talking heads

ANDREW TRAVERS, Dir. of Operations, The Orvis Co., Manchester, VT

From an operations perspective, the Web channel is treated as an enhancement to our already established direct-to-consumer catalog channel. Our Web site interfaces nicely with our order entry and inventory management system, and eventually, our distribution operation. Web customer orders are grouped with similar kinds of catalog orders for efficient handling through our system. I do believe that the Web customer interface has created a “glass house” effect, where customers are now able to get closer to the operation and see into how efficiently their orders are processed. This additional customer influence has helped us to focus on reducing order dwell time.

IRWIN LANGER, Dir. of Operations, Gardener’s Supply Co., Burlington, VT

Gardener’s Supply has had a Web site since 1995, and we’ve seen our business shift in numerous ways. From the operational perspective, the impacts on the customer contact center and inventory control have been some of the most dramatic. The Internet as an ordering mode now represents 20%-25% of our orders, while creating a whole new set of service options and benchmarks.

The complexity of demand forecasting has also increased. When the Internet was 5% of sales the demand was covered by the expected “forecast variances.” Now that it’s grown, we need to plan better for the mode. The more dynamic and interactive nature of the Internet has created the need for additional tools beyond the “static” catalog response curves. On the flip side, clearance pages and push e-mails have been an effective way to move long inventory.

DAVID HOCHBERG, VP, Public Affairs, Lillian Vernon Corp., Rye, NY

Selling online has lowered costs for our company. Since fewer phone representatives are needed to take phone orders, and there is a diminished need for order entry of mail orders, our administrative expenses are lower. For customer service inquiries, we encourage our customers to use e-mail, which has a lower transactional cost than the telephone or mail. The Web also gives us more flexibility in scheduling staff.

GEORGE EAMMON, President, Into the Wind Inc., Boulder, CO

Sales have increased overall; we’ve seen moderate growth in sales in the last few years and a fairly large shift to our Web site. You can take those two realities and draw conclusions. Business has switched to the Web, or we would have been way down if we hadn’t created new business on the Web — I have no way of telling which of those two is true.

BOBBIE GOLDSTEIN, President, Country Casual, Gaithersburg, MD

I think the Web has given people a chance to see what the catalog is actually like. Even if people do go and look at the site and it’s pretty complete, they still are requesting the catalog, but they basically have an idea of what they’re getting into. We’ve had people who have ordered and they haven’t had a catalog. They’ve just gone on the Web site and given the order over the phone. It’s not that many people, but it has helped with exposure.

DARYL BUNN, Pres./Founder, Winright’s, Jacksonville, FL

If you don’t have a Web presence, it is an indication of your company. I personally buy a lot over the Web, and I am surprised that other people I ask don’t, but they’re certainly going there to get information. I would say any company that doesn’t have a Web site is making a grave error simply because of name presence. The first piece [of art] that we sold was through our Web site. One of our artists was invited to participate in a show in Beijing, China. The only way they could have found out about him was through the Web.

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Talking Heads

The smart company lays out strategic planning in a way that’s visible to everyone: For example, if we do this, X will happen, if we don’t, Y will happen. The three important things are volume, retained earnings, and overhead. Your planning also has to account for the positive — you may need 25 extra people. Your date and volume are milestone targets. You’d better be prepared for everything below them. If everyone knows that if the volume drops below a certain level, they’re going to lose 42 positions, it’s not going to be a shock; in fact, they’re preparing for it. Visible planning ties the vital signs of the company to behavior in a self-regulating way. It doesn’t require a chainsaw CEO to come hacking away after the fact. In my work, construction, death on the job is not a matter of if, but when. So, the one-word answer is, plan. What would you rather spend your time doing — bandaging the wounded or avoiding the battle?

Steve Harris
Senior Vice President
Bread Loaf Corporation
Middlebury, VT


You have to have a strategic plan in place for contingencies, and whether or not something happens to disrupt your business. That could be an actual call-down list, a roll-call list of the people you feel are the most important in your organization to take care of each department and will enable your communications and your continuity. Make sure you have an emergency reaction team ready to go at a moment’s notice, people who know their responsibilities and their duties if something happens. Make sure you have a standard operating procedure for anything that could happen. Understand where you would get backup data if you lost data. If you lost machines, where is your stockpile of spare machines? Will you be able to use those machines and put them back into work? You also have to have people trained on those old machines as well. Have a plan in place to be able to move to an alternate location in case your location has been disrupted.

