Operations Roundtable: The Back End Takes a Front Seat

May 01, 2002 9:30 PM  By

In February, Catalog Age met in Richmond, VA, with nine catalog operations executives. Some worked at large, multititle mailers, others at small companies barely out of the start-up stage. But they all had plenty to say about staffing, cutting costs, back-end integration, and parcel shipping.

The roundtable participants

Rowena Fullinwider, president of Norfolk, VA-based Rowena’s, a purveyor of gourmet foods.

Kurt Goodwin, vice president of operations for Crutchfield Corp., a Charlottesville, VA-based cataloger of consumer electronics.

Steven Jordan, director of marketing for Portsmouth VA-based The Smithfield Cos., which produces The Smithfield Collection and The Peanut Shop of Williamsburg food catalogs.

Jim Klaus, president of Richmond, VA-based children’s clothing catalog Children’s Wear Digest.

Jim Ray, president of McFeely’s Square Drive Screws, a hardware cataloger in Lynchburg, VA.

Chip Sharkey, senior vice president of human resources for Rye, NY-based multititle gifts cataloger Lillian Vernon Corp., which operates a national distribution center in Virginia Beach, VA.

Ann Taylor, chief operating officer of Gold Violin, a Charlottesville, VA-based multichannel marketer of gifts for mature consumers.

Andy Travers, director of operations for general merchandise cataloger/retailer The Orvis Co.

Buzz Van Santvoord, vice president of operations for Madison, VA-based Plow & Hearth, a division of Westbury, NY-based 1-800-Flowers.

Catalog Age editorial director Sherry Chiger and writer Mark Del Franco moderated the discussion.

Rising to the challenge

Catalog Age: What has been the greatest challenge in your job during the past few years?

Andy Travers: I think it’s being able to increase our capacity while still attempting to keep things personal with the customers.

Catalog Age: What do you mean by keeping things personal?

Travers: Able to deliver to the customer a personal presentation that’s not generic, that is specific to the customer’s individual needs. If they want it shipped here or there, or if they want items wrapped separately or boxed together, or shipped at the same time or at different times. That requires a lot of extra sensitivity in the operations area, both on the phone side and in the distribution center. And that combined with the need to introduce some automation to improve our savings means that sometimes we have contradictory objectives that we need to balance.

Buzz Van Santvoord: My company, Plow & Hearth, is owned by 1-800-Flowers, which bought the Children’s Group of catalogs from Foster & Gallagher [on June 8, 2001]. There would’ve been a challenge to integrate them even if things had gone as originally planned, which was that Foster & Gallagher would continue to take care of fulfillment through the end of this month. But with their going out of business [last summer], the integration was accelerated. We had a very short time to make the bare minimum system changes necessary to fulfill orders and take the calls from customers. It went successfully, but there were certainly several bumps in the road.

We also acquired with the Children’s Group a 200,000-sq.-ft. distribution facility in Dayton, OH, and it’s somewhat challenging to determine how best to use that facility with the 300,000 sq. ft. we have here in Virginia.

Kurt Goodwin: The biggest challenges for us over the last few years would be establishing and maintaining the synergies of our call center, our Website, and our catalog. We try to make sure the customers’ experience across all channels is equally good, and it requires a lot of work and a lot of different groups of people and a lot of crossover.

It’s taken some time, but I think we finally accomplished it. The Website represents about 40% of our business now, and a lot of our shoppers on our Website are going to our call center to place orders or to get product information, so there is a real synergy there between the channels.

Ann Taylor: We’re a two-year-old company, so when we talk about what challenges we had over the past few years, a month to us is probably more like a year to you all. The primary challenge in the operations area that we faced over the past year was reducing the cost of fulfilling an order. From the moment we got our first [investment] dollar to the point where we shipped our first order was 12 weeks. We were doing the fulfillment with a partner company in our incubator out in San Diego. The cost of fulfilling the transaction was way in excess of what it would be to achieve profitability. The whole emphasis was on rapid growth because we didn’t want other companies copying our idea.

But in early 2001 the focus of the company became achieving profitability. So we were challenged with reducing the cost of fulfilling an order by at least 50% or 60%.

