[00:00:00.000] – Speaker 1
Hey, Jeff. How’s it going? Good. You?

[00:00:01.940] – Speaker 2
I’m good. We just lost the sun, but that’s okay.

[00:00:04.680] – Speaker 1
That’s okay. It’s not shining in your eyes. Yeah, true. It’s still warm outside, though. Yes, it is. Okay. We’re here to talk about holiday peak season and some insights that we are already gathering around this peak season and how to really plan for 2025. Okay? Yes. Let me give our audience some context around the predictions that were made going into peak season, and we can talk a little bit about how it’s shaking out. This year, there was an estimated 7% to 8% increase in overall consumer spending over last year. We’re talking about billions of dollars. E-commerce-specific growth was estimated to grow at 8% to 9%, which is still a great number, although slightly smaller than last year. The An interesting piece is in-store traffic continues to trend upward post-COVID. People are still going to stores, but shoppers still prefer home delivery when it’s the economic option. I think that will continue. Lastly, returns are predicted to play a large part in consumer decision making. When we’re looking at returns, we’re thinking about hassle-free and sustainable. Okay. How does that resonate with you?

[00:01:33.220] – Speaker 2
I mean, it makes sense from what I’m hearing. Sounds like what the boots on the ground are saying.

[00:01:38.540] – Speaker 1
Cool. Now that we’ve moved past the two biggest days, Black Friday and Cyber Monday, here’s the pulse on what’s trending. So Black Friday and Cyber Monday sales exceeded expectations. I think the condensed Thanksgiving and Christmas timeline in the US really supported this sustained demand, and people are still rushing to purchase. Hybrid shopping, which is an in-store interaction, but a completed sale online, also continues to trend. Interesting. Yes. And there’s still strong growth in just stand-alone e-commerce. But this idea of people wanting to experience something in a store but still buy that thing from the comfort of their own couch is something for us to look out for. And I think the last one is we don’t seem to see a lot of bubble up on carriers this year. It seems like the carriers seem to be managing those expectations and this growth really well. We’re getting packages on time. There isn’t this huge rush of missed deliveries. As we near the Spanish line for 2024, what does this mean for 2025, Jeff? What are you sensing and what are some things that you, as a supply chain, expert would start thinking about from what we’re seeing in 2024?

[00:03:08.090] – Speaker 2
Well, I think if I was in charge of an operation, I just went through peak, you learn a lot, but that information can be lost over time if you don’t talk about it and figure out exactly what happened. I think it’s important to have the conversation with different levels within the organization to say, Hey, what went well? What didn’t go well? Do you have any ideas of things that we could improve for next year? Just make sure you do that quickly after the peak, even though that’s often a time when people don’t really want to talk about it, just to capture the accurate information. I think going forward, it’s just becoming more and more sophisticated with how you approach the peak and leveraging the data that you can pull to figure out how to handle it next year type of thing. The other thing to keep in mind is that if you’re going to put in a new solution, if you start Jan 1 and you want to test new things, it really needs to be ready in August, September. You don’t really have as much time, I think, as some people think you do.

[00:04:11.310] – Speaker 2
I think it’s just about getting the flywheel turning on, okay, what worked, what didn’t, what are we actually going to strive for? Because if you wait till April, May to start those conversations, now you’re down the funnel of what’s possible for the next peak.

[00:04:25.930] – Speaker 1
Got it. I think that makes a lot of sense. Six months, even if you start January 1 and end June 30th, is not a lot of time to analyze, strategize, and deploy anything. You said something that perked my ear up, which was using the word sophistication or sophisticated. What is the difference between a sophisticated strategy to address peak issues and a non-sophisticated? What do you mean by that?

