Colum Joyce has never doubted that delivering a product on time is way more important than creating the most user-friendly Web site. This opinion is hardly surprising , coming as it does from the e-commerce strategy leader of the worldwide courier service, DHL.
It is a priority he wishes that the swathe of newly-created dotcoms would heed. Package shippers such as DHL are having to take the flak, coping with non-payment and a growing stock of returns thanks to the failure of internal systems at Web companies (see panel).
In a recent survey, US analysts Forrester found that most companies believe their online business will grow by more than 750% in just 18 months. These growth rates will ensure that fulfilment operations such as managing volumes, decreasing order-to-receipt cycles, and lowering fulfilment expenses will plague most companies.
According to the survey, 85% of firms can't fill international orders because of the complexities of shipping across borders. Of the 15% that can handle global orders, most are shipping to only a few countries in Europe and Asia where they can fill orders out of local warehouses. Of the globally incapacitated, three-quarters cite system inability to register international addresses accurately or price total delivery cost.
DHL has found to its cost that dotcoms are particularly poor at planning logistics and fulfilment. Joyce suggests that traditional bricks-and-mortar companies have an inevitable advantage over the upstart dotcoms when it comes to logistics. Well-managed, traditional companies tend to have systems that are able to generate basic information to package shippers - like addresses. The downside for these mature players is that their systems are hard to change when it comes to needing to move quickly.
"Companies may have 30-50 years experience putting in processes and applications. But it's also difficult to change your infrastructure. Dotcoms are able to start afresh with green-field technology. Yet they have a very shallow view of their business, and are very difficult to deal with. The traditional companies we deal with - they understand the end to end logistics flow and have integrated support processes."
A big part of planning for its own logistics capability is to get involved in the planning of customer systems - early. Joyce says DHL wants to be involved way before a company is about to start trading, so it can advise on systems to make them compatible with its own systems. "When a company has brought us in early, we can put in place minor changes on existing solutions. When we're brought in late, you have to do bespoke work, which is expensive and time consuming. If we can use EDI links or use standard XML messaging, it's cost effectiveÉ We'd seriously think of not working with any business that is too bespoke."
However, DHL has to be prepared to be flexible too when devising its own electronic commerce strategy and systems to cope with these wide variations of customer systems competency. "There is a speed of change issue. We're operating in 228 countries, but not everyone is changing as fast as the UK and US. We've got a fine balancing act between changing appearance and sites, and serving every one of our markets, while upgrading to serve customers," says Joyce.
"The IT department has done a great job, and a lot of experimentation. For example, they started doing trial work on a Wap system in October last year, and in six days had built a service at the cost of just £19,000. The system is up-and-running, but the market has yet to reach critical mass."
But that does not mean dealing with computer suppliers is any easier than it has ever been. Joyce admits that he is concerned by the attitude from some suppliers that you have to replace everything in your systems to be able to do e-business. "You have to run by common sense and not by dollars."
Joyce was involved in starting the DHL Product Range 12 years ago, and even then, IT and business groups were working closely together. "DHL placed the applications in business groups from day one. There was always a very close relationship with IT and business. People work in e-commerce teams across business and IT teams. We've always put our IT people in front of our customers."
But he admits, building such relationships takes effort. "Business doesn't tell IT what to do - business and IT work together. In addition, because of Web technology, many business people have become technologically aware by default. IT has been demystified."
Once he has tackled dotcom systems, Joyce would also like to get to grips with two more of his bugbears - continual change for change's sake, and trying to get a return on investment.
"Flavour of the month-ism is a pet hate of mine. People don't stick to their guns over technology - there is a continual kid-in-a-candy-store mentality."
That does not help solve Joyce's other concern, trying to get a return on technology investments. "There is a debate over ROI, because technology is moving so fast. Time in operation, service excellence and customer satisfaction are what brings ROI."
"If it is badly managed, this can mean you are trying to upgrade constantly rather than generating a business return from deployed capabilities."
DHL's e-commerce strategy
DHL sees three main types of businesses emerging in relation to e-commerce: traditional, "pre e-businesses" and e-traders
Traditional and prE E-businesses:
Traditional and pre e-businesses represent more than 95% of DHL revenue and profit. These are the customers on which DHL's profitability in the foreseeable future depends. DHL's service is intended to allow customers to migrate to new [logistics] applications and services at their own pace. Their strategy toward these businesses is to support revenue growth and reduce costs to:
DHL recognises that "e-traders" like Cisco and Dell are the first breed of e-businesses to reinvent their business model around the use of technology, vertical disintegration, return on intangibles, increasing returns and perfect information.
"There is much more noise about dotcoms than about HP's repair and return service. Yet both are e-commerce services, both add value to the customers, and both build differentiation - but only one model has yet to prove profitable."
DHL says it will embark on carefully selected initiatives targeted toward Web traders. "These initiatives are critical, not because of the revenue and profit they will generate in the short term but because they will provide major learning experiences for DHL and help position DHL as a major player in the E-conomy arena."
The trouble with dotcoms
Colum Joyce has come to the weary conclusion that dotcoms refuse acknowledge that delivery problems can be caused by inadequate data from their own systems. Instead they prefer to rely on the package companies - and a blind faith in fate.
"Dotcoms tell us, 'You're a logistics company - you sort out the problem.' All too often their only logistics preparation is along the lines of 'We've got a great business model, high profile, and lots of hits'." he adds.
"Dotcoms have to start with planning, with sales, customer data, and data gathering. They have to establish the right qualities in the product, the addressing, value, control, and physical checking. If not, it impacts the logistics."
DHL's e-commerce leaders now insist on being involved in dotcoms' business planning to ensure that the information generated is correct. "I'm putting 40-60% of my hours in consulting to these companies before I even generate a shipment. They probably represent a much smaller proportion of my actual business, but I have to get it right." says Joyce.
The problems many consumers had with deliveries last Christmas were not caused by the logistics companies but further up the line in the supply chain.
"If there's no stock, they don't tell the customers, then you eventually give it to the customer days - or more - after they were expecting it. When people give you correct information from correct processes, fulfilment runs at 80-90%."
One of the biggest problems for the company is when customers refuse to accept a delivery, either because it is late, or contains the wrong product.
"We're moving lots of small packages across national boundaries. We have to build in systems for returns, and the cost of returns, where we end up with goods where delivery and tax have not been paid. If we have to take it back, who is responsible?"
For that reason, Joyce says DHL is prepared to play hardball with companies who want it to deliver their goods. "We regulate very strongly on what sort of logistics a company wants us to provide. For customers like Cisco, IBM, and HP, we will have normal business arrangements, where addressing, details, and returns data is covered.
"We need to see that in dotcoms. Many just put up a Web site, and say 'I'm going to trade with the world.'"
This was first published in May 2000