We moved the operations to Virginia, where we worked with a third-party fulfillment house and had all the challenges of integrating with their system. We had to make a few sacrifices in terms of customer service. We no longer have online order tracking, for instance. But we are pleased that we met the goal of reducing the cost per order without, I think, really compromising customer service.

Jim Ray: We sell the worst possible product for mail order: [screws that are] heavy and relatively inexpensive. Shipping is a huge issue for us. But probably the biggest challenge we had in the last two years has been getting warehouse and call center help. The unemployment rate had been going down, so we had to scramble. Several companies in Lynchburg have had pretty good years and have expanded, and so they’ve taken a lot of the people. They’re also a little higher tech than we are, and so they are paying a lot more than we can pay, so we’ve been challenged to deal with folks who are on the lower end of the skill level.

Chip Sharkey: I think the biggest challenges over the last few years have had to do with the shift of order volume moving tighter toward Christmas, an effect of the Internet growth. The customer wants to order a little bit later.

Then there’s the growth of personalization. Personalization is a huge part of our business, and it creates some real challenges from a personnel standpoint. We increase our work force by 500% every holiday. We go from 1,000 workers to well over 5,000 every year at the distribution and call center facilities. So the staffing challenge and the challenge of getting people up to speed every year and in a tighter time frame has been a significant issue.

Steve Jordan: Our two catalogs are a part of $8 billion, Fortune 500 company, Smithfield Foods. The Smithfield Collection catalog is actually one of the country’s oldest still-printed catalogs. We went on the Web about six years ago and had very good success. We’re finding about 30%-35% of our customer base is from the Web now. And we think there’s still quite a bit of growth potential. We’re ramping up to spend quite a bit of money in the next year as far as changes in fulfillment, changes in shipping policy, changes in centers. [The parent company] wants to grow the business as much as possible. They see the high-growth profit margin in it.

During the last couple of years we’ve been particularly challenged with some labor issues. In a little town like Smithfield, VA, it’s a little hard trying to get good help. The other challenge is maintaining the high expectations of the Internet customer.

One thing that we’ve done in the last two years is changed our shipping policy. We pretty much guarantee that when you place an order with either catalog, you will generally get it within three business days regardless of where you live. And we made the change without really increasing our prices to the customer, so we’ve had to absorb the cost. But I think we’ve grown the business a bit by offering that three-day delivery policy.

Catalog Age: How did you absorb the cost?

Jordan: Well, there was a lot of discussion, I can tell you that, in terms of “Hey, are we going to lose our can going into this?” But we felt that to really stay competitive we had to go ahead and offer the shipping. We were able to negotiate some favorable rates with our carriers, which benefits us.

Jim Klaus: We use third-party fulfillment in Roanoke. We share a facility with FAO Schwarz. We’ve been in business 15 years, and except for the first season we’ve always been with outside fulfillment. The nature of our business makes us an attractive third-party client in that our sales are even year-round. Many third-party fulfillment companies have a heavy fourth quarter and look for companies like us to help even out their year. For that reason third-party fulfillment has been cost-effective for us.

In terms of issues over the last three years I don’t think they’re any different than they had been. The difficult part of using a third party is maintaining control even though you’re not in direct control. You are managing a vendor relationship, and although Roanoke is not far [from our Richmond headquarters] it’s still a distance relationship. So we are managing that via phone and fax and direct Internet connections to their system.

Rowena Fullinwider: We are a small company. We fulfill everything ourselves. Oh, we are a manufacturer too, I need to tell you that; we make our pound cakes right then and there. In the last few years our [online business] has dramatically grown, and we’re very pleased with that growth, and we’re going to spend some time and money on that. I think my biggest challenge is to expand the growth of the catalog without spending too much money to do it. We need to do this more economically.

‘No low-hanging fruit’

Catalog Age: Overall it seems that everybody has to do more with less.

Ray: There’s no question. Unfortunately, there’s UPS and the Postal Service and everybody else that keeps raising their shipping rates, and they kill us. We have really worked hard to drive down our shipping costs as much as possible and to generate as many economies of scale as possible, but shipping costs are still a real big issue for us.

