With the countdown to this year’s Black Friday sales well under way, retailers and their supply chains are bracing for a period that will test their systems and logistics to breaking point. But what exactly are the problems facing the supply chain? And how can they best be addressed? In the first of a two-part series, logistics expert David Shillingford looks at the challenges that lie ahead.
An opportunity that no retailer or logistics provider can afford to miss, the billions of dollars spent during Black Friday have become one of the undoubted high points of consumer spending around the world. Not surprisingly, though, such a frenzied period of activity also creates a long list of challenges for industry players, who stand to gain or lose heavily in the process.
Top of the list should be predicting accurately consumer demand, according to David Shillingford, Co-founder and now an advisor to Everstream Analytics, who believes that supply chain managers often focus on the wrong problem when attempting to provide the right product in the right place at the right time. “When it comes to risk and volatility, people tend to talk a lot about the supply side,” he says. “But the biggest challenge, particularly for Black Friday, is the demand side. In supply chain and business in general, uncertainty is a major challenge - and there’s more uncertainty around consumer behavior now than I have seen in a while.”
The impact of world events…
To understand consumers’ intentions for Black Friday, retailers need to grapple with a list of factors that may start with the more immediate criteria of personal earnings and savings - but goes on to include geopolitics and macroeconomics. The current situation in Israel, for example, is likely to have a psychological effect on a section of US consumers. “What's happening in the Middle East right now has a bigger impact on the psyche of American consumers than what is happening in Ukraine or China because of the connections between Israel and America and because of the suddenness and the level of violence,” according to David Shillingford. The events are already having an impact on Middle East oil prices, which in turn could drive up fuel prices during the Black Friday/holiday period.
Growing tensions between the US and China could yet lead to the imposition of additional trade tariffs, while European consumers continue to pay higher energy prices due to the conflict in Ukraine. Both are potential sources of further inflation that would depress consumer spending during Black Friday. Public health is another external risk to be considered, with seasonal outbreaks of ‘flu in the northern hemisphere and the global emergence of any Covid variants being the two main variables.
… and industry trends
While trying to prepare for all these external events, the supply chain sector is also having to contend with its own macro trends, led by the Covid-driven boom in e-commerce and the gradual post-pandemic return to bricks-and-mortar stores. Understanding the scale of that return will be a key success factor for every player in the retail business and its supply chain. To have the correct inventory in place for Black Friday, retailers need to predict the respective shares of in-store purchasing, in-store collection of products bought online, and home delivery of e-commerce goods. All three rely on the same critical element: logistics, whose service levels have today become almost as important as price in the buying decisions of most consumers, whether online or in-store.
And for logistics providers, there should be little doubt about the focal point for success or failure during Black Friday: the warehouse, despite the importance of ensuring that last-mile delivery is being properly resourced. In the stock room, a primary concern is the recruitment of temporary staff at a time when labor shortages are already a perennial problem in the US and Europe, while wage demands have continued to rise and the potential for strike action by workers remains very real.
In addition, the intense pressure of Black Friday means there is even less room for error when it comes to personal safety, which remains the number one priority for the operational efficiency of any warehouse.
Sitting alongside all these different issues, from consumer demand and world events to working in a busy warehouse, lies perhaps the most fundamental challenge facing the industry – integrating its many parts into one seamless, end-to-end system. The smooth integration and synchronization of logistics with inventory, warehousing and production platforms is clearly a long-term objective. For the moment, though, it remains a journey. “The industry is yet to make enough progress on system integration between retailers, their suppliers and their logistics providers – and the challenge is even greater, post-Covid, as companies have more, not fewer, platforms to integrate internally and externally.” says David Shillingford. “It’s clearly an area that companies need to work on.”
Disclaimer: This article was written by an external expert contributor to CEVA Insights. The perspectives and ideas are the contributor's and do not necessarily reflect the views of CEVA Logistics.