M. Christopher Herrera
Manager
Arthur Andersen, LLP
New York, NY


You’d have to define the crisis. Is the crisis a further economic deterioration? We’ve addressed that by managing the business conservatively.

If I knew the economy was going to go further in the dump, I probably wouldn’t be hiring to the extent that we are today or investing in many areas with a longer-term payback. We’re cautiously optimistic; we’re investing that way in terms of growing our business, and we’re protecting ourselves from the downside, we hope, by taking a pretty conservative approach to it.

A year ago we might have been branded as foolish to take this approach, not aggressive enough and really missing out on the supposed rewriting of all the business rules that was going on.

One of our core values is prosperity, and when customers invest in an enterprise software company product, they’re really placing their jobs on the line betting that the company’s going to be around. We feel a commitment to our customers not to bet the company, so to speak, and put the company at risk.

Chris Heim, CEO
HighJump Software
Eden Prairie, MN


Basically, we’d just make sure that we had enough inventory in the pipeline so if something were to happen to the plant where we produce it, then we would be covered for our customers’ orders. We are making candy, so truthfully, in a crisis, it probably is not the most important product. Beyond just making sure that we have inventory located in different areas in the case if something were to happen to one of the locations, I’m sure that Kraft, being such a large company, has backup plans to move production from one facility to another at a moment’s notice.

Stephanie Liebowitz
Product Supply Planner, Confections
Kraft Foods
East Hanover, NJ

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talking heads

The emperor has no clothes! The “secret” is out in the open. The Internet is at a crossroads. It is readily apparent that there is very little future for e-commerce growth. The Internet is regressing to its roots — a source of information and communication.

Unfortunately for many of us, the e-commerce business is in retrenchment. For the short term, a few players will survive, but a majority of pure-play companies and the companies that support them will be gone. The industry will be supported by a few players who will stagger along until a major technological breakthrough makes e-commerce relevant again. I do believe that within this decade a device will be developed that makes Internet usage as common as television usage. Whatever this device is, it must be cheap and easy to use. The Internet is neither. I would encourage all companies to wait to take the plunge into e-commerce until this new thing, whatever it is, comes to light.
Mark DeChambeau, Principal
DeChambeau & Associates, Inc.
Boston, MA


I think they’ll live. It won’t be as it was in their glory days, but they’ll come back in a quieter way. I hope they do — I love shopping online. But the ones who survive will be those who deliver on their promises.
Diane Williams, Director of Marketing
Envision Telephony, Inc.
Seattle, WA

It’s all about being multichannel — J. Crew, Wal-Mart, Target, and Sears started out slowly on the Web, but now they’re huge. It is a significant goal of multichannel retailers to move sales to the channels with the least cost.
David Towers
VP, E-commerce Operations
J. Crew, New York, NY


I see a shift toward the Web and away from catalog sales. I think it’s going to be a gradual shift until retailers can figure out how to migrate customers from catalogs to the Web without significantly impacting sales. Listen to the customer. Move at her speed. A retailer who moved too fast had a 20% drop in sales in both its catalog and Web channels.
Daniel Korn, Executive VP
Neiman Marcus Online
Irving, TX


I think people will continue to proceed cautiously to find out who their online customers are — catalog and brick-and-mortar set the tone. People who succeed will do so because they are consistent and appropriate in this new medium.
David Lauren
Chief Creative and Marketing Officer
Ralph Lauren Media/Polo.com
New York, NY


Some companies realize that they have partners that do IT infrastructure better, quicker, and faster than they can. We can get economies of scale that they can’t. When companies had lower Web sales, inefficiency didn’t matter, but with Web sales of $200 million, the outsourcing of certain business functions — optimizing R&D — would make sense for individual companies. The Internet is fundamentally a global business; maturity is coming to the Web.
Michael Carrier
Chief Technology Officer
Totality, San Francisco, CA


