When you’re really hungry, there’s nothing better than a steaming hot plate of chicken parmesan gently placed on a bed of sumptuous tossed fettuccine smothered in tomato and basil sauce made from scratch. When it comes to the direct-to-customer logistics of an Italian specialty food producer’s new e-tailing venture, however, a ready-made fulfillment operation is the order of the day.
Barillaworld is the Internet venture of Barilla Net, itself a spin-off of Barilla Alimentare S.p.A, headquartered in Parma, Italy. Barilla Alimentare recently joined the ranks of Internet grocers competing for the business of the relatively small number of customers who have embraced the Internet ordering concept. Barilla outsourced distribution to Liberty Corner, NJ-based csiDirect, a third-party logistics provider (3PL), which allows it to tap into an existing customer base, infrastructure, and fleet of delivery vehicles. Fueled by ambition and greed for market share, e-tailers who started their own distribution networks are finding themselves without capital. Many ghosts haunt the “If we build it they will come” business model.
Too many chefs, not enough hats
Webvan, one of the most ambitious Internet retailers, recently filed for bankruptcy court protection. Webvan found out the hard way that starting a distribution network from scratch does not necessarily make sound business sense. The ingredients are expensive and hard to come by, prep time is long, and your funds can run out before you’re ready to dish out the goods to your customers. Webvan committed a large portion of venture capital to large, automated hub-and-spoke distribution centers (DCs) and fleets of delivery trucks for servicing large-scale delivery routes. Delivery runs had to be at least 60% to 70% of capacity for the company to approach the break-even point, which they never did. Most other Internet grocers have committed themselves to the “last mile”–or physical delivery of product–in a race to capture the lion’s share of the market. By choosing not to use existing distribution networks, Internet last-mile grocers are leaving no room to scale back if projected orders don’t materialize during the first year of operation.
Dishing it out
On the other hand, Barilla has some breathing room, because the company has retained the services of CS Integrated LLC (CSI [www.csicold.com]), a provider of temperature-controlled supply chain logistics. Barilla Net’s goal is to capture the entire U.S. market for Italian specialty food, including consumers and small businesses. Not many authentic Italian specialty food manufacturers have the critical mass or brand name clout to compete in America with Barilla, and Barilla seeks to capitalize on this huge market opportunity.
csiDirect, CSI’s fulfillment program, serves as the B-to-C and B-to-B distribution vehicle for manufacturers like Barilla that aim to ship relatively small volumes to different market segments through the same distribution channel. csiDirect’s low-delivery-density model (designed for reduced delivery size and increased frequency of delivery) is particularly well-suited for new product introductions and start-ups, as well as for foreign manufacturers that require broad coverage of low volumes.
The csiDirect model used for Barillaworld utilizes only one ground carrier that can provide second-day delivery of multi-temperature products to 90% of the U.S. population. Additionally, csiDirect routes deliveries from only three DCs strategically located in the eastern, central, and western areas of the country. Also, csiDirect predicts that using this model will allow whole new generations of products to be introduced quickly enough that conserving a product’s shelf life will become a problem of the past for manufacturers.
Barilla is now buying more Italian product lines that it can distribute through its new U.S. channel. Barilla’s perishable products already include deli meats and some dressings, and in the not-too-distant future, the company plans to introduce other temperature-sensitive food products, including entrées and fresh pastas. Through its connection with CSI, csiDirect provides reliable delivery of temperature-sensitive items.
Barilla Net is currently running csiDirect through its paces in a six-month pilot project to market Barilla’s Italian specialty foods to csiDirect’s existing U.S. network. Though the pilot is focused on B-to-C home deliveries, Barilla will focus as much on the American consumer as it does on the country’s restaurants and delis when the project goes live by the beginning of 2002. Based on current projections, the program will ultimately have a product offering of roughly 400—500 SKUs, with csiDirect handling 20,000 orders per week.
Barillaworld will offer customers free shipping and a liberal returns policy, in line with csiDirect’s emphasis on the execution of logistics rather than electronics. csiDirect’s challenge will be to provide Barilla with cost-effective and fluid delivery execution. To meet that challenge, csiDirect is investing in various technologies such as advanced order management systems. Currently, Barillaworld customers are ordering through the Barilla Web interface linked with csiDirect’s advanced order management system. Upon conclusion of the pilot project, csiDirect will have created a complete Web interface for both order management and advanced order management.
The delivery guy pays you
The Barilla—csiDirect partnership will offer both companies continually reduced operating costs and new revenue streams. The more Barilla customers order, the better for both companies. Because Barilla completely outsources its logistics to csiDirect, it has no capital invested in costly infrastructure, delivery capacity, or transportation fleets. Furthermore, Barilla can capitalize on csiDirect’s investments and any of the company’s productivity improvements. Barilla can continually target pre-qualified leads through csiDirect’s expanding delivery routes, and Barilla’s shipping costs will go down as csiDirect’s program expands. Also, through Barilla’s program, csiDirect will have easy access to a consumer and small-business customer base from which it can derive new revenue. The same customers who order from Barilla might be interested in the products of other csiDirect customers.
Internet grocers are competing for the business of the relatively small number of customers who have embraced the Internet ordering concept. The problem with the field-of-dreams business model is that not enough customers are coming. By joining forces with a 3PL, Barilla is positioned to capture the entire U.S. market of Italian specialty food consumers and small businesses. The idea of adding ready-made logistics services to the mix before launching an e-tailing venture is as fresh as the Barilla foods coming soon to a home or restaurant near you.
Kevin Hume is director of consulting services at eSYNC International, a provider of consulting and systems integration services for the supply chain. He can be contacted by phone at (831) 722-0402 or by e-mail at email@example.com.