Expert Insight: Gilmore's Supply Chain Jab
By Dan Gilmore
Date: Jan. 6, 2016

A Few Thoughts on the Christmas Supply Chain 2015


Lean Inventory Levels Led to Many Out-of-Stocks, and Why Can't Apparel Companies and Retailers Do Better at Foecasting Size Distribution?

I went through the Christmas season this year much like anyone else, though I do perhaps have a bit more eye to what is going on in supply chain than maybe even most professionals.

A few observances:

The pressure to keep inventories low simply led to many stock outs, especially for C type SKUs. Case in point: I was looking for a 50 or so pack of writable DVDs for a video project I was working on. I Went to a Walmart - out of stock. Went to a Target - out of stock. Went to a second Walmart - there was one package of DVDs left, with the packaging torn open at the top. It was the only item remaining on the whole shelf of blank DVDs and CDs and other computer/camcorder media.

I told the clerk I would take it. He said he wanted to count the DVDs to make sure all 50 were there. I said I would take my chances without the count.

I am not meaning to pick on Walmart or Target - it was like this virtually everywhere.

At store after store, I saw racks or peg boards of mostly (but not only) slow moving items simply empty, almost to the point of ridiculous. And of course, you can easily purchase most of these missing “long tail” items on-line.

So, the lean inventory policies simply reinforce the move from brick and mortar to on-line, which is course what Chris Anderson foretold in his article titled "The Long Tail" in Wired magazine in 2004, which then became a popular book.

There is a sea change in retail occurring right before our eyes, and Christmas 2015 was a good proof point of this transformation.

Next, I don't know that much about forecasting for apparel items, but it seems to me that something is just wrong. How can there constantly be only extra large sizes left in a given pile of sweaters or shirts, especially if they are marked down?

It just seems to me that the apparel forecast mix is very often badly wrong when it shouldn't be, with too many of the smallest and largest sizes in the distribution. It is so consistent off in this regard it has to be a systemic forecasting bias within the industry. I understand over- or under-forecasting a given style or color - predicting consumers' taste is tough - but the size thing stumps me. There has to be a well-known distribution that doesn't change all that much, yet very often mediums and larges are gone while the less common sizes are plentiful.

I am going to look into this before long. Does anyone out there know why this is? It seems a big opportunity for brand companies and retailers.

The numbers are just coming in, but it seems from early reports to have been another banner year for on-line shopping. MasterCard is saying ecommerce was up 20% in the season over 2014, but it is also saying overall retail spending was up 7.9%, which I think is almost double of what other estimates will say and what the NRF forecast before the season - it just seems way too high.

But let's face it, on-line is just increasingly the way we shop, with profound implications for our supply chains. We will become even more “over stored,” which in turn will change the ideal supply chain networks for retailers and consumer goods companies, as stores are closed or downsized.

Data from RetailNext, for example, said sales at physical stores fell 6.7% over the last weekend before Christmas, while traffic declined 10.4%. That is worse than the 5.8% decline in sales and the 8% drop in traffic recorded from Nov. 1 through Dec. 14, according to the RetailNext data.

Others will soon produce different estimates for both traditional and on-line, so you almost have to take an average. But the trend remains clear - on-line growth in the 13-16% range, year after year.

Which brings me next to the topic of returns. A company called Shorr Packaging, which is in the shipping supplies business, just came out with an estimate that about 25% of on-line orders are returned. How they know that I am not sure, but let's assume this is roughly correct.

I personally was shipping something out of a FedEx Office location on the Monday after Christmas when one consumer came in with a very heavy tool cabinet, which I believe included tools inside it as well. It appeared to weigh quite a bit, requiring a dolly to move it and two people to pick it up from the dolly.

There on the outside was a printed return label from one of the major home products retailers - I assume allowing the return to be shipped back for free. One scan of the bar code, and the consumer was on his way, a free return for him and enormous expense for the retailer.

This returns side of things is of course one of the major challenges to profitable ecommerce operations. I have no answer to this one, other than perhaps physical store chains could insist that returns must be made at a brick and mortar location to either be placed back into stock or shipped less expensively on their own truck back to a DC.

But even that has issues, including customer satisfaction concerns, but more practically the item may have been shipped to the consumer from an ecommerce-only DC, which the truck serving the store does not return to.

So the path to ecommerce profitability remains very challenged by returns and much more.

UPS avoided almost any last minute delivery issues, mostly by getting tough with retailers about forecasts and adding an extra day to normal delivery times. It says its on-time delivery in the week before Christmas was betwen 97 and 98% (not sure why the range, they must have an exact number), versus 98-99% in normal times.

FedEx ran into some last minute problems, however, and sent some drivers out on Christmas day, not getting some packages to homes until Dec. 26, despite promises for before Christmas delivery.

But the issues were not nearly as extensive as the problems seen in 2013 for both UPS and to a lesser extend FedEx, which this year again cited a larger than expected last minute surge in ecommerce volumes for its troubles.

So: rampant out-of-stocks, continued apparel size mis-forecasting, continued rapid ecommerce growth and its implications, the heavy volumes and cost of returns, generally decent parcel delivery performance even in face of rapid volume growth - these were the main supply chain themes for me for Christmas 2015.

Any reaction to this blog post? Let me know your thoughts at the Feedback section below.


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Sandy Montalbano
Consultant to Reshoring Intiative
Reshoring Initiative
Jan, 06 2016

I'd like to compare the returns for brick and mortar purchases vs on-line purchases.  I suppose this is difficult to ascertain given omnichannel buying; however, maybe an historic comparison would suffice.  That is, is there is a trend to more returns now vs what has happend historically without omnichannel?  If return percentages are about the same, then returns for a brick and mortar using omnichannel selling should be no surprise.  However, if omnichannel has greatly increased returns for bricks and mortar then that is a cost consideration that will have consequences that directly affect the bottom line. Thanks for the blog.

Bruce Kulpaca
Associate Broker
CBC Advisors
Jan, 06 2016
profile About the Author
Dan Gilmore is the editor of Supply Chain Digest.

Gilmore Says:

The returns side of things is of course one of the major challenges to profitable ecommerce .operations - and I have no answer to this one

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