CHANNEL YOUR POWER

Nov 01, 2000 10:30 PM  By

Managing multiple fulfillment avenues calls for a flawless performance. Get the choreography right with these steps from seven successful merchants

Remember when the Web was touted as the only way to order everything, from auto accessories to clothing to groceries? That belief has gone the way of most others about the Internet. As many merchants have figured out at great cost, the truth is that people like to shop in a number of different ways. They see a product in a paper catalog, call a customer service representative on the phone, and buy the product over the Web. Or they order an item at a retail store and take delivery at home. Merchants are weaving these channels together to reach buyers any time and anywhere, and some marketers are learning that one of the best assets for selling online is an off-line store.

The Borders book chain, for instance, is expanding its in-store kiosk operations and developing its Web site. The nearly 300 Borders stores are linked to the company’s fulfillment center in Tennessee. Starting next year, the stores will be fitted with a kiosk system called Title Sleuth, which enables customers to check Borders’ inventory for titles they don’t find in the store and to place orders. “Over the last nine months, more companies are recognizing that this dual strategy is prudent,” says Steve McAlexander, Borders’ vice president of logistics.

Same but different Multi-channel marketing means that the customer, product, and order identifications are the same in all sales outlets, allowing the marketing of a single brand across several channels. A customer who sees an item in a paper catalog can enter the product or SKU number on the merchant’s Web site and place an order. Back-end applications – including customer relationship and order management, inventory, returns, and logistics – are integrated into the merged sets of data.

Borders is managing integration with a front-end proprietary software system developed by IBM that feeds into a warehouse management system from Catalyst. Borders put the systems design into operation with help from IBM and Catalyst contractors, but most of the work was handled in-house, McAlexander says. “You have to keep as much in-house as possible. When you need expertise, you get outside help. The most difficult part was developing interfaces between the systems.”

The companies most successful at doing this are traditional catalogers. The merging of catalog and Web businesses is most common, since product handling and order processing take place the same way, says Jeff Kline, president of Kline Management Consulting. Adding retail to the mix, however, is another matter. Case quantities bound for retail stores are handled in one way, and individual direct mail orders in another. The two require different equipment and warehouse layouts, Kline says. “In retail, you’re buying a container from Europe and distributing it to the stores the day after it’s received. The goods go from one truck to another instead of being warehoused. In the catalog business, you’re buying based on a forecast and storing goods until customers order them. Then you’re sending them out one at a time.”

Despite these differences, women’s apparel retailer Talbots fills catalog, Web, and retail orders from a 760,000-sq.-ft. distribution center in Lakeville, MA. Catalog and retail operations have shared space since the company’s founding in the late 1940s, says Bruce Soderholm, senior vice president of operations. All shipments are received in a joint receiving department at the center of the warehouse, although direct mail and retail merchandise have separate purchasing orders. Direct mail shipments are sent to one end of the building and retail to the other.

Talbots introduced its catalog and opened its first telemarketing center in 1948 at company headquarters in Hingham, MA. A second telemarketing center opened in 1989 in Knoxville, TN. The Web site, started last year, is simply an extension of the catalog operation, Soderholm says. Although it’s hard work for Talbots to remain integrated as the company expands, the strategy has paid off, he adds. “We’ve always done things from the customer’s perspective. And we want Talbots to look like one company.”

Talbots offers the same merchandise and services online as it does in its stores and catalogs. Pricing and returns policies are identical for direct mail and retail. That means, for example, that even though an item is selling well in a store, it is marked down if the catalog price is reduced, Soderholm says. Direct mail shoppers can return purchases at any Talbots store or the distribution center. Talbots’ famous red phone is where the catalog and brick-and-mortar stores interlock. Shoppers who don’t find what they’re looking for in a Talbots retail store can pick up the red phone and order the merchandise through the catalog. The order is sent to the customer’s home postpaid.

Spending spree Channel integration can cost millions of dollars, depending on where you start and what your company’s needs are. For instance, Future Shop, a Canadian consumer electronics retailer, recently invested a hefty $60 million in new Internet infrastructure to support its stores and expand online operations. With their lack of easy interfaces, older systems are like closed worlds, says Jay Fisher, vice president of software development for SVI Retail Inc., a developer of multichannel retail software. “Most new Web systems are designed to be more open and to interface with different systems.”

The J. Jill Group Inc., whose fortune has been in catalog fashion, has turned to e-commerce and retail outlets, with plans to open stores in malls across the United States. Like Talbots, J. Jill aims to market one brand across all three channels. The women’s apparel marketer went online late last year and has opened seven stores so far. By the end of 2001, up to 65 retail stores are scheduled to be in operation, says Randy Dow, vice president of information systems.

J. Jill’s distribution center in New Hampshire handles catalog, Web, and retail merchandise. Storage and fulfillment procedures have been adjusted to handle retail orders, and employees are being trained in the new methods. Instead of hiring additional staff, the company is depending on more automation and process changes to increase productivity. Linking the front end with the back makes the process easier, too, Dow says. “We manage our retail and direct marketing as separate businesses, but use a single distribution system. That way, we don’t have redundant systems.”

