The Real Headline for the 2011 Holiday Buying Season- Need for Balancing Retailer Online and Fulfillment Process Investments
Guest Post by
Bob Ferrari, the Founder and Executive Editor of the Supply Chain Matters Blog, and a periodic guest blogger on the Infosys Supply Chain Management blog.
In late November Supply Chain Matters penned a guest commentary on the Infosys Supply Chain Management blog that outlined our belief that retailers should anticipate different supply chain fulfillment capabilities for the upcoming 2011 holiday buying season. Because of the reality of a rather challenging year of supply chain disruptions in 2011, we warned on the possibility of retailers not having the most popular and desired products the consumer wanted because suppliers would fall short of meeting holiday demand spikes. We further noted that the upcoming 2011 holiday buying season would once again drive home the premise that MCO and responsive supply chain inventory management are often the best complement to effective multi-channel and online commerce plans.
While retailers were anticipating a muted amount of overall holiday sales, online sales were expected to be a much more popular option for consumers. As we approach the latter stages of the 2011 holiday buying season, the uptick in online buying has indeed occurred. Recent estimates from comScore indicate that online sales are tracking up 15 percent thus far in 2011. Of more interest, seven individual shopping days surpassed one billion in online consumer orders, with peak volumes experienced on Cyber Monday, the Black Friday weekend, and in fact, every Monday leading up to December 15th.
There were many considerations motivating consumers to online channels. Free shipping, aggressive pricing and popular electronic and jewelry items lured consumers to place their online orders. Many retailers were perhaps celebrating that increased investments in online commerce capabilities are paying off in 2011. But high visibility glitches in online fulfillment may spoil the overall headline of online commerce this holiday season.
The most visible headline involves the world's largest electronics retailer Best Buy. The retailer utilized aggressive price promotions and free holiday shipping for online purchases to lure customers back from rivals such as Amazon. Sales among all of Best Buy's channels rose for the first time in six quarters and included a 20 percent increase in online sales, particularly during the hyped Black Friday and Cyber Monday shopping periods. Unfortunately, the retailer has now had to issue a rather public apology to consumers because it was unprepared for the crush of orders that were booked online, and Best Buy was forced to cancel some customer orders just prior to the Christmas holiday.
According to multiple published news stories, angry consumers posted their displeasure on online forums at having been informed too late to respond with alternative holiday buying purchases. Even popular blog Tech Crunch took some advantage of Best Buy's embarrassment and penned a commentary, Best Buy, the Grinch that Stole Christmas. While Best Buy indicated that the snafu's involved less than one percent of orders booked during the Black Friday weekend, negative consumer reaction was far more pronounced. A Best Buy statement noted the following: "There was an unacceptable delay between order confirmations and cancellations, and for that we are very sorry. The challenges related to this situation are being addressed." For those who practice supply chain fulfillment, that statement equates to inventory and proactive demand management issues, either not having the inventory allocated at the time of order booking, or hoping that suppliers or manufacturers could augment any inventory shortfall in a rather quick period. It also misses the complete objective of having to ability to fulfill all transacted customer orders vs. the timely notification of order cancellation.
While Best Buy's snafu may ultimately turn out to be the most visible, it was not the only retailer or online commerce provider that experienced inventory fulfillment snafus. In our household, my daughter is just completing a major refurbishing of a home, and placed a rather significant appliance order with home improvement retailer Lowe's, involving the purchase of a refrigerator, stove, washer and dryer all involving one particular manufacturer. Three important criteria motivated this order, product features, price and availability to meet a targeted move-in date. A similar pattern occurred. Lowe's was promoting rather aggressive Black Friday promotional pricing on the line of a this appliance manufacturer, and at the time of booking, my daughter and her husband were assured that all items were in-stock, only to discover a week before planned delivery that the stove was out-of-stock, and delivery may not occur until late January or early February. When this retailer was queried as to the specific reason for this sudden change, the response was, of course, we thought that the stove was available from the manufacturer, but that turned out to be not the case. Instead, the particular stove model is backordered by the manufacturer.
In the view of Supply Chain Matters, these incidents once again point to the obvious fact that retailer investments in the most sophisticated or attractive in-store or online commerce tools need to be also balanced with investments in multi-channel inventory and fulfillment execution and predictive demand management tools. Too often, marketing and sales teams tend to gain the prioritization of investment, and retailers discover once again, that online fulfillment is only as strong as the weakest link of associated supply chains that support each fulfillment channel.
The real headline for multi-channel operations supporting holiday sales in 2011 is the critical importance of balancing commerce tools and product offering with advanced backend fulfillment and supply chain intelligence processes. Knowing as soon as possible that multi-channel or direct ship inventory is not sufficient to support current existing and future orders, leads to proactive customer response and service needs.