This will be the “most under-stocked Christmas in recent years”, according to KPMG, as retailers cut inventories to avoid heavy discounting.
KPMG says retailers don’t want to be left “holding the baby”, as in the past when over-ordering and a drop in consumer demand meant they were forced to slash prices to shift stock.
However, this doesn’t mean any less work for procurement and supply chain professionals in the run-up to the big day. For some firms sales over the Christmas period can make up almost half their annual volumes. According to the British Retail Consortium 13 per cent of all sales take place in December, way ahead of any other month, and in December 2012 those sales totalled £39 billion.
This is clearly illustrated by Baileys, the biggest-selling liqueur in the world, which shifts 45 per cent of its annual volume in the last three months of the year.
Maureen Stewart, supply chain manager for Baileys at Diageo, says this means peak production occurs in July. “Christmas is big for Baileys,” she says.
Invented in 1974 in Ireland, the cream it uses accounts for 5 per cent of Irish milk production. An entirely new challenge was posed by the development of a variation – Baileys Chocolat Luxe – launched in time for this Christmas. Buyers and technicians worked together on the project, which involved sourcing the right flavoured chocolate and ensuring
a reliable supply.
“Procurement would be involved very early on in the process,” says Stewart. “They worked really closely with the guys to identify the right suppliers and get the right contracts in place.”
Stewart says contracts with suppliers are organised well in advance of production beginning to ensure continuity of supply. In the case of Chocolat Luxe this involves deliveries of 25,000 litres of molten chocolate in heated tankers from Belgium.
“Obviously they are supplying chocolate at a peak time of the year. The whole structure around how we place our orders, the lead times, is all set up in advance of us starting production,” she says.
For brewer Molson Coors, the day of the week on which Christmas falls has a big bearing on supply chain pressures. If it falls early in the week there is a sustained period of demand from Friday through to Christmas Eve, but if falls later in the week there is a short, sharp peak. Either way, the company can expect to see sales of beer increase by 40 per cent in December.
Eddie Storr, supply and demand planning director, says: “Christmas puts a huge amount of pressure on the supply chain, to the extent that anything less than maximum efficiency would be damaging. It’s all about planning and asking ‘what if?’. Having planned since the summer, we have a process in
place in time for the festive rush and lock down the supply chain to prevent any changes.”
For AB Connect, which purchases raw materials for the food industry, the challenge is to deliver the greater volumes needed over the festive season in less time, as food production traditionally shuts down from the second week of December.
Senior trader Paul Roberts says: “We’re trying to deliver an increased volume over a shorter period of time with the same amount of lorries and the same constraints in our mills and opening hours in ports.”
Roberts says rapeseed, soya and wheat are in greatest demand at
this time of year.
“We pre-empt our customers’ delivery requirements so that we can plan as accurately as possible all deliveries, which in turn then means we can plan inward deliveries as efficiently as possible,” he says. “This ensures we have secured the logistics we need to ensure everything goes smoothly.”
Unilever also finds that forecasting is “absolutely critical” to success. Karl Donnan, customer service director for the UK and Ireland, says Christmas has the power to turn “a good year into
an excellent one” and the company will be distributing 16 million personal care gift packs this year
in the UK alone.
“Statistically this means that on Christmas morning this year, 50 per cent of British households will have a Unilever gift pack in their homes,” he says.
Donnan says planning for Christmas gift packs can begin as early as two years before they hit the shelves.
“So one of the challenges we see is the need to forecast as accurately as possible to our suppliers, despite a heightened volatility with changing quantities, and we ensure this through a consistently close collaboration with our customers.”
For the toy industry the pressures are even more intense, with 50 per cent of annual toy sales – worth £1.6 billion – taking place in the six to eight weeks before Christmas.
According to the Toy Retailers Association (TRA) the main shipments from Far East suppliers occur in October, but those toys will have been selected by buyers at fairs in 2012. The TRA produces a “dream toys” list of what an independent panel of buyers predict will be the biggest sellers at Christmas, though it is quick to point out there is no number one toy and, while shortages can occur, it’s unlikely the must-have toys have completely sold out.
“You can’t always get it right,” a spokesman said. “The last one people go on about is Buzz Lightyear. Occasionally things become the rage. Obviously they are more interesting to the media because it’s a Christmas story – there’s a great toy and people can’t get hold of it. Chances are somebody has still got it.”
The pressures of Christmas tend to throw the importance of good SRM into stark relief.
Stewart says: “It’s important to have a strong relationship with suppliers so that when things come under pressure during the Christmas peak, we have the strong foundation to have the two-way conversations that need to be had. Open and honest communication is key.”
Storr concurs. “We have mutually beneficial relationships with our suppliers which allow us to change forecasts to respond to customer choice quickly and efficiently. Given the huge sales we make at Christmas, this period is obviously a key consideration in any initial contract negotiations, but we do also give leeway for flexibility.”
The proof is in the pudding
Food sellers say that it is the strength of their supply chains that determine how successful they are over Christmas.
In the week before Christmas last year Sainsbury’s clocked up 27 million transactions, shifting 60 million mince pies and 1.8 million Christmas puddings.
Stephen Hayward, senior supply chain manager, says:
“A large part of Sainsbury’s success over Christmas is determined by the strength of our supply chain team, systems and logistics. In addition we work closely with our suppliers to ensure that our customers find the products they want when they visit our supermarkets.”
Unilever says the trend among supermarkets towards lower inventory levels tends to put extra pressure on its business.
Karl Donnan, customer service director for the UK
and Ireland, says: “As retailers continue to put focus on their inventory levels, the time frame in which we supply them with our goods is becoming shorter, especially in highly competitive markets such as the UK. Where volume used to go out in August, the retailers’ push for them now has moved more and more into October or even November, and this trend
However, failure is not an option. “To not have our products available for our customers for their holiday celebrations would be absolutely unacceptable,” says Donnan.