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Optimizing Your Supply Chain and Inventory for the Holiday

Phuc Le
October 16, 2023

As the holiday season rapidly approaches, it's evident that early preparations are more critical than ever for your online eCommerce website, especially considering the disruptions the entire supply chain has faced in recent years. The past few years have imparted valuable lessons about the necessity of forward-thinking strategies, including the art of ordering inventory well in advance while maintaining the flexibility to adapt to changing circumstances. In the sections that follow, you'll find an in-depth exploration of how to meticulously prepare your supply chain and inventory to ensure a successful holiday season.

THE SIGNIFICANCE OF SUPPLY CHAINS: A PILLAR OF MODERN COMMERCE

THE SIGNIFICANCE OF SUPPLY CHAINS: A PILLAR OF MODERN COMMERCE

A supply chain is a network of organizations, individuals, activities, information, and resources involved in the production, distribution, and delivery of goods or services to consumers. It encompasses all the processes and steps required to bring a product from its initial creation to the hands of the end-user, including the sourcing of raw materials, manufacturing, transportation, warehousing, and retailing.

Supply chains matter for several crucial reasons:

  • Efficiency: An optimized supply chain can reduce operational costs, minimize waste, and enhance overall efficiency, resulting in increased profitability for businesses.
  • Competitive Advantage: An effective supply chain can give a company a competitive edge by enabling faster delivery, cost savings, and better responsiveness to customer demands.
  • Customer Satisfaction: A well-managed supply chain ensures that products are available when and where customers need them, leading to improved customer satisfaction and loyalty.
  • Risk Mitigation: Effective supply chain management helps businesses identify and mitigate potential risks, such as disruptions in the availability of raw materials or unforeseen production issues.
  • Innovation: Supply chains play a role in fostering innovation by encouraging the development of new processes and technologies to enhance production and distribution.
  • Global Reach: In an interconnected world, supply chains enable businesses to operate on a global scale, reaching new markets and expanding their customer base.
  • Sustainability: An efficient supply chain can reduce the environmental impact by minimizing waste, optimizing transportation, and using sustainable sourcing and production practices.

In essence, a well-managed supply chain is essential for the success and competitiveness of businesses across various industries, making it a critical component of modern commerce.

HOLIDAY SEASON'S IMPACT ON SUPPLY CHAIN AND INVENTORY

HOLIDAY SEASON'S IMPACT ON SUPPLY CHAIN AND INVENTORY

The holiday season creates unique challenges for supply chain and inventory management due to increased demand, seasonal products, promotions, supply chain disruptions, warehouse challenges, returns, and high consumer expectations. Businesses must adapt their supply chain and inventory strategies to navigate these challenges successfully and capitalize on the opportunities of the holiday sales season.

1. Increased Demand: 

The holiday season ushers in a significant surge in consumer demand for a wide range of products. Shoppers are on the hunt for gifts, decorations, and festive items, creating a substantial uptick in the need for products across various industries. This heightened demand places considerable pressure on supply chains to ensure that ample products are readily available to meet customer requirements. As a result, businesses must fine-tune their inventory management and supply chain operations to navigate this surge effectively.

2. Seasonal Products:

Another notable impact of the holiday season is the introduction of seasonal and holiday-specific products. These items, ranging from holiday-themed decorations to winter apparel, are in high demand during this period but often hold less relevance at other times of the year. Managing these seasonal products requires specialized inventory management and storage solutions to ensure they are available to meet the unique demands of the holiday season. This dynamic adds a layer of complexity to inventory forecasting and management.

3. Promotions and Discounts:

The holiday season is synonymous with sales, promotions, and discounts. Businesses aim to entice shoppers with enticing offers, driving a surge in consumer purchases. To meet the expected spikes in sales, companies often need to increase their inventory levels to ensure products are readily available to customers. These events can lead to fluctuations in inventory levels and require agile supply chain management to accommodate varying demands.

4. Global Supply Chain Disruptions:

Recent years have underscored the vulnerability of global supply chains to disruptions. Factors like the COVID-19 pandemic have had far-reaching effects, leading to delays, interruptions, and challenges in the supply chain. Such disruptions can impact the availability of goods during the holiday season, necessitating agile supply chain strategies to mitigate potential delays and shortages.

5. Warehouse and Fulfillment Challenges:

The holiday season typically witnesses a surge in demand for products, which, in turn, necessitates adept warehouse and fulfillment management. Businesses may need to hire temporary staff to cope with the increased workload. Balancing the logistics of managing higher inventory levels and ensuring prompt order fulfillment becomes particularly challenging during this bustling time.