[00:05:05.200] – Speaker 2
Well, I think there’s a clear base. If I think about planning for peak, there’s a base layer that is like, do we have an adequate labor plan to support temporary labor not showing up, our forecast being off? That has to happen either way. I think in any plan, sophisticated or not, that’s going to happen. But it’s the things that go on top of that that contribute to sophistication. Facility layout, particularly certain warehouse processes that become very constrained during peak, those are the things that we would want to focus our attention on to deliver a sophisticated plan. An example of that might be, have we had an intelligent conversation with merchandising? Do we understand the promotions that are going to be happening this year? Have we taken those requirements and transformed those into what are the orders going to look like on the floor? Does that warrant a new set of picking and packing processes? Those are the kinds of things that I think people should be thinking about, and that would contribute to a sophisticated plan.

[00:06:06.920] – Speaker 1
Got it. We’re really thinking about the breadth and depth of information that’s available, and then how do we use that to drive multi-layer strategy across the board. It could be in one area deep, or it could be in many areas shallow, or it could be in the best case scenario, all of the above. Right. Awesome. When I think about planning, inventory planning aside, and that’s a completely different beast, what are the two or three most important buckets of planning that you think around peak and fulfill it.

[00:06:47.280] – Speaker 2
I would think about it as the three places I would start would be, one is facility layout, what were the physical constraints of our building? Can I change this? Can I not change it? Make sure you understand those well.

[00:07:08.320] – Speaker 1
Do I need more packing space?

[00:07:10.040] – Speaker 2
Do I need more packing stations? Are all my pickers always wasting the first hour because they’re all starting in the same spot. There are things like that where you could say, This is changeable for next year. Why are my pickers always all in the same aisle? You can probably change that next year. You could change your slotting. I don’t have enough inventory space for all of my inventory. Can you change that next year? If you’re being told that or if your lease is expiring in three years, maybe, maybe not, maybe you have to move some stuff on site. So understand all of that. That’s one. Then the next two places I would look is I have labor, If I have 100 people and I’m a direct to consumer brand doing my own fulfillment, I probably have 60 or 70 of those people focusing on picking and packing. Picking and packing is really where I think people should be spending a lot of time thinking about how to improve and how to find efficiency gains for peak. Those are the three things that I would focus on.

[00:08:09.630] – Speaker 1
Got it. Let’s focus on picking and packing for the moment and throw out some terms that we use to measure efficiency. We talk a lot about the travel path. We talk a lot about consolidating the pics, so the number of touches. How does one go about even thinking or starting an analysis on that?

[00:08:36.530] – Speaker 2
I would start that with a comprehensive review of the last peak. When I say comprehensive review, I mean all of the orders that went out and all of the labor associated to those orders, what did they look like? What was the nature of them? How many lines per order, how many SKUs per order, where the items being picked from, accompanied by an understanding of Within the four walls, what spaces am I using well? What spaces maybe am I using less well? That gives you a base understanding of, Hey, this type of order in 2024 took us this much time. But this type of order in 2024 took us half as much time. But if you look at the order value, they’re very similar. What are we seeing here? What are the trends that we can identify? We always start every project with modeling out a baseline that gives us a really good understanding of current state. That’s I would start the process is understanding what happened last year and then understanding what went well and what didn’t go well.

[00:09:37.290] – Speaker 1
That makes a lot of sense. What if that data is not readily available to me because I don’t have a sophisticated WMS that’s going to punch out picking locations? What are some easy wins that I could take away from still looking at my pick and path impact. But is there something that I’m looking for if I don’t have that data available?

[00:10:10.210] – Speaker 2
Yeah. I mean, even if you just had access to the orders that went out over the period, you could even just put them in an Excel and create a pivot table and just group them by different variables like skews, number of lines per order. I think what you’re going to find is there’s going to be patterns that exist. And that’s really where any consultant would start is like, hey, what are the patterns? And why are we picking our 25-item orders and our one-item orders the same way? Maybe. And those are the kinds of things that we look for is like, where do we establish a way that we can create a new process or a new workflow that is going to make this particular thing more efficient. We can keep doing our other thing the same way, but we’re pulling out this work to really just provide a way for people to do that work with less labor.

