also found a 20% to 50% net increase in respondents’ intent to spend online, even in a post-COVID environment. According to the National Retail Federation, an industry association, during the past five years, holiday sales in November and December have averaged approximately 19% of total retail sales, reaching $729.1 billion in 2019.“Given the pandemic, most companies are having difficulty with a ‘chase strategy,’ where as demand goes up they chase it with capacity by trying to have enough trucks, inventory, or people,” says Steven Melnyk, professor of supply chain management in the Broad College of Business at Michigan State University.Of course, to consumers, most of the supply chain links are invisible: To them, the issues are simple: Does a company have the product I want, at a price I am willing to pay, and will it be able to make delivery on time? To satisfy these seeming simple but critical needs, companies are taking extraordinary measures, ranging from hiring blitzes to playing with pricing and the timing of holiday shopping. Here is how American businesses are attempting to rise to Holiday Shopping 2020.WORKERS“There’s an expectation that parcel delivery needs during the traditional holiday period of Black Friday to Christmas will exceed transportation carrier capabilities by as much as 5%,” said Mike Willoughby, CEO of the global e-commerce and logistics provider PFSweb, who spoke on a virtual panel at the Stephens Annual Investment Conference. Traditional parcel delivery services like FedEx, UPS and USPS will find themselves with similar constraints, according to Willoughby. “Retailers, brands, and providers like us are all working with those carriers to figure out how much capacity we have each day, how we balance parcels between different carriers and make sure that — on behalf of our clients — we are getting commitments from parcel carriers to pick up the parcels that we are going to deliver.”American e-commerce and shipping companies have hired hundreds of thousands of extra workers since COVID-19 struck the nation, while businesses in many other industries were laying off millions of workers during the deepest recession since the Great Depression.By April, Amazon had hired an additional 175,000 U.S.-based workers in its fulfillment and delivery network, with 70% of them set to become permanent positions. In October the company announced it would hire an additional 100,000 seasonal workers in the U.S. and Canada to sort, package, and ship customer orders for the holidays. Walmart hired 400,000 workers between March and July, mostly for temporary positions, and in September it announced plans to hire 20,000 more seasonal workers in its e-commerce fulfillment centers.Amazon and Walmart both rely heavily on FedEx, UPS, and the U.S. Postal Service. The shippers each employ approximately 500,000 people. FedEx and UPS, the two largest shipping companies in the U.S., each hired tens of thousands of additional workers between March and August. In September, FedEx announced that it would hire over 70,000 seasonal workers in the lead-up to the holidays, while UPS announced plans to hire more than 100,000 such workers. The USPS, a federal agency that lost $8.8 billion in 2019 and has a $150 billion funding shortfall, also is hiring tens of thousands of seasonal workers.INVENTORIES & PRICESAlmost any retail brand selling goods online and shipping them to customers has had to rethink its approach to inventory management this year. Panic shopping of home goods like canned soup and toilet paper caused inventory issues early in the pandemic. But retailer supply chains also have struggled with such issues as raw material shortages, disruptions to the transport of materials coming from overseas, domestic factories shutting down, or manufacturers prioritizing the production of personal protective equipment (PPE) and medical items over typical goods.Tonn Ostergard, Chairman and CEO of Crete Carrier, one of the largest trucking companies in the nation transporting a wide variety of products, also spoke on a virtual panel at the Stephens Annual Investment Conference. “Customers say their inventory has been depleted throughout their supply chain, and most of our customers are telling us, even if business returned to a normal level, it would take 18 to 24 months just to rebuild that supply chain,” he said.Software from Amazon Web Services, Shopify, Oracle’s NetSuite and other vendors let retailers automate much of their real-time inventory tracking and sales with omnichannel solutions that cover their brick-and-mortar stores, mobile-friendly websites, and social media accounts. However, retailers still must forecast which items they will need and how much, then put merchandise on shelves of order fulfillment warehouses and/or their stores. That can be tricky for third-party retailers on Amazon, which has tightened warehouse capacity for each of its third-party sellers. In September, Walmart notified customers that it was stocking up on items that have become popular during the pandemic, including loungewear and outdoor athletic equipment.Successful retailers have gotten ahead of the holiday season by finding reliable suppliers that can expedite goods, switching from old ones if necessary, and building up sufficient inventory by early October. Black Friday, the day after Thanksgiving, traditionally marked the start of the annual U.S. holiday shopping spree until e-commerce ushered in dayslong events that now start much earlier. In 2020, Amazon moved its popular Prime Day from July to Oct. 13-14. Third-party sellers made $3.5 billion on the event, up 60% year-on-year. This unofficially kicked off the blitz of 2020 online shopping deals. Cyber Monday also has expanded beyond the first Monday after Thanksgiving for some retailers. Amazon’s Cyber Monday deals stretch from Nov. 28-30 this year, although Walmart’s official Cyber Monday deals don’t start until Nov. 30.