The biggest challenge currently facing e-business is how to fulfil
consumer orders and still make a profit. Christopher Field looks at
supply chain management
Dotcoms beware: traditional retailers are catching up with you.
According to Jupiter Communications, "Dotcom players maintain a
narrow majority of 51% market share of online retail spending.
However, they are under threat from traditional retailers."
The main reason why traditional retailers are catching up is
clear - they are better at managing and operating supply chains.
Years of investment in systems have seen many of them achieve the
near-impossible - cutting costs to the bone while introducing
processes that ensure the shelves are always full of the right
stuff.
Part of the reason they are catching up is that dotcoms have
been so lousy at fulfilment. Dotcoms have not capitalised on being
first on the scene. Once heavy demand over Christmas 1999 hit, many
deliveries didn't even make it before 1 January and some didn't
make it at all. An ECsoft survey, among many others, found that
"one in three online Christmas present buyers did not receive their
purchases in time for the big day; half described the experience as
poor, with one vowing never to try again.
And even where goods were delivered, most dotcoms were still
having to spend more than they received. It was once calculated
Amazon spent $40 to fulfil a $20 book order.
The dotcoms are getting better at fulfilment, with millions of
dollars of investors' money to spend, but they will have to get a
lot better, particularly now that real market forces have arrived,
forcing players with no clear differentiator to play that old
losing card, cutting prices.
Dotcoms are also going to have to improve because consumers
online are even more demanding than on the high street - they
expect a purchase transaction to be quick and simple and for the
goods to turn up within 48 hours or less.
Thecomplexity needed to meet this demand is bewildering and the
surfeit of technologycompanies saying, "Buy this package -
everything you need is inside," are travelling hopefully.
As Steve Raymond, chief technology officer of one of the more
popular packages, Interworld, says: "It requires accurate sales
forecasting, increased integration with shipping hubs, real-time
integration with back-end systems and call centres, real-time
tracking and scheduling, invoice reconciliation and performance
management."
Paul MacGregor, director of enterprise solutions at ECsoft,
neatly describes the front-end/back-end mismatch as "putting
lipstick on a pig".
The rules for turning the pig into a cheetah are deceptively
simple and form the consensus of 153 companies with an interest in
this area in the UK alone. You should:
n Integrate all new channels with current logistics, if they
exist, or build both ends at the same time with full
integration
n Integrate systems so that both processes and attendant data
are linked from the customer, through the supply chain and back to
the customer
- Match the proposedinfrastructuretolikely demand so thateach
transaction is sure to make a profit
- Avoid making fulfilment commitments you cannot meet
- Aim for channel synchronisation to ensure that new and old
channels are integrated and built to serve customers who may use
all these channels at different times and will expect consistency
of service.
No need to reinvent
First of all, companies may not need to reinvent their
fulfilment systems. MacGregor believes there is little point
setting up an expensive online buying facility if customers would
prefer to go to an outlet or buy from a catalogue. "From the
retailers' point of view, going in at the deep end and spending a
great deal of money on an e-business channel can be very costly.
They mustn't lose sight of who they serve - the customer."
Those companies for whom the Internet and other electronic
channels such as digital TV and wireless application protocol (Wap)
phones deliver new markets will discover a wealth of solutionsand
suppliers to back them. Many of them promise the moon, but the
basics of supply chain management still apply in the e-world, even
where companies have to get faster and cheaper.
The traditional integrators such as Manugistics, Strategix, IBM
and i2 remain the best source of help in planning an e-fulfilment
architecture. They provide their own solutions but also work
alongside a host of application providers.
For instance, warehouse solutions provider Manhattan Associates
has found a way to fulfil both bulk and single orders through the
same software, so companies can use their existing warehouse
management software and simply add picking for Internet orders.
Virgin Cosmetics is using Manhattan's PKMS software to handle
orders from its home sales associates directly, through the
Internet and by mail order.
In addition to their own capability, and in some cases in place
of it, companies can effectively outsource fulfilment. In fact, so
bruised have some companies been by the experience of doing it
themselves that outsourcing seems an attractive option. Trading
exchanges can handle all or part of the fulfilment cycle.
Freightwise.com is a trading exchange for transportation so
companies can choose the best route to get things delivered across
states and countries, and then invite bids from suppliers. The Web
site also adds value to conventional route planning by offering
order tracking using global positioning satellites.
Another exchange, Cargofinder, helps companies to find spare
space on cargo ships. And WStore offers virtual ordering from a
system based on a single worldwide platform, giving instant
electronic access to 14 European warehouses linked to hundreds of
manufacturers. This system aims to ensure maximum stock
availability and shorter delivery times.
In order to cut costs at the procurement stage, retailers,Sears
Roebuck and Carrefour have joined Oracleto launch the first global
business-to-business online exchange serving the retail industry.
GlobalNetXchange initially will focus on Sears and Carrefour's
combined $80bn (£51.5bn) supply chain purchases from 50,000
suppliers, partners and distributors.
Sears and Carrefour expect Global NetXchange will reduce their
purchasing expenses and enhance supply-chain efficiencies with
their trading partners. Other retailers such as Sainsbury's have
since joined the exchange. There is even an exchange just for the
convenience store market
Leading player i2 Technologies plans to launch a high-tech
trading exchange. Participants will be able to plug into the Web to
access real-time supply and demand information. For the PC
industry, the hub mayincludeIBM, Compaq, Dell and
Hewlett-Packard,with component supplierslike Seagateand
Quantum,chip manufacturers like Intel and AMD, distributors like
Ingram and Tech Data, logistics providerslike FedEx and Ryder, and
scores of resellers.
