April 13, 2016
Peak season is an annual challenge for most of the stakeholders in our industry. Capacity CSO and co-founder Thom Campbell spoke to Inside Logistics on this issue and how to handle the test of surge warehousing in a dynamic supply chain environment.
Managing peak period shipment volume is a structural challenge in the U.S. economy. Those preoccupied with executing order fulfillment services spend much of the year thinking about and planning for it. The surge is a three- to four-month peak in first inbound, and then outbound shipments, with overlap. Shipments to retailers come first, followed by a huge spike in shipments directly to consumers. Industries such as toys can see as much as 80 percent or more of their sales in a very short timeframe.
This is primarily an issue for consumer products, because other verticals do not have such spikes in volume during peak season; demand for baby products and medical devices, for example, tends to be relatively flat throughout the year while demand for gift items spikes strongly toward year-end.
This sudden demand puts a strain on everyone involved, suppliers, clients, and colleagues alike, making it all the more important to manage surge warehousing in an organized and proactive manner.
HOW TO HANDLE SURGE WAREHOUSING
Warehouses can use a number of techniques to maintain service level agreements (SLAs) – the ”guaranteed” turnaround time for an order to go out) – during peak demand periods. These techniques include:
1. Manage laborers carefully: From Labor Day to Christmas Eve, ask employees to avoid vacation time, except in areas such as sales and finance. Make additional use of temporary labor, but rely more on additional shifts of previously trained workers. Feather in additional day shifts and night shifts as needed. Start well before peak season, in order to be ready when it comes. Shake out any issues with training or attendance before crunch time. Cross train supervisors and other employees on different tasks, facilities and shifts. Add flexibility and scalability wherever possible, but always at the lowest possible cost.
2. Incentivize staff: When smaller, rely on a core team. If needed, use overtime to help address the challenges of volume spikes, which routinely are between five and 10 times the norm and require additional hands on deck. Hourly workers are incented by the prospect of overtime pay, but the cost curve goes up more steeply than the productivity curve. The latter goes down as steeply, if not more so. Good service is highly correlated to happy, well-rested workers, and vice versa. Provide a career path for all workers, whatever level they start at, and offer benefits and pay for performance along that path.
3. Set expectations: Surge warehousing occurs suddenly, but it is an annual event and should not be unexpected. Plan with clients who have significant historical volume spikes, and be realistic about the ability to maintain SLAs during peak. That may mean running an extra day shift right after Black Friday, working the weekend, whatever it takes. Work Sunday afternoon shifts to address the weekly spike and accumulated volume of the extra online shopping days over the weekend. Get ready to attack the larger seasonal volume spikes, and even the smaller ones – it’s like training for the really big ones.
“Managing peak period shipment volume is a structural challenge in the U.S. economy”
4. Watch out for carrier issues: Ultimately, all supply chain systems are physical, and subject to physical constraints. The idea that parcel carriers can infinitely multiply their human and hard assets for 22 days of the year is not realistic; there will be a cap to the extra drivers, equipment and sorting capabilities. This is experienced most acutely in ground service delays during those absolute peak days. Carriers can also get hurt if they over-staff and prepare for more volume than they get, as they learned in 2014 when they tooled up in response to shortfalls in 2013. All carriers are more incented to not over-staff and over-equip for the volumes because that negatively impacts profits.
5. Technology improves throughput: There is no denying that the move toward ever more sophisticated IT solutions can increase productivity dramatically. But that is impossible without disciplined, expert implementation. Many software implementations fail. Hardware is fickle. Be prepared and expert at troubleshooting, duct tape, spit and vinegar.
The opportunity to manage a highly complex problem requires expert deployment of people, places and things to lead through challenging and demanding times. It is not for everyone, but for those who are up for and excited by the challenge, there is nothing better. Every iteration of the improvement cycle looks different, depending on the unique needs of the organization and how quickly it can be expanded to other areas of the business. That process runs a lot more smoothly when there is a clear mission statement for a peak demand improvement program and a focused plan to roll it out.
Peak season fulfillment is a challenge at any level of our industry. Take time to set out your strategy in advance and bypass many of the avoidable costs associated with surge warehousing.