So while speed and flexibility are paramount to respond to volatile demand, many retailers and suppliers are stuck because of one big self-inflicted wound: “Half of their supply chain is sitting in Asia,” Haskins says. “Now [suppliers] have to deal with the fact that their product has to sit five weeks on a boat because the boardroom said, ‘We want it cheaper.’” The result is that longer travel distances lead to elongated supply chains.

The Supply Chain Trade-Off: Cost Versus Flexibility

That critical cost-versus-flexibility trade-off can rear its ugly head during the holidays, when marketing plans and inventory strategies have to be made far in advance.

“The challenge is that [suppliers] need to make sourcing decisions early, and when they do that, demand uncertainty is high,” Tomlin says. But simply overstocking inventory is a mistake companies are typically not foolish enough to make. “What smart companies do is figure out how best to use information as a substitute for inventory,” he says, “because inventory is an expensive strategy.”

Haskins, whose company sells supply chain demand software, notes that many manufacturers’ supply chain systems work on monthly planning cycles, which don’t give enough information. And there can be a vast gap between the retailers’ systems and the point of sale (POS) data that they can send to their suppliers and what the suppliers can actually do with it. “The distribution signals—meaning what’s actually selling and the actual inventory—need to be coordinated on a continuous basis. Most organizations are still struggling to do that,” he says.

The holiday shopping season will expose any supply chain weaknesses, he adds. “That’s because the window to respond to fluctuations is so much shorter,” Haskins says, adding that companies with better systems typically perform better during the holidays, and do better throughout the year.

Questions to Ask About Your Supply Chain

While it is too late to make any significant change to the 2007 holiday season plans (that ship has sailed), there are a couple of short-term strategies that might help or better prepare you for, say, Valentine’s Day or next year.

Haskins advises retailers and their suppliers to ask themselves these questions right now: How quickly can I respond to something that happens in my supply chain? Am I providing good, actionable information to my suppliers and filling in any gaps in the data? Am I acting on up-to-date point-of-sale data that I’m getting from my retailer? Do I understand exactly what is being sold every day?