Delivering The Goods
Sandwiched between brilliant customer acquisition and retention campaigns lies a messy minor detail: actually getting the right product to the right people at the right time. This process, known as fulfillment, is often taken for granted in discussions of customer retention. CRM strategists just assume a smooth, customer-pleasing follow-up to an order.
Such assumptions, say experts, put the cart before the horse, undervaluing the process that is actually a cornerstone of customer relationship management. After all, without the satisfactory transfer of goods, there will be no ongoing business relationship. "Without a really good commerce chain strategy, your CRM strategy will fail-crash and burn," adds Liz Shahnam, vice president of CRM Infusion at META Group.
According to Greg Runyan, senior analyst at Yankee Group, creating an effective fulfillment strategy is becoming increasingly difficult to do. "Certainly, customer expectations are rising with regard to fulfillment, especially pre-order fulfillment." In other words, the demand for open and instant information has given customers the ability to evaluate a supplier's fulfillment capabilities without taking the time and risk to establish a purchasing relationship, making presentation and reputation more important than ever.
The following 10 steps will help your company develop and maintain a fulfillment strategy that meets customer expectations and maintains a solid foundation for customer retention.
1. Establish Goals.
There must be a clear-cut statement of purpose that drives the order delivery process. The goals set forth in this statement can begin as a sweeping code of conduct-an internal commitment to provide a certain minimum, consistent level of order turnaround. As you set targets for inventory levels, information sharing, on-time delivery and supplier interaction, you will have the groundwork necessary to design the right procedures and select the proper partners in the steps ahead.
Both the generalities and the details of the plan should be communicated and upheld at every level of the fulfillment process, because ultimately those who shrink-wrap cases and tape up boxes will determine if the goals will be met. "We talk a lot about 'relentless execution,'" says Chip Ponton, senior director of logistics services operations for Airborne Logistics Services. "Shipping orders may seem to get routine, but we can't let it get mundane, because if we do anything wrong in that process, the customer can be unhappy."
Michael Bittner, supply chain e-fulfillment research director at AMR Research, recommends setting both short- and long-term goals. The aim, he says, is to account not only for how the fulfillment organization should operate today, but also for how it is expected to contribute to growth, and in turn how that growth will increase pressure on the logistics infrastructure.
2. Plan, Plan, Plan.
"If you ask me for 10 tips, the first three are 'plan, plan and plan,'" says Harvey Rickles, general manager of UPS Logistics Group.
Planning means more than just developing a picking-and-packing process that meets outlined fulfillment goals. In addition to being able to adjust to both expected (holiday/seasonal) order peaks and unanticipated short-handed situations, the fulfillment plan should adjust quickly to changes in customer demand-both in terms of product and process. If it turns out that customers are consistently dissatisfied with the timeliness or quality of delivery, a rigid plan is worthless.
Ultimately, when every contingency is spelled out, you should be left with what Rickles calls a "master operating plan." And if you're working with fulfillment outsourcers, "you should be able to see them, to understand what their processes are-and to make sure they understand what their processes are."
According to Rickles, the convenience of Internet buying means that both B2C and B2B suppliers need to prepare for frequent orders in what might be unconventionally small in size, with business customers routinely expecting to be able to buy less than full palette or case quantities online. He warns that companies which try to migrate an established, effective channel distribution plan into a direct e-commerce model need to devise new strategies to handle the conversion. "When you deal on the Internet, you might deal with hundreds of thousands of end users. [Many organizations] are not used to that volume in small orders."
3. Automate Early and Often.
Get the paperwork out of your fulfillment organization. "Every time you pass data from one system to another, if it's not electronically passed and smoothly integrated, you run the risk of being out of sync or of putting data errors in place by passing and re-keying," says Sean Rollings, senior director of B2B product marketing for Oracle.
This is where having a flexible CRM infrastructure becomes valuable. Rather than having to create a disconnected picture of the customer as delivery target, use what is already known about the customer from the relationship history.
Although unified databases and automatic data exchange generally cut costs, don't be afraid to look upon efficiency in fulfillment as a value-added component of the purchase, so long as the process is actually improved and the customer appreciates the benefits. The focus has to be on customer service, rather than on minimizing fulfillment costs, says Bittner. "If it costs them an extra 2 percent in transportation but you got it there on time rather than a week late, most will pay the extra 2 percent."
