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E-fulfilment still a headache

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."

This was last published in May 2000

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Asian market and change global inventory management by shaving weeks off inventory cycle times.

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