Why Santa is the Leader in Supply Chain Management

The seasonal supply chain requires perfect execution, says Douglas Kent, Chairman of the European Supply Chain Council’s Leadership team . Here's how a family-run operation headquartered in the North Pole has mastered the art of Just-In-Time.

Only an elusive professional known by his various regional identities such as St. Nicholas, Father Christmas, Kris Kringle or simply "Santa Claus" could possible manage the adversity and diversity that the Christmas supply chain demands of him. His reputation speaks for itself. He has been in business for as long as I can remember and yet his business remains headquartered in the far north, in a land of perpetual snow.

Here in North Pole - an unusual mix of staff resides that includes his wife, the lovely Mrs. Claus, nine reindeer and countless magical elves, who assist him in this global operation. Mrs. Claus clearly runs the show, while the elves make all the toys in the workshop and the reindeer provide the transport for the sleigh, all those presents and the plump and jolly CEO himself!

This seasonal supply chain requires perfect execution. The difference between ‘just-in-time’ and ‘just-too-late’ may result in a flood of tears from a deserving child who was sure that when the letter was sent to Santa – his/her request would arrive on Christmas Eve in a neatly wrapped package with a special note written personally by Old St. Nick himself. How does Santa manage such a complex supply chain? We have a few theories although the details will forever remain a mystery or at least a secret!

Customer Centricity

Santa is intently focused on ensuring that his deliveries are exactly what the customer wants and meets their needs. He examines his target market, mainly the children of the world to ensure that each child receives a gift they will cherish and value. He takes good care of his customers. Remember he also maintains that crucial list of "Naughty and Nice" which surely influences the eventual gift you receive. It takes no genius to guess in which category you have been placed if you received that lump of coal while your sibling opens up a new Justin Bieber doll or the latest Nintendo DSi Handheld!

Demand-Driven

Santa’s Demand-driven supply network (DDSN) is the only method of supply chain management he can possibly employ as it requires a quick, efficient response to demand signals which often come very late in the cycle. Kids are still sitting on Santa’s lap on Christmas Eve – the very day of the crucial delivery! Santa’s supply chain uses the pull technique. It requires all the players to share more information and to collaborate with others in the supply chain to meet the Alignment, Agility, and Adaptability suggested by Santa’s key supply chain advisor, Dr. Hau Lee from Stanford University. Every year he manages to deliver millions of gifts around the globe.

Economies of Scale

The single elf-manned workshop located in the North Pole – is equal distance to most of his key markets which are mainly in the Northern Hemisphere. Perhaps the biggest advantage of this location is that under international law no country actually owns the North Pole.

A single workshop located in a land free from bureaucracy and the only employer in the region provides some unique economies of scale. It seems Santa does a good job as all the elves I have ever seen are smiling which is not the case of many offices or factories I have walked through recently. What I can’t figure out and what is likely to remain a mystery forever is how he fits all those presents into a single sack? As I pack for my own holiday adventure – this is secret I would really like to know!

Inventory Policy and Optimisation

In this seasonal supply chain all of North Pole’s operations are gearing up for the manufacturing and delivery activities, which must take place on a single day. Despite the fact that demand may have just been identified, the cycle times must be incredibly short to accomplish a Make-to-Order operation or Santa has an incredible forecast accuracy that allows the elves to produce on a Make-to-Stock basis. After all – most of the products being manufactured in the workshop will become obsolete by the next December 25^th! Who wants an iPhone 3GS when the iPhone 4 is now available? This level of efficiency must be the envy of all retailers worldwide even the likes of fast-fashion gurus such as Zara and H&M.

Outsourcing

We don’t know the details of the outsourcing done by Santa but we must imagine that some of the order entry and administration is outsourced. The initial order place by any child is changed an average of 3 or 4 times before delivery often influenced by the barrage of advertisements on the television during this time of year. "Nope – I have changed my mind, now I want that!" This familiar phrase means an order administration change and surely Santa must have some help with this aspect of the supply chain. I don’t imagine that they would see this as a ‘core competency’. Perhaps this is managed by Canada’s Post Office who today is a recognized outsourcing alliance partner with Santa and manages all the letters arriving from around the world.

Another likely area of outsourcing must be in the area of ‘delivery’. A 3PL partner must be assisting in the delivery of all this presents on Xmas Eve! With 5-8 hours flying time to various US destinations and the same for Europe means that a single sleigh could not possible manage it. Even Japan is 3860 miles from the North Pole and there is a large demand coming from there! To date, it seems Santa has resisted a move towards low-labour cost (LLC) outsourcing to the likes of China or elsewhere.

Of course these are only just a few of the secrets to Santa’s Supply Chain success. I think this Christmas I will grab an eggnog, sit back and admire his amazing success. I hope to remain this year off the "Naughty" list and that a certain Apple product will arrive on-time, wrapped-up an under my tree. Although it may be superstitious I will leave out some milk and cookies for the white-haired, bearded delivery man just in case! After all, that is the least I can do for this Leader in Supply Chain Management! He and his operation are an inspiration! Happy Holidays to all…

Editor's note: This article was first published December 2010.