Peak Planning

Peak Planning

The peak shipping season that seemed so chaotic and confused last fall is making more sense as companies view 2009 from a greater distance, and the greater perspective on one of the most difficult years in recent history provides some important lessons for the future.

That was a central message of a report released last week by the Supply Chain Consortium, a research arm of consulting firm Tompkins Associates. The report was the most comprehensive study so far of the broad strategies retail shippers used to navigate through a year of turmoil and uncertainty. Based on a survey of a range of retailers, it suggests retailers approached the confusion of 2009 in a far more concerted way than seemed evident at the time, when many were portrayed generally as hunkering down in the face of a falling economy.

In fact, the report portrays logistics managers at retail companies as executing methodical, aggressive and well-planned tactics to adjust supply chains in ways likely to form the foundation of business planning in 2010.

The survey found five basic strategies were most prevalent in the 2009 peak season.

About 73 percent of the retailers surveyed reduced inventory heading into the peak season, making that by far the most popular action across the industry. Greater forecasting and improved planning were both cited by about 52 percent of the companies, about 41 percent named increased reporting and better planning tools.

Those last four items are deeply intertwined — they are different sides of the same box, all aimed at helping retailers better plan for the future by eliminating as much uncertainty as possible.

The result, said Dan Avila, a partner at Tompkins Associates, was that companies traded in market share and gross sales for improved margins on the goods they did push to the market. “Companies were very diligent in planning what they were going to sell, and by managing down inventories and reducing (stock-keeping units) they were able to reduce discounting,” he said. “That meant that even though sales were not significantly better than the previous year, margins were much better.”

Some of those margins were pressed when retailers turned to expensive air freight when demand picked up late in the year, but Avila says even that “was a conscious trade-off after what happened in 2008, when they brought goods in by ocean freight without knowing the demand and then ended up discounting heavily.”

Don’t expect that to end: The survey found 82 percent expect to maintain some form of an inventory-reduction strategy in 2010, which Tompkins Associates called evidence of the “new normal” in supply chain strategies.

This survey was specifically focused on retailers, but the strategies it describes cut across many business lines these days. From retailers and manufacturers to ocean carriers and air freight companies, a wide range of businesses are focusing on managing their own inventory in a way that maintains or expands margins.

The next step for some companies will be to expand their planning to include other businesses in the supply chain, and that may be the major story of the peak season of 2010.

Paul Page is editorial director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com.