Lessons from last Avoiding online fulfillment snafus this holiday season As the 20th-century philosopher George Santayana said, those who do not learn from the mistakes of the past are doomed to repeat them. And with the holiday shopping season about to kick in, many marketers that were burned by online-related fulfillment snafus are determined to get it right this year.
Looking back on last year’s problems – clogged fulfillment streams, out-of-stock merchandise, late or even undelivered holiday orders, and disappointed customers – companies such as Toys `R’ Us and KBkids.com are confident that they’ve learned some hard lessons.
Woodcliff, NJ-based Toys `R’ Us, whose difficulties in shipping gifts in time for Christmas garnered plenty of media attention, has quadrupled its fulfillment space, opening new facilities in Ontario, CA, and Chambersburg, PA. Including its Memphis, TN, distribution center, Toys `R’ Us’s online division has about 2 million sq. ft. of fulfillment capacity, compared to about 500,000 sq. ft. of space last year. Toys `R’ Us also installed a new operating system, Allaire Corp’s ColdFusion, which according to Mike Blancone, vice president of logistics for Toys `R’ Us, can handle three times the server traffic as last year.
Working out of former apparel and gifts cataloger Genesis Direct’s distribution center in Memphis, Toys `R’ Us last year learned how different fulfilling apparel is from fulfilling toys. Product storage, for instance, proved to be a huge issue, Blancone says. For example, a bin that was able to hold 50 shirts might be able to store only three Sony PlayStation II consoles, slowing down the picking and packing process.
For its part, KBkids.com is banking that taking its fulfillment inhouse will allow it to avoid problems, says chief operating officer Michael Wagner. Last season, KBkids.com outsourced its fulfillment to Hanover, PA-based third-party provider Keystone Fulfillment Services, a subsidiary of multititle cataloger Hanover Direct. But when you use a third party, you lose some control over the fulfillment process, contends Wagner, who also believes KBkids.com lost valuable time. The toy company batch-loaded the orders every night to send to Keystone’s facility for fulfillment. “But with our new facility, the orders can go directly to the warehouse for shipment,” he says.
KBkids.com is spending $4 million-$5 million to convert a 300,000-sq.-ft. facility in Danville, KY, formerly owned by its $1.8 billion retail parent, KB Toys, into its own fulfillment center. KBkids.com will have a core staff of 50-75 workers, but during peak holiday season, the company will employ about 400 workers in the Danville facility, Wagner says.
Of course, bringing fulfillment inhouse is no panacea, any more than using a third-party fulfillment means orders must be batch-loaded only once a day. Taking fulfillment inhouse poses its own challenges, namely giving up operations expertise and experience. What’s more, opening a new facility ain’t cheap. On top of rent or lease payments, equipping the distribution center with racking and other gear can cost tens of millions of dollars. And don’t forget the need to hire staff.
“The natural evolution of a third-party relationship is that customers feel that after they have enough learning under their belt and that they’ve mastered the basics of their launch, they want to try their hand at doing order fulfillment and order management themselves, believing there are efficiencies and flexibility to be gained,” says Frank DiMaria, president of Keystone Internet Services, a division of Keystone Fulfillment.
Experience is the best teacher Virtual companies and start-ups still have a lot to learn about the direct marketing business – and not just about the back end, says consultant Bill Kuipers of Haskell, NJ-based Spaide Kuipers & Co. Take inventory forecasting and adapting to spikes in demand: “Most catalogers are not as likely to get caught by the online sales spike because the catalog model itself is based on forecasting and fulfillment, and that’s something these Internet retailers have yet to master,” he says.
Still, even some of the experienced, well-capitalized multichannel marketers have had problems adapting to the Web. When $1.1 billion multititle cataloger/retailer Williams-Sonoma went live with its flagship brand’s Website in November 1999, it figured its brand name would attract shoppers. And in fact, within two months, the company had raked in an estimated $8 million online. But the San Francisco-based kitchenware company overestimated its inventory needs, leaving it with post-holiday overstocks.
“Williams-Sonoma wanted to take absolutely no chances in being out of stock for Web shoppers,” says Kevin Silverman, managing director at Chicago-based investment bank ABN-AMRO. Since 1999 was Williams-Sonoma’s first year on the Web, this holiday season it will improve its forecast for spikes in Web sales, which typically follow catalog drops, he says.
In concert with the August online launch of PotteryBarn.com, Williams-Sonoma is converting one of its two giant Memphis distribution centers from retail to what the company calls “direct,” which is the catalog and Internet businesses. Both Memphis facilities will be part of the direct division; the retail distribution center is now in Mississippi.
While you’ve most likely addressed any holiday- or online-related operational issues you may have had, Kuipers notes that there are still lessons you can learn from the above examples.
First, if or when you move or convert your distribution center, make sure it’s fully equipped to handle your product. This may seen like common sense, but it’s where the problems at Toys `R’ Us began.
Second, hold weekly strategy meetings with different departments, such as marketing, operations, and inventory, to strategize about holiday and nip any potential problems in the bud. “Not planning is the number-one sin of operations,” Kuipers says.
Third, make sure that your customer service reps (CSRs) are well informed about your business, your products, and your marketing channels – particularly the Web. A helpful, informed CSR can go a long way toward salvaging a sale or a customer relationship should problems arise in the height of the holiday madness.
Finally, bear in mind that the Federal Trade Commission is likely to watch the industry closely this year for service problems. The FTC in July fined several online retailers – including Toys `R’ Us and KBkids.com – for not sufficiently warning customers last holiday that merchandise would be shipped late.