Date: Friday, September 3, 2021
Murphy’s law states that if something can go wrong, it will. Murphy never informed us that everything would go wrong all at once. Even the biggest pessimist couldn’t have predicted the scale of the supply chain issues that plague us today, but that doesn’t change the reality. The supply chain didn’t just fracture a pinky finger — it broke every bone in its body, and retailers are now scrambling to prepare their inventories for the busy winter holiday season.
For consumers, that means the holidays are coming early. With supply chain issues extending all the way from sourcing and production to last-mile delivery, retailers face a host of issues that are limiting the stock and variety of their products to such a degree that experts are recommending shoppers make their holiday purchases months in advance. Consumers’ complaints of stores displaying Christmas decor before Thanksgiving or Halloween seem downright quaint today. It’s Christmas in September, and it may be what our short-term future looks like.
Not your average supply chain shock
In a typical supply chain shock, the issue is generally contained to one part of the chain. Now, the problem is happening everywhere, simultaneously.
“For us, when we hear ‘supply chain disruptions,’ it’s a loaded statement, because there’s so many areas in the supply chain that are experiencing disruptions,” Rob Caucci, co-founder and co-CEO of logistics provider Fillogic, told Modern Shipper. “It’s not just the ocean freight and the containers, it’s not just the sourcing and production and it’s not just the delivery. It’s really this kind of confluence of factors.”
The deficiencies run the gamut. Retailers face production and sourcing issues from overseas, shortages of ocean freight containers, and a host of domestic delivery issues. All of those problems are then coupled with rapidly fluctuating consumer demand, which experiences major shifts almost overnight due to the uncertainty around COVID-19 and the delta variant.
“You’re literally almost guessing on demand while also hoping that you’ve got workers at the Port of Los Angeles that can unload a ship, that can get it onto an intermodal truck and get it to your factory in time for you to be able to make the sale,” Brian Rainey, CEO of supply chain solution provider Gooten, told Modern Shipper.
Rainey points out that the situation today is further exacerbated by shifts in consumer expectations. The situation may not have been as severe 20 years ago before companies like Amazon began to condition consumers to want shipments within hours rather than days. Caucci and Fillogic co-founder and co-CEO Bill Thayer say they can’t remember a time that the supply chain faced this level of strain. The closest example came in the wake of the 2008 financial crisis.
“But that was for a different reason. During the recession, there were not a lot of people shopping, so there was a lot of inventory that had to be liquidated,” Thayer told Modern Shipper. “This is a different problem, right? Now, it’s not about making room for new products — you just don’t have products.”
The slew of supply chain malfunctions is taking its toll on manufacturers. According to Rainey, one of Gooten’s global manufacturing partners said that the time it takes to get raw materials to its U.S. factories is double pre-pandemic levels.
“He’s doubled the amount of inventory that he’s paying for from a raw materials standpoint, because he has to effectively have it on the ocean for twice as long, at the port for twice as long, in transit for twice as long,” Rainey explained.
The choice facing manufacturers is a lose-lose. Either they need to account for delays by stocking up on twice the product, or they face shortages resulting from longer shipping times. Accordingly, Thayer says that many companies began placing their 2021 holiday orders shortly after Christmas in 2020.
Even companies that have taken a diversified approach by using multiple manufacturers are struggling. Rainey says he generally advocates for this approach, but the pandemic has thrown everything out the window.
“What I used to use was the example of a snowstorm,” he said. “If there’s a snowstorm in Denver, Colorado, I could move production to North Carolina and still get that item out, and get it shipped and get it delivered to the end customer. Well, the problem is when a snowstorm becomes a global pandemic.”
Now, the snowstorm isn’t just in Denver, and it isn’t just a snowstorm — it’s a blizzard, and it’s everywhere. At every node of their supply chains, companies are facing a lack of visibility of demand, labor shortages and major capacity issues from transoceanic shippers to truckers. Whereas the problem for many companies used to be the steep price of shipping goods, the issue now is getting them shipped at all.
“Six months ago, retailers were spending ridiculous amounts of money to book passage. But now, it really doesn’t matter anymore,” Thayer said. “Right now, you just can’t even get freight into the ports to get on a boat.”
Per Thayer, many in the industry expected supply chain issues to subside after the 2020 peak season, but he believes that they’ll persist well into 2023, perhaps beyond.
Christmas in September?
All of this adds up to an unfavorable equation for consumers. One piece of the problem is that products may simply not be on the shelves in time. Rainey’s company Gooten generally uses a cutoff date from Dec. 18 through 20 for shipments to arrive in time for Christmas, but last year the company moved that date up to Dec. 8 — and it still didn’t get everything in time.
