Four Key Logistics Goals

On the inbound side, shaving several weeks off receiving can save some of the backorder costs and reduce loss of customers. This is where a potential problem with global sourcing lies. Most direct marketers are unable to reorder except in large quantities. Receipts are generally not planned in multiple shipments because of the minimum purchases required.

Increases in supply chain efficiency can reduce inventory levels and out-of-stocks. Take the radio frequency identification (RFID) used at Wal-Mart. Wal-Mart’s use of RFID is early in its implementation, but results are already impressive. According to Linda Dillman, Wal-Mart’s chief information officer, using RFID has reduced out-of-stock merchandise by 16% at participating stores while improving customer service during the past 12 months. The concentration has been in higher-priced, faster-moving product. Additionally, Dillman says, the company can restock RFID-tagged items three times faster than nontagged items.

Getting efficient inbound logistics systems and vendor compliance in place is the first priority. While RFID is in the future for most companies, others need to implement solutions that optimize supply chain efficiency today.

3) Increased sales
How can inbound and outbound logistics and transportation help a retailer’s sales? Several opportunities exist for improving service, and those in turn can be used to marketing’s advantage. Look at inbound and outbound freight as separate operations with separate requirements. Bundle the volumes wherever possible with your carriers, but recognize the differences between the channels.

With direct promotions and advertised retail product, maintaining on-time and in-stock position is a must. Without an available, reliable source of merchandise, you could end up losing sales and customers. Because it’s difficult to project sales, you need to get product quickly and safely into the logistics pipeline. Product damage from inbound transportation can seriously reduce product availability, and of course without product you can sell, profits decline.

Begin by tracking what you have coming inbound--where it is and when it will be delivered. Import and assemble containers of priority product, since delivery by air freight is costly and may exceed the margin of low-priced product. Be aware that direct channels are subject to the Federal Trade Commission’s 30/60 day rule: Direct marketers must notify customers of a possible delay in receiving and, as a result, outbound shipment, or cancel their orders entirely. (A note of clairification: The 30-day promise to deliver begins after take the consumer's order. If you tell the consumer their order is backordered for two weeks, the thirty days start from the backordered date. At the end of the thirty days, you're required to send the customer notice. If you reach the 60-day point you have to notify the customer the order is still backordered.) In addition, warehouses are increasingly becoming the “back room” for specialty store operations in the multichannel environment. If you don’t have product that can be moved quickly into a retail outlet, you can miss the sale.

As companies become leaner, transportation becomes even more important to meeting sales goals. Plus, there’s a difference between merchandising stores and catalog promotions. Retail customers may substitute another product for what they originally came in to purchase, but catalog and Internet customers are less likely to accept substitutes. That’s why many catalogs adopt charge-backs for late delivery, backorders incurred, and substituted product.

The logistics of delivering to the customer can hurt sales if the customer’s expectations are not met--for example, if a gift is delivered late or arrives damaged. If the customer doesn’t want the product that arrives, returns increase the cost of operation.

Conversely, logistics can factor into a company’s marketing plan if transportation costs are under control. According to BizRate Research, 79% of e-commerce companies were planning to offer free shipping and handling during the past holiday season. Free shipping has proven to increase sales and average order sizes. Most marketers don’t want to give up this source of revenue, though, or they offer it only to their best customers or higher-average order buyers. If your company’s transportation costs are out of control, you’re going to be less willing to offer shipping promotions.

4) Building relationships
True two-way collaboration between retailer and carrier is key to the success of logistics execution. Measures of success are total cost, time in transit, and responsiveness of the carrier representative.

The single-carrier vs. multicarrier philosophy is one of the primary issues you need to address with regard to carrier relations. Using one carrier allows a higher aggregate volume of shipments, which can result in lower negotiated rates. The downside is total dependence on the carrier and possible problems if there is a carrier service interruption.

A good relationship with your carrier representative is vital. Inevitably there will be issues that must be addressed. Trust and a positive attitude can influence how those issues are resolved.

Use a structured approach to comparing carriers. When soliciting bids, give carriers as much information about your business requirements as possible. Throughout the bidding process, and later when working with carrier partners, follow these guidelines:

• Stay involved with the process.
• Verify results and reports.
• Audit bills.
• Consider the total costs of transportation in your analysis and reviews.
• Keep options open and treat carrier contracts and relationships as dynamic and evolving — not like a fixed three-year arrangement.

In direct businesses, the purchasing and inventory control departments are responsible for analyzing inventory requirements, purchasing and purchase-order writing, receipt planning, vendor communication, routing deliveries, improving backorders, and coordinating required receipts to prevent backorders and stock-outs. They are generally good partners with fulfillment in enforcing vendor compliance. In multichannel and multiwarehouse operations, the purchasing and inventory control departments have the prime responsibility to balance or level inventory between channels, warehouses and stores to optimize sales and profitability.

Systems implications abound for integrating partner systems, implementing supply chain improvements, and managing necessary IT resources. Hundreds of vendors sell software systems to streamline the supply and logistics process — an indication of the complex requirements for controlling the management of logistics. Many IT vendors deal with market niches, while others deal more generally with logistics overall. Among the functions addressed by these vendors are

• manifesting and rate shopping plus integrated load and yard management
• inbound transportation management and freight auditing
• ASN/electronic data interchange (EDI)
• inbound and outbound product tracking
• transportation procurement.
• purchase order management
• transportation planning and execution and routing guide management
• carrier management
• enterprise-wide approach to supply chain.

The IT department is the hub of managing and controlling your company’s information resources. It’s important to investigate current state-of-the-art systems and invest in those that will add value to your operation. Curt Barry is president of Richmond, VA-based consultancy F. Curtis Barry & Company www.fcbco.com Jose Li is retail industry manager for Memphis-based FedEx Corporate Services http://retail.fedex.com

Read Part III, Using Logistics to Win in a Multichannel Retail World: Transportation and Logistics Solutions