Magazine Article | September 17, 2008

Small-Parcel Fulfillment Finesse

Source: Innovative Retail Technologies

When contemplating fulfillment options, business costs and customer expectations should come first.

Integrated Solutions For Retailers, October 2008

When Jane Glazer founded QCI Direct, formerly Home Trends Catalog, 25 years ago, postage was $0.10 and there was no public Internet. She spent $15,000 to print and mail a catalog from her Rochester, NY home, and she shipped the home cleaning supplies she sold in used boxes from nearby Kodak. Today, Glazer oversees a multimillion-dollar mail order and Internet business that mails 45 million catalogs annually and ships 20,000 packages per week. We caught up with Glazer and asked her a few questions about how QCI Direct fulfills orders. Here's what she had to say, with commentary from Mike Twomey, CFO at Newgistics, which provides fulfillment services to the retailer.

What challenges are cross-channel retailers facing in terms of their fulfillment strategies?
Glazer: Our customers are 60 and older, primarily women at home. When we would say to them in the past, "You'll receive your order in five to six business days," they would call us on Monday and say, "I ordered it last Tuesday; I don't understand why it's not here." They don't think in terms of business days. So Newgistics enabled Saturday delivery, an enormous boost for us considering the demographic we serve. If a customer calls on Wednesday and says they want three-day priority, most big box retailers won't have the order there until Monday. Ours will get there on Saturday. That's a customer service differentiator, especially for our target demographic.

Customers in our demographic will also frequently give us an address that sounds perfectly legitimate to us, but isn't quite accurate for shipping purposes. For instance, a customer might give us the address 120 West South Avenue, when the address is actually 120 South Avenue West. Many logistics providers charge in the neighborhood of $6 to correct these mistakes, and this was costing us nearly $1,000 per week. Newgistics doesn't charge that correction fee because that's not what the Post Office does.

The economy is also a big challenge. Consumers know there are many places they can go to find the same or similar products. So the uniqueness of your product is much more important than it was a few years ago. Convenience is a factor, but consumers have lots of choices for convenience. There were no 800 numbers 20 years ago. Consumers used to mail checks and wait for their packages. Today, people order on the phone or the Web, and they want to know if it's been shipped in 24 hours.

Twomey: One of the biggest challenges for retailers, especially e-tailers and catalog businesses, is controlling costs while maintaining a high level of service. Rising fuel costs is the single highest cost element for some products' transportation. 

How are retailers and transportation logistics providers dealing with higher transportation costs?
We're going to choose the provider that gives us the best price, because price is so important. Anyone in this business is feeling it. Fulfillment is everything to our business, and we ship approximately 20,000 packages per week. We're keenly aware of that expense.

Twomey: Many retailers are using transportation services providers to help manage their costs. The retailers look for predictable pricing including increases related to fuel. They are also looking to reduce costs by doing less air and more truck and LTL (less-than-truckload) movements. USPS solutions are providing alternative low-cost solutions.

Postal solutions, combined with transportation service partners' capabilities, have improved delivery cycle times and package tracking capabilities to compete with the expedited solutions.

How can a logistics approach help a retailer increase sales, offer more efficient service, or aid in customer problem solving?
Glazer: Our fulfillment approach is directly connected to customer satisfaction because it's the key element of our model. The ability to deliver on Saturday is very important, assuring our customers that their products will be delivered right on time. The psychological impact of having packages delivered with their mail is also important, so that our customers avoid feeling like they've missed a package. Customer service calls to our 60-seat call center have gone down as a result, because packages are being received in a more timely fashion.

Twomey: The right fulfillment approach can help retailers improve customer service in many ways, but it will primarily:
n Provide the ability for customers to track packages in real time
n Provide customers with choices for their transportation decisions so that they can control costs and select the delivery service that meets their individual needs
n Make an easy, hassle-free returns policy part of the sale to the customer, including providing prepaid labels in the box to allow an easy return

What are some common mistakes seen on the logistics side of the retail supply chain?
Many retailers are only looking at base rate tables to understand their transportation costs. They don't understand that some transportation service providers include significant surcharges such as residential and rural area surcharges. These surcharges alone can increase shipment cost by $4.25 per package.

Retailers need to look at the complete life cycle of a package; ownership of the package does not end at the point of shipping to the customer. They also need to provide an easy returns process and visibility for the entire process.

How are those mistakes corrected?
Customers using a USPS solution eliminate hidden surcharges. Retailers should also take care to choose providers that allow them to manage their customers' experiences from beginning to end, including managing the returns experience.

What further enhancements can we expect from transportation logistics solutions in the near future?
We're looking into returns management, but it's not a huge priority because our returns are only running at 3.5%. For now, we're more interested in the efficiency of getting packages out to customers and not worrying so much about returns.

We've been talking about having an East Coast truck and a West Coast truck. As things get bigger, we've been considering sending merchandise directly to the West Coast, eliminating a transfer along the way.  This would make customers even happier, because it would eliminate a day or two of delivery for customers.

Twomey: We will continue to see technology play a big role in improving the processing of shipments and returns. For example, with the USPS, implementation of eVS (electronic verification system) manifesting eliminates the need for manual manifesting and improves cycle time by several hours. More and more retailers will turn to transportation service providers who have integrated with eVS and the leading retail distribution systems for seamless processing.

We will continue to see improvements coming from USPS as the full force of postal reform takes effect. This will allow it to offer more competitive solutions and work more closely with transportation service partners.