August 24, 2017
Tis the season to be jolly! We’re officially less than 150 days away from Black Friday and the holiday shopping frenzy, and while most shoppers have yet to prepare their shopping lists and break out their seasonal decorations, here in the logistics industry, planning for peak season 2017 is well underway.
Across the industry, warehouse operations are focused on a critical component of peak success – forecasting volume. During the months of October, November and December, forecasting volume becomes increasingly important because it drives the resourcing and allocation of labor, space and shipping. One top retailer, Jet.com, saw average order volume increase by 19% year-over-year on Cyber Monday in 2016. Meanwhile, online sales as a whole grew 10.2% year-over-year. As you can imagine, that impacts logistical planning behind the scenes!
So why exactly is forecasting more important during the fourth quarter than possibly any other time of the year? As we mentioned last year in the video below, keeping carriers and partners up to date on forecasted volumes is critical to resource planning. But how do external factors such as the tight labor market, warehouse space constraints and parcel carrier capacity put an increased strain on forecasting?
Tight Labor Markets
During the holiday season, everyone is bracing for an increase in order volume, which means ramping up the labor required to pick, pack and ship the millions of D2C and B2B orders flowing through a fulfillment center is necessary. Last year, nearly 700,000 workers were hired by retailers and fulfillment providers to staff the thousands of fulfillment and distribution centers across the United States. Amazon, for example, has already hosted multiple job fairs across its network, one article citing 50,000 positions within its warehouses.
Looking at historical labor statistics and predictions for this year, in June the warehousing and storage market was predicted to be 10,000 employees above where we were last November and 7,000 above where we were in December (at the height of peak).
With the low unemployment rate and high demand for seasonal employees, fulfillment operations cannot afford to be overstaffed or understaffed during the holiday season. By having accurately forecasted volumes well in advance, operations are able to hire the appropriate amount of temporary labor to ramp up their support staff and cover any additional shifts. When operations experience volumes above or below the forecast, they are faced with challenges such as having to repurpose extra labor or create high incentives to get new labor in the door. In a tight labor market, accurately staffing for the holidays is crucial to executing smoothly during the peak season.
Warehouse Space Constraints
The warehouse market has been tight on space for the past few years, and even with more and more providers looking up for space, vacancy rates are still relatively low and rental rates are quite costly in some of the top markets.
During the late part of Q3 and early part of Q4, many companies start looking at their sales forecasts to plan ahead for inventory demands. In the meantime, fulfillment centers are looking at existing space and trying to optimize all available square footage to accommodate the anticipated influx of inventory. Without accurate forecasts, it’s challenging for these operations to arrange pick zones, re-rack products and group inventory to reduce pick paths for employees. By planning ahead of peak, operations can better support high volumes in existing space and can plan accordingly for overflow or pop-up space that may be necessary.
Parcel Carrier Capacity Planning
Last year, UPS forecasted 700 million packages globally between Black Friday and Christmas Eve, with actuals surpassing that number by 12 million. To put that into perspective, delivering 712M packages in a 30-day time frame means processing 24% more volume on a daily basis than is average. This data reflects only a single carrier. Take into account parcels flowing through FedEx, DHL, USPS, etc. and you begin to understand why so many consumers experience delays during the holidays.
While logistics providers and carriers anticipate unexpected spikes in volume, accurate forecasts are extremely important for capacity planning as well. For parcel carriers to plan ahead for peak deliveries, they rely on fulfillment and distribution centers to provide them with forecasted volumes, which helps them arrange for the appropriate number of drivers, trailers and delivery vehicles to execute shipping. When warehouses do not receive accurate forecasts, this creates a snowball effect that can greatly impact carrier performance (as both FedEx and UPS dealt with in 2016). Because of this, we are seeing trends with more carriers charging holiday surcharges to account for the additional costs of labor, assets and capacity needed during the holiday season.
While you’re gearing up for peak season and working with your operations team to plan for the months ahead, keep these things in mind. By generating forecasts that are accurate (and proactively communicating any unforeseen spikes), operations teams and parcel carriers can work together to reduce potential delays and prevent additional costs associated with fulfilling and delivering holiday orders.