Prepare for the Perfect Storm

August may be the hottest month on the logistics calendar—and it has nothing to do with humidity or temperature. Even if this year’s predictions for an active hurricane season prove false, this is when the perfect storm may begin to brew in retail supply chains.

For starters, back-to-school inventories are circulating from DCs to shelves to customers, teaching retailers valuable lessons about weak links in their distribution cycles. However, for most retailers the ships with peak-season holiday merchandise have already sailed. If not literally, then certainly figuratively—with ocean and transportation capacities tightly booked for the pivotal fourth quarter. Only the most nimble and astute supply chain managers will be able to make adjustments this late in the season.

On a positive note, third-party logistics (3PL) providers are giving retailers viable options that will make it easier and more cost-effective to respond to cyclical shifts and unique consumer demands.

For exceptions management, check out a new Web-based on-demand solution for time-critical shipments from Detroit-based National Logistics Management (NLM). The NLM business model can support a one-time event or repetitive events within dynamic supply chain environments that are characterized by extreme volume fluctuations, making it an ideal fit for the spikes that plague peak-season retail distribution. NLM has ground and air services throughout North America.

Retailers can also learn from the example set by Aaron Rents for bundling electronics equipment and discover how a 3PL partner can work with vendors to create shelf-ready merchandise. With more than 1,380 stores in 48 states, the Atlanta-based retailer has a unique approach: 98% of its customers lease rather than purchase products, albeit primarily in a lease-to-own model.

Computer equipment, one of Aaron’s fastest-growing categories, became much easier to manage after the retailer partnered with Carson, Calif.-based New Age Electronics, a 3PL provider that handles inbound shipments from the retailer’s computer equipment vendor (Hewlett Packard). In addition to assisting with forecast models, New Age receives the product at its DC where laptops are married to their appropriate cases and printers are aligned with their prerequisite cables.

All of the products necessary to complete a computer ensemble are packaged together in what Dag Norton, Aaron’s director of computer purchasing, described as a “more retail-friendly white box,” customized with product labels describing the contents. The bundled packages of computer SKUs ship to one of Aaron’s 16 DCs and, when they arrive at a store, can go immediately to the sales floor. Everything a customer needs is included in a single box, simplifying both inventory management and the consumer’s shopping experience.

According to Norton, sales of computer equipment were up 46% last year. “We saw double-digit growth in desktop sales and sales of notebooks were up 35% to 40%,” he explained. “Our lease-to-own options are as good as or better than the credit options offered by other retailers. Because we aren’t a traditional retailer, developing cost-effective, full-color packaging could be difficult for a manufacturer—but working with New Age has given us the perfect solution.”

In 2006, Aaron’s sales topped $1.3 billion and sales in the first quarter of this year were $387.9 million, a 12% increase over the same period last year.

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