Recognized and trusted brands that employ a multichannel retail strategy will continue to see significant growth in e-commerce. The key is to provide convenience, choice, service, and fast, accurate fulfillment — present the customer with a seamless branding and shopping experience.
Susan Harvey
Senior VP/Managing Director
bloomingdales.com
New York, NY

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Talking Heads

I believe the future of the catalog industry is straight up — I think it will continue to grow. There is no question that the Web has enhanced the catalog industry. It generates more business for catalogers.
Richard Freeborn
VP, Sales
QuickPak
Lafayette, IN

I would say that the smart catalogers will continue to adapt and exploit the capabilities of the Internet. It’s a great way to reach new customers and it’s cheaper than mailing a book. The future is going to be in multichannel purchases — Amazon is mailing catalogs to customers who go online to purchase. Most of the stuff we see in retail is multichannel.
Dahn A. Johnson
Account Executive
Fairrington
Hodgkins, IL

The future of the industry will be to use individual channels to increase sales in all of the other channels. The catalog industry is an integral part of multichannel sales. The Web helps enhance the sales of catalogs. I don’t see the catalog going away.
Ned Shannon
Vice President, Direct E-Commerce
Shop2u.com
Fairfax, VA

I think that catalogs will play an increasingly important role in a multichannel marketer’s communications mix. I think catalogers will continue to improve targeting to reduce the number of mailings. No one wants to ship catalogs to people who don’t want them. It’s good business to reduce the number of catalogs — over 90% of people who receive catalogs don’t use them. In some cases, that is simply a more efficient use of prospecting.
Andy Russell
President and CEO
AGA Catalog Marketing & Design
New York, NY

To process orders online costs 30% less than mail-in orders and 50% less than phone-in orders. Web orders are more efficient. Also, the demographics are affluent people or young people. Companies like Amazon.com and SmarterKids.com that used to be pure-play are sending out catalogs. They’re not saying they are catalogers, they’re saying sending a catalog is a way to advertise.

They all see catalogs as a channel. The channels are converging. Years ago, you had companies like J.Crew that used to be catalogers; now they have retail stores. Being able to acquire the customer is the future. The best marketer will win.
Igor Gorin
CEO
Ecofabric
San Francisco, CA

We’re definitely driving toward more Web-based business. This year, with the downturn in the economy, we’re scaling back our mailings and sending more e-mails. I see that probably continuing into the future, because the Web is a convenient medium.

The other challenges facing the industry right now are shipping, fulfillment costs, and getting products to customers in a timely fashion. The whole postal service situation is going to be a challenge the industry faces over the next couple of years until the postal service gets back in the black.
Jeff Carter
Warehouse Manager
Sundance Catalog Company
Salt Lake City, UT

I don’t think that the paper catalog will ever go away. Catalogers will have the opportunity to learn more about customer preferences: “Don’t send me a catalog, only God can send me a tree.”

We may want to look at our customers’ preferences. How do they want to buy from us? How do we meet that need? You may choose to drop fewer catalogs over time. There is no doubt that the online channel will continue to grow, but I don’t believe the catalog business will ever go away.
Jill M. Leigh
President
Initiatives Three, Inc.
Portland, ME

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Talking Heads

Has the current economic slowdown affected your business?

It has certainly affected our business. As the economy and the electronics industry go, so go the custom manufacturers such as ourselves. As demand drops off for products from our major customers, our manufacturing requirements are reduced. A lot of our manufacturing goes across country borders. So a slowdown here, a slowdown in Europe, a slowdown in Asia — they’re all intertwined. It’s a supply and demand issue, and demand has dropped off overall.
James D. Molzon
VP, Global Logistics
Solectron Corporation
San Jose, CA


Certainly, my department has not seen a decrease at all. We sell sex. Our average order size is up. There is no change in the dollar amount per order, at $50. We made a decision to reduce prospecting — we’ve reduced mailings. This has increased our profitability.
John Laures
Cross-Sell Manager
PHE, Inc.
Hillsborough, NC