Sharkey: In terms of overall cost control and trying to do more less, our focus over the last few years has been trying to improve productivity and accuracy and whatnot through various automation methods, system upgrades, and that sort of thing.

Catalog Age: Have you implemented a lot of automation?

Sharkey: We continue to do some more, but yes, we’ve done several things. In our personalization department we put in a sorter to help where we combine the items back with the nonpersonalized products to ship them all. That used to take a small army of people, but we put in a sortation system to manage that a lot more effectively. It’s just one example.

Catalog Age: Did anyone have to implement cost-cutting measures recently in light of the recession?

Goodwin: Nothing that we weren’t doing in an ongoing way before. I think you just pay closer attention now to little things like overtime and part-timers. We’re taking a look at the productivity of part-time workers.

As for facilities issues, there are savings in the facility alone, right down to electricity and how much you pay for your cleaning services. We’re examining everything, every single piece of what we’re spending, and it really does make a difference. You find things that make you go, Gosh, it’s crazy, we’re paying $500 a month for that? It seems insignificant, but when you roll them all together it really can have an impact on the bottom line.

Plus it’s making our employees think the same way. They’re seeing us looking at the little things and they’re all looking at the little things as well, so if you have 500 people doing that it really can add up.

Klaus: I agree with Kurt that you do it all the time as part of your business. But when tough times come there’s not much more you can do. For example, we chart all of our competitors and look at what everyone’s charging every year, good or bad, to figure out what the market can bear and what’s going on and where we want to be. So just because things get tougher we can’t all of a sudden patch $2.00 onto our S&H fees. You’ve got to be where the market is, and you don’t want to hear from your customers that you’re $2.00 higher than everyone else.

Travers: What we’ve done at Orvis is sit down and look at our key performance measurements by department. We got every department to refocus on those key performance measures so that they aren’t distracted by some of the other, peripheral things out there, so that we can establish priorities. And in those priorities you have financial objectives, service objectives, and quality objectives. We found that the primary objective of their department wasn’t clear to some people. I think we’re going to streamline some operations because we’re going to see the light.

Catalog Age: Any examples?

Travers: I think a pretty simple thing is posting [performance statistics]. It’s actually one of the things we do on a smaller scale in each department, but I think a master board is one of the things that I am going to gear up this year. It will let everybody know that we’re watching from the top down and that everybody has measurable objectives. At Plow & Hearth, Buzz did a very good job with this.

Van Santvoord: What Andy is saying about Plow & Hearth is that we try to share as much information with the associates as we can. We do a lot of training to help them understand what those numbers mean, how to relate to them, and how they have control over those numbers. We also use training more and more as a cost-saving tool to encourage the associates to give us feedback to let them learn how to work smarter, because that’s what it really comes down to. All of us here, I think, we work pretty smart. There is probably a little fat, but there is not a lot of low-hanging fruit in the back end of the operation anymore.

Another prong to cutting costs is certainly technology. We’ve implemented some software systems and equipment to move the product more expeditiously. That’s hopefully going to solve two things for us: Long-term it will reduce the handling cost, but it will also help solve some of the personnel issues we are all struggling with.

We had to hire 850 seasonal people this year for our Christmas season. It’s not 5,000 people, but we’re in Madison, VA, so it’s just as hard. We are really trying to push our warehouse management system. We have a fairly complex system here. We are taking baby steps, not giant steps. We’re trying to implement a couple of modules each year to help us out and save us labor dollars.

Channel surfing

Catalog Age: The issue of back-end integration, across channels and locations, is a confusing one for many catalogers. How do you handle it?

Travers: We’ve serviced four channels out of our Roanoke facility for several years. We have a dealer network, which is essentially b-to-b. We service about 25-30 retail stores. Our catalog customers are also serviced through Roanoke, and our Web business as well. So we have multiple channels coming down that are prioritized every day at the distribution center. It’s a balancing act.

Catalog Age: Do you have a separate area in the facility for the Internet orders and a separate one for the retail orders?

Travers: We had a number of roundtable discussions at Orvis recently, and I think people originally thought that you had to have a different room or a different box to segregate inventory [by channel]. Well, now you have software that can do that and all kinds of other types of systems where you can have virtual dedicated inventories. That is the philosophy that we’re working on.