6. Returns Handling:

The holiday season is often accompanied by a higher rate of product returns. Customers returning items that didn't meet their expectations or requirements adds another layer of complexity to inventory management. Businesses need to have well-defined returns processes and strategies in place to facilitate the restocking of returned items, further challenging supply chain and inventory management.

7. Consumer Expectations:

High consumer expectations for timely deliveries during the holidays add an extra layer of complexity to supply chain management. Customers anticipate that their orders will be delivered promptly, and any delays or stockouts can lead to dissatisfaction and potential damage to a brand's reputation. This places considerable pressure on supply chain management to ensure products are delivered on time and meet these heightened consumer expectations.

MASTERING HOLIDAY SEASON SUPPLY CHAIN AND INVENTORY MANAGEMENT

1. Choose the Right Suppliers

Typically, online merchants tend to collaborate with international suppliers to reduce costs. However, in the current landscape, it might be wiser to consider working with domestic suppliers. This approach offers several advantages:

  • Avoiding unexpected new tariffs.
  • Mitigating shipping and customs delays associated with international trade.
  • Facilitating easier and quicker replenishment of your stock.

In the event you choose to continue working with international suppliers, diversification is key. In other words, don't put all your eggs in one basket. Instead, source from suppliers in different countries. This strategy helps safeguard your inventory in case a particular country experiences economic setbacks or disruptions, reducing your overall risk.

2. Strategize Your Fulfillment Process

Merchants with substantial inventory volumes might find it advantageous to entrust their inventory management to a third-party logistics provider (3PL). By doing so, you can delegate fulfillment and shipping responsibilities, enabling you to focus on your online business strategy and marketing efforts.

Regardless of whether you engage a third-party fulfillment service, it's crucial to select your warehouses carefully. Opt for warehouses located reasonably close to your suppliers, and ensure that you order your inventory well in advance. Planning ahead allows warehouse staff ample time to organize and categorize your products accurately.

For those with a physical store, consider maximizing its space as your personal warehouse. A prime example is The Spice Suite, owned and curated by Angel Gregorio. She transformed her D.C. storefront into a warehouse when the COVID-19 pandemic created ripples across various industries. This approach provided ample storage space for small items like spices and oils, allowing her to personally oversee the integrity of fragile bottled products.

A dedicated warehouse empowers you to monitor the pace at which your stock is selling, enabling you to prioritize products for heightened promotion as holiday sales unfold. Additionally, consider offering customers the option of curbside pickup, a strategy that contributed to The Spice Suite's recent success. Recent reports indicate that 53% of holiday shoppers plan to purchase from stores offering contactless options, making curbside pickup a valuable addition to your customer service. When implementing store pickup, clearly communicate the process on your website's checkout page while practicing social distancing and respecting customer boundaries.

MASTERING HOLIDAY SEASON SUPPLY CHAIN AND INVENTORY MANAGEMENT

3. Foster Early Communication with Supply Chain Partners

Suppliers and manufacturers aren't just sources of goods; they are your partners in success. Your mutual prosperity hinges on effective collaboration and a shared understanding of processes and order volumes. Initiate early and frequent communication with your suppliers to pre-empt potential supply chain issues.

Surprises are delightful during the holiday season, but not when they relate to supply chain or inventory management. In discussions about inventory order volume, aim to provide your suppliers with precise predictions. Even if you're not placing orders at that moment, it's essential to establish mutual clarity on the inventory you'll require and the feasibility of your supplier meeting those needs. Regular check-ins will help you stay informed of any changes in the supply chain.

In the case of partnering with a 3PL company, maintain open lines of communication with them as well. They might encounter challenges such as driver shortages, insufficient fulfillment staff, warehouse closures, or delivery constraints. Develop contingency plans with them to address any fulfillment issues that may arise.

To maintain accurate control over your stock levels, opt for an eCommerce platform with a centralized inventory report. Before the onset of holiday sales, have your 3PL service meticulously verify your supply numbers to ensure dependable inventory updates as sales commence. This allows you to respond promptly when items sell out, with your store automatically marking products as "out of stock" to prevent accidental overselling. Consider setting up reorder notifications, especially with potential fulfillment delays on the horizon. If you already have these notifications in place, consider raising the threshold to grant yourself additional time to replenish stock. These proactive measures will help you keep your best-selling items consistently available.

4. Order Inventory Prudently

Balancing inventory order volumes is not a straightforward task, but it is pivotal for holiday season success. Here's how to navigate this challenge:

  • Ensure you order enough inventory from your suppliers to prevent early sellouts, which can be disappointing for customers.
  • Refrain from over-ordering and incurring unnecessary costs.
  • Strike a balance in your product range, offering an adequate number of Stock Keeping Units (SKUs) to provide choice to customers without overwhelming them.