[00:11:02.620] – Speaker 1
Got it. Let’s talk about labor for a minute because that’s where we just ended. Labor planning that you mentioned in the beginning is really the first step. Because pick and packing is where all of your labor sits. All of this efficiency that we’re looking to gain really ends with a reduction of the need for labor. How did you feel labor is playing out in this year’s peak season? I know that employment rates are relatively stable, and so people have work to do. But why is labor a constant conversation in peak planning?

[00:11:46.840] – Speaker 2
Well, I think the problem is that most people are not going to hire full-time people because it’s a very short window of time. But the problem is that everyone is hiring the template labor at the same time. What we found is that if you’re unprepared or caught off guard with how many people you’ll need, or if you have unreliable temporary labor, it’s hard to replace that on a whim during peak season. Typically, over-planning or just providing better incentives, which ultimately lead to costing more per order, is what people end up doing to get that baseline amount of labor. I I guess what we’re getting at is, what if we were able to look past that and say, how do we reduce the amount of labor we need for this peak, which is, I think, where everyone is going to end up eventually because we think that the labor problem is not going to go away.

[00:12:48.620] – Speaker 1
We know that temporary labor or labor that is secured on the fly is 50% less productive than labor that you have on hand. The cost of that labor isn’t just the extra head. It’s the extra heads upon heads when you have an inefficient operation. What about automation? How does automation and how should companies continue to think about automation as a risk mitigation factor for labor?

[00:13:23.500] – Speaker 2
Yeah. I think let’s just… Automation is a blanket term. There are a lot of things that sometimes we’d characterize as mechanization, like conveyor, but oftentimes are lumped into automation. Let’s just assume automation is accounting for all of that. Because we don’t see the labor problem going away, we don’t expect there to be more new people available for work than we had in the last four years. We think automation is going to be an important thing to consider when you’re looking at these big peaks and valleys. Ultimately, we’re not going to have more people in the warehouse, but we expect our business to grow. How are we going to achieve that? We’re going to have to look at ways of doing these things that maybe in the short term cost more because the automation is still pretty expensive. From a purely return on investment from a direct labor perspective, sometimes isn’t that desirable. It’s It’s not necessarily going to matter because you don’t have another alternative. It’s looking at the temp labor pool, if it gets smaller and smaller and smaller, it’s just going to lead you to this path. That’s really your only option.

[00:14:42.640] – Speaker 1
I think this distinction between mechanization and automation is an important one because you’re right, people lump automation into one big bucket, and the investment on automation is relatively large against the payback time, but is a topic from an efficiency perspective and how do you handle peak, I think most companies should have every year. It should always be on the menu and you can always opt out. But at some point, it will become a larger norm.

[00:15:20.430] – Speaker 2
I think what we’ve seen with many customers is they talk about it, but then, like I said earlier, they don’t act on it. Then they get quotes, and then everything takes 28 weeks, and then they do the math, and it becomes impossible. Then they say, We’ll do it next year, we’ll do it next year, we’ll do it next year. You can keep doing that forever, but these problems aren’t going away. Starting to tinker and really understand, Okay, what solution is the best fit for us? How long does it take to procure? How much does it cost? Just having all that information at arm’s length is really useful if you’re an operations executive, because when somebody comes in from another department and says, Well, guess what, guys? We got this great opportunity. We’re going to do this this year. You could just hold it up and say, Okay, but we’re going to need this piece of automation to do that, versus, Okay, let me start from square one. I got to get a RFP. I got to talk to 16 vendors.

[00:16:23.730] – Speaker 1
Yeah, absolutely. It’s that planning and being prepared. For companies that have, we’ll call it a sophisticated process around planning and looking at efficiencies within the warehouse and driving, again, year over year, improvement metrics. What types of savings do you think you can expect from, we’ll just call it a semi-efficient organization to A highly efficient one. I know that’s pretty broad, but what’s your gut check on all these projects that you’ve done around optimization? What’s the gain?