4. Make Customers Part of the Process.
The more customers can help themselves through the fulfillment process, the more everybody benefits. Go beyond simply providing convenient multichannel order options-offer a way for customers to help you as they help themselves.
Consider home delivery service Webvan, which delivers groceries and other products to homes in major cities across the country. When customers place a Webvan order, the site asks them to schedule a delivery slot (accurate to 30 minutes.) In addition to presenting a list of open times, a special greenhouse symbol appears next to those times when a delivery van will already be in the neighborhood. By encouraging customers to think environmentally, Webvan in turn enables its customers to optimize delivery routes on the fly, saving time when the master scheduler re-crunches the data.
According to Sanjay Uppal, vice president of solutions engineering and integration for Webvan Holdings, the constantly updated system allows them to make on-time deliveries with hundreds of vans across the country with 99.7 percent accuracy.
This also applies to customer-driven configurators, which need to be both easy to use and rigidly built to prevent a customer from requesting an impossible product, which can only end in disappointment for everyone involved.
5. Limit Exceptions.
Want to know how well the fulfillment group is operating? The success ratio of on-time deliveries to promised deliveries is a popular metric, but it only tells part of the story. If orders are only satisfactorily filled through Herculean, extra-curricular or otherwise costly special effort, there may be some serious problems with either the fulfillment plan or its execution.
"If you have a plan in place, yet you continue to make exceptions because you're not able to meet it, then that's obviously a sign that you don't have the right type of infrastructure in place or the right systems to leverage that infrastructure," says Jarrod Goentzel, director of product management for software developer CAPS Logistics.
Identifying and responding to exceptions requires careful CRM integration to properly tie in the complications in an order with the customer and the associated order process. "A lot of systems don't provide the right exceptions, driven from the fact that they have left out the customer interface piece," says Dan Burke, chief operating officer of transportation exchange Webmodal. "Once you develop that, you can drive reports and alarms based on customer-specific needs and drive exception reports and tools to the people, so that customers aren't finding out about problems prior to you identifying exceptions."
6. Manage Expectations.
A number of companies, both new economy and old, took heat in the 1999 Christmas season for failing to deliver orders. UPS's Rickles says that the problem was not fulfillment execution, but communication. "I believe that the number one reason people were upset is that false expectations were set, and notice of those false expectations were late in coming from some folks doing business over the Web," he says.
One of the worst possible outcomes is to over-promise and under-deliver. It's far better to be honest and up-front about your ability to execute any given order. "If you go to a retailer and the product's not there, you're disappointed, but it's not catastrophic-you'll probably return to that retailer," says Rickles. But by making commitments that cannot be met, "You've effectively taken that decision away from them," he says.
CRM tools need to have accurate insight not only into inventory, but into fulfillment capacity, as well. It does no good to know that a product is in stock if the warehouse is already running at 110 percent of peak capacity trying to fill orders on other items. And if a problem arises after an order is placed (especially important for offline, non-interactive orders such as fax and mail), the customer who sent that order must be immediately identified and notified.
Establishing realistic expectations is serious business. Even Amazon.com does not provide fully accurate, real-time inventory information. Customers are simply told that an item "usually" ships in a given time frame, which implies the in-stock or back-order situation. But taking extra care to set accurate expectations and adjust them on the fly can avert disastrous results.
Expectations among the fulfillment organization should be managed, as well. Fulfillment workers need to know what is expected if high-volume or other unusual circumstances arise and practice the revised operating plan. Rickles describes this process as "having a fire drill mentality-you've done it before and know what to do. That's where the biggest breakdowns happen."
7. Utilize Customer Forecasts.
The logistics dream is to be "just in time" on everything-getting inventory in when needed, turning it around quickly and only restocking with what will most certainly sell fast. But "just in time" doesn't work without collaborative forecasts, and that means getting both customers and suppliers in on the act.
Asking a customer for forecasts can be tricky-after all, customers may not want to give away their entire purchase plan and reduce their ability to negotiate. You'll have to apply your own standards and relationship history data to determine how many grains of salt should accompany self-professed purchasing forecasts, but giving customers the freedom to be very granular in their predictions certainly beats guesswork.