To anticipate what your customers will buy during the holiday season, consider the following:

  • Examine your industry to identify best-selling products, both in general and during holiday sales, and stay informed about emerging profitable product categories and trends.
  • Leverage your own sales analytics, utilizing past sales data to predict holiday season demand. Analyze your top-selling products, most profitable items, and customer behavior during previous holiday seasons. If your sales trends have undergone significant changes due to external or internal factors, focus more on analytics from the last three to six months.
  • Implement holiday pre-orders as a means to gauge customer preferences. Offer discounted holiday pre-orders to gain a more accurate estimate of product demand. This approach not only refines your inventory orders but also helps prioritize products for the holiday season while allowing for early order fulfillment.

When uncertainty surrounds stock levels, consider ordering in mini-bulk quantities. This strategy entails ordering small quantities from your supplier as needed. This approach provides security against over-ordering but carries the risk of selling out, without guaranteeing that the supply chain will function smoothly. Mini-bulk ordering might be an appropriate choice depending on your business needs; weigh the risks of overstocking against those of selling out.

5. Price Your Products Strategically

After determining inventory volumes and placing orders, pricing remains a flexible tool for managing stock levels. Some considerations for strategic pricing include:

  • Reducing the prices of well-stocked products to stimulate sales.
  • Increasing the prices of lower-stock items to limit their sales.
  • Striking a balance in pricing that achieves inventory goals without undermining your brand's image.

While adjusting prices, aim to find a sweet spot that aligns with your inventory objectives without perplexing your customers. Maintain relatively consistent pricing, avoiding extremes that might confuse your customer base. Conduct competitor research to position your pricing effectively. Align your pricing strategy with your competitors during the holiday season if you intend to compete with their pricing or opt for a higher pricing tier if you aim to position your brand as a luxury option. Always conduct a cost-benefit analysis to make informed pricing decisions. While lower prices may lead to increased sales, higher prices yield better profit margins and reduce the risk of premature sellouts. Consider offering coupons as an alternative to altering product prices, providing the flexibility to adjust discounts and product emphasis during the holiday sales season.

6. Plan for Overstock

Despite your best efforts to prevent overstocking, having a contingency plan in place is essential. If you find yourself with excess inventory during your holiday sales, consider the following strategies to manage surplus stock:

  • Run flash sales: Organize time-limited flash sales on your website to clear surplus inventory. This approach leverages the urgency of fear of missing out (FOMO) to accelerate sales and boost holiday season revenue. It's crucial to ensure that you maintain adequate inventory to meet the demand generated by a flash sale; otherwise, it may not be the right option with limited surplus units.
  • Sell bundles and subscriptions: Integrate surplus inventory into product bundles or monthly subscription offerings, prominently promoting them in your holiday marketing. Discounting these bundles or subscriptions adds value for customers compared to individual purchases.

7. Plan for Selling Out

Selling out is the ideal scenario during the holiday season. However, with supply chain uncertainties and unforeseen challenges, you may find yourself with high demand and inadequate stock. In such situations:

  • Ensure that your eCommerce platform automatically marks products as "out of stock" on your storefront when they sell out to prevent accidental overselling.
  • Temporarily pause promotions, including on-site banners and paid ad campaigns, for sold-out products. Review and update your promotions after significant sales events like Cyber Weekend.
  • Maintain clear and transparent communication with your customers about shortages or delays. Label items with limited stock. Once an item sells out, inform customers when it will be restocked. Send a general email marketing communication when restocking your most popular products or add waitlist forms to out-of-stock product pages to notify customers when items become available again. Utilize remarketing strategies to suggest similar products to interested shoppers via email or on the out-of-stock product page.

If feasible, restock by reaching out to your suppliers. In cases where suppliers cannot meet holiday season demands, consider the following creative solutions to keep sales momentum:

  • Repurpose materials: Utilize surplus materials, such as extra fabric from unsold clothing, to create more in-demand products, like face masks.
  • Shift marketing efforts: Highlight over-ordered stock in your marketing campaigns.
  • Promote digital gift cards: Offer digital gift cards as a strategy to bridge the gap before replenishing stock. Gift cards not only buy you time but also expand brand exposure and attract new customers to your store.

Remember that the holiday sales season comprises a series of promotions, ranging from Cyber Weekend to winter holidays. In addition to thorough preparation, analyze insights and adapt your business strategy following each major sale event.

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