Long before the winter holidays arrive, seasonal suppliers are already prepping their supply chains to handle the uptick in demand. But without a warehousing and fulfillment strategy that is tailored to fit seasonal requirements, companies lose out on significant portions of their revenue due to year-round storage and inventory management costs. With this in mind, how does on-demand warehousing and fulfillment enable seasonal suppliers to avoid unnecessary expenses while still capitalizing on their peak season?
- Seasonal Suppliers Face Unique Demand Cycles. There are many industries today that experience a definitive busy season. These periods of heightened customer demand usually fall around a major holiday such as Christmas, Valentine’s Day, or Halloween. In industries like retail, these busy seasons can account for 30%+ of annual revenues in just 2-3 months.
- Consumer Holiday Spend Continues to Increase. In 2018, the average U.S. consumer planned to spend over $1,000 during the winter holidays (November-December). This put the total 2018 U.S. winter holiday spend at roughly $720 billion; a 4.3% increase from 2017 and the highest level ever in the U.S. Looking ahead, 2019 is expected to mark the 11th straight year of increasing consumer holiday spend.
- The Nightmare Before Christmas: Managing Seasonal Inventory. While consumer holiday spend continues to rise, seasonal suppliers often experience a significant reduction in their holiday profits due to year-round warehousing contracts with mandated inventory minimums. At the same time, many warehouses struggle to accommodate additional storage and fulfillment requirements for suppliers during busy periods, which negatively impacts merchants’ abilities to meet customer demand.
- On-Demand Warehousing Offers a Unique Solution for Seasonal Suppliers. On-demand warehousing provides businesses with complete flexibility over the levels of inventory they maintain year-round. Warehouse space can be scaled up or down as needed, and there are no long-term contracts or inventory minimums. The leading solutions also provide functionality that allows suppliers to forecast their demand at different points throughout the year and plan their storage needs accordingly. This allows seasonal suppliers to minimize their warehousing costs during non-busy months, and then rapidly scale their inventory and fulfillment during peak season to capitalize on the spike in customer demand.
Seasonal Suppliers Face Unique Demand Cycles.
While the supply chains of all industries come with their share of challenges, seasonal suppliers have a particularly unique set of obstacles to navigate. Today, there are many companies that experience a recognizable “busy season” where spikes in demand occur. These periods typically fall around a major holiday or event such as Christmas, where certain retailers can experience as much as 30% of their profits in just 2-3 months. However, even summer goods have a busy season. Such is the case with Scotts Company, a provider of turf and lawn care products that typically receives 70% of all sales between the months of March and August. But regardless of which season is the busiest, all of these companies have similar experiences in that their inventory and warehousing needs are lowered for large portions of the year, but then expand dramatically for a few months to accommodate the busy season. From a logistics standpoint, this introduces several key challenges.
Consumer Holiday Spend Continues to Increase.
To further illustrate the current state of seasonal demand, let’s examine the winter holiday months (November-December). In 2018, the average U.S. consumer planned to spend over $1,000 during the winter holidays. This put the total U.S. holiday spend at roughly $720 billion; a 4.3% increase from 2017 and the highest U.S. holiday spend on record. This increase marked 10 straight years of rising holiday spend. And although issues surrounding trade conflict and geopolitical turmoil have caused some concerns in 2019, this year’s holiday season is projected to build upon the growth of the previous year.
While this is overall good news for seasonal suppliers, it leaves major questions to address. Such as, how can a business develop and maintain a supply chain that is able to seamlessly handle this 2-month spike in product demand?
The Nightmare Before Christmas: Managing Seasonal Inventory.
While it might sound like a simplification of the supply chain to only experience demand for a portion of the year, it is the opposite that often holds true. Here’s why:
- Most Warehouses Require Year-Round Contracts & Inventory Minimums. Most warehouses today require year-long contracts and considerable inventory minimums for using their space. This represents a problem because seasonal suppliers may only achieve 5-7% of their annual sales per month between February and September, but still pay standard pricing for warehouse space during this period. And, they are expected to maintain adequate inventory levels during these low-demand months or risk breaching the inventory minimums specified in their contract.
