Docstoc

e-Fulfillment White Paper

Document Sample
e-Fulfillment White Paper Powered By Docstoc
					     e-Fulfillment
Your Competitive Advantage




      The Supply Chain Value Innovation Company




    APPROACH     METHODS        BUSINESS PHILOSOPHY
                                                      Table of Contents
INTRODUCTION ............................................................................................................................. 3
  What does it take to win and keep customers? ........................................................................... 3
THE ROAD TO “NOT QUITE THERE” ............................................................................................ 3
  History .......................................................................................................................................... 3
  Barriers to continued success ...................................................................................................... 4
     Demand volatility ...................................................................................................................... 4
     Elimination of demand management buffers ............................................................................ 4
     Customer remorse .................................................................................................................... 4
     Lack of system integration ........................................................................................................ 4
  The missing element in your business plan ................................................................................. 4
  Quick fixes can not solve the problem ......................................................................................... 5
HOW TO BE SUCCESSFUL IN E-FULFILLMENT ......................................................................... 5
  Back to basics .............................................................................................................................. 5
  Achieving the right results ............................................................................................................ 6
  The e-Fulfillment solution ............................................................................................................. 6
  Measure your results! .................................................................................................................. 6
CONCLUSION ................................................................................................................................. 7
  Who will survive? ......................................................................................................................... 7




Confidential and Proprietary                                           January 26, 2011                                                                  Page 2
                                   e - F u l f i l l m e n t – Y o ur C o m p et i t i v e A d v an t a g e




INTRODUCTION
As the stock market punishes dot-com firms who can not deliver on their promises to their
customers, e-businesses feel a new sense of urgency to fix the many problems they have had in
fulfilling customer orders. The world of Business-to-Business (B2B) and Business-to-Consumer
(B2C) e-commerce moves quickly, and companies are rushing to find solutions that will allow them
to sustain their growth, achieve profitability, and survive. The urgency is real, but e-businesses
must take a moment to understand where their current problems come from and what it will take
to win at e-commerce over the long term.


What does it take to win and keep customers?
E-businesses understand the proposition: promise to give the customer something he wants, and
deliver on that promise always. All successful businesses have learned how to make and keep
this promise to the customer. But some e-businesses have gotten only half of the process right –
making the promise. Keeping it has proven to be a great challenge that is driving some
companies out of business and causing others to lose market share, revenue growth, and the
investment capital that is their life blood. Businesses keep their promises to the customer by
achieving consistent, effective, and superior order fulfillment.

[Insert case study of a failure caused by too much focus on customer acquisition and taking
orders with too little investment in order fulfillment.] How about that Toy company that is always
referred to as having failed in their Christmas pursuits?


THE ROAD TO “NOT QUITE THERE”

History
E-commerce companies have made customer acquisition their top priority. This emphasis drives
the following efforts:
   Market research
   Segmentation and targeting of specific customer groups and businesses
   Advertising to attract targeted customers
   Development or acquisition of web-based technology for presentation of product and order
    management (B2C and B2B)
   Implementation of web-based functionality for order taking (primarily B2C) and interfacing with
    industry exchanges (B2B)

A focus on customer acquisition drives investment in making the customer ordering experience
pleasant, easy, and effective. Customers see broader product offerings, dynamic web pages that
reflect their personal tastes and preferences, streamlined ordering processes (fewer clicks),
competitive pricing relative to both online and brick-and-mortar competitors, and targeted e-mail
campaigns triggered by previous ordering activity.

Companies focused on customer acquisition invest in front-end technology, infrastructure,
business processes, and staff. But these companies are “not quite there yet.” The back-end has
suffered from lack of investment and short-term solutions. Tomorrow’s e-Business survivors are
aggressively refocusing their next investment on their back-end processes. Those who fail to
build up the back-end will suffer from customer flight to more reliable competitors. Tomorrow’s
survivors have several obstacles to overcome.



Confidential and Proprietary                    January 26, 2011                                              Page 3
                                    e - F u l f i l l m e n t – Y o ur C o m p et i t i v e A d v an t a g e



Barriers to continued success
Demand volatility
e-Businesses who have been most successful at customer acquisition have done so by offering
the customer the best ordering experience. The strength of online front-end order taking
functionality has led to intense demand volatility. The customer can now configure, reconfigure,
change, or cancel the order immediately, without involving a customer service agent.
Expectations of immediate gratification have extended the “mass customization” and “lot size of
one” models off of the manufacturing floor and placed them directly in the hands of the customer.

Elimination of demand management buffers
Direct customer access to the ordering process has weakened or completely removed traditional
demand management buffers. Forecasting based on traditional leading indicators such as
seasonality and promotions are often bypassed as firms try to respond to competitive offerings in
“Internet time.” The old “request and commit” processes that allowed different sales and
bookings forecasts have been completely eliminated in many B2C product categories, although
firms pursuing B2B sales still have the opportunity to create incentives for demand leveling from
their customers. Master production schedules, if not adequately interactive, sometimes become
outdated relics in the electronic order management environment.

