Multichannel system challenges - Multichannel Merchant

You’re the CIO of a multichannel company and responsible for the following: a retail merchandising and planning system that runs on IBM’s iSeries processor and a DB2/400 relational database; a new planning and forecasting system with an Oracle database and a Windows front end that is used by the Internet and catalog buyers; a direct channel order management and fulfillment system written internally for the iSeries; and the company’s Website, its point-of-sale system, and a host of other applications that occupy dozens of open-platform processors in the server farm.

From the perspective of the users across different departments, information is siloed by channel. They’re trying to work with systems, databases, and files that don’t “talk” to each other. At the same time, the direct merchants complain that the store replenishments and the wholesale customers “steal” the company’s best-sellers. The users wonder how many systems they are supposed to maintain for item SKU numbers and descriptions, tax tables, and shipping and handling tables before the IT folks come up with a single point of maintenance.

Management is adding pressure as well. In several months your business will launch an updated Internet strategy and Website. The division heads want to know how much faster you can implement new systems. And your CEO has given you a month to come up with some answers.

While the scenario sounds chaotic, it describes life today in many multichannel IT departments. You can, however, take steps to bring order to your current IT environment and to appear as one company, not merely a collection of disparate channels, to customers.

COMPOUNDING A COMPLEX SITUATION

Consumers and businesses can now spend their dollars in an ever-expanding number of channels. Adding to the complexity, many merchants serve both consumer and business customers. Examples include West Marine, a cataloger/retailer of marine boating and fishing supplies, and Dick Blick, a merchant of art supplies.

Customers want a consistent and uniform shopping and service experience across all channels. They expect your business to speak with a single voice when it comes to customer service, policies, and item pricing. Yet that often doesn’t happen. At one major office supply chain, the item pricing varies widely. And in any given week, one of America’s largest PC and server companies issues endless offerings of coupons and promotions. These mixed messages can confuse and irritate customers, who see you as a single company, not as silos of independent channels and systems.

What’s more, with the growing popularity of the Internet, customers have come to expect “point, click, and deliver” service. In fact, 50% or more of direct channel orders now ship the same day they were placed. Many customers also want self-serve functions for ordering and for tracking their orders as well as for refunds, credits, and other inquiries. When returns are necessary, customers want a quick and easy way to get the item back to you and obtain their exchange or credit, no matter which channel they initially shopped. At the same time, the customer contact center has become the hub for assisting the customer with inquiries and Internet sales as well as phone orders.

An emerging cross-channel application is the in-store pickup of orders placed via phone or the Internet. Among the companies that offer in-store pickup are Circuit City, Best Buy, Lowe’s, and Sears. To provide this service, merchants must determine how best to reserve store inventory when orders are received, how to accurately pick and hold the products until the customer retrieves them, and how to document the transaction. They also must decide who gets credit for the sale and how to track the customer within its marketing files.

Along with making purchases across channels, customers increasingly want to make cross-channel returns. Carriers and service providers such as FedEx, Newgistics, and United Parcel Service have implemented software services to generate postage-paid labels customers can use to easily make returns and to ease the pickup of returns regardless of channel. The labels contain information on the order and the customer, facilitating the processing of the returned items even before the product is received in the fulfillment center.

To illustrate the complexity of the logistics network that multichannel companies with stores must manage and control, consider the following:

On the inbound logistics side, products can arrive from both domestic and offshore vendors, consolidated from multiple vendors, and for many specialty retail chains, in direct-to-store shipments.
Within the warehouse, some products are cross-docked to stores, while others are cross-docked directly to warehouse floor pack stations to immediately fill catalog and Internet backorders.
When it comes to outbound logistics, they have to ship goods to both domestic and international customers for catalog and Internet orders. Some shipments to direct customers require consolidation and zone skipping, while shipments to the stores go via small, common carriers or their own trucks.
In establishing reverse logistics processes, multichannel merchants must plan for returns from individual customers, consolidated aggregated returns, returns-to-vendor (RTV) from their warehouses, and the seasonal return of merchandise from stores to warehouse.
To support store operations, multichannel merchants must take into account “store sends” of in-store customer purchases, store-purchased merchandise shipped out of its warehouses, and interstore transfers.
Multichannel merchants with multiple warehouses must work through such logistics issues as warehouse-to-warehouse transfers and vendor receipts. More-sophisticated multi-warehouse operations are receiving vendor shipments at the facilities closest to the vendor and then distributing the inventory to their other warehouses and stores.

