The supply chain behind Christmas
As you sit down to enjoy your Christmas dinner, spare a thought for those who work in seasonal supply chains who have already started planning Christmas for the following year.
Christmas, Thanksgiving, Chinese New Year, Easter, Valentine’s Day, Singles Day, and Black Friday. These are all specific events that create a huge ‘surge’ in demand for associated products, which require the careful co-ordination across the business.
Let’s take Christmas as an example as, for many retailers (especially those who major in gift packs), the Christmas sales period can account for around 75% of annual sales. A successful Christmas is critical to success of many companies, and it is not unusual to see a rise in bankruptcies or share price decline in the post-Christmas period when things have not gone to plan.
My first real insights into the supply chains behind Christmas was over 10 years ago as I was researching retail supply chains. Whilst I was fascinated to hear that turkey orders for December were placed in January, it was the ‘gift’ supply chain that really caught my attention. This is a price point driven business. As a result, in the last 3 months of the year, buyers work closely with their suppliers (often overseas) to develop gift concepts that include certain key products, in specific colours or themes, to meet specific price points. The gifts are designed to a cost and the portfolio for the following Christmas, finalised over 12 months in advance (e.g. gifts for Christmas 2017 are finalised by December 2016). The suppliers then have to source the materials and manufacture the gift packs. This is usually on a WIGIG basis, as it is not cost effective to try and respond to the demand signal in season.
What I found most amazing as the graph shows, UK warehouses start to fill up with Christmas gifts in June. This is so that the receipts process into the warehouses can be smoothed. Christmas in store starts from September as the goods start to be despatched from the warehouses to store. There is an initial shelf-priming activity and then goods are despatched to replenish sales. 6 weeks before Christmas the warehouse stock begins to fall rapidly as receipts diminish and remaining stock is pushed out to store. This huge surge in demand, that is carefully planned and co-ordinated is invisible to the average consumer. Who would have thought that there was so much fore-thought and co-ordination behind the supply chain for Christmas?
© University of Warwick