Customer remorse
Failure to get the order right the first time increases customer remorse. “Service after the sale,”
one of marketing’s key mantras from the 50’s and 60’s, has once again proven to be the most
important customer retention strategy. Current levels of service in the online world are
inadequate to deal with customer remorse, so customers are canceling orders, returning product,
and in some cases, going back to dependable brick and mortar competitors. Customer remorse
is not only a B2C concern. Dependable service is a key differentiator in B2B transactions.

Lack of system integration
Many early B2C enterprises completely disconnected order entry from order management. The
most extreme examples involved manual entry of web-orders into the ERP system, manual
transmission of supplier orders to product vendors, and lack of customer visibility into the order
tracking process. Most of today’s surviving online merchants have integrated their customer-
facing web functionality with their order management systems, but many are still struggling to
integrate these systems with their supply chain. B2B players are not necessarily further along if
their web-initiatives are leading them into new product areas and a new supplier base.

System integration has always offered a competitive advantage to companies who learned how to
do it effectively. But the dwindling ordering cycles of “Internet time” (time-based competition –
24x7) are colliding with every integration hurdle.

Order fulfillment always suffers when demand is complex and integration is weak. e-Businesses
who find practical order fulfillment solutions, that can be implemented quickly, will be the first to
improve their customer retention.

The missing element in your business plan
Knowledge companies never get into business to become excellent in logistics. The emphasis on
customer acquisition has naturally led to excellence in web-development, marketing, sales
analysis, creative design, and many other front-end, customer-facing processes. But the ability to
deliver as promised, on time, forever, is what will keep customers for the long term.

Traditional brick and mortar companies have an edge over their online competitors, because their
established supply chain relationships, distribution centers, and physical stores offer an
impressive order fulfillment infrastructure. This infrastructure has enabled late entries to e-
commerce to recapture some of their customers and build a healthy online sales channel to


Confidential and Proprietary                     January 26, 2011                                              Page 4
                                    e - F u l f i l l m e n t – Y o ur C o m p et i t i v e A d v an t a g e



complement existing retail business (see “The Bricks Fight Back,” The Wall Street Journal’s
special e-commerce report, July 17, 2000).

Success in e-commerce is going to require a special solution for order fulfillment, which perhaps
would be better called “e-fulfillment.” E-Fulfillment means merging your existing fulfillment
infrastructure with the unique web-marketing capabilities that you have struggled to develop. Or if
you are lagging in building a strong fulfillment process, then e-Fulfillment means identifying a
practical solution that will meet your needs and is more than just a quick fix.


Quick fixes can not solve the problem
Many online businesses have turned to manual or third party solutions to solve their e-Fulfillment
needs. These solutions often fail because they are either too shallow or they cannot handle the
rapid increases in order volume that so often occur in “Internet time.”

Manual integration of order entry, order management, and order fulfillment, as we discussed
above, is prone to failure. Each manual transition point introduces an opportunity for errors. In
addition, responsibility and handoff are often poorly defined between people within your
organization and between you and your suppliers. And of course, order volume will always cause
manual approaches to break down. Yet surprisingly, most e-businesses pursue manual solutions
at some point in their development, and these solutions are sometimes difficult to abandon.

Because of the need for rapid e-Fulfillment solutions, some companies are turning to third party
logistics (3pl) providers for help. These providers are working to develop excellent solutions for
online businesses that do not have their own infrastructures for order fulfillment. But too many
businesses see third party solutions as a quick fix. Outsourcing does not mean abdication.
Whoever services the customer, you must remember that the customer is still yours. If a
customer is not happy with the service you have arranged, they will turn to a competitor with a
better e-Fulfillment solution. Successful third party solutions require a serious commitment to
partnership by all parties involved: you, your suppliers, and your logistics provider. That kind of
commitment frequently involves risk sharing, organizational change, and clear outlining of
responsibility.

Use of a quick fix approach will still leave your business “not quite there” when it comes to e-
fulfillment.

HOW TO BE SUCCESSFUL IN e-FULFILLMENT

Back to basics
We need to look at two key lessons from traditional logistics: responsibility and information
accuracy.

Brick and mortar companies understand that someone has to own the order fulfillment process
and proper monitors need to be in place. In an environment where logistics operations are
managed internally, there is a logistics manager who tracks, among many things, where each
order is in the supply chain at any given time. This manager has ownership of the business
architecture, design and acquisition of the systems and processes for tracking orders.

If an organization outsources fulfillment to a third party logistics provider, someone must still be
responsible for managing the relationship with the provider. This manager identifies the points of
contact where information will flow back and forth between the two organizations. The customer
also sets the performance metrics on which the relationship will be evaluated.

While order fulfillment is ultimately about getting product from its source to the customer,
maintaining and providing accurate order management information is really the key to keeping the
promise to the customer. Accurate information management requires agreement between all

Confidential and Proprietary                     January 26, 2011                                              Page 5
                                   e - F u l f i l l m e n t – Y o ur C o m p et i t i v e A d v an t a g e



parties involved on definition of accuracy (e.g. 95% vs. 100%), ownership, timeliness and
distribution of the information, immediacy of updates, maintenance of confidentiality and security,
and a variety of other factors that must be carefully designed and planned.