J. Jill uses CommercialWare’s Mozart software for call center management and order processing; PkMS, developed by Manhattan Associates, handles order fulfillment. When the company opened its Web site, an E-Mozart front-end feed system was added. J. Jill is integrating information systems for its retail stores with existing infrastructure.

“Although processing, planning, and fulfillment are different for retail stores than they are for catalog and Web businesses, we want to minimize the impact of our new strategy on our infrastructure,” Dow explains. “We want to be able to use the same financial, order processing, and fulfillment systems we have now.” He adds that J.Jill has acquired an allocation and planning system for retail inventory analysis. Each store is to receive a new point-of-sale system for merchandising, planning, analysis, and store allocations. The system is linked to the distribution center and corporate headquarters.

Like Borders and Talbots, J. Jill offers a way for shoppers at their brick-and-mortar stores to check inventory at the distribution center and place orders. A concierge desk at every J. Jill store is equipped with online real-time inventory data. Shoppers who don’t find what they want in the store can have a salesperson check the inventory. If the item is in stock, it is ordered and shipped to the customer’s home.

Singles barred Merging sales channels carries risks more complicated than logistics snafus. Ernie Schell, president of Marketing Systems Analysis Inc., notes that retail, catalog, and Internet operations are like foreign countries with their own distinct cultures. The cataloger’s world revolves around seasons driven by offers and promotions. The operating environment is defined by predictable life cycles, merchandise forecasts, and backorders.

In e-business, backorders may not be acceptable, and the hot pick on the Web may be a lemon in the catalog. Brick-and-mortar stores deal with limited retail space, and what sells in one neighborhood may not work in another. Extensive personalization is possible on the Web. But when an item sells out in a store, you may not restock it, and you don’t have to deal with backorders.

Will Foster, founder and president of Connectrix Systems, designed for the branded apparel industry, says the greatest obstacle to multichannel retailing is that channels are often operated in separate divisions overseen by different management. But companies are integrating their systems to a greater extent. At The Sharper Image, for instance, a single merchandising department selects products for the retail stores, catalog, and Web site. The same merchandise is marketed across all three channels, and the company’s main distribution centers handle both direct mail and retail fulfillment. “There is economy in being able to allocate inventory between stores and direct mail,” says Greg Alexander, senior vice president of management information systems for The Sharper Image. “If we’re selling more of an item in stores than in the catalog, we can shift goods at a moment’s notice. Press a couple of keys on the computer, and it’s done. Our channels talk to one another. It’s really a single system.”

Foster, who believes brand management is the element that ties everything together, developed Connectrix’s Integrated Brand Management System, which captures all basic information about the product early in the process; leads the brand’s organization through the process of building product lines; captures the various segments of the brand’s lines that will be marketed through wholesale, retail, catalog and Internet channels; and manages changes to product lines, communicating the changes to the rest of the organization.

Companies are beginning to find economic benefits and opportunities for better customer service in multichannel marketing. The trend will continue to move toward combined facilities and single management, Kline predicts, although bringing complex systems together takes time. “I don’t think we’re there yet,” Kline adds. “But if we’ve learned one thing, we’ve learned that it’s going to be difficult for anyone to be successful in a single channel. It’s unnatural.”

For Peter Kasabov, the challenge of business-to-business systems integration lies in dealing with companies equipped with 20-year-old infrastructure as well as those with Internet-age technology.

“Things need to happen almost instantly,” says Kasabov, president and COO of Connextions.net, an e-commerce outsourcer based in Orlando, FL. “It used to be okay to work on a project for a year or two. Now people are looking for completion almost overnight. Time-to-market is crucial. And companies want not only warehouse capabilities but also information management skill.”

When Mercedes-Benz U.S.A., located in Montvale, NJ, wanted to upgrade its inventory control and order processing systems, the company contacted Connextions.net.

“We had a lot of backorders. We didn’t have a good feel for what our demand was, because our reporting was so slow,” says Glenn Rizzo, Mercedes’ personal automotive accessories product manager. “We also needed to make our pick, pack, and ship operation more efficient and improve delivery times and packing.”

Mercedes required real-time inventory reporting, Web access to all reports, and inventory tracking for its customers, Rizzo adds. Connextions.net built a system linking Mercedes’ print catalog, Web site, internal customer care operations, and nationwide retail dealers’ network. The operations are tied to Connextions.net’s Web-enabled fulfillment center in Orlando.

Connextions.net uses Open Orders software for all receiving, inventory, and order processing. The company created a front-end interface to support Mercedes’ e-commerce customer service and customer relationship management. The interface allows integration with the Open Orders warehouse management and order fulfillment systems, says Kasabov.

With access now to real-time data on order status and inventory, Mercedes dealers and consumers are able to confirm the status of their orders by phone, on the Web site, and through interactive voice response or live online chat. At the back end, Connextions.net helped the accessories division improve its picking and packing with the use of bar codes, Kasabov says.

Adds Rizzo, “Our retailers have easy access to their Web-based reports and are able to track their orders immediately. They can also obtain other reports to see what is out of stock and order the products right away. That has made a significant impact on their business.”