THINKING IT THROUGH

Given the numerous factors to consider when determining how best to fill direct orders while also supporting a wholesale division or stores, you need to deliberately think through the business processes that you should put in place to ensure the most efficient means of serving all your channels. Only then should you select or develop the systems to support the processes.

Most warehouses use common or pooled inventory, in which channels draw on the same inventory. Common inventory systems require less space in the distribution center. But different channels can end up competing for top-selling products. When inventories become low, it is difficult to guarantee an order until it’s picked.

Another fulfillment method that’s becoming commonplace is known as virtual inventory. While the physical inventory itself is shared among channels in the same bin or slot locations, allocators from the inventory control department allocate or hold portions of the inventory for each channel. This prevents wholesale or retail orders from “stealing” merchandise from direct channels. For this to work, however, the inventory system must be able to hold virtual-inventory quantities by channel. A virtual-inventory capability is made possible by setting up multiple warehouse systems while pointing the physical inventory back to the same stock location. In this way, you keep channels from contending for the same inventory.

Pendleton Woolen Mills, a merchant of quality woolen blankets, apparel, and home decor, is a case in point. Pendleton is a wholesaler to specialty and department stores, a supplier to its own 45 stores, and a direct marketer through its catalog and Internet channels.

If a customer orders directly and is looking for items that are not available within Pendleton’s catalog and Web inventory, the company’s fulfillment application automatically checks whether the items are available in any of its stores. To do this, the virtual-warehouse system receives data daily showing aggregated inventory levels across the stores. If a product is available from a store, the system books the order just as it would if the item were coming from the regular warehouse inventory. If an item is on backorder, the system checks if it’s on a purchase order, assigns it to the appropriate virtual warehouse, and generates a pick ticket that goes to the store in the network where the inventory resides. It is shipped out the same day. The entire process is invisible to the online user.

With its integrated approach, Pendleton is able to fill incremental direct customer orders without carrying higher levels of inventory, which would increase costs. At the same time, by better meeting their needs, Pendleton is creating many high-value, loyal customers that shop multiple channels.

No matter what system is in place, when it is necessary to move inventory between channels, businesses have to be nimble. There is always the danger that inventory management will fail to make products available to the channel that needs them, potentially increasing liquidation or markdown expenses. The companies that are most effective in managing inventory have channel managers who are flexible and take into account open purchase orders and when product will be available.

BEST-OF-BREED VS. ENTERPRISE-WIDE SYSTEMS

Pendleton’s system uses best-of-breed applications that were developed cooperatively. These include MarketLive’s Internet platform; CWDirect, CWIntegrate, and CWLocate from CommercialWare; and Retail Pro’s point-of-sale (POS) system.

Best-of-breed systems are designed specifically for an application or industry niche. The alternatives are enterprise-wide systems, generalized applications that cut across company functions.

Vendors offering best-of-breed applications for direct channels, such as order management and warehouse management systems, include CommercialWare, Dydacomp, Ecometry, and Natural Solutions. Best-of-breed names in logistics and warehouse management for retail and direct businesses include High Jump Software, Manhattan Associates, and Red Prairie. In POS and retail merchandising, vendors include Island Pacific, JDA, and NSB Group. Note: This is not meant to be a complete vendor listing; the industry includes dozens of other providers.

A best-of-breed approach requires integrating market-leading systems from various software vendors. This typically offers superior performance within each function, but integrating the systems can be a complex undertaking. Custom programming, which usually is expensive and inflexible, typically is used to move data between systems. But two newer methods of integration — application integration solutions (also called integration layer software) and service oriented architecture (SOA) standards — are changing that.

