Why Amazon is to blame for the UPS Christmas fiasco

Poor old UPS. One week after the news and social media universes exploded with venom over its failure to get parcels to American consumers in time for Christmas, the general public takeaway seems to be that bad planning was entirely to blame.

I disagree. The delivery giant did come up short despite promises to deliver, and the bottleneck was apparently in its physical logistics asset base, and air freight in particular. But the real problem lies not in supply so much as demand.

Amazon, it could be argued, is the real culprit, despite its quick and unabashed blame-shedding. I say this because Amazon is the one driving consumers to believe in the supply chain equivalent of Santa Claus – namely, that it is perfectly reasonable to expect 24-hour home delivery one day before Christmas, and at no extra charge.

No one expects to get cheap flights to Miami the day before February school holidays, yet American consumers seem to believe in the e-commerce equivalent when buying online.

Planning, expectations and accountability                

UPS’s back story includes adding 55,000 temporary staff for the holiday surge, as well as lining up extra aircraft, all under the direction of 14-year peak planning veteran Scott Abell. Sounds reasonable enough, except that the added labour was apparently no more than in 2012 or 2011 and the extra air freight capacity was less than 10% above normal levels.

UPS had planned for a busy Christmas, not a crazy one. NBC News reported that UPS had forecast an 8% average daily increase in volumes during the holidays, but instead saw a 37% year-over-year jump on the weekend before Christmas and a 63% surge on 23 December.

Retailers scrapping for last-minute sales were actually discounting more deeply as the finish line drew closer. This is fine when shoppers are taking items off the store shelf, but not when click-to-purchase represents the first pulse of a demand signal for the extended supply chain.

From a planning perspective, UPS does seem to have blown it. But in terms of expectations, who is responsible for managing consumer behaviour? Retail, that’s who. And in particular Amazon, which has for years been gathering incredibly precise data about our collective demand curves.

I have a hard time accepting the premise that Amazon, with all its resources and knowledge, could not have done more to collaborate with its ultimate supply chain partner, UPS, in matching supply and demand. Instead, Scott Abell is getting thrown under the bus.

Manage demand, not just supply

I have long felt that supply chain people try too hard to please. The “customer is king” mentality overwhelms an equally important fact, which is that you can’t always get what you want.

SCM World research on digital demand shows a clear bias towards consumer preference for variety in service offering rather than just lowest price. In other words, as consumers we’re willing to take on some inconvenience to save money or pay extra for special treatment. Retailers know this better than anyone and yet still seem unable to resist overpromising.

Last year at our SCM World Live event in Miami, Peter Gibbons, now EVP of Operations for Mattel, gave a great speech about supply chain saying yes to demand. He recounted a thought exercise from his time at Starbucks in which the supply chain team was trained to say yes to even the craziest suggestions from their counterparts in merchandising.

“We need live chickens in the stores!” was the extreme example, to which supply chain doesn’t say no, but instead breaks down the costs and compromises necessary to make it happen. The takeaway, of course, is that special services require special capabilities, which generally cost money. Same-day shipping on 23 December qualifies as a special service.

Who is the Grinch that stole Christmas?

The conspiracy theorist in me wonders whether Amazon is doing this on purpose. Its public statements promise to “review the performance of delivery carriers”, while abundant news reports suggest additional competition in parcel delivery will result.

Is it a coincidence that drone delivery made its flashy debut just as the season of logistics gluttony got fully underway? Perhaps. But it could be another crafty move in Jeff Bezos’s game of world domination.