In 1932, Ole Kirk Christiansen, master carpenter and joiner in the village of Billund, Denmark, began making stepladders, ironing boards, and wooden toys. The company and its products took the name “Lego” from the Danish words leg godt, which in English means “play well.” Since then, Lego Company’s work force has grown from six or seven employees to about 10,000 in 50 organizations located in 30 nations. Kjeld Kirk Kristiansen, the third generation, is president and chief executive officer of the firm, now one of the largest toy manufacturers in the world.

Lego Systems Inc., the Americas division of Lego, is located on a 203-acre campus in Enfield, CT, the site of Lego’s United States headquarters. Mogens Jessen, senior vice president of Supply Chain Americas, oversees manufacturing, distribution, and order fulfillment, among other functions. Eric Elman, who reports to Jessen, is director of Lego Direct Fulfillment Americas, a division formed a year ago to manage the company’s catalog and online businesses.

Lego has run its Shop at Home catalog business for about 20 years and began taking orders on its Web site, www.lego.com, this fall. Online, phone, and e-mail orders are received at the Lego call center in Enfield, and order processing is handled by a MAX host system linked to PkMS warehouse management software.

Expanding the company’s direct-to-consumer business is a priority at Lego’s corporate headquarters in Denmark, Elman says. A new 100,000-sq.-ft. fulfillment center, to be located on the Enfield campus, is scheduled for completion during the third quarter of 2001. The $6.5 million building is designed to support Lego’s direct business in the United States and Canada and to manage up to 2,000 SKUs. Lego’s current fulfillment operation, which has 700 SKUs, is housed in a 27,000-sq.-ft. leased facility in East Windsor, CT. The entire East Windsor operation, including 16 employees, will be transferred to the new building.

Jessen says Lego plans to keep the retail and direct mail fulfillment operations in separate buildings because of the different warehouse operations they require. The toys offered on the Web site will also be different from the product lines in brick-and-mortar stores, with the idea being to offer products not available in the latter rather than to compete with retailers. An example is Lego’s new Mosaic. A customer can send a photo to Lego to be digitized in black and white. Lego will send the customer black, white, and gray building bricks to use to recreate the photo in a picture measuring 18 inches square. “We want to avoid the channel between retail and the consumer,” Jessen explains. “We can’t compete with big retailers, so we’re offering something mass-customized.”

Jessen believes in prudent growth and advance planning in case customer orders surge. The direct fulfillment center ships roughly 2,000 orders daily; that number could jump to 20,000 during peak periods, Elman estimates.

“We could be killed by success,” says Jessen. “We could get so many orders that we’re not able to support the market. We’re doing everything we can to avoid that by investing in our facility and building in opportunities to go beyond forecasts.”

Jessen’s group is working closely with the marketing unit to manage fluctuating order volumes. “We plan to support a certain fulfillment number daily, and we have a pick-up plan if we exceed that number. We have a very good reputation with consumers and the retail market. We can’t afford to lose that.”

Jessen and Elman keep a global perspective, too, since Supply Chain Americas is a component of the company’s Global Supply Chain division. The direct fulfillment group has assembled a team of people from the United States and abroad to build a global fulfillment platform by 2001. “The goal is to set up an operational infrastructure that serves as the core of our global business,” Elman explains. “We won’t modify it for different markets, but it will be adaptable to local regulations and other conditions. It offers tremendous economies of scale from an operational, management, financial, and support standpoint.”

1) Do you know the volume of an eight-stud Lego brick?

2) What is the tolerance of accuracy at the Lego mold factories?

3) How many different ways are there to combine six eight-stud bricks of the same color?

4) How many Mini figures have been molded, decorated, and assembled since they first came on the market in 1978?

1) 4.9152 cubic centimeters (9.6 x 32 x 16 millimeters). 2) Thousandths of a millimeter.

3) 102,981,500. Or you can fit together three eight-stud bricks of the same color in 1,060 ways. Two eight-stud bricks, still the same color, fit together in 24 ways.

4) 2.3 billion.

ERIC ELMAN, director of Lego Direct Fulfillment Americas, says that his experience working in various supply chain departments at Lego’s corporate headquarters in Denmark has helped him gain an international perspective and cultivate relationships with management. “If you’re going to work globally, it involves a lot more than picking up the phone and telling someone something,” Elman says. “The ability to do that in an effective manner has a great deal to do with better cooperation across the world.”

Lego traffic manager JULIE BIANCHI oversees a staff of nine people responsible for delivering Lego products to retailers and the Lego direct fulfillment center. “A large portion of what my department does is make sure the customer’s requirements are met, and not only in terms of the carrier. We look at all the things we can control here, including labeling and the way we convey information, so that if there’s a problem, we can get back to our customer.”

MOGENS JESSEN, senior vice president of Lego’s Supply Chain Americas, has been with the company for 25 years, 17 of which have been in the United States in logistics and manufacturing. While overseeing manufacturing and distribution in the Americas, Jessen never loses sight of the global aspect of Lego direct fulfillment. He is a member of the Leadership Team for Global Supply Chain within Lego and a member of the Steering Committee for Lego Direct Fulfillment globally.