Prepare Your Value Chain for the Unexpected During the Holiday Retail Season

Don't forget about risk management; in 2010, 70% of businesses had a supply chain disruption

It's that time of year: Consumers are gearing up for traditional shopping days like Black Friday and the increasingly popular Cyber Monday in preparation for Christmas, Hanukkah and New Year's Day. At the same time, retailers and OEMs are ramping up to support this holiday season demand and are positioning value chain strategies accordingly. For many, the holiday retail season is not just another quarter, it is the quarter that could make or break revenue results for the entire year.

The key to ensuring a successful -- and profitable -- holiday season is advance preparation. In the weeks leading up to the start of the season, supply plans should be in place, product launch schedules should be progressing, and channel changes should be completed. In other words, do not make major changes to your value chain once the holiday season begins.

It is important to realize that part of advance preparation is having the flexibility to react quickly to change. And even with solid preparation, it is likely that plans will need to adapt to unforeseen disruptions like high or low market demand, product launch delays, economic downturns and natural disasters.

Here are some tips to ensure that your value chain is able to adapt to holiday season surprises:

Create an Operational Contingency Plan
This plan should cover all aspects of the supply chain such as manufacturing, materials, freight, fulfillment, warehouse and order management. This will allow you to react quickly to unforeseen changes and demand fluctuation. For example, work with retailers to establish capacity ranges for product volume, rather than point forecasts. Then you need to ensure that material suppliers can cover these ranges on the high and low ends. Finally, know in advance how you can quickly adjust SKUs based on supply and demand: This could mean leveraging a postponement strategy or repackaging excess inventory to meet the needs of a different market segment.

Have Access to Market Information
It is important to be in tune with real-time market information like supply chain performance, and customer forecasts and actual results. Ideally, you should have a daily view of what is happening in the market so you know what requirements are changing. By knowing what volumes you can expect to sell the week before, during and after a major holiday shopping day -- like Black Friday-- you will be able to accurately identify how your sales were impacted during the quarter. Another recommendation to consider is contingency planning for product launch schedules. Explore scenarios around product launch date slippage and clearly communicate the likely impacts with your value chain partners.

Secure Value Chain Alignment
Communicating with your value chain partners is always helpful, but during the busy holiday season, frequent communication is critical. Market information should be extended across all partners, from online retail affiliates to material suppliers, to ensure alignment across channels. Set clear expectations and establish roles and responsibilities in advance so all parties are ready to react to change.

Don't Forget about Risk Management
In 2010, 70% of businesses had a supply chain disruption. A disruption to your supply chain at any time of year can be costly, but when you factor in the importance of the holiday season, the stakes get higher. Natural disasters, like the recent earthquake in Japan, can lead to supply interruptions and loss of inventory. While some risks cannot be fully mitigated, consider known transportation bottlenecks, like airports and seaports, and map out alternative routes. Improve your chances of securing critical capacity through the relationships you maintain with key suppliers. It is likely that suppliers will serve contract customers ahead of spot customers, as they too need the ability to plan ahead and execute their business.

The holiday retail season is a hectic time of year, so it is important to think ahead and plan for the unexpected. By taking a few precautionary steps, like keeping a critical eye on demand cycles and creating contingency plans for external influences like natural disasters and fluctuating economic trends, you can experience a successful and low-risk holiday season this year and beyond.

Lorcan Sheehan, senior vice president of marketing,ModusLink, which designs and executes supply chain management, aftermarket and e-Business solutions, across multiple channels.

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