[00:17:12.960] – Speaker 2
It’s a good question. I think there’s a big variety in terms of people who are doing not a lot of volume and are not efficient and it’s never been a problem. Then there’s up to we’re pushing the edge of what we can achieve with, we’ll call it non-automated solutions. I would say in the middle is In the middle is a baseline of they’re doing… I’ll just say 100. Their score is 100. Actually, let’s use 50. Really good is probably 70, 75 A pretty big increase that we can expect from average all the way to best in class, conventional. Of course, below that, there’s going to be a lot of people. But I think if you feel like your average, there is a lot of room for improvement, and it may not be 50% for you, but it may be 20%, it may be 25%. Those are the things that we work with our customers on every day is figuring out, Okay, how do we get to that 20%? It’s usually not overnight. Maybe this peak is 5%, and then it’s 10%, and then it’s 15, and then over the course of two or three years, you get to that 20%.

[00:18:19.300] – Speaker 2
But now you’ve done 30, 40% more business, and you haven’t added the headcount that you thought you needed to add, right?

[00:18:27.100] – Speaker 1
Right. Again, that’s a great barometer for some of the people in our audience who are thinking about what’s the real impact of doing any of these efficiency studies? I think it’s sometimes difficult to quantify when you don’t feel the pain. When you feel the pain and you know something has to change, then you have no choice but to do a study and say, This is where we need to go. But I think one of the learnings from this year is that 2024 seems to be relatively well-planned. Let’s just call that, because because maybe we over-indexed on the trauma of 2023 and 2022. I think the takeaway from a lot of companies that I’m hearing is that this year is going relatively well. What we don’t want to do is take our foot off the pedal in terms of planning for next year. I think that understanding what’s the real gain of doing an efficiency study, of really understanding how much you can squeeze out of pig path, travel time, slotting, and all of these different mechanisms that we have to drive efficiency is helpful for people to understand. Thanks for sharing that. I’d like to pivot for a little bit and talk a little bit about tariffs going into 2025 because it is such a huge topic across the supply chain world right now.

[00:19:58.870] – Speaker 1
Although a large portion of conversations around tariffs are on how to mitigate them, supply planning, and what we’re doing around manufacturing and pushing things around, many companies are not going to be able to avoid tariffs. It’s going to be a new norm for the next few years. That’s going to have a long-term effect on people’s operating budgets. What we think is going to happen is that companies will have to look elsewhere to squeeze the budget. I’m going to pay more for something, but my margins have to stay the same. The natural place or a natural place is going to be for a wall optimization, my fulfillment center. We’ve talked a lot about that for the last 10 or 15 minutes. How and where would you, again, start this analysis to determine where the best place for me to capture costs loss is in my fulfillment center?

[00:21:02.050] – Speaker 2
No one knows what’s going to happen with tariffs. Even in speaking to global trade consultants, there’s a lot of different scenarios you can evaluate, but no one knows. I agree that the correct place to start, the assumption is, okay, in some way or another, we’re going to have to pay for these. Landed cost is higher, but I’m probably going to want to come up with a way to capture that elsewhere is what you’re saying, right? If I look at that I look at a building and the big costs in a building, well, I have my occupancy costs. I don’t think real estate is going to become cheaper. I don’t think boxes are magically going to become smaller. So that’s not a place to find gains, right? Which really leaves us with the biggest bucket, which is going to be our direct labor. When we look at direct labor, which I said before, it’s picking and packing. In some industries, there’s going to be bigger categories associated to them, but ultimately, focusing on picking and packing and finding a way to reduce the cost of the people, or reduce the labor cost to fulfill a single order is where people are going to go.

