Does peak season always seem to arrive before you have time to build a comprehensive plan? Supply chain leaders face a variety of challenges during peak season, including surges in cost, and often fail to adequately prepare. The American Journal of Transportation reports that regarding freight outlook, 42% of surveyed supply chain professionals do not believe peak season 2023 will be better than peak season 2022.
While transportation tends to be the highest-cost area for supply chains, minimizing spend during peak season is not just a transportation play – it is a supply chain play. All areas of the supply chain, including transportation, labor, network planning, warehousing and inventory need to be optimized for an organization to have its most successful peak season – keeping the cost down while also exceeding customer expectations.
Drive Down Your Parcel Costs
Transportation is responsible for a large sum of supply chain costs, even outside of peak season with increased volumes and tightened timelines. This is exacerbated during peak season for a variety of reasons.
Peak spot rates – Shippers have a tendency to optimize their capacity for the year, not just for peak season. This leaves them with higher volumes to ship in a shorter period of time, leading to a higher dependency on peak spot rates, which are notorious for depleting a transportation budget.
Online shopping – As consumers lean into online shopping, e-commerce orders continue to surge. With online shopping comes several increases in cost, including shorter delivery windows, higher return rates, higher last-mile delivery costs, and increased handling.
Tightened capacity – Tight carrier capacity during peak season is unavoidable, as demand – and therefore shipping volume – skyrockets. Because of this, carriers will often increase their prices, giving another hit to your transportation budget.
Some of these cost contributors are unavoidable, but not all. There are several avenues for reducing transportation spend and creating a more profitable peak season.
Spot rate negotiation – Lock in optimal contract rates through pre-peak season freight bids. Freight brokers and 3PLs can typically offer the best shipping rates.
Higher projected volumes – Obtain higher parcel discounts by providing higher projected volumes to the carrier.
Route and mode optimization – Coordinate with customers, suppliers, and freight brokers to consolidate shipments that are going to the same location. This will reduce the number of trips being taken and cut down on costs.
Invest in technology – The right transportation management system can track shipments, optimize routes, and reduce manual processes, which all contribute to lower transportation spend.
Get Your Warehouse Costs in Check
The people, processes, and technology in the warehouse take the brunt of peak season’s force. There are several areas of the warehouse that are particularly impacted and can contribute to increased costs for the overall supply chain.
Inventory levels – Nearly every organization will see a rise in order volumes during peak season. Because of this, warehouses will have to increase their inventory levels to meet the higher demand. Inventory is a huge investment for warehouses, and the more you have to store and handle, the more it will impact your budget.
Increased labor – With higher order volumes comes an increased workload. To accommodate, warehouse leaders will need to hire additional staff and pay for overtime needs, which will increase labor costs.
Shipment frequency – Higher peak season demand leads to more frequent inbound and outbound shipments, which means higher receiving, handling, and storage costs for the warehouse operator.
Throughput demand – During peak season, customers often require faster order turnaround times. This will mean expedited processing and shipping for the warehouse, which will drive up costs.
There are a few ways to prepare warehouse operations to better handle these changes without seeing a surge in costs.
Optimize facility design – Design your facility in a way that increases picking and packing efficiency to cut down on labor costs during peak and low volume situations.
Implement technology – Implement the right warehouse management system (WMS) to streamline operations, optimize inventory levels, automate picking and packing, and reduce errors, thus decreasing operational costs. Core WMS capabilities will support order consolidation, optimal shipper selection through rate shopping and accurate dimensional weights for calculating rates.
Leverage labor management (LM) – Reduce labor costs by implementing LM strategies such as flexible scheduling, cross-training, seasonal hires, and incentive-based pay.
Improve inventory management – Leverage demand forecasting tools to better predict inventory needs. This will decrease the cost of storing and handling inventory.
Optimize packaging – Work with suppliers to optimize packaging to lower the amount of material needed and cut down on packaging costs.
Flex Your Supply Chain Network
Supply chain networks are incredibly complex, requiring flexibility to handle the swiftness of change leading up to and during peak season. There are a few areas of the supply chain network that can contribute to increased costs.
Supply chain disruptions – From unexpected weather events to geopolitical tensions, pathway blockages, and more, having to address unexpected supply chain disruptions at the last minute and without a defined contingency plan can lead to costly decisions.
Supply shortages – When demand gets too high, supply is likely to fall short. Supply shortages have particularly impacted industries like automotive, food and beverage, furniture, and consumer electronics.
A supply chain network should be able to handle any unforeseen challenges while still meeting customer expectations. There are a few ways to make this a reality.
Foster agility – Create an agile, adaptable supply chain to keep operations running smoothly and costs down. This could mean diversifying distribution centers, building in extra capacity and more.
Create visibility - Increase visibility throughout the supply chain to identify and correct potential disruptions in advance, avoiding higher, retroactive costs down the road.
Optimize your distribution center (DC) network – Strategically place DCs near your customers to decrease transportation costs and reduce your liability for unforeseen weather or geopolitical events that could impact shipments traveling a long distance.
Peak season cost reduction is an incredibly important focus for parcel leaders, but it doesn’t stop there. When organizations make peak season planning an initiative for the entire supply chain, they will see lower costs, happier customers, and higher profitability all around.
Britain Pavlic, Christian Nixel, Tom Stretar, and Nate Rosier are thought leaders and subject matter experts at enVista. For more information, visit www.envistacorp.com.
This article originally appeared in the September/October, 2023 issue of PARCEL.