Tuesday 3rd Sep 2019 - Logistics & Supply Chain

Direct action

The overriding trend in 2003 will be a gradual closing of the IT gap between thinking and reality. The thinking is that direct-to-consumer businesses can meet their customers’ equirements using their existing systems and infrastructure. The reality is quite different.

Most existing systems lack the flexibility to enable companies to respond to anything but a standard order, even though most vendors claim to be able to give their customers the flexibility to pick the routes, tariffs and delivery times they need while delivering the service at a profit.

But there is no longer such a thing as a ‘standard’ order: for each customer there is now a specific order – by product, specification, packaging, delivery address, time of delivery. This complexity is exacerbated by the fact that order returns are no longer the exception but are now the rule. The average order management system can handle the average order, but, as soon as it has to cope with a return, two of the companies’ most precious assets – time and money – start to get wasted. Worse, the customer is dissatisfied as things go wrong.

Companies have also robbed themselves of flexibility in their choice of carrier. Preferring to deal with a single supplier, they have generally put all their business to the lowest cost carrier, or the carrier able to offer guaranteed nextday delivery. However, carriers all have particular areas of specialisation, or relative expertise. They cannot be all things to each customer. Any diversion away from their core service, and not only can the costs go up, but the delivery date or time is no longer certain.

The result is that the selling company cannot provide the service it has promised to its customer, and even where it is able to, chances are that it has lost all the profit on the order by having to respond to unusual requests – eg, returns, lates or damages, additional customer queries into the call centre and so on.

And the problem has just got worse.

The third-party carrier industry that once claimed to be able to serve the market’s needs is in disarray, just as, over the Christmas period, it has been important that the direct to consumer business convince both customers and shareholders it can continue to be a mainstream retail channel.

In September 2002, a number of large carriers cancelled a number of services on the basis that they could no longer make money on those routes, delivery times and tariffs. The result was that some companies were left with no option but to find an alternative supplier. This proved difficult, because most carriers are reassessing their services, withdrawing from promises that they find unprofitable or impossible to keep.

This propelled a number of companies into the chaos of spiralling costs and falling customer service.

Most have had no choice but to pass the costs onto customers, another blow to an already fragile industry that is still working hard to live up to the hype it unwillingly took on five years ago, when it was predicted that direct to consumer retailing would spell the end of the shop as we knew it.

The fact is that customers actually expect better service that they get in stores – they want a perfect mix of choice, low prices and guaranteed delivery at times that suit them. But is it possible to offer this perfect combination, let alone make money?

The answer is yes, but few retailers have the systems that will enable them to do this.

In 2001 and 2002, the focus was on the e-fulfilment supply chain. Companies proceeded to automate those parts of the supply chain for which technology was available.

This resulted in partial automation, which was able to respond adequately to the needs of the average order. With the trend now towards customised order processing, systems are emerging to handle the entire supply chain, including the activities of third parties, notably carriers, with flexibility built in that can manage the most unusual order as a standard order.

The technology is already available, but the shift in thinking is only now starting to take place.

Patrick Wall is CEO of MetaPack.

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