FORBIDDEN CITY

May 01, 2001 9:30 PM  By

In traditional direct marketing, the statement ‘You will receive your order in seven to ten business days’ actually meant something to both the cataloger and the catalog customer

Once upon a time, deep within the heart of a direct marketing company, there was a mysterious walled city. Cut off from the outside world for many years, the inhabitants of this enclave toiled to meet the demands of potentates from the outer reaches of the kingdom. They strove to produce as much as they could while spending very little.

Then one day a slew of invaders breached the walls, and the Forbidden City — or order fulfillment center, as the general public called it — was never the same again. Besieged by the very merchants and customers who had ignored it for years, it was suddenly seen as a repository of vital business information. Almost overnight, fulfillment grew to be a strategic issue.

Of course, along with the glamour came a whole new set of demands. Back in the Forbidden City, operations had been simply a cost center. Then came supply chain management and execution. Fulfillment professionals created new ways to drive out cost through improved deliveries, reduced inventories, and breakthrough process improvements. They brought a fresh perspective to the view of operations by adding the inventory collage. This was a good thing, as the marketing and merchandising managers suddenly jumped right into the enigmatic puzzle of fulfillment. Operations execs wasted no time in ensuring that the “other side” clearly understood the daily issues of unscheduled deliveries, non-compliant labels and packing lists, returns, and so on. Merchandise buyers expanded their own involvement and enlisted suppliers’ efforts to support the improvement process.

This phase of fulfillment operations development will go down in history as a bigger and more unlikely victory than that won by the 1969 Miracle Mets. The extra base hits came in the form of supply chain execution, championed by high-ranking officials of the executive management team. After all, every dollar of cost not incurred blows right to the bottom line, they intoned, and reduced inventory obsolescence makes the bankers happy. And all was good in the kingdom, and the Forbidden City was now open, at least to a small group of tourists.

Overexposure

Then came e-commerce and multi-channel distribution, the most direct way to the source of all “woes,” the customer. The ray of light that was supply chain management, shining brightly to improve operations, grew in intensity to something resembling the dawn of a new summer day in Ecuador. Everything was clear now: “Fulfill or die.” In a more polite phrase, it was discovered that “He who delivers is the victor.” Fulfillment was now regarded as a way to compete — a marketing issue — and of course, everybody loves marketing, that’s where the fun is. The result was that operations now had a tremendous amount of “adult” supervision, many helping hands.

The challenge to support fulfillment in this new channel was made even more daunting by what seemed to be an endless supply of capital employed by marketers to gain — what? “Market share.” How? By making promises that fulfillment operations had to keep: Come one, come all, free shipping, next-day delivery, 24/7, 356 days, return it anywhere, anytime.

Barbarians at the gate

The evolutionary product of the freebie trend was a new species called the e-consumer. Armed with the promise of, well, basically everything, the e-consumer radically redefined fulfillment service requirements. The consumer became entrenched in the mentality of “Click and you shall receive.” This logic path not only demanded next-day delivery, but also forgave the procrastinator in us all, and changed the order curve forever. From that day forward, orders came later and later, ever closer to the last possible minute before an event or a holiday.

But it was not enough for consumers to get promised service. They wanted proof in the form of package tracking (online, of course) and process tracking (“Your order has gone to the warehouse floor, where it is now being picked, packed, and shipped”). And, not just proof, but proactive proof in the form of communication of every kind: e-mail, Web chat, phone calls, confirmation notices.

If supply chain management had shone a ray of light on the operation, then e-commerce became an X-ray exposing everything, as the customer demanded and was given unprecedented visibility into the operation.

The e-consumer’s quest to have it all saw the rise of Internet sites that rate other Internet sites. An online, ad hoc comparison of product, service, and pricing became available. A company could no longer stand defiantly behind great price or superior service. The company (your company) was forced to compete on all levels, “the whole enchilada,” “the offer.”

