By Andrew K. Reese
Every year retailers and consumer products companies look for a successful holiday season to stuff their stocking with profits, but Christmas 2008 may leave them with a lump of coal instead.
The National Retail Federation's annual Holiday Consumer Intentions and Actions Survey shows that U.S. shoppers plan to spend just 1.9 percent more than last year on gifts this season, representing the lowest increase in planned consumer spending since the survey began in 2002. NRF predicted, based on the survey, that total U.S. holiday sales would increase just 2.2 percent to $470.4 billion.
Clearly the global financial crisis is weighing on consumers heading into the fourth quarter. But retail's troubles began earlier in the year, as energy and fuel prices hit record levels, hitting consumers in the pocketbook and creating a higher-than-usual level of uncertainty among retailers and consumer products companies trying to plan for this year's holiday push.
"The first nine months of this calendar year have had such a soft level of demand compared to prior years that forecasting for this holiday season has been a real challenge," says Jacob House, vice president, strategic account management, at ModusLink Global Solutions, the Waltham, Mass.-based provider of outsourced fulfillment services and supply chain solutions to companies in the high technology, communications and medical industries.
The economy weakness is affecting the volumes of goods that companies are moving, and consequently many companies are winding up with higher inventories than they expected, back into the supply chain, including at their original design manufacturers (ODMs) and contract manufacturers (CMs), which are holding more component inventory. "This really emphasizes the need to be extremely flexible in terms of capacity," House says. "Retailers are only going to take so much inventory in their distribution centers, and they'll need to see the sell-through happening before they replenish those DCs."
House concludes: "It's always a gamble, a guessing game, with retail."
Nevertheless, companies as diverse as Rocky Mountain Chocolate Factory (RMCF) and Polar have been deploying new technologies and lining up new supply chain partners over the past couple to better position themselves to whether the ups and downs of the holiday season.
Sweetening the Chocolate Forecast
Key Jobson knows all about the difficulties of ramping up for the holiday season. Jobson is chief information officer at Durango, Colo.-based Rocky Mountain Chocolate Factory, which sells its chocolate candies, fudge and other confectionery products through a system of 320 retail stores and franchise operations, as well as online and through other retailers. The company does about 70 percent of its business during an extended holiday season that lasts from November through the end of March.
"We start in the April timeframe to manufacture product that's going to be sold during the holiday season," Jobson says, explaining that during the spring and summer the company primarily manufactures everyday product, along with holiday component product destined to go into gift boxes, and puts that product in the freezer. Then, as they roll into September and October, they start to pull out the holiday component product to build the holiday packaging, as well as the everyday product to ship since their lines are tied up producing holiday product at this time.
Scheduling production to meet the holiday surge had proved challenging using RMCF's legacy enterprise resource planning (ERP) system, Jobson says. "We had very limited ability to effectively schedule more than one day out operationally and more than three days out strategically," he explains. As a result, the company's planning process constituted daily meetings that ran as long as two hours and involved up to eight managers. For the holiday season, planning was complicated by the need to bring in special items to be married up with product — like plastic Santa gift boxes — as well as the relatively higher variability of the 30-40 percent of their sales accounted for by their specialty market product — which includes Internet, some big-box retailer distribution and mom-and-pop gift shop distribution.
RMCF decided last year that it would deploy a more sophisticated planning tool that would give it a longer planning horizon, and in June 2007 it purchased the Ross Advanced Planning and Scheduling (APS) solution from CDC Software. Jobson says that APS has given the company much better visibility to all the resources associated with production: supplies, the product that they already manufactured that has to come out of the freezer and go into a box, the equipment, and — moving into this season — labor.
As a result, APS has given the company the ability to schedule a week out tactically and 90 days out for strategic scheduling. The graphic presentation and automated alerts that APS provides also allows executives to identify potential scheduling issues more easily, Jobson says. "You don't have to wade through a pile of greenbar reports to figure out if you're not going to have enough box tops to meet a production schedule." The overall result has been that RMCF is better positioned to ramp up steadily for the holiday season without having to resort to adding labor or paying overtime to meet demand.
One key to the success of the implementation was timing: RMCF deployed the solution during a relatively light production period. The company took the scheduler who was going to go forward with APS and allocated him to work on the project from June 2007 through about December, and the other two schedulers picked up the slack of his day-to-day scheduling during that time. RMCF went live with the scheduling tool in December and used it to do part of the scheduling for January and February. But by March they were ready to roll it out to the entire factory and involve everyone in the new scheduling process, and this year is the first in which the company will be relying on the system to guide it through the holidays.
