For retailers, the peak season for parcel deliveries is always challenging. The very notion of Black Friday is in itself a reflection of this – two months following Thanksgiving for capital-intensive, multi-channel stores to earn their profits in a hyper-competitive industry.
It’s no secret that this holiday shopping season is like no other. Network capacity and staff levels are always an issue, but the supply chain challenges retailers are struggling with now are unprecedented. Even the peak season as we know it is being redefined as retailers, manufacturers, and the shipping companies that serve them echo a refrain that was previously unthinkable: We may not be able to fulfill your orders by the holidays.
Manufacturers are hearing this from suppliers. Retailers are hearing it from manufacturers. Across the world, the same cautionary message is emanating from ports and distribution centers where ships and trucks sit idle, even as carriers like FedEx face capacity shortfalls in their networks never seen before. Nearly everyone is struggling with a shortage of crucially needed labor, and consumers are not immune. In early October, nearly two months before Black Friday, shippers and retailers urged consumers to shop early for holiday gifts.
What makes all of this even more striking is that there is no corresponding economic downturn behind the challenges retailers now face. Yes, there is a shortage of materials, products and labor, but consumers continue to order more and more with no end in sight.
What Caused the Disruption Retailers Now Face?
It would be easy to blame the pandemic for all of the supply chain woes retailers now see in the U.S and other parts of the world. The reality, however, is more complex. What we see today reflects just how sensitive modern supply chains are to global disruptions.
- Port Closures and Delays: COVID-19 dramatically impacted ports, with large facilities in China and elsewhere closing to prevent the spread of the virus. Simultaneously, the fragility of the global supply chain was revealed when one ship, the “Ever Given,” ran aground in the Suez Canal and immediately jeopardized the 12 percent of global trade that passes through it on any given day. Now, delays continue with ships waiting at U.S. ports, like Los Angeles and Savannah, for two weeks or more to be unloaded rather than a day or two.
Maritime shipping rates also dramatically increased. Our own company experienced what most organizations encountered over the past year – a four-fold cost increase to have a container shipped from Europe to the U.S., and up to a ten-fold cost increase to have a container shipped from China to the U.S.
- A Shortage of Raw Materials: COVID-19 also exacerbated long-standing supply issues, with manufacturers now experiencing significant shortages of raw materials such as steel, wood and plastics, as well as many materials used in the production of computer chips. Similar to the impact of the 2011 floods in Thailand that created a global shortage of the commodity disk drives used in computers, the current backlog for chips reflects a lack of diversification in the supply chain that leaves it susceptible. This impacts everything from consumer electronics to cars.
- Labor Shortages: They are not new, but they are more severe. The logistics, materials handling and warehouse sectors have long struggled to attract and retain employees. Physically demanding, repetitive – and in many cases monotonous – tasks are synonymous with high turnover rates.
Long-standing and evolving societal trends came to a head with the Great Resignation: in August of 2021 more Americans quit their jobs than ever before, with the desire for sustainable wages and a fulfilling career path being but two drivers. The impact was felt everywhere. FedEx’s president and COO Raj Subramaniam attributed lower than expected Q1 results to a highly constrained labor market. Its Portland, Oregon hub, as an example, only had 65 percent of the staff needed to handle its normal volume - well below what is needed for the peak holiday season.
- The Acceleration of E-commerce: Increased adoption of e-commerce is not new either, but the pandemic understandably accelerated it and put multi-channel retailers in more direct competition with companies like Amazon. For context, the Pitney Bowes Parcel Shipping Index revealed that in 2021 Amazon shipped more parcels than FedEx for the first time.
Increased use of e-commerce also altered shoppers’ expectations. While Amazon made next-day deliveries a reality, the pandemic made same-day deliveries an option. More Americans discovered how easy it is to shop online, and with stimulus payments, many had more to spend.
What Steps Can Retailers Take Now?
The underlying causes of the challenging times retailers find themselves in now won’t be solved overnight, nor is there any way to avoid the rough patch that lies ahead. However, there are opportunities to consider long-term supply chain solutions.
- Accept That Disruption is the New Normal: The pandemic and the events of the past couple of years reminded us of how sensitive markets and supply chains are to global disruptions. Retailers are well served to realize that we’re in a period where disruptions are more common and that things are not going to change anytime soon. Challenges, particularly of a geopolitical nature, are likely to increase in frequency. Now more than ever, flexibility – particularly as it relates to materials handling and warehouse operations – is needed.
- Consider the Re-localization of Sourcing: One of the lasting outcomes of the challenges now faced will be more conversations, and ultimately more efforts, to re-localize sourcing and manufacturing options as a way to prevent and avoid disruptive delays such as port closures. Local options have the potential to decrease retailers’ reliance on global operations, reducing the impact from geopolitical events and also from the inherent complexities in a longer supply chain.
- Buy in Advance: Buying in advance is a viable option, particularly when looking at products that enjoy significant consumer demand. The events of the past year call into question practices like “just in time inventory.” Consequently, now is also the time for retailers to look at their warehousing operations, particularly as it relates to the storage density needed to plan, and buy, ahead.
- Invest in Automation: If there is one lesson from the events of the past year, it is that automation is needed throughout the supply chain, including in the materials handling and warehousing functions. We saw this in Europe and East Asia years ago and more is needed in North America today.
Automation is no longer optional. The increase in e-commerce and consumers’ expectations for faster fulfillment can no longer be met without advanced robotics and systems. Automation is not only required to deliver the speed and efficiency retailers now need, but also to achieve the storage density required to stay one step ahead of demand, whether it’s in existing warehouses or in “dark stores” that completely embrace automation.
Automation by its nature minimizes the reliance on labor and is crucial to address the staffing shortages faced today. But automation should not be viewed as a way to replace people, but rather as a way to address the longstanding issues that lead to high employee turnover. With automation, retailers can free people from particularly monotonous tasks and mitigate many of the issues that lead to churn – for example, using robots to lift the heaviest items that cause workplace injuries. Automation also creates long-term positions and a career track that encompasses everything from the development of robotics to the maintenance of complex systems.
- Find the Silver Lining: Highly successful organizations that stand up to the test of time all have one thing in common. During difficult times, they all look for opportunities. Now is the time for retailers to ask, “what opportunities does the current situation present us? Where are the positives and what strategies can we employ to take advantage of them?” These are questions all organizations must explore now.
The supply chain issues retailers face today will forever change how they conduct business. By looking closely at their underlying causes, and embracing the opportunity to learn and address them with new, smarter ways of working, the industry can emerge more prepared and healthier than before.
