OM Blog 5: November 25, 2009
By Ken Boyer, Fisher College of Business and Rohit Verma, Cornell University
Authors: Operations and Supply Chain Management for the 21st Century, 2009, Southwestern Cengage Publishing
Retailers spend a large part of the year planning for the Christmas sales season. The key event in this busy season is Black Friday – the day after Thanksgiving. Stores offer fantastic deals and open early in the morning in order to entice/lure/pull people into shopping and spending their hard earned dollars. In 2009, with the economy down, there is more pressure than ever for retailers to get shoppers into their stores. Scores of websites offer listings of the best deals – both for physical stores and for online stores. Wal-Mart, the world’s largest retailer, opens at 5 AM on Nov 27 and is offering a Sony Bravia 46” LCD 1080p HDTV! Wow, that crushes our tv at home – I wonder if Santa has my list yet? Oh yeah, where was I? Among the offerings:
So, clearly this is a bonanza for customers will to venture into the whirlwind of shopping, but operationally this also imposes substantial challenges on running the stores. Among the key challenges:
- Workforce Staffing: While shoppers may be excited to get up at 3 or 4 AM to shop, workers are generally far less excited to get up even earlier in order to open the store and deal with hundreds or thousands of excited – and sometimes difficult – customers.
- The Ultimate Newsvendor Problem – the hot deals are loss leaders for the stores, but the managers must make decisions on how many of these items to stock. Too many and there will be excess inventory and costs after the sales ends. Too few and customers will leave disappointed – or worse. There have been scores of examples of angry customers stampeding or yelling at store employees.
- Crowd Management – While it is a marketing dream to have hundreds of customers lined up to get into your store, it is also a manager’s nightmare. This violates one of the key principles of good operations management – minimize variability. Instead, retailers encourage it by trying to whip customers into a frenzy and then opening the doors. Occasionally, this leads to disasters – it seems like every year there is a story of someone getting trampled and even killed during the mad rush. Even if there are not major problems, there are usually very long lines and very overworked employees. Of course, stores can bring in extra staff to make things go more smoothly – but this costs money.
- Production Planning: WalMart has an interesting new feature – customers can get a detailed map of their local store. This map shows exact locations of each and every deal – no wasted time sprinting to the wrong location. To the fastest and best planned go the spoils! What efficiency!
Retailers (and customers) clearly believe the benefits outweigh the challenges – so we are unlikely to see Black Friday fading in the near future. This can be an extremely fun event for shoppers and retailers alike. If you plan to participate, I recommend a good pair of sturdy shoes and an outfit that allows easy movement and cushions you from bumps and bruises. Me? I’ll be sleeping off the turkey – I don’t begin thinking about my holiday shopping until at least December 22.
Discussion questions:
- How should stores approach inventory planning for Black Friday, in particular the newsvendor problem (Chapters 5: Forecasting and 6: Independent Demand Inventory, pp. 222-223? How should retailers plan the process of opening the doors and getting excited customers through checkout (Chapter 4: Process Design and Analysis)? What capacity planning approaches should retailers use for Black Friday (Chapter 10: Capacity Planning)
- What are your favorite or least favorite memories of this shopping day? How did the operations of the store contribute to this experience?
Sources:
- The Chicago Tribune offers a handy photo gallery of tips on how to survive Black Friday at the following: http://www.chicagotribune.com/features/holidaily/sns-holiday-black-friday-survival-pg,0,748950.photogallery