“I think [the industry] expected this was a one-time black swan event. That it’s going to happen again in 2021 I think is really, really throwing the industry — and ultimately the end consumer — for a loop, because I think we all felt we were past this,” he said.
In July, UPS CEO Carol B. Tomé told analysts that the company expects some 5 million more parcels per day during peak season than providers will be able to handle. Thayer thinks that’s a lowball estimate.
Another issue is that while product pricing is beginning to normalize to pre-pandemic levels, shipping costs certainly aren’t, and that’s passing costs on to the consumer. Parcel carriers are facing driver shortages and bumping up volume pricing to compensate — those are costs that retailers usually aren’t willing to eat.
“All the bigger parcel carriers capped pickups and deliveries last year just for consumer,” said Thayer. “But what you’re seeing now is all the major carriers are doing another price increase in volume pricing. USPS is at some ridiculous number, anywhere from 50 cents to $5 in a package for volume limits.”
Not only are products scarce right now, they’re expensive too.
The solution? On one end, retailers facing capacity issues will need to smooth out their demand curves, and they’ll do it by prolonging deals on products. That could mean we’ll be seeing monthslong deals instead of one-day discounts. That was the case in 2020, but Thayer and Caucci think this year’s trend will be more pronounced.
“They’re spreading the promotional calendar out a little bit to hopefully smooth the peak volume, rather than having just one giant spike around Black Friday and Cyber Monday,” Caucci explained.
That all sounds great for consumers. Longer deals closer to the holiday season? Dandy. But there’s an issue: If you wait to cash in on those deals, you might miss out on the product because of delays due to supply chain deficiencies.
This places consumers in a pickle. Either they can hold out for the deals and risk their gifts showing up days or weeks late, or they can bite the bullet by purchasing products earlier at inflated prices. So while cut rates and discounts might be alluring, Caucci says that buying early is the only way to ensure gifts arrive under the tree on schedule.
“If there’s a product out there and it’s already on the shelf, I would say just get it, put it in the attic and keep it up there for a couple of months to mitigate the risk of not having it delivered in time,” he recommended.
A solution on demand
While Thayer forecasts supply chain issues impacting the holiday season through 2023, there might be a way to moderate the problems in the short term. The concept of on-demand manufacturing is the idea of completing a product as close to the end consumer as possible. That can take on many different forms, from 3D printing to finishing to somewhere in between.
Rainey likes to use an example. His favorite baseball team, the Washington Nationals, won a World Series in 2019, and nobody expected it. Yet on the day of the victory, millions of units of branded Washington Nationals World Series Champions apparel were sold because companies had produced blank shirts, blank caps and other unbranded items en masse, rapidly adding the team name and logo only after the Nationals brought home the Commissioner’s Trophy.
By finishing the product as physically and temporally close to the consumer as possible, on-demand manufacturing creates two major benefits. For one, it cuts down on waste. Continuing the example of apparel, the vast majority of unsold textiles are either burned or buried. It also cuts down on the financial cost of excess inventory.
“It’s the reason that there’s a $2 billion inventory overhang for H&M or Zara,” Rainey explained, “because when you’re producing that much stuff, if it doesn’t sell — if you get it wrong — you’ve got a lot of goods in a lot of places that you can’t reuse.”
On-demand manufacturing isn’t limited to products like apparel, either. Rainey points to Dell computers as an example.
“Instead of building the computer and selling the computer, they said, ‘You design the computer and buy the computer, and then we’ll build a computer,’” he explained.
Rainey thinks that on-demand manufacturing is set to take off in the coming months and years, and it could alleviate some of the current issues hampering the supply chain. If manufacturers can learn to produce devices as complex as computers as orders come in, then the potential array of products available to shoppers would be virtually limitless.
“The concept that’s going to be heard over the next five years is going to be the concept of the infinite aisle,” Rainey said. “Retailers’ websites were effectively an online replication of the in-store experience, but you’re going to start seeing the ability to have thousands, if not hundreds of thousands, if not millions of SKUs available online.”
Rainey envisions retailers utilizing websites that could offer exponentially more product options by having goods made to order. That “infinite aisle” of products available online could be a win for both retailers and consumers. Retailers could offer more product options and place less reliance on the supply chain by ordering unfinished products in bulk, and consumers could receive more choices and quicker delivery times. That doesn’t sound like Christmas in September — it sounds like Christmas all year-round.