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Cover Story
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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.
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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?"
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Case study UPS
Logistics Group at Ford |
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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."
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