E-commerce also caused a change in the merchants who had so graciously assisted in streamlining the supply chain. The value of retail space was moot, and the concept of a direct marketing campaign with its limited pages, and therefore limited SKUs, fell prey to the “sale” section of the Web site. Everything was for sale, always: Darth Vader costumes in January, Easter paraphernalia in June, outdoor grills in November. Dear consumer, simply click on “Deals,” or “Overstocks” and the savings are yours for the taking; never mind that the item was put into “deep storage” three months ago.

Madder wine

All of this madness had a major impact on operations. The mania needed many remedies:

  • increased inventory to stock (no stockouts);
  • every SKU being active;
  • escalating requirements for value-added services (gift wrap, gift messaging, monogramming, personalized marketing materials);
  • real-time demand and therefore no smoothing of the demand;
  • pressure on inventory and order accuracy;
  • dramatic changes in requirements for reverse-flow logistics;
  • small/frequent orders (two to three lines per hour); and
  • more shipments to achieve the same level of revenue.

Ah, a challenge. Operations people love a challenge. So they turned to the old standby practices of process improvement, mechanization (in the form of material handling equipment), and automation (WMS — only this time on steroids).

The new challenge came with a new wrinkle. Operations managers actually had to care what the customer thought. Rather than a cost criterion like labor dollars per shipment, the customer would now determine the level of success. Each process, the application of machinery and automation, in fact technology in all its forms, had to be evaluated against a customer-defined set of standards.

To find the improvements that are demanded of today’s multi-channel operations, the process begins with the facility itself. In evaluating a facility, as in real estate and retail distribution, the key element is said to be “location, location, location.” But location in reference to what? The e-consumer is all over the nation and even the world. The closer operations are to the people who deliver products (USPS, USPS Priority Mail centers, UPS, Airborne/Airborne @ Home, DHL, Parcel Direct, CTC), the later into the wee hours of the night they can work and still get the package into their delivery stream.

Prior to the advent of e-commerce, evaluating the distribution facility layout and mechanization for retail or wholesale operations took on a textbook U-shape. Direct marketing operators knew what to consider when selecting catalog fulfillment mechanization, since the difference between shipping cases and pieces is the difference between night and day. But even the direct marketing gurus had never faced unlimited SKUs and hour-to-hour demand changes.

The salvation of the direct marketing fulfillment operation had always been the highly specific nature of the campaign, typically 48 to 64 pages or 650 to 2,500 SKUs, from which a math-oriented circulation manager provided weekly order projections that rarely varied much from plan. To a catalog operations manager, the circulation plan is a beautiful marriage of science and art; it made direct marketing operations actually work. The other fail-safe in direct marketing is that the statement “You will receive your order in seven to ten business days” actually meant something to both the cataloger and the catalog customer. That declaration falls on deaf e-consumer ears.

Magic lantern

The struggle to meet these varying demands has made flexibility as important as control. Now it’s necessary to implement multi-use material handling tools rooted in providing capacity. Fixed throughput devices become barriers to meeting peak demands. The law of averages no longer applies, as the window in which to perform the tasks at hand is now measured in hours and minutes rather than days.

The service requirements can be found in working backward from the customer to the delivery provider through to the small package sortation system. The package sortation system is used to take advantage of the direct-to-consumer delivery systems that lie at the heart of an ability to meet customers’ expectations. Sortation and manifest systems must support in-line weighing, rating, and labeling to select the lowest-cost answer from a multitude of provider offerings.

Product movement methods and shipments can no longer rely on the convenience of known demographics. The customer’s order, as it is packed, may take on many different sizes and shapes. This phenomenon was somewhat known to direct marketing fulfillment operators, but is greatly exacerbated by all SKUs being for sale and by the volatility of e-commerce demand. If picking is done directly into a shipping container, the box must be built on demand in varying sizes, to feed the animal that is capacity. If packed into, the box must be available at every station, in every size, increasing the complexity of supply and conveyance.

