Peak Planning

Planning Ahead for Another Unprecedented Peak Holiday Season

Peak Planning
July 23, 2021
7 min read

Ware2Go’s Director of Strategy, Samantha Smith, weighs in why SMB’s need to act fast to replenish inventory in time for Peak season. Originally Published on Supply & Demand Chain Executive

Last holiday season, after navigating Supply Chain shortages and endless disruptions caused by the 2020 ecommerce boom, most merchants were prepared for an unusual and tumultuous peak. I’m surprised, however, to find a lack of urgency in my conversations with merchants about this year’s peak planning. Particularly in the US where vaccination rates are relatively high, life in many ways seems to have gotten “back to normal”, and merchants are seemingly unaware of the Supply Chain storm that’s brewing and threatening to upend this year’s Peak.

The Supply Chain just hasn’t gotten a break since the beginning of the pandemic. During the historically slow shipping season, businesses rushed to re-stock inventory depleted during COVID-19 shutdowns, worsening already unprecedented freight delays. As time wore on, Supply Chains were dealt one blow after another, including:

  • A spending spike the led to a shortage in shipping containers late last year
  • Winter storms disrupting freight transportation throughout the Southeast
  • The Ever Given blocking the Suez Canal for nearly a week (Companies like IKEA and Snuggy still have significant amounts of inventory tied up in legal battles with the Egyptian government.)

After 18 months of disruptions, the state of international freight is shaky at best, and as the pandemic still rages in many parts of the world, the Supply Chain is not out of the woods yet. This peak may look different than last year’s but it will hardly be “back to normal”.

2021 Supply Chain Challenges

Major ports in China were forced to operate at limited capacity due to the spike in COVID cases in Guangdong province, leading to severe backups. Wait times to berth at the Shenzhen port (the third largest in the world by container volume) have increased exponentially from an average of 0.5 days to 16 days. Meanwhile, backups have begun to affect other nearby ports as vessels are diverted to Guangzhou, Guangxi, Yunnan, Hunan, and Hubei. 

And when inventory is stateside, it faces even further delays. Average lead times for imports from Shanghai are up 135% due to congestion in LA and surrounding ports — not to mention the pains of rising freight costs. The cost of moving a container from China to the US West Coast has increased 34.5% since the beginning of 2021 and an unbelievable 228% year over year.

Large, well-resourced enterprises have rushed to stock up for 2021 Peak and beyond, and even the country’s biggest importers are struggling to find space on container ships.

Even though more manufacturing is moving stateside, factories are faced with rolling raw materials shortages, affecting materials from lumber to plastics to cardboard. Major brands like Procter & Gamble have been forced to raise prices on some of their core product offerings.

The Opportunity for SMB’s

For SMB’s this means that the time to act is now. Merchants who may be accustomed to forecasting and ordering inventory on a quarterly basis should now be thinking about placing orders 6 months in advance. Merchants who don’t have their inventory stateside by the end of August likely won’t be prepared for Black Friday. Their customers will be faced with backorders and out of stock notifications that shoppers frankly won’t stand for at the holidays.

What does that mean for merchants who are prepared when holiday demand comes? They can expect turnovers from competitors as consumers seek out alternatives. Our 2020 consumer survey showed that 55% of shoppers made a purchase from a brand they had never done business with before the pandemic. With this year’s compounding effects of freight delays and Supply Chain shortages, I expect that number to be very comparable this holiday season. 

This gives merchants of all sizes an opportunity to win over new customers this year, which is why I’m advising merchants to not only order inventory earlier than they traditionally would but to also order more of it — doubling their orders if possible. 

This may seem like a major pivot for SMB’s who are accustomed to operating on a Just in Time (JIT) inventory model. And typically, I advise merchants to determine their own risk tolerance when it comes to procurement and inventory planning. During a “normal” year, I often encourage merchants to take a higher risk approach to create more margin and free up capital to invest back into their business. This Peak season, however, is far from normal, and I’m recommending a much more conservative approach. The risk of being caught with empty shelves when shoppers are ready to spend is much greater than having unsold inventory on-hand at the beginning of Q1.

Every business operates differently and brands should consider all of the implications of this decision, including:

  1. Transportation Costs: Freight costs are at an all-time high. Some merchants may be tempted to postpone replenishment orders until costs level out, but we won’t likely see prices decrease this year. In fact, they will more likely continue increasing. If transportation costs continue on their current trajectory, merchants who stock up now will realize a 30-55% savings in transportation costs compared to those who wait.
  2. Long-term and Bulk Storage:  Merchants probably aren’t accustomed to storing 6 months worth of inventory at a time. They need a flexible fulfillment partner that won’t lock them into an inflated storage minimum or impose unreasonable caps. Finding a flexible fulfillment partner now will also build resilience into the Supply Chain, which should be a major priority for brands moving into 2022 and beyond.
  3. Risk of Unsold Inventory: Consumer behavior has been unpredictable, and demand forecasting over the past year has been incredibly challenging. SMB’s may be concerned about not selling through their inventory, but it’s more likely that demand will spike as competitors struggle to get inventory in time. Unsold inventory at the end of the holiday shopping season will only serve as a buffer at the beginning of Q1 as merchants plan their next replenishment order.
  4. Capital Expenditure: For SMB’s still concerned about the upfront expense of investing in and carrying more inventory, I can’t stress enough that the rewards far outweigh the risks in this scenario. Merchants who are stocked and ready this peak season will see an influx in demand, and they will control the cost when their competitors are stocked out.
  5. A Flexible Fulfillment Model: To meet the demands of a major seasonal spike in sales, SMB’s need a fulfillment provider that can scale up quickly and is capable of fulfilling all order types across all sales channels.

2020’s Supply Chain challenges aren’t quite behind us yet. The recent spikes in COVID-19 cases in China are a signal that the labor market is still at risk, and shortages and delays are still a threat to the global Supply Chain. This continuned uncertainty means that for SMB’s looking for sustainable growth this Peak season and beyond, preparedness is key to a resilient Supply Chain.
Looking to build a more resilient supply chain? Reach out to one of our supply chain experts.

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