Order fulfillment responsibility and information accuracy are traditional priorities that have
sometimes gotten lost in the world of e-commerce. Tomorrow’s winners realize this and are
taking action to fix the problem.


Achieving the right results
As you architect your e-Fulfillment solution, it is important that you keep the end result in mind.
Keeping your promise to your customer is the primary result you seek. And that promise has
been intensified because of your successful customer acquisition strategies that have increased
your customer’s expectations.

E-commerce, whether B2C or B2B, has created a new customer-focused value proposition. The
e-commerce value proposition is a unique combination of personalization, savings, speed,
service, and overall experience. Your customer acquisition efforts have created the capabilities
for delivering personalization and savings. e-Fulfillment is the key to meeting your customer’s
requirements for speed, service, and overall experience. The end result must be better than, not
just as good as, traditional bricks and mortar.


The e-Fulfillment solution
Each business must have a special e-Fulfillment solution that meets its unique needs. Finding
the right solution requires a strong understanding of your current and future requirements. Some
elements of a successful e-Fulfillment solution might include:
   Establishing a separate order fulfillment center for your online business
    A dedicated fulfillment center is most appropriate when your online sales channel drives
    different patterns of demand, or when order volumes for certain products are higher than
    through your other sales and distribution channels. The fulfillment center can be outsourced
    if you do not already have a fulfillment operation in house.
   Allocating separate inventory for your online store
    This solution can be effective if you have a small number of products that you sell online.
    Separate inventory allocation will require that your online order management system track its
    inventory levels. It is important to remember that implementing this solution will also require
    organizational changes.
   Developing an integration strategy flexible enough to meet your business’s changing needs
    Your systems integration approach will rely on the role that online sales play in your overall
    business. A “pure play” e-Business, with no physical stores or other distribution channels,
    has the luxury of directly integrating its online order system with its inventory management
    and supply chain systems, perhaps through a partnership with a third party logistics provider.
    A “mixed” business, with some brick and mortar operations, must balance the flow of volatile
    demand from online sales with more predictable sales from traditional channels, requiring
    different inventory, distribution, and system integration approaches for each channel.


Measure your results!
e-Fulfillment will benefit from another traditional practice – designing key performance indicators
and measuring your solution’s effectiveness against those metrics. Key metrics should include:
   On time delivery
    Make sure your system tracks deliveries against original promises to the customer.
   Cost of fulfillment
    Capture the cost of your entire e-Fulfillment solution, whether internally managed,

Confidential and Proprietary                    January 26, 2011                                              Page 6
                                       e - F u l f i l l m e n t – Y o ur C o m p et i t i v e A d v an t a g e



        outsourced, or a combination of both approaches. As your business changes, knowing your
        cost of fulfillment will help you evolve your e-Fulfillment strategy.
       Number and causes of returns
        Returns are a leading indicator of customer flight in e-commerce. Develop a good service
        process to manage returns, and use the information that process provides to improve your e-
        Fulfillment solution.
       Available fulfillment capacity
        Just because forecasting can be more difficult for online sales doesn’t mean you should give
        up! You must continue to project demand and plan fulfillment capacity accordingly. Timely
        monitoring of demand streams will help achieve successful fulfillment goals.



CONCLUSION

Who will survive?
Keeping the promise is key. Online businesses have developed innovative and ingenious ways
to find new customers and excite them about the possibilities of e-commerce. That creative
ability must now be channeled into meeting and exceeding the high expectations that have been
set.

e-Fulfillment, the merging of traditional order fulfillment strategies with the technology, intimate
customer knowledge, and responsiveness of e-commerce, will be the key to competitive success.


Michael Pelphrey, CPIM
    Managing Director
    International Supply Chain Solutions

         Michael Pelphrey was formerly a Partner with BDO Seidman, LLP and has over twenty five
          years of manufacturing operations management and consulting experience. His industry
          and consulting experience includes manufacturing of pharmaceuticals, food products,
          process industries, computers and peripherals, furniture, aerospace & defense,
          telecommunications equipment and industrial pumps.

         In addition, he was a CEO and President of a $30million just in time manufacturing facility
          with 9 divisions nationally. Materials manager and production control scheduler in various
          manufacturing companies. Experienced in all phases of manufacturing processes,
          planning and control systems.

         Conducted various APICS workshops including Supply Chain, Just in Time, Master
          Planning, Inventory Management and Production Activity Control.

         MS, Finance - West Coast University
         BA - California State University Fullerton, Beta Gamma Sigma
         Certified Member of APICS (CPIM)

    Email: mwp0558@aol.com




Confidential and Proprietary                        January 26, 2011                                              Page 7

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:54
posted:1/26/2011
language:English
pages:7
pptfiles pptfiles
About