efulfillment Mastering the b-c-d fundamentals essential to efulfillment: brand, control and demand

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1 efulfillment Mastering the b-c-d fundamentals essential to efulfillment: brand, control and demand

2 CHAMPION PERFORMERS whether athletes, symphony musicians or ballroom dancers set themselves apart by mastering certain, essential fundamentals specific to their disciplines. Does a world-class efulfillment performance also depend on mastering essential fundamentals? And if so, what are they? These are two, increasingly crucial questions for retailers, manufacturers and distributors as their e-commerce initiatives continue to expand by nearly 20 percent worldwide and close to 30 percent in the U.S. In fact, more than 200 million U.S. consumers almost two-thirds of the nation are expected to shop online by A popular definition characterizes efulfillment as the blending of people, processes and technology to ensure a positive customer experience before, during and after the online sale. It remains a complex piece of the logistics supply chain, and along with transportation, accounts for nearly 70 percent of a typical company s e-commerce spend. Important as it is, efulfillment performance remains uneven and often obscured behind a fog of industry buzzwords. In some cases, it can become as much a constraint as a catalyst to growth. This white paper cuts through the fog to define three master fundamentals of efulfillment performance: brand, control and demand. They are the essential b, c, and d that precede a champion e performance. E-Commerce Sales are Growing More Than 19% A Year Globally With Nearly Equal Market Sizes Across The US, Asia and Europe % Asia 10% Rest of World 29% U.S. 34% Europe Source: Goldman Sachs

3 Brand Of course, customers make the same judgments about a company s brand from online experiences as they do from brick-and-mortar store encounters. While a shopping trip to a retail location may afford the immediate time gratification of viewing, touching and leaving the store with a product in hand, time is also a key component of the online buying experience. Delays at the warehouse can mean customer disappointment. In some cases, they can lead to buyer s remorse. Studies have shown the longer the delay in receiving a product, the higher the rate of product returns and cancelled orders. Given the linkage between efulfillment and brand reputation, the often-asked questions are: Some seven in ten members of Internet Retailer s Top 500 Internet companies across industry and product categories started by in-sourcing their e-commerce systems. Typically, as they ve grown, they ve been compelled to look for outsourcing partners. The resources to handle expansion whether warehousing space, engineering or staffing resources simply become too large and variable to go it alone. Many who outsource early on also outgrow the capabilities of their initial providers. A single partnership achieving an end-to-end e-commerce solution is a nice aspiration, but today s marketing claims outpace capabilities. No potential outsourcing partner has yet figured a way to execute well in all aspects of an end-to-end, e-commerce solution. In addition, within a client organization, there are often different functional reporting relationships and technology responsibilities involved with website design, order management and customer support fulfillment, to name a few. That hampers the would-be impact of a single outsourcing solution. Do I need to manage fulfillment in-house? Should I look for an end-to-end, outsourcing solution? Or, is choosing a best-of-breed in-sourcing and outsourcing team the way to go? In the middle of the in-sourcing and end-to-end outsourcing spectrum lies the best-of-breed strategy. It s an increasingly powerful option that provides an all-star at every position, whether in-house customer support, or outsourcing fulfillment partner. But, does such a best-ofbreed approach put a firm s brand performance at risk?

4 How can a best-of-breed approach serve the brand? It doesn t have to if the players know who s buttering their bread. A key question to ask a prospective efulfillment partner is how it structures and leads its workforce on behalf of the client. Is it handled through an experienced and well-trained team from supervisors to warehouse loaders? A seasoned and well-trained team can respond to the natural spikes in the clients demand and order volume. Ideally, when you ask them who they work for, they don t say 3PL.com, they say client.com. They understand who s responsible for their paycheck! Providing value-added, customized fulfillment services is one way eretailers are building customer loyalty. Customization might involve including a personalized thank-you card, in some cases hand-written. It might include packaging fragile items with tissue paper or other specialized packaging materials. This customization may require an efulfillment partner to blend its own workforce and processes with that of the customer s business and IP protocol systems. Does a prospective partner have the engineering expertise to achieve it? Does it have the accomplished team to execute the important details? What makes a 3PL a client s best brand ally? An accomplished novelist was once asked his definition of a writer. He replied, Someone who has written. How many of Internet Retailer s Top Ten brands can a prospective 3PL partner say it has served?

