JOC — With the holiday shipping season in full swing, affordable air cargo space is at the top of many retailers’ wish lists.
Strong holiday sales and the rise of e-commerce mean shippers are moving more inventory to meet demand from digital and brick-and-mortar channels. The National Retail Federation forecasts a 3.6 to 4 percent uptick in year-over-year holiday spending for 2017, driven in part by Black Friday’s evolution from a one-day sale to a four-day event online and in stores.
To avoid the dreaded stockouts while meeting customer expectations for fast delivery and product variety, shippers are steadily consuming more air freight capacity. Not only do retailers use air services to ship time-sensitive inventory, such as small amounts of on-trend products for one-day sales, but air freight is increasingly being used to deliver e-commerce orders to customers. Air cargo demand rose 11.4 percent year over year in July 2017, nearly quadruple the 10-year average of 3.1 percent, according to the International Air Transport Association. Capacity is struggling to keep up with demand, growing only 3.7 percent in the same time frame. Air freight prices are responding accordingly, doubling from September to November alone, as the holidays continue to put pressure on prices and retailer budgets.
In the evolving omnichannel environment, getting products to the right place at the right time is a balancing act. Waiting too long to ship can force businesses to rely on expensive and scarce spot air capacity, and building up inventory reserves comes with its own costs and risks. E-commerce is prompting many supply chain managers to reexamine traditional just-in-time practices, where inventory arrives at the warehouse, is cross-docked, and sent on to the customer. Shipments now take multiple paths from production to final destination, sometimes bypassing the warehouse entirely, and companies such as Amazon are building massive logistics networks that are ingraining an “everything takes two days” mentality in customers.
Although many retailers believe minimizing lead time is the key to remaining competitive, lead time accuracy, not speed, is ultimately more important. Shaving days off transport often means shelling out for more expensive modes, such as air cargo. To plan effective supply chains, businesses need precise data on inventory needs, a solid understanding of the time it takes to move goods from production to retail, and standardized processes to do so efficiently.
By forecasting consumer demand dynamically throughout the year, retailers can determine required product types and quantities well before the first shoppers line up on Black Friday. Armed with that information, businesses are better equipped to build supply chains that can deliver. Here are two key areas that can help retailers improve lead time accuracy.