For one thing, you have a “normalization,” not an economic slowdown. It is a flushing out of the fluff of products — only the true “rocks” are going to stay. What we’re seeing is because there is competition among companies that use the Internet to sell to consumers, they’re looking for innovative and new approaches to e-commerce. This includes impulse buying through a very media-rich environment — eDISC provides this, taking away the limitations and restrictions the Internet companies have. When the rain goes through and the “rocks” are left, you’re going to see the best of each class of e-commerce products standing there.
Stephen B. Joyner
Director of Business Development
eDISC Systems, Inc.
Fern Park, FL


It’s been great for us. With the economy going the way it is, people are looking to outsource.
Joe Blasingame
Manager of Client Services
Returns Online
Covington, GA


Very little. We’re still focusing on our values and letting our customers drive our services. We’re still growing at 20% to 25% a year.
Joel Acay
Director, Call Center
Great American Business Products
Houston, TX


Payment processing is one of those segments that has been affected by the recent economic downturn. However, one of the benefits of our technology is that we are converting customers to newer, more efficient payment processing technology and not trying to sell a totally new concept.
Danielle Kruft
Director, Marketing
Paymentplus, Inc.
Reston, VA


Our business has been down. A lot of important projects have been put on hold, and people are deferring major investments. But we’re fortunate in that the supply chain business is somewhat recession-proof. We’re getting many clients in Asia, and some companies have had a good second quarter, so things are slowly turning around.
Michael C. Dempsey
Principal
eSync International
Chicago, IL


GFF: We would have grown faster in the last year or so had we not had the loss of some pure-plays to contend with. Actually, we said no to eight out of ten pure-plays.

We’d rather work with clients who have a multichannel proposition. Brick-and-mortar retailers know in aggregate what their buyers do. Catalogers know that at a different level. It turns out that cannibalization was the fear of the unknown.

DH: We took some bets on some companies that we thought were unusually well-funded and had a good business plan. As a result, we’ve emerged relatively unscathed.
G. Fred Forsyth
President/CEO
NewRoads
Greenwich, CT
David Himes
Sr. VP, Technology Solutions
NewRoads
Burke, VA

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talking heads

“How do you measure warehouse productivity?” The ultimate measurements I would use for a distribution center would be units – cartons or pieces, for instance – shipped per labor hour. That would be the same for direct labor, indirect labor, or direct and indirect labor together. If you want an overall glimpse of warehouse productivity, that encompasses it all. And the principle is the same whether the warehouse or DC is automated or manual.

In fact, the principle doesn’t change when you look at more specific areas. In receiving you would still measure productivity by the units processed per labor hour; in picking it would probably be lines (which is just short for SKU line) or SKUs processed per hour. As you know, picking usually accounts for between one-half and 65% of all labor. Ideally you would see a report in which figures were independently expressed for each of these areas.

What’s happened in the last ten years is that the average number of pieces per order has decreased, that is, the orders are smaller, which is pretty much what you’d expect as a result of the increase in Internet orders and automation.

A large number of operations may still be surprisingly manual, but I think what’s going to happen is that 3PLs will continue to be manual for a while but then they’ll switch to automation. Third-party providers have become more necessary because of the need for e-commerce fulfillment. When 3PLs have established clients who are willing to sign long-term contracts, they’ll be able to automate because then they’ll have the funds to do it. Who wants to spend a lot of cash on automating when your clients could walk away tomorrow? Alan Fisk W & H. Systems Inc. Carlstadt, NJ

Basically, we just count everything everybody does. We’re distributors of videotapes. We use pick sheets and time is recorded for those automatically. A picker logs in with a pick sheet, and the computer knows how many lines there are on that sheet and starts a clock. Then when the picker is done, he logs in again and the computer records that. That’s how we track picking productivity. We have an IT department that developed that program in-house.

For order packing, we know how many boxes a packer packs – that’s one of the areas where we allow workers to record their time manually. We know they can fudge the figures somewhat, but that’s just one of the areas for which we haven’t gotten around to developing an automated measurement program.

It’s the same in receiving: We keep track of how many lines a receiver does per day. If one person is doing 600 lines a day and one is doing 1,500 lines a day, then it’s clear we have a problem. That kind of difference generally only occurs when someone new is learning how to do the job. Then we can show them the difference in productivity and help them figure out how to work more efficiently. Randy Warfel Fulfillment Center Manager Library Video Company Wynnewood, PA

Well, in my view, productivity and measurement are independent. To measure productivity, first of all you have to have in place a set of well-defined processes. Then you need to know a reasonable rate for those processes, a benchmark, if you will.

