The e-commerce orders were ready. The warehouses were stocked and staffed. The delivery trucks were loaded and gassed up to hit the road. And yet, for millions of people, their holiday gifts still won’t arrive on time.
Despite taking a slew of steps in preparation for an “unprecedented” holiday shipping season, leaders in both retail and supply chain discovered that forecasting business still has some serious limits. Indeed, according to the latest data, on-time delivery rates have steadily fallen since late November, putting a damper on many Hanukkah-gift celebrations, and now again this week. By some estimates, up to 3 million presents will come a day after Christmas.
Interestingly, the delivery rates are still hovering around 90% percent, but experts say the margin for error is slim with e-commerce. Even with increased data analytics, forecasting is still as much art as science, and “in many product categories, demand has significantly exceeded forecasts,” says Cheryl D’Cruz-Young, a Korn Ferry senior client partner who leads the firm’s Chief Procurement Officers practice. The result, she says, is that supply chain leaders ran out of time to invest in additional capacity to handle the spike in demand. “When demand exceeds capacity, it creates lead-time increases across the supply chain,” D’Cruz-Young says.
According to Craig Rowley, a Korn Ferry senior client partner and the firm’s global practice leader for the consumer sector, most of the hiring normally done to help with the holiday crunch happens not in the fall but as early as the summer. But the spike in COVID-19 infections, social distancing requirements in warehouses, and the large pool of college students and other seasonal talent that opted out for safety reasons hampered the early preparation. “Companies can’t find enough people to hire right now,” says Rowley.
As a rule, e-commerce is much more labor intensive than shipping from distribution centers to stores. It’s the difference between delivering one package to one consumer at a time versus shipping a truckload of goods to a store for mass consumption. “The pressure on shipping is unprecedented,” says D’Cruz-Young. To be sure, according to the National Retail Federation, online and other non-store sales are projected to increase between 20% and 30% this holiday season, while total sales are expected to grow less than 5%. But it isn’t just gifts that people are buying online—as D’Cruz-Young notes, they are also ordering pet food, groceries, medications, and other goods online at the same time. “There have been overwhelming volume increases across many products simultaneously,” she says.
For their part, retailers tried to signal to consumers to get their holiday shopping done as early as possible, says Melissa Hadhazy, a senior client partner in Korn Ferry’s Industrial practice. She points to efforts like starting Black Friday sales in late October, offering incentives to pick up online orders in stores, and partnerships among non-food retailers and food-delivery services like Instacart, Grubhub, and DoorDash as examples of ways retailers tried to proactively head off potential holiday shipping delays.
But the disappointment consumers will feel now will require another effort: to rebuild trust. Hadhazy says some retailers and brands have already started reaching out by offering e-gift cards or refunds for late packages. “Refunds and returns after the holidays are going to be a whole other issue,” she says.