5 Control A second key attribute of a bestof-breed efulfillment partner is control. It s about staying in charge of balancing growth, cost and investment to sustain a consistent return on investment, profitability and customer satisfaction. Beyond that, it s about bringing new ideas. Scalability is a frequently used term by logistics competitors. But when a client says he or she wants 100,000 square feet of a 300,000 square-foot warehouse, scalability often doesn t seem to apply. Why? A problem for 3PL providers who serve big customers exclusively is they require large customers to fit their cost model. If they ve only got one Gulliver and 200,000 vacant square feet, there s a risk problem in filling the vacant space. But a 3PL with a business model that serves fastgrowing mid-size as well as large customers can give a Gulliver his 100,000 square feet and fill in with 20 fast-growing Lilliputians who each may need a much smaller amount of space, or who experience different peak season space needs. Such a model also features a multi-campus warehouse environment in major U.S. markets. With these resources, space can easily be shifted within and among buildings if Gulliver should require more of the 200,000 square feet of space. The reality of the ecommerce market today even for the biggest of the Top 500 is that it s difficult to forecast growth from different geographies. So a multi-campus 3PL model that serves growing mid-size companies is also in a better position to scale with the largest of customers than providers who exclusively serve the large. Although scaling to manage growth has become today s leading efulfillment priority, managing cost still remains an important client consideration. Here, transparency becomes a key factor. Does a 3PL provide an open-book to pricing? Does it employ an easy-to-calculate, cost-plus method that converts costs to perunit measurements? Does it conduct frequent reviews to go over the cost per-unit numbers? A final control attribute is innovation. Does a would-be partner have a culture of looking for better ways of doing things and bringing new ideas?

6 Does a would-be partner bring new ideas? Great ideas often involve technology. OHL, for example, has introduced an auto-bagging technology solution for its largest efulfillment customers, and it s resulted in substantial client productivity and cost-control benefits. Ideas can also come in the form of counsel. If a client company has a Midwestern location, will it soon need an East and West Coast site, and when? Timing is everything in making such investments profitable. A seasoned 3PL leadership team can become a trusted advisor in making these crucial calls. And, of course, great ideas are stimulated by cross-function team interaction. Does a prospective 3PL bring in clients for walkthroughs? Does it collaborate on challenges like labor management systems performance or inbound visibility?

7 Demand Twenty years ago, it may have taken days for an order from Asia to reach a U.S. retailer or manufacturer. Today, orders travel at cyber-speed on the Web. Mobile devices make on-the-go shopping even more convenient. Social networks are also getting into the act and expect to account for $14 billion in goods sales by Within 12 Months, 47% Of Online Retailers Will Have Mobile Commerce 11% WIthin the next six months 2% WIthin the next three months 34% Within the next 12 months QUESTION: When do you expect to have a mobile commerce program? 21% We do not plan to have a mobile commerce program 32% Within the next 18 months BASE: 63 global US online retailers Source: December 2010 US Retail Executive Online Survey Source: Forrester Research, Inc. An eretailing phenomenon that s exploded since the Great Recession is private sales web sites. They offer online shoppers the opportunity to buy high-value products for toddlers, fashionistas or designer home décor aficionados at deeply discounted prices. As these successful sites expand to new geographic markets whether U.S. to Europe or Asia, or vice versa many companies experience instant demand, making the ability to flex fast an essential fundamental of a good 3PL partner. New product launches like those of major consumer technology brands test the mettle of an efulfillment provider. If you have 10 weeks to get your new product to market, will

8 your partner say they can t do it in less than 20, or will they find a way to make it happen in 10? The ability to react on your terms distinguishes a partner from a vendor. Peak season can be an increasingly challenging time for online retailers. It exacerbates the requirements to scale and Will a 3PL take accountability? OHL took such a calculated risk recently flex. And then there s post-peak. That s a with a major consumer brand. The consumer time when having an efulfillment partner company wanted a large-space footprint for willing to take a calculated risk can be a peak season, but it also wanted its 3PL partner big catalyst for growth. to hold the space after peak, should demand What if following peak season, an eretailer would like the option to maintain the space if demand is sustained, and also the option to scale back if demand diminishes? Would a 3PL take the accountability to back-fill the space on its dime if needed? continue. If demand diminished, then the 3PL would take the accountability to fill in the space. Only OHL was willing to take the risk. If it had to, OHL had the capability to fill in from mid-sized clients. That option wasn t needed as the company s peak growth continued after the Holiday Season. It s an example of how a firm s 3PL partner can serve as a valued growth enabler.

9 Conclusion Indeed, there are essential fundamentals to look for in an efulfillment partner the mastery of brand, control and demand. Does a 3PL have the business model to make it happen? Can it crawl, walk, run and even moonwalk in reverse with you? Can it effectively layer in automation? Are its senior leaders accessible? Does it have a culture of can-do? Does it have a track record for success with the most demanding and successful online brands? Those retailers, manufacturers and distributors who precede efulfillment, with b, c, and d will be on the road to championship performances. About OHL Based in Brentwood, Tenn., OHL is one of the largest 3PLs in the world, providing integrated global supply chain management solutions including transportation, warehousing, customs brokerage, freight forwarding and import and export consulting services. OHL operates more than 130 value-added distribution centers, offers comprehensive transportation management services, employs nearly 6,000 people and has offices worldwide. OHL has expertise in direct-to-consumer fulfillment, serves a wide range of business sectors from specialty retail to manufacturing and specializes in the apparel, electronics, printing, food and beverage and consumer packaged goods industries Executive Center Drive Suite 333 Brentwood, TN ohlinfo@ohl.com OHL and the OHL logo are registered trademarks of Ozburn-Hessey Logistics, LLC and/or its affiliates in the United States and/or certain other countries Ozburn-Hessey Logistics, LLC Rail Ocean Fulfillment Rail + Ocean Fulfillment Fulfi