Once you have those factors in place and defined, then you need to teach people to do the work correctly in order to understand and to meet those standards. In other words, you need to do what it takes to enable people with help – on-the-job coaching, for instance.

Then you can set up measurement and data capture systems that actually allow you to measure productivity accurately. It’s probably true that you’d have to have a certain number of people in a warehouse to make an automated measurement solution practical – maybe as many as 30 or 40. Don Hutchinson Supply Chain Practice Leader KPMG Darien, CT

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talking heads

“What is the top fulfillment concern or challenge that e-merchants face?”

I think e-merchants’ biggest challenge is to develop their priorities. For a while, they were just looking for what’s going to be the next big application in e-fulfillment. This past year I think people in the industry have cooled off, and they’re being more methodical about implementing new technologies, partly because they’re unsure about what the next big application will be. Whereas in the past, companies have jumped ahead with developing applications just to get out there, the cost of that effort to be twelve months ahead of the competition can be astronomical.

At least initially, we have found that we’re better off presenting a standard scenario to clients. For instance, we have so many ways of doing postage and handling tables now that when we send out a questionnaire the customers sometimes don’t know what to do with it.

There will be an economic downturn – nature has a way of thinning the herd – but the e-commerce channel will continue to grow. Volume in January 1999 was bigger than in December 1998, and bigger again in January 2000 than in December 1999. Value-priced products are fairly recession-proof. Luxury products may take a hit, but we will continue to see people buying online, and I expect growth will continue in two digits in this medium.

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talking heads

“What is the top fulfillment concern or challenge that e-merchants face?”

We don’t look at e-commerce as an industry, we look at it as a sales channel. That means that it is direct-to-customer, but has to be supported by other sales channels. I think the top fulfillment challenge is whether the infrastructure is strong enough. A more general area of concern is whether customers are actually going to come to the Web.

Another challenge that’s specific to fulfillment is whether the customer is going to be supported sufficiently. A year ago merchants looked first to their Web sites; now they’re wiser to the fulfillment possibilities, and customers are going to continue to force companies to pay attention.

To build these hugely elaborate systems and not have the customers visit does not bode well for shareholder value.

I think we’re going to see a general change from spending for line automation to making sure the processes are efficient. You can do a lot of shipping out the door if you have good processes.

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talking heads

“Has the recent downturn in Internet stocks affected your business?”

I don’t believe we’ve been affected at all, to tell the truth. We see no signs of any change. We’re implementing our Internet strategy, and it’s going according to plan. The Williams-Sonoma site is doing well, the bridal site is doing well, and we have a Pottery Barn bridal site that’s going live in August. That’s all on schedule.

I think it’s affecting the dot-coms, more because of analysts’ concerns and perhaps from customer concerns. The question in the consumers’ minds is likely about the brand. They feel better about a brand they already know and trust, like Williams-Sonoma. That’s probably an advantage the brick-and-mortar companies share. Jerry Owens, Senior VP, Distribution Williams-Sonoma

You mean, has all that depressing information we’ve been hearing had any impact?

Maybe there has been some change, not because of tech companies being overvalued and hyped, but because people have explored the Internet and they are aware of what it offers and satisfied with the level of technology, so they’re not upgrading their equipment. They’re willing to let it be right now. So we can turn the question around and say that the momentum has changed, it is slower than it was a few months ago, and the result is a devaluation of tech companies, which affects us as computer suppliers in turn.

Right now the big brick-and-mortar guys are in the best position: They’re going to clear away the dead bodies, settle the land, and reap the benefits from the pure-plays that didn’t make it. Wes Sumida, CEO Cyberguys!

I haven’t seen any direct effects, although I’m sure there has been some fulfillment business that hasn’t taken place. The stock market downturn has been a reasonable shakedown for businesses that didn’t have any business being in business.

We’re not a big company and we don’t want to be – we’ve just got a 30,000-sq.-ft. warehouse. We made the decision early on to be cautious about e-commerce, and I’m glad. Give me bricks and mortar any time. Barry Lyon, President Yourfulfillmentcenter.com

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