By now, we are all familiar with the sensationalized stories of UPS and FedEx starring as the “Grinches that stole Christmas.” Millions of holiday shoppers were negatively impacted by a slew of events that some are saying created the “perfect storm” to ruin the Christmas holiday. Many unlucky families and friends woke up to find that Santa Claus was “running late.”

    Customers were left standing in long lines, delayed on phone calls with lengthy wait times and frustrated with very sporadic updates to online tracking. Furthermore, on top of the generally gloomy holiday sales figures, retailers are facing millions of dollars in lost profits as they are refunding shipping charges to irate customers. Many retailers, including big-box chains such as Wal-Mart, Target and Best Buy as well as on-line behemoth Amazon are offering gift cards of up to $25 in addition to refunding shipping charges. Retailers and holiday shoppers were quick to place the blame solely on the parcel carriers' shoulders, but the reality is there is plenty of blame to share.

    All parcel carriers faced immense challenges with delivering holiday packages, especially UPS. And while weather played a role in crippling delivery networks, the core problem was poor planning and execution by retailers, customers and shippers. UPS has already followed up the peak season debacle with a profit warning announcing they will miss projected earnings for the quarter by more than 15%. The true impact to both retailers and carriers likely will not be realized until after peak season 2014. Will shippers split volumes between carriers? Should retailers change shipping policies and customer expectations? Does this element of the supply chain need better contingency plans? Will carriers force more accurate planning from shippers, while putting in place better peak season operating plans? Will customers start shipping online earlier or will we see a shift back to brick and mortar retail for many holiday shoppers.

    In my last Spend Perspectives column I introduced the Transportation Optimization Model (TOM). TOM represents a dynamic planning and supply chain management model. It’s built on four core principles that are interwoven on a daily basis to be the foundation for an efficient and nimble supply chain. The principles are as follows:

    1. Attaining Visibility
    2. Achieving Transparency
    3. Nailing Strategy
    4. Executing Precisely
    We can use TOM to highlight breakdowns in the peak season retail environment across all contingencies (shippers, carriers and customers). The reality is that peak season problems started in November, not the week leading up to Christmas. Black Friday and Cyber Monday online sales were higher than forecasted by both shippers and carriers. Peak season carrier staffing was extremely lean as carriers focused on hitting profit numbers for the quarter via cost management. It was clear that staffing levels were too low, even with an influx of higher than planned volumes. And the lack of contingency plans in the event of bad weather was also exposed. One carrier cited a shorter than normal period between Thanksgiving and Christmas as the core problem; frankly, my experience tells me their planning and budgeting groups were well aware of the shorter holiday season when developing 2013 peak plans. People that were impacted want to hear the truth and thus far we have not heard many carriers (UPS did issue a formal apology on the day after Christmas) or shippers accepting blame – rather most everyone is pointing fingers.

    Many companies failed to gain visibility into the seriousness of the problem until too late into peak season. Based on our sample results, carrier service performance levels between Thanksgiving and Christmas were the worst in a decade. Shippers should have been monitoring service levels on a daily basis and pushing volume to different carriers or to different distribution locations. Customers should have noticed that guaranteed shipments were arriving late and non-guaranteed shipments were taking longer than usual. Late shipments generally don’t have as detrimental an impact to customers at the beginning of December as they do for packages that aren’t delivered by Christmas. However, many unhappy customers were procrastinators that waited to the last minute to either ship or purchase their gifts.

    Shippers should have had a better understanding of the service issues and recalibrated their shipping promises and guarantees. They should have made options and issues more transparent to the customer thru pro-active communication of the shipping challenges. This would have positively impacted the shippers' credibility. Shippers certainly did not nail the strategy by making promises that they, in many cases, knew were not going to be delivered. Carriers failed to provide visibility and transparency for long gaps of time as shipment updates were running far behind normal schedules. Carriers are the last cog in the delivery of packages and while there are many factors, they failed to execute on delivering far too many of those packages. Unfortunately all three groups failed to execute precisely; carriers failed to deliver packages before Christmas, shippers failed to live up to their promises to customers and customers failed to live up to promises to families and friends. One thing is for sure – there were a lot of important lessons to be learned during peak season 2013!
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