Application integration solutions allow for interfaces between widely different information systems with far less effort than conventional interface programming. They also offer more flexibility in changing in-file data fields and process functions.

Many providers of integration layer software have sprung up, including Bostech and CommercialWare. For example, one of our clients is using CommercialWare’s CWIntegrate to integrate JDA’s MMS retail merchandising system, CommercialWare’s CWDirect, and Manhattan Associates’ WMW warehouse management system.

To understand the adoption of SOA standards, envision three levels. The first level is used by the customer or by workers within specific departments and includes the Web, POS, the contact center, store-level systems (such as a gift registry), and hand-held devices.

The second level opens up orders, pricing, payments, customers, returns, and the like to other applications or services. When designed to these standards, each application makes its user interface available to other applications. This is accomplished through Java, Hyper Text Transfer Protocal (HTTP), Simple Object Access Protocol (SOAP), Web Services Description Language (WSDL), or Universal Description, Discovery, and Integration (UDDI). These services reside typically on the Web or an intranet.

The third level houses the application systems: catalog, contact center, warehouse management, inventory, marketing, merchandising, logistics, accounting, etc. SOA standards will make the IT applications of the future much more flexible and give them a longer life. Most software vendors are starting to adopt these standards.

Vendors of enterprise-wide systems include PeopleSoft and SAP. For the most part, their heritage has been in manufacturing and distribution. Their approach has been to serve a wide number of industries, and their direct functions usually are less specialized.

Recently the lines between best-of-breed and enterprise-wide systems have become increasingly blurred due to mergers between companies. For example, retail POS and systems vendor Datavantage has acquired CommercialWare, while Golden Gate Capital owns Ecometry, the Internet platform Blue Martini, and ADS POS. Island Pacific, a retail industry leader, acquired Page-Digital (Synaro), a direct order management software business. Manhattan & Associates, which sells warehouse management systems, acquired Progistics, a provider of integrated manifesting systems, and Evant, a supplier of inventory planning applications for retail and direct marketers.

In addition to these pairings, other application providers for both direct and retail marketers are rapidly changing direction to serve multichannel businesses.

Despite all the action by these and other solutions providers, it’s important to remember that many of the direct-to-customer systems now in use were internally developed. This puts pressure on the IT departments in multichannel companies to provide innovative approaches to serving their customers. Because every company and its channels are different, IT departments need to define and gather user requirements before deciding whether to purchase a commercially available system or design their own.

As has been the case with the Internet and other technology, the needs of today’s multichannel businesses will change quickly — in some cases, even before the next-generation solution has been designed and put in place. As a result, the solutions implemented need to be able to accommodate changes as they occur.

THE IT STRATEGIC PLAN

Before you go any further, you need to develop an IT plan in conjunction with your company’s strategic plan. As part of the strategic plan, management should perform an operational assessment of how well all departments are serving the customer and how well the current systems are supporting the departments to achieve their objectives. What opportunities exist for improving customer service? Are there areas for cost reduction? What are the systems requirements, keeping in mind the following channels and functions:

Internet
Campaign management and pricing
Marketing and CRM systems
Customer contact center
Merchandise planning and forecasting
Fulfillment center
IT

In determining the steps to take, you want to assess whether your systems, processes, and policies appear to the customer to operate as a single company or as disjointed operations. You also want to evaluate strengths and weaknesses, as well as threats from competitors and opportunities.

The IT strategic plan should have three components: a development plan, a schedule, and an implementation plan that comes into play when new applications and services come online. The IT department should update it for management quarterly.

The IT development plan should address how best to provide functionality at the macro level:

What existing applications will remain in place?
Which applications should be upgraded?
What new commercial systems are in this space?
What new internal development will be required?
What new outside services will be required?
Realistically, how much integration is needed and in what period of time?

Multichannel and cross-channel systems and operations add complexity to your business. You need to step back and look at the changes that would best serve the customer and the user departments. Application integration solutions and SOA standards are two ways to add flexibility and integration to your systems across channels. And the IT strategic plan, in concert with your strategic plan, is critical to setting systems development and application acquisition priorities.