- Inventory Space is Limited During Peak Seasons. While it may be a burden to meet inventory minimums during the off-season, the exact opposite challenge occurs during the busy season. As customer demand rises, many seasonal suppliers find that their warehouses lack the bandwidth to handle the sudden spike in required storage space and incoming fulfillment requests. If a supplier goes from maintaining just the bare minimum of inventory required by their warehouse (say, 800 “units”) but then suddenly needs to scale to 2,500 units to account for customer demand, the warehouse may struggle to manage this shift.
- Inadequate Warehouse Availability Results in Delayed Fulfillment Speeds. If warehouses are unable to cope with largescale shifts in seasonal storage and fulfillment needs, suppliers may be forced into reducing their inventory or curbing production, which can impact order fulfillment speeds and result in more frequent stock outages. This in turn leads to slower delivery times and lower customer satisfaction. Given that seasonal suppliers only have a few months to achieve the majority of their annual revenue, these types of obstructions can be hugely damaging to the bottom line.
- Purchasing a Warehouse is Too Expensive. While one might assume that the above obstacles could be avoided by simply purchasing a warehouse, this option is often more costly in the long run. In fact, the price of storage space rose 17% from 2016-2017 alone and has continued to rise ever since. By owning a warehouse, companies must account for the costs associated with hiring warehouse staff, paying for utilities and upkeep, and dealing with a broad range of other equipment and property management expenses. And, this still doesn’t solve the dilemma of only needing warehouse space for a few months out of the year. Given the limited need, purchasing a warehouse that must be maintained 24/7 is not a cost-effective strategy. But what other options do businesses have?
On-Demand Warehousing Offers a Unique Solution for Seasonal Suppliers.
Without the proper warehousing and fulfillment solution, seasonal suppliers may spend a significant portion of their annual revenue paying for storage space they don’t need. However, consider an alternative option. With the arrival of on-demand warehousing and fulfillment to the logistics space, businesses are now afforded with a much more flexible solution for managing seasonal demand. Here’s how:
- Complete Storage Scalability. On-demand warehousing provides businesses with complete flexibility over the levels of inventory they maintain year-round. Warehouse space can be scaled up or down as needed, and there are no long-term contracts or inventory minimums. Instead, businesses pay only for the space that they use, when they are using it. This allows seasonal suppliers to minimize or altogether eliminate their warehousing expenses during the non-busy months, and then rapidly scale up their inventory in time for the busy season without being sidelined by excessive costs or insufficient storage space.
- Real-Time Inventory Status & Restock Alerts. By combining their network of warehouses with an online technology platform, the leading on-demand solutions provide businesses with real-time insight regarding the status of inventory across each warehouse location, as well as the status of outstanding deliveries and in-process shipments. This allows users to track inventory levels across all their locations and proactively order additional stock as-needed. The most advanced systems can also leverage inputs provided by the user to determine optimal restock points and deliver alerts when inventory levels at any location drop below a certain threshold.
- Demand Planning & Sales Forecasting. As supplier data regarding inventory turnover, seasonal demand, and customer deliveries accumulate within the system over time, businesses are able to leverage the on-demand solution to develop sales and demand forecasts. This allows them to effectively plot out required inventory levels over the course of the year. Ultimately, companies can use these insights to optimize the amount of inventory they maintain year-round, thereby avoiding the costs of excess storage space while also protecting against potential stock outages.
- Guaranteed 2-Day Delivery. Looking beyond inventory management, the also offer specialized fulfillment and delivery services. This means seasonal products can typically be shipped to customers within 1-2 days. Given that 61% of winter holiday shoppers in 2018 waited until the last week before Christmas to buy their gifts, the provision of 2-day shipping offers massive advantages over current warehousing models. It also gives businesses the advantage of offering 2-day shipping to customers during the period when they need it most.
Final Thoughts: If Year-Round Warehousing Impacts Your Margins, Consider a Switch.
With the winter holiday season fast approaching, many seasonal suppliers are already preparing their supply chains to handle the demand uptick. But without the appropriate warehousing and inventory management strategy, a significant portion of their revenue will be spent on unnecessary fees and overhead. If this is a problem your company faces, it is strongly recommended that you consider an alternative warehousing solution. With the growing prevalence of on-demand models within the warehousing and logistics industry, there is no reason to stick with a provider that fails to address your specific requirements. And with the 2019 holiday season projected to be another massive year, now might be the perfect time to switch.
For more information about how Ware2Go can help your business manage seasonality, reach out to one of our representatives.