Monkey with a wrench

And who would have thought that the consumer cared about void fill, of all things? The only thing universally despised more than income taxes is Styrofoam peanuts. Loose fill to a consumer is one more reason to get out the vacuum cleaner or to shoo the kids upstairs so they do not eat the little white fluffy things. Today’s consumer is in tune with the environment and is seldom impressed with products that can only be destroyed by a nuclear explosion. These facts, combined with the increased requirement for speed, force us to examine new high-speed, damage-controlling methods to fill what is still just empty space. If high-speed loose fill is no longer an option, is the logical result the use of void fill, environmentally sensitive and specific to one shipment? In the e-commerce channel, something as simple as void fill can be the proverbial monkey wrench in what was once traditional layout and conveyance planning.

The WMS selection game has changed as well. It is no longer adequate to evaluate a WMS by the standard criteria of radio frequency-enabled, task-interleaving, or cycle counting. Operations must now consider the interactive nature of an update to other customer contact systems and break through the batch mentality of legacy systems that force them to accept orders to the WMS from an off-cycle process after end-of-day processing. It’s necessary to know about the orders when they’re taken, to ship them the day they are received. This kind of operation requires a WMS that is real-time in its update to CRM, manifest, and carrier systems, and that receives in-kind updates from those systems for minor tidbits of information like package tracking.

Christmas in February

The WMS functionality of waving and batching takes on a completely new meaning in the multi-channel world as well. No longer is a wave something that can be planned; it must be a reaction to demand, and it must feed capacity, like the empty stomach of the fiercest lion on the plains of Africa. Lost capacity or throughput is lost forever, and in the demands of a holiday season the losses are like snowballs, released down the mountain and turning into an avalanche headed for the unsuspecting cabin owner at the bottom. The difference is that this is an avalanche of orders with a fixed horizon for delivery (I would ask that you please join me in lobbying for the movement of Christmas Day to February 10).

Waves are now a method to squeeze every drop of throughput from an operation by continually filling available work units in the form of people or machinery with a matching level of demand (the closest thing to demand smoothing to be found in an e-commerce facility). A wave allows us to quickly select things in common, such as items, ship method, container size, or value-added service requirements. These commonalties create the opportunity to improve efficiency of processing, as in the old days when there was time to plan and implement things like volumetrics and demand slotting. Now operations must look to the WMS to handle the “everything is for sale” mess with functionality similar to the pick-it-dry days of yore, but with a twist that allows for dynamic reallocation of a pick location to handle the hundreds of daily make-no-sense buys of today’s e-commerce world.

So what if I bought it on the Web, I want to return it to your store, or vice versa. We are just beginning to understand the dynamics of reverse logistics flow. Regardless of how the company organizes itself, whether it is bricks and mail or bricks and clicks, customers demand to be viewed the way they view the operation, as one entity.

The best way to handle the returns issue, of course, is to make sure that the right stuff gets sent to the right person at the right time. After that the customer is still often fickle and just wants to return it. It’s no one’s fault, they just guessed wrong and the 32-inch waist is a bit snug.

Selecting a WMS that can integrate smoothly with customer returns processing modules of CRM systems or directly with the e-commerce site or the ERP system is a critical first step to controlling the beast that is reverse logistics. Very few activities have the potential to affect the bottom line more negatively than returns and the associated processing costs. The brightest minds in operations will study reverse logistics this decade the way they studied order picking in the 1980s.

Costume party

Perhaps it is simply evolution that has led operations to engage the customer in an intimate relationship. The once-safe city that no one cared about or dared to enter is now open to all like a Mardi Gras celebration, with no entry fee, no waiting in line, and all the candy you can catch. Perhaps it was always meant to be. One thing is certain: Operations executives no longer hold the keys to the city, and they no longer choose the measuring stick used to judge fulfillment. The customer does.

The moral is that if we wish to achieve the same level of performance in all channels that we have become accustomed to in our retail, wholesale, and catalog operations, then we must look past the standard tools and accounting-based indicators, and examine each process, machine, and system to determine its value to the customer.

Dave Eckley is president of Fulfillment Technologies (FillTek), a full-service direct-to-customer fulfillment company in Cincinnati, OH. Eckley was previously senior vice president of operations for Foster & Gallagher, Inc. He can be reached by phone at (513) 346-3100 or by e-mail at dave.eckley@filltek.com.