A wildly unpredictable demand pattern has been the nightmare that came true for many businesses in the past few years, especially retailers involved in e-commerce. Many have struggled to cope and even more have hoped the situation will go back to “normal.”

Whether we’ll be looking back in ten years on the pandemic years with rueful smiles, or noting it as the beginning of a new era of consumer habits remains to be seen. But in the meantime, it’s worth adjusting supply chain and fulfillment strategies to handle volatility. In theory, it can even present benefits. If that sounds crazy, read on.

Take it from a company that doesn’t just cope with volatility; it thrives on it – Uncommon Goods. A quick search will show you that this is the e-commerce site where consumers buy “creative, original gifts and experiences.” In other words, goods that are more whimsy than utility. Gifts can generate demand spikes of 30X or more.

“We’ve been experiencing volatility for years,” says Rob Carucci, head of operations at Uncommon Goods. “One of the interesting challenges for Uncommon Goods is that it’s a very seasonal business to begin with.” 

Uncommon Goods can experience sales spikes during its typical six-week peak period of up to 10 times the average volumes in Q1 and Q3, and typically does two-thirds of its business in Q4. “So we’re accustomed to that ramp up,” he says, emphasizing that this absolutely does not mean they’re filing their nails for the rest of the year. “Like the Macy’s Thanksgiving Day parade, we start planning for the next one the day after the last one.”

Getting the Workforce Right

Preparing for that wild ride through the fourth quarter is significantly about ensuring adequate staffing levels and skill sets, Carucci says. The recruitment effort is sizable, and it has involved building strong partnerships in the local community in Brooklyn, but also with its third-party logistics partners, including ITS Logistics.

In a notable strategic move, Uncommon Goods offers workers who are doing everyday fulfillment tasks the opportunity to become front-line managers and supervisors of the extra workers that come in temporarily. “It’s a great opportunity for them to develop,” Carucci says. “For seven months of the year, they’re pickers and packers. Then, in Q4, they get removed from those positions, paid extra, and perform training of new team members. They’re doing performance management and even admin work, and we provide training to them throughout the year in a variety of factors, so they grow into those roles for three months.”

All this leads to great staff retention rates, Carucci says — something that’s top of many facility managers’ list of priorities right now. It’s a clear signal that pay alone is not enough. “We pay well, but a lot of people, after X years, they want to do other things,” says Carucci. In a year where there’s growth, Uncommon Goods is naturally able to offer that. But, as noted, most years are volatile. “So we also have intern programs, where they can go work in tech or finance, and learn other skills.” Carucci’s approach is to also keep an eye on building diversity into tasks, so that workers aren’t just picking and packing, but can move over to inventory control, for example.

“We ask: How do you make work a little more diverse? So even if they’re not moving up, they’re broadening their experience,” says Carucci. 

To Forecast Well, Forecast Often

Apart from building and maintaining a satisfied workforce, Carucci says forecasting is key, even though volatility usually means unpredictability. “One of the lessons we’ve learned as a company is, if you’re going to forecast correctly, it’s important to forecast often.”

Carucci says Uncommon Goods has been able to make useful data comparisons over the last couple of years, identifying year-over-year trends. “We know when the catalog drops. We can predict to the day how many are arriving in the home, so we can adjust predictive sales to that.”

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Another tool for forecasting sales is to get very granular about the data from prior sales, Carucci says. The company measures data such as units per order and revenue per item. 

“We’re constantly updating item-level sales velocity, and we adjust that to see where we’re placing things in the warehouse.”

All the same, volatility means building in some redundancy in operational capabilities. “In e-commerce, you should be building additional capacity,” says Carucci. “It’s like insurance. You have to have enough to flex to manage additional sales, because giving up that revenue at this time of year is too much to risk. It’s a good problem to have!”

Carucci says it helps to have partners who can help the company flex, such as ITS. The ITS team has helped reduce delivery time, increased inbound vendor efficiency and, of course, work with the massive swings experienced by the retailer. To enable two-day delivery in the lower 48, Uncommon Goods and ITS opened a West Coast distribution center in Reno, Nevada. Part of the expansion included a technology integration that sends customers an immediate notification at shipment through final delivery.

ITS also established a West Coast vendor shipment consolidation point for East Coast-bound product, reducing Uncommon Goods’ inbound transportation costs. As a result, Uncommon Goods can now distribute to 90% of the U.S. within two days.

Automation Isn’t Always the Answer

Perhaps surprisingly, Uncommon Goods hasn’t invested heavily in automation. Part of the reason is that the company’s fulfillment center in Brooklyn is in the Brooklyn Army Terminal, which served as the largest military supply base in the U.S. through WWII, and is more than 100 years old. The company has discussed putting up walls and zone picking, and they do have some automated air-seal packaging equipment. They’re also looking to build out zone picking and a put wall as a secondary sortation location. “But robotic picking doesn’t really lend itself to our product mix, which is seven thousand SKUs and 1.2 million units of inventory at this time of year,” notes Carucci. “We don’t have the space.”

His advice to retailers who are new to volatility: “We’ve noticed it’s important to look at sales both pre- and post-pandemic, because there’s more competition now. We recognize that some of the growth last year might have been an aberration.” In terms of fulfillment, Carucci recommends re-negotiating contracts now with transportation and fulfillment providers, because there’s been a lot of movement in last 12 months. “There are more favorable conditions than a year ago,” he says. 

Source: https://www.supplychainbrain.com/articles/36319-what-to-do-when-volatility-is-normal