Each channel needs a little different handling, so we will probably look at that for some product lines, but right now we’re comfortable doing it the way we are.

Catalog Age: Say I were to order a product through the Web. When it goes into your warehouse, do the workers there see which channel I’ve ordered from? And does it make any difference to them?

Jordan: If they look closely we have some codes on the actual pick tickets that will [specify the channel], but personnel back there really don’t take the time to look to see whether it’s a Web order or a phone order. But I can go back and look at it and tell you.

Goodwin: We’re similar. We channel everything through our main order entry system so that once it arrives in the distribution facility, whether it’s a Web order, a mailed-in order, or a telephone order, we’re doing much the same thing. If you place your order by 6 p.m. we’re shipping it the same day, and we deliver within three days, so we don’t want to add any complexities.

Fullinwider: Our wholesale [orders are] the only thing we separate, and during the holidays we have packers who do only the wholesale business. But it all comes out of the same warehouse, same computer, same everything.

Sharkey: We were able to integrate the Web with the back end with the initiation of our new site, which we put up in September. With the new site we’re fully integrated, except we’re not doing live click-to-chat and that sort of thing. But we can respond to and have for several years been able to respond to e-mails within four hours. But that’s a technology issue based upon the nature of your business. You have to start thinking in terms of how much you really want to spend to have that level of sophistication. It’s probably more important in Crutchfield’s case given the nature of their product and customers.

Goodwin: We have our call center reps who can also take an e-mail. They can be answering a phone call and then one minute later an e-mail comes in for them. We manage the flow that way because we consider it all a contact. Whether it’s a phone call or a piece of mail, a fax or an e-mail, it doesn’t matter, and the same people are handling it. You know they’re shifting gears a little bit, and there’s an efficiency loss maybe, but overall the customer’s getting service fast, so that’s just business as usual for us.

We don’t do any live chat. We’ve played around with that some, but in all honesty there wasn’t a great deal of demand. And it’s very labor-intensive because you’re sitting there waiting for the next person on the live chat. If you respond to your calls and your e-mails in a timely manner, things like live chat lose their importance.

Fullinwider: I’m glad to hear that. We don’t have live chat. I don’t want it. It’s a waste of time. You know, we have a lot of little old ladies, and they want to call and tell you their life history. I tolerate it and want to do this because I’m a very empathetic person. But I just don’t want to do any more of it than we’re already doing.

If I have a very difficult customer — and only I get the very, very difficult customers — I will call them myself, and if I did it by e-mail I wouldn’t win. They have to hear your voice. I want to solve their problem and win them as a customer forever despite how bad they think their situation is. I can win them over 97% of the time if I use my voice.

Great expectations

Catalog Age: In terms of meeting the expectations of the customer, are you having greater difficulty now? The Web seems to have taught customers to expect things faster.

Jordan: Yes, I was referring to the Internet customer as having far higher expectations. We’ve done online research and somewhat limited phone research, but we’ve got enough stats to know who that Internet customer is, and we’ve found that the customer is a little bit higher-income and has higher expectations, higher demands. As far as e-mail response, they want one within two hours. We can generally meet that 24 hours a day, seven days a week. Sometimes we’re a little lax on Sunday, but we try to hold to that.

We’re trying to train our personnel to handle those Internet customers a little bit differently from the phone customers. Over the last three years we’ve taken a lot of time to really help the employees out and at the same to help the customer out.

Fullinwider: It gives your salesperson or your phone person the authority to make a decision too because the training was good.

Jordan: Yes. That is the other thing. We used to get a situation where our customer would call [with a problem] and we would say, “Hold on, we have to speak to a supervisor.” We stopped that about two years ago and have given that order-taker quite a bit of leeway in terms of settling the situation on the spot.

Klaus: Except for getting back to e-mails, which is a new part of the business, I feel that catalogs were always good in getting the packages out the door if the products were in stock. I don’t think that has changed. I think many of the Internet companies did a worse job than we did. So I have not seen a real change in the customer’s expectations. Our abandonment rates have to be under 2%. That has not changed. And that’s probably better than the fly-by-night dot-coms.

