How Bad Are Supply-Chain Delays? So Bad That Companies Are Already Placing Holiday Orders

Plagued by problems from last year that haven’t been solved, companies are getting a jump by two to three months so history won’t repeat itself.


During last year’s holiday shopping season, Fat Brain Toys president Mark Carson couldn’t keep enough stock on hand of his best-selling product, a gadget called Dimpl, with squishy, brightly colored silicone bubbles that little kids love to push in and out. Many of the toys were delayed, floating somewhere on the Pacific Ocean, only to show up in January, after the Christmas trees came down and the stockings were back in storage. To avoid that happening again, Carson is already finalizing his holiday order, three months earlier than normal.

“We’re trying not to repeat history,” Carson said. His strategy this year is to order early and place bigger, more aggressive bets on products that he believes are likely to sell well, with orders of up to 80,000 units at a time, up from a previous range of 5,000 to 10,000. “We played it kind of conservative last year, and were hurt,” said Carson, who started the company with his wife out of their Nebraska home in 2002.

Burned by supply-chain delays, companies are turning to the old adage that the early bird gets the worm. They’re placing orders months before they usually do to give products ample time to make their way from factories in China to shoppers in the U.S. It’s a reversal of a yearslong trend in which companies tried to shrink their turnaround times in an effort to be more responsive to trends and cut down on excess inventory.

As the world moves into year three of the pandemic, no one can count on items making their usual timely journey. It’s still taking longer for companies to get their hands on certain materials, like zippers and the foam used in shoes. The biggest delay is getting stuff across the ocean. It currently takes an average of 80 to 90 days for items to be transported from Asia to the U.S., double a previous range of 40 to 50 days, according to Freightos, an online freight booking platform.

“Everyone who is able to has shifted booking earlier because it takes longer on the ship and it takes longer to get off the ship,” said Freightos CEO Zvi Schreiber.

Italic, an online retailer that sells unbranded luxury goods, would normally place its holiday orders in August or September. This year, it’s moving that timeframe up by two to three months. “We’re definitely changing our buying strategy,” said Nicola Azevedo, Italic’s vice president of operations. “We’re buying earlier and also reconsidering the amounts. The wise strategy here is if you have space in your warehouse, you should be a little more defensive and purchase sooner. If your financials allow you to, you should buy a little more.”

Ordering mountains of inventory that won’t be sold for many months is a tricky proposition. It ties up working capital and carries more risk than many companies would prefer to take. It can be difficult to predict demand so far in advance.

“You really have to have a crystal ball,” said Deepa Gandhi, cofounder and chief operating officer at Dagne Dover, a handbag company that is currently placing orders for the holiday season and early 2023.

It’s especially difficult for new products. For instance, Dagne Dover would normally order a small amount of a new product, see how it sold and then reorder inventory. Given the long lead times, the company can’t afford to wait. Instead, it’s placing its entire order upfront. “You have to kind of take some risk and be comfortable with that risk,” said Gandhi.

Ten Little, an online kid’s retailer, recently began selling play gardening kits. It thought it had ordered four months worth of inventory, but sold out in five weeks. In March, it launched a new shoe designed for children taking their first steps, which was out of stock in most sizes a few weeks later. It also got customer requests for the shoe in a larger size. It’s scrambling to restock, with some shoes at the railyard, some on boats and some on planes. It also asked manufacturers to use leftover materials to quickly make more pairs.

“It just blew it out of the water,” said Julie Rogers, Ten Little’s cofounder and chief operating officer. “We’ll be playing catchup for three-plus months just to recover from how how much it exceeded our expectations.”

Los Angeles and Long Beach, California, the busiest U.S. ports, are slammed, so some retailers are routing more goods to other ports, like Houston, Seattle and Charleston. Now they’re slammed, too. At South Carolina Ports, which includes Charleston, the volume of loaded inbound freight was 45% higher in February than in the same month last year.

Consumer demand has been relentless during the pandemic, buoyed by government stimulus checks and Americans’ inability to spend money on things like restaurants, movies or vacations. Companies that make toys, furniture and other consumer goods can hardly keep up. “The inventory/sales ratio is the worst it’s been since 2011,” said Gene Seroka, executive director at the Port of Los Angeles. Retailers “have been doing their level best to keep up with consumer demand since July 2020 with no time to build inventories.”

Lululemon was in an “under-inventory position for most of the year” in 2021 due to supply-chain issues, and that’s influenced its ordering strategy for 2022, chief financial officer Meghan Frank said in the company’s earnings call last month. Nike said growth would’ve been higher in its latest quarter if it had more inventory, noting that 65% of its products were currently stuck in transit.

“You really can’t take your foot off the gas,” said Rogers, of Ten Little, which is working to place holiday orders now after locking in back-to-school inventory last month. Many of its items are seasonal, like sandals, raising the stakes for inventory to arrive on time.

But as retailers order early — or order more than they did last year to compensate — the result can be a self-fulfilling prophecy. More orders mean more cargo that needs to be shipped from China and other manufacturing locations in Asia to the U.S., which could further snarl already frayed supply chains.

Also looming in the not-too-distant future: contract negotiations for the workers at the ports of Los Angeles and Long Beach in July, which could bring shipments to a standstill. It’s yet another incentive for companies to act early.

“If it doesn’t get settled before their expiration in July when the peak of the season starts,” said Jay Foreman, CEO of toy company Basic Fun, which sells Tonka Trucks, Lite Brite and Care Bears, “the backlogs and chaos we saw in 2020 and 2021 are going to look like Kiddieland compared to Mr. Toad’s Wild Ride.”

With reporting by Amy Feldman.

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Source: https://www.forbes.com/sites/laurendebter/2022/04/06/how-bad-are-supply-chain-delays-companies-are-already-placing-holiday-orders/