Cover Story

Making it happen Father Christmas may have his little helpers, but others have to rely on more conventional methods to get the logistics right. Campbell McCracken reports.

You could be forgiven for thinking that setting up a remote retail business it is a simple venture. Customer orders come flooding in and all you have to do is package up the goods and send them off. But you'd be wrong, because unless you have the correct processes in place and the right infrastructure, you'll be heading for disaster.

Even something as simple as sending an order acknowledgement via e-mail and letting the customer know that the order's been dispatched is non-trivial. "In order to do that you've got to have the full supply chain integrated right through with your suppliers," says Steve Bolton, divisional director with logistics experts Reality Group, which claims to be the UK's largest carrier of domestic parcels with deliveries totalling 100 million each year.

The ‘instantaneous' responses that customers get through interacting with a website leads them to expect fast responses from all aspects of the shopping experience, including delivery. But there are so many ways that these expectations can be upset. The remote retail supply chain and distribution channels are littered with what are known as CPOPs - Customer Piss-Off Points. "You've only got to sit back and look at each stage at which you can upset your customer - it's frightening. You've got to identify them and put measures in place," says Bolton.

The perfect process
"You can design a set of processes so that if everything goes like clockwork - we take the order, the credit card gets authorised, the order gets acknowledged, we've got the stock, we can pick and pack by a certain pick-off point, hit a delivery driver and it goes out with the driver or the courier on day one or day two, the customer is in - Bingo, a successful delivery," explains Bolton.

"When you look at the seven or eight high-level components of that, let alone the micro level detail, there's a number of stages at which things can go wrong. The real key is around putting in place effective exception routines for when things fall between the cracks and how you pick it up and manage the situation."

One big decision to make is where to hold the stock. Your choices vary between having your suppliers holding it all, so that when you get a customer order you pass that on to the supplier who picks and packs and delivers, or holding all your own stock in a large warehouse. The costs associated with each are different, but that's not the only factor for consideration. "It's as much about managing the customer expectation," says Bolton.

Whichever storage method you choose, you have to deliver the order to the customer, and that is not simply a case of posting it. Again you should think about what could go wrong. "If the supplier dispatches it, how do you get a track and trace on the products so that you can see if you get a customer enquiry," says Bolton. "If they don't receive the delivery, what's actually happened to it?"

	Case study UPS Logistics Group at Ford
	UPS Logistics Group is a billion dollar subsidiary of United Parcel Service and was formed in 1995 to provide a variety of supply chain management services. It operates by looking at the client's entire supply chain, acting as consultants to create a network design that optimises performance. It then manages that supply chain for a minimum of three years. "We manage all the finished vehicle delivery for Ford within the US," says UPS Logistics' director of marketing and public relations, Lynnette McIntire. "Along that supply chain we collect the finished vehicles from the manufacturing sites, we have to get information from the manufacturing stocks, and we have to collect the information and track the vehicle as it goes through the different modes of transport to Ford's 6,000 dealers. We're utilising as much as possible real time information about where each vehicle is along the supply chain. Not the shipment, not the railcar (which is the way they did it before we took it over) but by the individual vehicle identification number." "With up to the minute visibility, we can ‘shift on the fly' to re-route products where they're needed most and maintain promised levels of service," says chief executive officer Dan Dimaggio. "So if somebody needs to re-route that green Taurus to a dealer in Pennsylvania instead of Florida, the technology makes it possible to do that." UPS Logistics also creates the information that the rail people, carriers, dealers and corporate Ford people will need, in the format that they need. "We're currently working on systems to make it possible for the individual customer to view it as well. So if you're buying a Ford Taurus you know exactly where it is along the way." "After a year of operating under the new system, Ford announced a 26 per cent reduction in vehicle delivery times, £125 million savings in annual inventory carrying costs, and $1 billion a year in inventory reductions. All in one year. Ford has now hired us to use the same Web-based systems in Europe," says Dimaggio.

Many happy returns
Making a successful delivery is not the end of your problems either. You need to have a process in place whereby a customer can return goods, either because the goods are faulty or, like most catalogue shopping companies, because you are offering the goods on approval.

"What we have found is that if you make it easy to return goods as part of the process it does drive demand up," says Reality's Steve Bolton. However you have to balance this with the risks and have the right processes in place to deal with the deviations from the plan. "You are potentially exposed to abuse. We've had situations where a box comes back and you're expecting a hi-fi inside and it's a pair of bricks."

The returns process is a major factor in the success of a remote retail business, because there's potentially a lot of money that can be tied up in goods. "There's a mechanism within the home shopping systems whereby after about week six in the season the returns warehouse is the company's biggest supplier, because of recycled stock and where you're living on the returns. Yet the returns warehouses aren't really treated as a supplier," says Bolton.

Logistics and the supply chain
The need for the right processes and logistics partners also applies to traditional businesses, where the movement of supplies to a manufacturing department and delivering finished goods to customers can have a huge impact on the bottom line. (See case study opposite - UPS Logistics Group at Ford.)

The key to successful supply chain management is having the right system, and the right systems in place to monitor and control it. "Getting the right information to the right people at the right time is what our supply chain management IT systems are all about," says UPS Logistic Group's director of marketing and public relations, Lynnette McIntire. "We're also obsessed with getting the right product to the right place at the right time. And the only way you can do that is through highly visible supply chain technology - you can't manage what you can't see. So information systems make it possible for us to see all the pieces of the puzzle that might be affecting the efficiency of your supply chain at any given point."

UPS Logistics Group has an interface that allows it to take orders from a customer's order management system, whatever that system is. It can also trace the supplier information and the goods. "We can trace this information from the different carriers that we use, no matter what format it comes in. We take flat files, we take EDI transmissions, we take e-mails - whatever. Then we create the interfaces based on the level of information each one of the parties will need to promote collaboration."

"Ideally the systems should be scaleable, they should be flexible, they should be global and they also should be constantly improved. UPS Logistics Group alone invests over $50 million in a year building and investing in new systems to stay ahead of the curve."

Vendor managed inventory
UPS Logistic Group doesn't only provide a monitoring infrastructure but acts as consultants and advises customers as well. "We're on top of a supply chain, managing the various carriers and optimising the network as much as possible along the way, consolidating loads or whatever," says McIntire. "Ideally, the more pieces we can manage the more we can look holistically at the supply chain and optimise it."

One idea embraced by UPS Logistics is Vendor Managed Inventory, where reliable information and product flow allows a third party logistics company to monitor warehouse shelves and automatically replenish stocks within 30 minutes, based on planned forecasting models.

This leaves the manufacturing floor free of excess goods, lowers management and transportation costs and leaves less inventory sitting idle. As UPS's chief executive officer Dan Dimaggio says"Our global distribution is less about storing goods and more about keeping them moving."