Keeping Polar's Supply Chain Heart Beating
The holiday season offers a different set of supply chain challenges for Polar Inc., the Lake Success, N.Y.-based unit of Finland's Polar Electro, which invented the first wireless heart rate monitor in 1977 and currently holds about 80 percent market share in its category. The monitors rank high on the wish lists of serious athletes and "weekend warriors" looking to fine-tune their exercise programs for maximum effect, so it's no surprise that Polar does 40 percent of its business in the last four months of the year.
Jeff Padovan, president of Polar, says the company has seen its supply chain grow in complexity over the past 10 years thanks to significant growth in its category, an increase in the number of stock-keeping units (SKUs) the company offers, and the growing diversity of its customer base. "Our customers run the gamut from the publicly traded sporting goods and big-box retailers of the world, all the way down to the mom-and-pop corner stores," Padovan says. "That means that, in some ways, we have a mom-and-pop supply chain for our mom-and-pop stores, but we also have a very sophisticated, technically oriented pick-pack-ship environment for our more-sophisticated customers."
The principle challenges for Polar around the holidays are associated with special packs and with its industry professionals and employee programs. The company already does special stickering for certain of its larger retail clients, but around the holidays it has started to do special pack programs like a "gift with purchase" promotion, for example, a running computer that comes with a free visor. This type of promotion comes to the dealer retail-ready — the retailer doesn't have to assemble anything. Polar uses a manual Kanban process to combine the product with the gift — the running computers with the visors, for example — along with the packaging and the stickering specific for a certain retailer, into a finished good that must then be managed as a separate SKU.
The industry professionals and employee programs involve one-off orders coming in from individual athletes or a staff member at of company with which Polar has an industry purchase agreement. These programs run throughout the year, but they see the most business during the holiday season. In the past, Polar handled these labor-intensive programs internally: a fax or phone call would come in from an individual, and a Polar employee would have to physically enter the order into the order management system and provide follow-up to ensure fulfillment occurred.
More recently, however, Polar outsourced this B2B business to a company called GlobalWare Solutions, which allowed Polar to move all these individual transactions onto a self-serve environment on the shoppolar.com Web site. GlobalWare holds product and handles all the fulfillment activities associated with these programs, including the pick-pack-ship and the credit card billing and invoicing. "If we are going to continue to keep everyone happy, we can always add labor to the model, but that just wasn't cost-effective. We needed to find a better supply chain, or a better way to meet the needs of those industry professionals and employee purchases, which is how GWS has helped us substantially," says Padovan.
Ensuring a Holly Jolly Supply Chain
The holiday challenges facing any given company, of course, will largely depend on the nature of its supply chain. Many consumer products companies bring in product from overseas to stock stores shelves, and visibility will be key to ensuring that those goods make it to the retailers on time, says Chris Jones, executive vice president for solutions and services at Descartes Systems Group, the Warterloo, Ont.-based provider of logistics management solutions.
"Companies that build-to-stock based on a forecast need to know whether shipments are going to arrive on time at the port of entry, given the long lead times — did the product leave the factory on time, did it get consolidated, did the container wind up on the right ship, when will it get to port, triggering when they need to pick it up," Jones explains. "That kind of multi-modal global visibility is key to making sure that you know whether you need to get into contingency plans, such as expediting."
For their part, the path to holiday success for retailers will increasingly be found in an integrated cross-channel experience, says Jim Bengier, retail global industry executive at B2B integration specialist Sterling Commerce and a veteran of more than 25 years in the retail industry. "Consumers have high expectations around cross-channel experience, and where that is going to hit retailers in the holiday season is around inventory visibility," Bengier says.
He points to research showing that both retailers and customers are likely to be looking more to an in-store pickup model — order online, pick up the item at a brick-and-mortar store. To make this work, retailers will need to have visibility into in-store inventory levels and availability, and to have that information available to consumers online. "Retailers are going to be under more pressure to have this sort of information integrated across channels, including call centers, online or in store," Bengier says.
"But," he warns, "retailers have a huge gap here — they have some integration, but in many cases it's not very automated. So it's going to be very manual, and you're going to have a lot of breaks in customer satisfaction because the retailer is not going to be able to share timely information with the consumer consistently and accurately."
CDC Software www.cdcsoftware.com
Descartes Systems Group www.descartes.com
ModusLink Global Solutions www.moduslink.com
Rocky Mountain Chocolate Factory www.rmcf.com
Sterling Commerce www.sterlingcommerce.com