Travers: I think that in terms of technology at Orvis there’s what I call the glass-house effect. Because you try to provide more complete and personal service to the customer, the customer learns more about your internal workings. I’ve had experiences where the customer wanted to know when the order was picked, when it was packaged, when it was shipped, who shipped it.

I was evaluating a service failure recently, and I realized that we need to be ready to have a customer walk through at any time and understand the situation. We need the customer to understand that we’re on the up-and-up and meeting their expectations.

Ray: When I started, it seemed that if you got the order out in a couple of days, it was really good. Now if you don’t ship it the same day you’re not in the game.

On the other hand, it absolutely astounds me how often a customer calls up and places an order at 10 in the morning, then at 4 in the afternoon they call up and want to add something to the order — or even the next day.

Goodwin: We’ve actually slowed down the order flow sometimes because of that. Quite often people will call back wanting to change something, add something. We were going back and getting boxes out of the trailers.

Sharkey: I think that as long as you’re making sure that the customer knows what to expect and you’re meeting those expectations or underpromising and overdelivering, for most of our business that’s fine. We don’t get that many requests for next-day service, even with the Internet orders.

Jordan: One of the biggest problems we’ve had is that customers on the Web don’t take the time to read [the customer service policies on] the Website. We’re baffled. Even underlined 24-point type doesn’t do it.

Goodwin: We’re considering blending some of the institutional and service information with the product copy. The customer is reading about the product, because that’s what they want.

Taylor: We do that. We have a number of products that we drop-ship, things like walkers that are oversize. We put this information on every page of the catalog, and for items that are drop-shipped, in the copy block we say that this is direct-shipped from our manufacturer so please allow four to six weeks — I usually add a week to what the vendor is telling us. We also do that on the Website.

We’ll often change the message on the product information page [on the Website] too, saying that this is backordered, for instance. We try to be as honest as we can and indicate how long it will take them to get that product. Our customer usually is willing to wait because the product is so unusual they can’t get it anywhere else.

Klaus: If you are selling a product that you can get from three or four competitors, it’s more important to get it out that day than if you’re selling a product that you can’t get anywhere else. We’re in the same boat you are. Our clothes are available only from us. If they want it, they can’t go to seven other people.

The shape of shipping

Fullinwider: If I buy a $100 dress it costs me $8 in shipping, but if I buy a $500 dress, which weighs the same, I pay $16.95 for shipping. In the food industry, the weight and cost are more tied together. If I buy one cake, it really weighs this, so it really costs this to ship it. If I put two cakes together they double the weight. This is a problem in the food industry, and I’m sure it is with a lot of hard goods too.

Travers: It gets more complex with the dimensional weight of furniture, and that’s why during the past couple of years the merchants [at Orvis] have allowed operations to take a look at the catalog and maybe consider some additional savings that might be appropriate for chairs, dressers, and things like that.

But I think trying to charge a customer actual shipping is a huge billing nightmare. We struggled with that with our b-to-b distributor-dealers. That’s complex.

Goodwin: The customer wants it simple. They want to be able to determine easily what it’s going to cost. I’ve looked at I guess Amazon’s Website, and they’ve got some convoluted way of calculating my shipping cost. It drives me nuts. [At Crutchfield] I’ve got three tiers based on dollar value, and that’s it.

Ray: A couple of years ago I responded to a news group question about shipping charges for woodworking products, and I spent about the next four days going back and forth with people trying to understand why we did it the way we did it — you know, couldn’t we just use actual shipping costs, and how would that be affected by people sending checks in and miscalculating the order value? There must’ve been a couple of hundred responses back and forth from a whole community of people concerned that mail order companies were ripping them off on shipping charges. I said, “Man, if I could even break even on shipping charges, I’d be delighted.”

The biggest thing we’ve done in the last year and a half to help our shipping costs is reduce our backorders. By far and away, handling the order one time has had a huge, huge impact despite increases from UPS and USPS and that kind of thing. One of the ways that we’ve been able to do it is that interest rates are getting so blasted low that my cost per additional inventory is minuscule compared to the benefit of not shipping that order twice.