[00:22:19.160] – Speaker 2
Without knowing exactly what the solution is going to be, it’s going to be a combination of technology and automation because there’s no other solution. People are not going to become faster at walking in a warehouse, but the technology and the automation is going to become better and faster and cheaper. In our mind, it’s just a matter of time for this to happen. Tariffs and less immigration may speed it up, but everyone’s going to have to go to this eventually.

[00:22:50.570] – Speaker 1
Yeah. On technology, and I’ve heard you talk a lot about the factors that the need you to purchase or invest in different types of WMS systems. What are some of the defining benchmarks of when you need a WMS system, and also when do you need to upgrade your WMS system to, again, capture some of these opportunities in picking and packing?

[00:23:24.660] – Speaker 2
I think a lot of times there’s an investment that is low to get something in the warehouse where you’re essentially just digitizing what you did via paper, where you’re still doing things via paper. Oftentimes, that just means I’m capturing it, I’m using a device to capture the data, but I’m not really doing anything intelligent with it. If you’re doing maybe up to 100 orders a day, that’s probably fine. But once you get into the several hundred orders a day or you have 10 people picking instead of five people picking, you’re probably going to want to look at WMS options because there’s going to be enough pain points there where people are doing things where there’s two orders that are identical and you could pick them together. But I picked one and you picked one just because there’s no layer of WMS in there to say, Well, no, why doesn’t Vivi just pick both of these? And then Jeff can go do something else. There’s these big gains that are sometimes 100% efficiency gains that can be found even at pretty small scales. Once you start getting into the hundreds of orders and the dozens of people, you really should be evaluating those solutions.

[00:24:38.250] – Speaker 1
I think that error reduction is also something that gets glossed over in terms of mispicks, orders having to get put back to shelf and then picked again. Then, of course, inventory accuracy, which is the layer that sets all of that in motion. That when you add all of those things together, ultimately that equals this reduction in labor, this increase in efficiency, because I’m not doing the work, as you said. We’re not both doing the same work. We’re definitely not doing that work again. No, that’s really, really helpful. Is there anything else around, again, this cost-capture conversation that you might want to leave people with going into 2025?

[00:25:27.730] – Speaker 2
I think it’s If you’re in this position that you talked about before where I don’t have the data, I don’t have the data, maybe that’s your first step. There’s a lot of talk about AI, and maybe AI can help you figure out how best to set up for your peak because it can look at the data and figure out, Hey, pick these orders these ways, pack these orders these ways. But the first step is making sure that you have the data available. I think making sure that you’re on modern technology with regards to ERP, WMS, TMS is important, and maybe It’s like a step forward that may not show up on the PnL this year, but it puts the stepping stone in place for the next year when you’re actually getting the big efficiency gains.

[00:26:11.710] – Speaker 1
Awesome. Well, I think this has been really interesting, Jeff. I appreciate you sharing all of your expertise. Are there any final thoughts around what’s my takeaway? What’s the last thing that I want someone to hear going into January 1 and leaving Christmas behind?

[00:26:34.110] – Speaker 2
I think if I was running a building, I would want to get a second set of eyes to look at it. You can get an automation vendor in there, you can get a consultant like us in there. Just getting someone else to just say, Hey, have you ever thought of that? Hey, have you ever thought of that? And, Hey, they might come back and you’ve already thought of everything. That’s okay, too. But understanding that there’s resources out there that are either inexpensive or will come in and just do an assessment that can help you do your job better and also give you the experience of dozens of other operations that are similar to yours that maybe you haven’t seen before.

[00:27:14.460] – Speaker 1
Now, that’s a great point. Things are always changing. That’s the one thing that we can count on is that supply chain is consistently evolving, both from technology and just new practices. I agree with you that if you have a fulfillment center out there, it does not hurt to get a vendor in to have a conversation. A lot of those times, those conversations cost nothing, and you learn a lot about the potential of what can change. Awesome. Well, thanks so much, Jeff. Appreciate it. Thanks.