Webvan encourages customers to build a "personal market" of the products they are most likely to buy on a regular basis. "Eighty to 90 percent of the purchases and subsequent orders are made out of that personal market," says Webvan's Uppal. And because Webvan's grocery business banks on routine, repeat purchases, "It helps us predict what we should be purchasing, and it also helps the customer. They can place their entire order in a few clicks."
Sharing fulfillment data upstream also helps suppliers understand the trickle-down demand for their products, particularly in configuration or outsourced manufacturing environments. If that means sharing some of your core order data, don't dismiss the notion out of hand. A Wharton study published in the August 2000 issue of Management Science indicates that simply sharing retail inventory data throughout the supply chain results in an average 2.2 percent cost savings-humble, but significant. Watch for the spread of XML to make this uniform data exchange feasible between suppliers and vendors of all shapes and sizes.
8. Value Experience.
From software support to logistics partners, bet on experience every time-and by extension, be wary of untested methodologies.
"Until you've been through a holiday season, you really don't know what it's like to take care of customers who absolutely need it the next day," says Bob Bowman, CEO of overnight e-tail specialist Outpost.com. In a nutshell, that means any new logistics management system or outsourcing provider is only as good as its last high-volume crisis situation.
When selecting an outsourced fulfillment vendor, make sure that you hire experience but maintain control of the business relationship. "It would be a mistake to outsource all the control: You need someone in the organization monitoring what's happening and who is involved in the process, or you lost control of the last bit of customer service in your organization," says CAPS Logistics' Goentzel.
Also keep in mind that if you allow your fulfillment provider to dictate your competitive advantage, you open yourself up to competitive assaults you may be powerless to prevent. "If I were going to use fulfillment as a strategic advantage, I would insource it," says Ed Yates, vice president of marketing for logistics service provider Sameday.com. Because a competitor can likely secure the same services at the same price from the same vendor (barring exclusivity agreements), outsourced fulfillment may not be the best platform to support a core value proposition.
9. Establish a Returns Fulfillment strategy.
How you take product back from customers may be even more important to your long-term relationship than how you got it out to them in the first place.
Consider adopting a self-service return policy, including a return shipping label and return materials code on every invoice or packing slip. Instead of worrying about projecting a subliminal negative message ("There will probably be something wrong with your order, that's why we need to make the return process easy"), these companies reap the obvious benefits-customers who can solve their own problems quickly and without introducing any extra interaction costs for the firm. Plus, the entire order history can be automatically tied to the return number when it is generated, eliminating the need to tie the transaction back to the problem after the return is requested.
"It's easy for the customer; you can credit the customer much more quickly, and the advantage is you have control," says Stephen Hamlin, vice president of operations for iQVC, the online sister of television shopping giant QVC. He explains that offline return authorization processes are less efficient, with greater potential for error.
Because return shipping costs can quickly become prohibitive, look for ways to aggregate return efforts nationwide. JCPenney already offers a pick-up and return desk service for catalog orders through its chain of Eckerd drugstores, which have deeper neighborhood penetration in some markets than JCPenney department stores. According to Larry Delaney, market director at software developer MapInfo, other major catalog merchants like L.L. Bean and Lands' End are planning to build return site partnerships with large supermarket chains to provide more convenient (and cost-effective) return service.
10. Make Bite-Sized Changes.
"You will make mistakes, you will mess something up, so plan for it now," advises META Group's Shahnam. The key to adjusting fulfillment processes is to work in small doses, since it is rarely a viable option simply to shut down product shipments until the problem is corrected.
Similarly, taking a guess-and-test approach to problem solving across the board could prove fatal if the fix doesn't take. "start small, you don't have to risk everything up front," says Shahnam. When a new procedure or efficiency-boosting tool presents itself, test the performance with a predefined customer group. "Pick a customer pattern, don't pick the entire customer base, and don't pick the entire fulfillment organization," she says. "You can pick customer value, pain or maybe the ones who are complaining the most. Learn along the way, then build up to the rest of your customer base [if the solution works.]"
Simply listening to customers may be the best way to identify these incremental segment changes. "Customers don't change shipping patterns dramatically every day, but they may have small, subtle changes that make it easier," says Webmodal's Burke. "It's the responsibility of the person selling the product, and the customer service end maintaining that relationship, to ask for the feedback they desperately need."