If IBM was to turn down a previously ordered shipment of drives,
Quantum could instantly post this availability of capacity on the
exchange and have it bid for by other players.
Individual companies are often so large they can create their
own trading exchange, as German giant retail group Metro has done.
Using e-Trax from NSB Retail Solutions, Metro's trading division,
Gemex, consolidates orders from all retailers in the group and then
uses the Internet to invite best bids from suppliers. Roy Patrick,
NSB's product manager of application service provision, explains:
"Gemex is obliged to give good service because Metro retailers are
free to buy elsewhere. E-Trax handles costing,invoicingfor
bothparties, order-tracking, freight tariffs and all customs
documents."
Tradingexchangesare transforming the way fulfilment is handled.
They are effectivelyenabling leading-edge techniques such as
efficient consumer response to achieve critical massand may in time
supersede techniques that currently rely on expensive proprietary
networks.
The next step, according to Chris Webster, UK head of supply
chain at Cap Gemini, is to tailor the way orders are fulfilled to
the requirements of each customer. "A field service transaction,
for instance, may embrace provision of a product, an engineer,
installation, advice and so on. Companies who win using the
Internet will be those who bring everything together to give the
customer what they want."
From call to contact centre
Fulfilment will move further towards the customer in other ways.
The new call centre is now termed a multimedia contact centre,
moving out from the telephone to ensure customers are managed
through Internet, kiosks, stores, Wap, digital TV and so on.
At this level, no one supplier can provide everything required.
Even the mighty IBM and EDS accept that e-fulfilment is the
ultimate multi-supplier scenario. IBM has been bringing services
and partners together to complement its direct sell, as well as
outsourced offerings.
Often the third party offers the most innovative solutions, so
while a trading exchange may offer the convenience of bringing
together many different components, the individual components
should be looked at carefully.
Sea-Land Service in the US, which provides integrated
transportation systems of ships, railroads, barge lines and
trucking operations, has found a new way for retailers to do
business directly with manufacturers in the Far East, so avoiding
the wholesaler bottleneck.
By partnering Manhattan Associates, a warehouse management and
transportation systems provider, Sea-Land will streamline processes
in the Asian market and change global inventory management by
shaving weeks off inventory cycle times.
Alan Dabbiere, chairman of Manhattan Associates, says, "Because
Sea-Land is such an integral player in the global supply chain, the
results of this partnership will significantly affect
transportation networks around the globe, enabling all links of the
supply chain to work together to meet customer demands."
Top tips for supply chain success
- Ask yourself if there is a demand for what you are selling and
if electronic channels are the most convenient and profitable
outlets
- Design and cost your e-commerce supply chain before talking to
systems suppliers
- Use the Internet to create a virtual network connecting
companies and their suppliers so that everyone is committed to
fulfilment
- Develop systems for e-business processes and accompanying data
as an extension of back office-systems
- Track orders from the moment they are placed to the moment they
are fulfilled. The tracking must be linked to real-time events so
that, for instance, orders are linked to inventory to ensure goods
are in stock
- Communicate orders to the whole supply chain as soon as they
are placed so that work to be done by head office, warehouse and
third parties can be scheduled immediately
- Make arrangements in advance with third parties to handle
business peaks at Christmas time. Spare call centre, order
processing and delivery capacity is always available
- Analyse order data from the entire supply chain via a data
warehouse and business intelligence tools to determine how well
customer demands are being met, how well the supply chain is
operating and how well suppliers are performing
Fast fulfilment for data
Fulfilment is about fast delivery of data. Eurosky offers
Internet via satellite at 2megabits per second to PCs connected to
a satellite dish pointing at Astra. At these speeds, software such
as Internet Explorer 5.01 (18.3Mbytes) downloads in 1min 16s and
larger files such as Castrol Honda Superbike (722.6Mbytes)
downloads in 54min 5s. However, the computer can be offline while
the file is downloading (the satellite doesn't rely on a cable
link) - resulting in huge telephone bill savings. This means that
software, music and video distributors can now send their products
to customers via the Internet, rather than an online transaction
leading to the delivery of products via snail mail.
Case study: Cookson's doubles turnover with sales support
infrastructure
Companies 50 times larger should take a leaf out of Cookson's
book. A Manchester-based tool retailer for the past 40 years, the
company is on target to double its turnover after only 18 months on
the Net. The Web site was built using an html
programmer.
The clever bit is not so much in the technology but in the way
the infrastructure supporting sales was put together. Cookson's was
careful not to build an expensive infrastructure that would kill
its margins.
When a tool is ordered by a customer, the system already knows
who stocks the item and automatically e-mails the supplier. The
supplier logs on to look at orders and print out invoices. The
supplier then confirms to Cookson's that an order has been sent,
but to prove it, a courier consignment number must be attached.
Cookson's monitors all suppliers at 4pm every day to check orders
have really gone.
Managing director Stuart Armstrong explains, "When we mapped
this all out 18 months ago, there was no software available to do
it.
"Now I would buy off-the-shelf and am looking at streaming video
so customers can see the products, and offering voice-over IP."
Size doesn't matter