“Vendors are trying to change how we view the shopping season, through demand management,” Melnyk says. “Black Friday presented a spike-in-demand problem for supply chain managers. Amazon’s notion of weeklong deals has helped spread out the demand from Black Friday shoppers, and alleviated pressures on retailer logistics and operations. Now retailers are changing their websites to promote pre-orders and Black Friday deals several weeks in advance. This allows them to smooth out production and deliveries without worrying as much about shock to their systems from one-day events.”By early November, the website BlackFriday.com, which tracks deals for consumers and gathers annual data on the holiday rush, was displaying promotional scans of discounts and coupons from many top retailers and comparing them against prices at Amazon and Walmart. These included companies whose once-massive brick-and-mortar presences have contracted in recent years and collapsed during the pandemic, such as Macy’s and J.C. Penney, as well as those faring better, like Kohl’s, Costco, Target, Home Depot and Lowe’s.DELIVERIESIn addition to offering price discounts and coupons, retailers are incentivizing shoppers with lower spend requirements for free shipping. Ultimately, the success or failure of holiday season e-commerce logistics all comes down to deliveries, especially in the eyes of consumers.Getting the correct items to the correct customers at the correct times requires precise coordination between retailers and their shippers, who also strive for transparency with their mutual customers. FedEx, UPS, DHL, and the U.S. Postal Service all offer various combinations of email, instant messaging, online forms, and telephone communications to address everything from missing packages to rerouting requests. This can be a stressful holiday experience for consumers, who also must cope with the fact that none of those shippers operate on Thanksgiving and Christmas Day.“Retailers and shippers are giving consumers more information, by telling them that the later they delay shipping their products, the lower their probability of it getting there on time,” Melnyk says. “Retailers also are trying to convince consumers who are influenced by low prices to take inventory themselves and store it now, rather than retailers storing it at their facilities. This transfers risk from the store to the consumer. Now the consumer can decide what to do with it.”The major shippers provide GPS-enabled apps that send automatic alerts about the location of packages to both retailers and consumers. UPS My Choice members can use the Follow My Delivery live map to see package locations in real-time. FedEx InSight allows retailers to connect inventory management with delivery tracking by applying advanced search and filter features to all inbound and outbound packages. DHL has third-party integrations with several e-commerce platforms, including Shopify, that can automate tasks such as printing shipping labels and sending tracking codes to customers. USPS Package Intercept lets the retailer or customer stop or redirect an item before it reaches a destination.Technology might not help retailers that waited too long to coordinate with shippers. FedEx warned retailers in October that the shipping industry would be overwhelmed this season, and shippers — which scramble during holidays in normal times — have both raised prices and imposed capacity limits on retailers this year to manage the load. In response, retailers such as Bed Bath & Beyond are encouraging shoppers to consider curbside pickups and buying online then picking up in store (BOPIS), as alternatives to home-based deliveries. Shoppers employed by Instacart are delivering Costco items the same day via personal automobile, generally within hours after purchase.Ostergard noted that the limited number of new drivers entering the business restricts the number of new trucks hitting the road, which in turn presents hurdles for shippers. “We are all struggling to find enough drivers to meet that demand,” he said. “The drivers are the key there, and we are not going to order [trucks] beyond our ability to keep them full and running.”FUTURE HOLIDAYSCustomers soon will decide how well the different retailers and shippers performed this holiday season. Companies then will either refine their existing processes, or recognize the need to create new ones that meet the e-commerce logistics needs of pandemic-era shoppers.“Most retail stores that fulfill orders from their stores do it very inefficiently. In many cases, store personnel have a hard time balancing order fulfillment versus providing traditional assistance for customers walking in the store,” Willoughby said. “Because it’s so manual, and tends to be order-based picking and processing instead of batch processing and picking, it’s not cost-effective either. So the more scale you try to drive to your stores, the less profitable you’re going to be. Investments have been made this year to try to tighten that up.”Other changes also are underway, from Amazon using its own transportation fleet to advances in self-driving truck fleets. Whatever online shopping innovations do take hold in future holidays, retailers that take advantage of those trends stand to gain new customers an