Curt Barry is president of F. Curtis Barry & Co. (www.fcbco.com), a Richmond, VA-based consultancy specializing in multichannel contact center, fulfillment, and systems strategies. He is also one of the speakers lined up for MCM Live, a two-day educational event presented by Multichannel Merchant, scheduled for June 1-2 in New York and Oct. 5-6 in San Francisco. For more information visit www.mcmlive.com.

Definitions, please

In this article, the “direct channel” includes catalogs, Internet, solo mailers, insert media, home shopping, and selling parties (such as those used by Tupperware and Pampered Chef). While the wholesale channel technically is another type of business, many companies use direct order management systems, with some modifications, to sell into the wholesale channel.

An “integrated system” passes data between different information systems and across applications, online or in batch mode, to reduce the redundancy of input and duplication of files and, in turn, to have consistent information among systems. For instance, item files often are needed in the direct order entry, customer service, inventory control, forecasting, and warehouse management systems. An integration objective might be a single point of control for all past, current, and future offers and for all products.

We use “uniform” to describe the desired customer experience. As a starting point, customers prefer common pricing, services, shipping and handling tables, and Website screens.
— CB

Multichannel Systems Requirements, High-Level Functions

The system requirements for today’s multichannel businesses run into hundreds of pages. Following are some key requirements to consider. This list illustrates the complexity of internally developing or acquiring commercially available multichannel systems and the necessity of integration. When you review the list of potential functions, you’ll want to consider which ones are most critical to your business and fit into your company’s strategic plan. The first step is defining the requirements of your operations.

Merchandise planning for the direct, retail, and Internet channels, each of which uses widely different processes. The system also needs to supply a view of the inventory required, across channels and promotions, and the timing of receipts required by item or by SKU to support the planned offers.
A daily or weekly inventory forecasting system by item/SKU across channels and promotions. This should include an overall view of merchandise demand, returns and net sales forecasted, and inventory requirements and potential overstocks for one week forward.
An online supply chain with electronic purchase orders to manufacturers; advanced shipping notifications, and tracking of inbound freight via freight carriers or manufacturers’ systems.
Campaign management and offer pricing for all channels and offers.
Online, real-time integration of the Website to the business systems.
Online, real-time customer self-service on the Web for orders, returns, and inquiries.
Integrated order processing, credit-card authorization, and online inventory control for direct, Web, and store levels.
Combined operational data-bases to answer inquiries and complaints arising in the direct channel, and in the longer term, all channels.
Combined marketing databases for direct channels that identify prospects, buyers, and their channels of use and purchases, as well as the ability to segment and define specialized promotions to buyers and requesters.
Order processing through the warehouse from all channels. The same order processing system and warehouse will need to handle the small-quantity orders from the direct channel, which typically consist of fewer than four units, as well as the larger orders from the wholesale and direct-to-retail larger store replenishments, which typically are full case or pallet.
An inventory system that dedicates inventory to different channels through the predistribution of purchase order quantities and available inventory with logical virtual inventory or warehouses. The system also needs common physical inventory in the DC to eliminate contention between channels for best-sellers and reduce the warehouse space required.
In companies with multiple distribution centers, order processing from the distribution facility nearest the customer, and required inventory merchandise planning and balancing between centers.
Cross-channel functions, such as direct orders picked and shipped directly to the customer from stores or store pickup of orders placed via phone or Internet.
Drop-shipment of customer orders from manufacturers and distributors, as well as online systems to transmit the orders to dozens of vendors and receive ship confirmation, order status reporting. and invoicing back to the direct marketer’s order processing and customer service systems.
Integration to outbound freight carrier and customer service systems to track shipments.
Reverse logistics services for processing returns from customers.
A single-point control system for all the systems, which eliminates the need to maintain hundreds of multiple files and databases for item masters, shipping and handling tables, product description, and vendor files, among others.
Integration to third-party services such as credit processors and marketing service bureaus.
Integration to best-of-breed applications such as inventory forecasting, financial reporting, and retail merchandising systems.
The ability to work with any internally developed and commercial solutions, which often have widely different languages, databases, and hardware platforms.
— CB