I am fully aware that the holiday season starts in the summer timeframe based on my wife watching the Christmas Hallmark movies which started then. Personally, I am a believer that the holiday starts the day after Thanksgiving, which is becoming a lost holiday with all the holiday hype. This year for many items, the buying spree is starting early due to the supply chain shortages and at much higher costs.
A recent Reuters article mentions “Pent-up demand is expected to have boosted early holiday sales this year, but many retailers still see their margins fall as surging costs for labor, warehousing and ocean and land freight threaten to play Grinch.”
Shipping bottlenecks, closed factories, and a shortage of raw materials and labor have snowballed through supply chains in the United States in recent months. This has left Santa at the North Pole scrambling to make sure he has enough gifts for the crucial holiday shopping season global trek.
Importers of automotive parts, wines and spirits, electronics, and other consumer products are paying double what they were paying for transportation before the pandemic. Logistical expenses are rising as retailers are ordering earlier to get needed products around the country to satiate growing consumer demand. At the same time, a competitive labor environment has pushed wages up across the country.
The Next Rudolph – Supply Chain and Pricing Optimization
Santa’s elves have noted that retailers at scale are better placed to ride out the blizzard by passing on higher prices to the buyers. Meanwhile, elevated levels of consumer demand for imported items is causing most of the logjams and the insatiable appetite of the “two-day delivery” is creating a bullwhip effect on inventories. The impact most organizations are seeing is the impact on margins.
For Santa at the North Pole, his Rudolph Reindeer answer may rely on the concept of Demand Shaping through Price Optimization technologies and algorithms. Demand Shaping enables his workshop to tailor “Nice List” buying behaviors by manipulating prices and inventory levels. It is a formidable operational supply chain strategy using tactics such as price incentives, cost modifications and product substitutions to entice children to put on their “wish list” specific items. Demand shaping is designed to help the North Pole influence demand of a certain toy to match its planned supply.
The bottom line for Santa and team is that it is an offensive move to a defensive strategy. It allows Santa to tailor the prices for gifts specifically he wants to deliver – at the highest price points possible while maximizing margins. It can also be used to move older items or over stocked items left over in the warehouse quickly through price incentives. Sophisticated tools that integrate the real-time feedback of demand with supply forecasting and replenishment like Blue Ridge Global truly benefit from the integration of pricing with supply chain operations.
Often it is used with Dynamic pricing to adjust prices quickly in response to market demands. These Price Optimization techniques when combined with statistics garnered through demand planning, such as statistical forecasts are a powerful tool to weather the blizzard conditions we are encountering.
There is a saying that “the easiest way of making money is to stop losing it.” These days Santa is addressing some challenges for margin leakage including changing supplier costs, tariffs as he flies around the world, unaccounted sleigh transportation costs, and climate change with fewer homes with chimneys.
So, Santa and the reindeer team this delivery season are facing an oncoming blizzard to beat the Amazon two-day delivery mantra with a single nighttime global trek. By using demand shaping and sensing techniques tied to his sales and operations planning and execution he can contract wish list demand by holding or increasing prices for low stock levels to avoid stockouts. He can also anticipate specific gifts for Cindy-Lou Who to keep the elves busy.
