Evolving reverse logistics season combined with elevated on-time rates ratcheting up supply chain pressure
The holiday shipping season in 2018 was propelled by the strongest retail sales numbers in six years. At the peak, UPS (NYSE: UPS), FedEx (NYSE: FDX), and the Postal Service were handling 72 million packages per day, compared to an average of 45 million packages per day through the rest of the year.
There were two striking data sets that illustrate just how unusual the 2018 peak season was for the logistics industry. The first reveals that parcel carriers significantly improved their on-time delivery rates year-over year: 95.1% of FedEx’s shipments were on time in the first three weeks of December, UPS delivered 97.6% of their packages on time, and the USPS achieved a 97.8% on-time rate. Supply chain consultants said those on-time rates represent parcel carriers’ best performance in the past eight years.
E-commerce’s continued penetration into retail contributed to another surprising result. UPS estimated that holiday returns peaked at 1.5 million packages on December 19, the Wednesday before Christmas, exceeding the standard ‘reverse logistics peak’ on January 3, when the company estimates that 1.3 million packages will be returned. Tighter transit times and higher on-time rates meant that products got to consumers faster and more predictably, allowing them to try out their purchases and return them even before Christmas.
“With four weeks between Thanksgiving and Christmas this year, that allows people to bring things home, try them out and decide if they want to do something different,” Kathleen Marran, UPS’s vice president of marketing in the U.S., told the Wall Street Journal.
Up to 30% of items purchased online will be returned through complicated, reverse logistics channels, where they will have to be sorted, categorized, and disposed of (whether through re-selling or recycling).
“A poorly-run reverse logistics operation may take weeks to get an item back onto shelves. This can be devastating for certain types of goods, such as clothing or electronics, where new fashions or new models are constantly being introduced,” wrote Ibrahiim Bayaan, Chief Economist at FreightWaves.
The bottom line is that increased reverse logistics activity—buying products, trying them out, then sending them back with painless and sometimes free return policies—has the potential to dramatically increase the stresses on the supply chain at a time when consumers demand nearly perfect on-time rates.
Higher volumes and an earlier reverse logistics peak have added to the complexity of holiday shipping. Improving on-time rates reflect the fact that parcel carriers and transportation providers have responded to consumer expectations, and that competition on the basis of service continues to drive the behavior of transportation managers, carriers, and 3PLs.
In our view, this environment places an increased importance on digitizing and automating exception management, the process of dealing with unexpected problems in the supply chain. These problems can range from a truck not arriving to pick up a load and causing a service failure, to a mislabeled or damage parcel, a discrepancy in the rates quoted and paid for a shipment, cargo theft, delays caused by severe weather, or a misplaced container box at a port terminal.
Almost by definition, these events—exceptions to the normal functioning of the supply chain—are discovered slowly, at different rates by different parties involved. The first party to notice that something’s wrong could be an end customer or consignee who does not receive the package on time, who then must contact the carrier, which conducts an internal audit and tries to identify when it lost track of the shipment. Perhaps the carrier hired a 3PL to source capacity in a holiday period—now the 3PL has to find the asset-based transportation provider it hired, email them and call them on the phone, and try to locate the missing freight.
Throughout the entire process, all of the parties involved learn about the problem in a kind of chain, costing the end customer more time and money. Meanwhile sequential, manual communication processes like email and phone calls create further delays and transmit information imperfectly, introducing errors and creating more confusion.
Slync’s transportation and logistics platform largely solves pain points around exception management by connecting disparate systems—from internal databases to email and TMSes—and lifting relevant internal information to the surface, providing realtime multi-party views into exactly what is happening with a particular shipment. As shippers, 3PLs, and carriers continue to intensify their competition on the basis of service and price, digitizing and automating exception management is becoming a necessary point of differentiation for companies who want to stand out.
“Being best-in-class in the supply chain today means using technology to collaborate with your partners on solving problems,” said Chris Kirchner, CEO of Slync. “We think that in 2019, competition on the basis of price and service will intensify, and the productive relationships that our platform empowers will be real differentiators.”
By digitizing exception management, Slync’s platform offers automated workflows, efficient resolution, operational cost savings, a seamless customer experience, exception triggered email alerts that automatically send new orders to ERP systems. Slync’s dashboard can even escalate exception management requests based on criticality and customized factors.
“Transportation and logistics services providers are awash in information today, but it’s siloed, unprocessed, and often corrupted by human error,” Kircher pointed out. “We have built an artificially intelligent tool that pulls data from multiple sources, notices problems, devises solutions, and alerts human operators when they can make impactful decisions. The days of emailing spreadsheets back and forth are over.”
We think that one of the most exciting features of Slync’s exception management tool is its predictive capability: using historical data and realtime market conditions, Slync’s platform forecasts the likelihood of an exception based on metrics like seasonality, facility, and the history of the relationship with the partner. Finally, supply chain participants will have granular insight into the exception rates on specific lanes, customers, and commodities, allowing each partner to be proactive rather than reactive.
Exceptions will never be eliminated, but by automating the distribution of information and improving speed to resolution, participants in the supply chain can reduce their cost and strengthen their customer relationships at the same time.