Operations and Management: The Back End Comes to the Forefront

Apr 15, 2003 9:30 PM  By

In 1983, Reagan was in the White House, Dallas was on the TV, Michael Jackson’s “Billie Jean” was on the turntable, and mail order was still mail order. By most estimates, more than 85% of catalog orders came through the mail. And because few expected instant gratification, catalog customers were willing to wait weeks for their order to be delivered.

Flash-forward 20 years and you’ll find that the operations side of the catalog business has undergone more changes than, well, Michael Jackson’s face. Today about 48% of catalog orders come in via telephone and only 16% through the mail, according to the 2003 Catalog Age Benchmark Report on Operations. Moreover, about 24% of all catalog orders come via the Internet — which for all intents and purposes did not exist 20 years ago.

And whereas three weeks was the typical time frame for fulfillment in 1983, in 2003 three days is closer to the norm. And many catalog customers want their orders delivered even faster.

So what does all this mean for catalog operations? The pessimist’s view is that customers are demanding increasingly faster service, which employees in the contact and distribution centers are hard-pressed to provide.

The optimist’s view, however, is that because marketers in today’s multichannel environment rely so heavily on the speediness and efficiency of their operations infrastructure and systems, they have finally come to realize the importance of the back end. Or as Ron Eike, the longtime director of operations for food cataloger Omaha Steaks, jokes, “Operations used to be the stepchild of an organization. Now we are a bona fide family member.”

Operations in the 1980s

In the 1980s fulfillment was regarded as “a necessary appendage” of the catalog business, says Framingham, MA-based operations consultant Wayne Teres. “With the exception of L.L. Bean and a few others, timeliness and excellence were practiced by few.”

The back end was considered a cost center, not a profit center, Teres says. And few fulfillment centers had technology or automation; materials-handling equipment, such as forklift trucks and conveyors, were not widely used.

At Omaha Steaks, “when orders primarily came in on an order blank in the mail, we would get them processed within 48 hours, and then shipments would take up to 10-15 days to delivery,” Eike recalls. “Cycle time from placing an order in the mailbox to receiving the order ran up to three weeks.” And this from a marketer of frozen meats.

Today, “we process orders the same day, and we deliver anywhere in the U.S. within three to five days,” Eike says. “We’ve come a long way, but that’s the customer expectation today. It’s all about service.”

Omaha Steaks’ has poured $7 million during the past seven years into its Omaha, NE, distribution center. The company invested not only in computer systems but also in conveyors, package sorting equipment, improved packing stations, and narrow isle racking, all to deliver product faster to the customer.

The advent of the PC and information technology was the watershed moment for catalog operations, says Curt Barry, president of Richmond, VA-based operations consultancy F. Curtis Barry & Co. Before the PC, mailers relied on a mainframe, or as Barry says, “a big box in the backroom that printed out picking tickets.”

Back-end technology is so pervasive today that without it even the most resourceful operations executive would find it tough to perform basic warehouse tasks. Processes such as receiving, stocking, and picking, which once took days, now take just hours. High-speed online product sortation allows for more picking options for orders encompassing multiple product lines. Scanners make possible the barcode verification of product, location, and tracking of labor, while radio frequency (RF) technology transmits scanned data instantaneously.

21st-century ops

Sophisticated software has aimed the power of the computer at ever-more specialized uses. Catalog management system (CMS) and warehouse management system (WMS) software packages (see “Systems Now and Then,” page 32) offer hundreds of functions and reports tailored to the needs of mailers. These systems enable catalogers to expand from regional markets to national and international ones. And with vendor-supported CMS and WMS packages, companies need not have programmers on staff.

Other advancements followed. “The United Parcel Service and FedEx did a lot to help catalogers with the tracking of packages in the mid-’80s,” says Don Libey, president of Philadelphia-based investment bank Libey-Concordia. Catalogers then started to purchase shipping sorters, such as the TAN data scales — an early manifesting system — which allowed catalogers to choose the cheapest route to ship an order.

To speed up delivery further, some marketers (primarily in business-to-business) have opened regional distribution centers. For instance, Waukegan, IL-based corrugated containers and shipping supplies cataloger Uline offers next-day delivery thanks to its regional distribution centers in Lake Bluff, IL; Minneapolis (opened in 1990); Los Angeles (1993); Newark, NJ (1998); and Dallas (2003).

With mailers squeezed to save time and money, making space a commodity, warehouses became a lot smarter. Layouts allowed for maximum pick efficiency and minimum travel time, while mezzanines let mailers add another partial floor to a bursting-at-the-seams facility. Flexibility for warehouse expansion has become key to avoid getting landlocked by a building’s design.

The power of the Web

Many operations experts credit the Internet, more than anything else, with shedding new light on the previously dark distribution side of the business. Mailers realized that the back end could be a competitive advantage, particularly when many of the dot-com pure-plays failed to deliver the goods. During holiday 1999, especially, online marketers such as Toysrus.com and KBkids.com angered customers by being unable to fulfill orders in time for Christmas.

“If you couldn’t provide the level of service, your customer shopped elsewhere,” Eike says. “Catalog operations became the lifeblood of the organization.”

In general, excluding outbound freight, operations expenses run to 8%-12% of sales, according to consultant Barry. And as technology has become more sophisticated, catalogers should be making more extensive capital investments in their back-end infrastructure, information technology, and distribution centers.

The catalog operations sector has indeed come a long way. In fact, a handful of operations executives have started to find their way into the boardrooms and are now leaders in their own right. What will the next 20 years bring? One can’t say for sure, but it’s a safe bet that customers’ service expectations will continue to rise, and that catalogers will continue striving to meet those expectations.