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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All
 

From SCDigest's On-Target E-Magazine

- Jan. 6, 2014 -

 

Supply Chain News: The Factors Behind the UPS Failure to Deliver Christmas Goods


UPS Didn't Have Enough Aircraft to Meet Huge Volume Surge, but Retailer Issues, Weather, also Played Key Roles


SCDigest Editorial Staff

 

A possible candidate for SCDigest's list of worst supply chain disasters of all time, UPS and to a lesser extent FedEx, were overwhelmed with late ecommerce deliveries, and had to notify thousands of consumers their Christmas gifts would not be arriving on time.

In UPS' case, the bottleneck appears to be the number of aircraft it had in service, which was not enough to meet the last minute volume spike. UPS had been forecasting an 8% average rise in its daily shipping volumes during the holidays versus 2012. However, ecommerce sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics. On Monday Dec. 23, growth in online orders spiked by 63%, according to Mercent Corp.

SCDigest Says:

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Retailers such as Toys "R" Us Inc. and Dick's Sporting Goods told customers they could place on-line orders as late as 11 p.m. on Monday, Dec. 23 and receive goods by the end of day on Tuesday.
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That volume growth issue was exacerbated by the mix between air and ground shipments. Many emerchants offered last minute shipping deals that required air service, or were behind in their own order fulfillment processes and had to switch to higher cost air shipping to meet promised delivery dates.

At UPS' massive Worldport hub in Louisville, workers were putting in 100-hour weeks to sort packages, and were working feverishly in the last dats before Christmas to move boxes for placement on to planes. But there weren't enough planes to handle the volumes.

Full planes left early Tuesday morning, the day before Christmas, with thousands of packages that couldn't be fit in. Returning aircraft going on a second run often arrived at their destinations too late for Tuesday home delivery.

UPS said it had added 23 extra chartered aircraft for this Christmas season to its normal operating fleet of more than 237 company-owned planes and 293 daily charters. But on Christmas Eve, UPS said the volume of air packages in its system had simply exceeded its capacity.

While there was also some anecdotal complaints relative to FedEx as well, those issues seemed to be minor compared to the challenges at UPS, which has a larger share of the ecommerce retail market than does FedEx.

A FedEx spokesperson said that the company "experienced no major service disruptions during this holiday season, and we experienced no major service disruptions in the week before Christmas, despite heavy volume."

The UPS delivery woes were surprising in part because of the investment the company has made over many years to engineer and model its delivery network, down to very granular levels of detail. And in fact, UPS had lined up a series of what it calls aircraft "hot spares" that could quickly be put into service if volumes spiked.
UPS also added an amazing 55,000 temporary workers for this year's Christmas season.

But last minute web deals combined with the overall growth of ecommerce buying simply swelled dramatically the number of parcels being shipped. That plus the number of retailers pushing last minute shipping or switching from ground to air resulting from their own delays simply drove volume well beyond UPS' most optimistic forecasts.

Retailers such as Toys "R" Us Inc. and Dick's Sporting Goods told customers they could place on-line orders as late as 11 p.m. on Monday, Dec. 23 and receive goods by the end of day on Tuesday. That is a full 24 hours later than the deadline last year - a placing enormous pressure on UPS and FedEx.
commitments.


(Transportation Management Article Continued Below)

 
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Amazon sent emails to customers on Dec. 22, saying they could still get gifts on time for Christmas. An Amazon spokeswoman said the company got its merchandise to carriers on time to meet delivery promises. Amazon also cited UPS' "failure" in an apologetic email to customers on Christmas morning.

So the retailers certainly have some role in the delivery issues too, and many are of course feeling customer wrath as well, as it was in fact the retailers which promised Tuesday delivery, though UPS must have told the retailers they could extend those order windows.

Weather was also a factor. A severe snowstorm struck large portions of the South and East, including the Louisville, area, causing transportation delays.

"UPS and FedEx are unfairly getting a black eye in this thing," said Jerry Hempstead, a former parcel industry executive who now manages his own consulting firm. "It wasn't a function of adding more people or allowing more overtime."

As Tuesday wound down, thousands of consumers could see with on-line parcel tracking that their goods were sitting in local UPS depots, Worldport or elsewhere, and weren't going to make it.

Many retailers have started issuing gift cards and refunding shipping costs to consumers whose orders did not arrive before Christmas.

 

The last time a significant number of UPS packages were late for Christmas was 2004, when an ice storm crippled Worldport, in the run up to the holiday. UPS workers then were flown in from other areas to the Louisville area, because the ice was so bad local employees could not drive to work. UPS then surprised customers with Christmas Day deliveries. This year the company declined to call its workers in for holiday service.

So what will happen next year? SCDigest suspects UPS and FedEx will enforce earlier deadlines for Christmas Eve delivery, at least 24 hours earlier. No more 10 pm ordering the day before.

Sucharita Mulpuru, an analyst at Forrester Research, believes retailers and carriers will likely bulk up on equipment and people, but of course the question is how much. There is a huge cost to chartering planes, even hot spares, and bringing in hundreds of extra workers.

Mulpurua also said retailers could charge customers more for last minute package deliveries, which would motivate some of them to place their orders earlier instead of relying so heavily on just-in-time shipping.
"You regulate the supply, or you change the pricing," Mulpuru said.

What are your thoughts on the Christmas delivery woes? Who is to blame - UPS or the retailers? Let us know your thoughts at the Feedback button (for email) or section (for web form) below.

 


   
 

Recent Feedback

You answered the question yourself.

"...However, ecommerce sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics. On Monday Dec. 23, growth in online orders spiked by 63%, according to Mercent Corp..."

What supply chain in the world does Supply Chain Digest advocate building flexible capapacity to absorb an unplanned 63% spike for a duration of 1-2 days?  Many of your articles speak to balancing cost with quality and service.  This is a natural result of that model, given the unplanned shift in consumer buying behavior. 

It's actually a compliment to the transportation industry that both the etailers and the consumers trust the transportation infrastructure so much that folks were willing to take a chance driving incremental demand and postponing on-line ordering until 2 days before Christmas and expect a good delivery experience.


Bill
Logistics Director
ECommerce Distributor
Jan, 08 2014

Why did you keep throwing Fedex under the bus with UPS when Fedex had no significant issues like UPS did? Why would Fedex have to move up their deadlines 24 hours when there were no issues this year?


James Hoover
Business Analyst
Stein Mart
Jan, 08 2014

Thanks for giving me a great discussion topic to begin the semester for my SCM classes. Great opportunity for students to discuss, offer input, etc.


Linda Boyd-Oattes
Adjunct Instructor
Olive Harvey City College of Chicago
Jan, 08 2014
 
   
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