Articles & Whitepapers

Fall/Holiday 2008 Results

Jeffrey Barry — Tue, 10 Apr 2012 14:20:00 GMT

Like many of you, we’ve spent the past two weeks talking with our clients about the results of Fall/Holiday 2008. Here is what we are hearing, along with what our clients think the outlook for 2009 is and some things you can do immediately to further reduce expenses.

Holiday sales for retail and direct industries. After all the media flap about the weak Holiday season as it progressed, no one can be surprised that it ranks as one of the worst Holiday seasons in the last 30 years. In their September 2008 Holiday forecast, National Retail Federation (NRF) estimated sales would be up 1% to 3% over last year. At the NRF event this week, we heard estimates that many retailers will finish 5% to 8% below the previous year, which is obviously a disaster. This will lead to a record number of small and large businesses exiting the retail and direct space. In the past 6 months there have already been a record number of retail store closings from bankruptcies.

Catalog has a broken business model. We feel there are two major issues that have changed the business model for cataloging:

Prospecting has been on a 10-year decline in response rates. Renting and exchanging lists as a prospecting practice has totally been destroyed by the co-op databases. Co-ops overall are the major game in town for prospecting, but many of the senior management we talk to are concerned that co-op response rates are not as strong as they were. Is there over-saturation of mailings by co-op users, along with the bombardment of e-mail campaigns?

Continual increase in postage costs. As a result of the postal reform of the last few years, USPS has a mandate to make money and the ability to almost automatically increase postal rates annually. Many of our clients had postage increases of 20% to 24%. At one client we worked with last week, their postage costs are now 33% of the total cost to create and mail catalogs.

Highly promotional offers and high use of free shipping. We have just completed an in-depth study of free shipping practices during Fall/Holiday 2008. The study is featured in February’s Multichannel Merchant magazine. Clearly, this Holiday season was characterized by highly promotional pricing and free shipping. A number of clients interviewed mentioned they got poor results to e-mail promotions unless they offered a strong promotional incentive such as free shipping.

Suffice it to say that consumers were opportunistic with their purchases, looking for true bargains at the retailer’s expense.

What businesses did well? Customers pulled back on discretionary spending and reduced gift-giving this past season. There were some discounters, promotionally priced and value priced businesses that did well. Two we have all heard about in the press are Wal-Mart and Amazon. We have one large client that is off price/value priced, and had order increases over 40%. Obviously, off-priced businesses that sell overstocks will have great selection to choose from and should continue to see strong sales.

A number of our business-to-business catalog clients saw a slowing of sales for the first time starting in October, and they finished 2% to 7% off plan.

Then we have a surprise: A number of smaller e-commerce pure plays we have talked to seem to have had major sales percentage growth. My guess is that they are truly niche businesses with unique products, whose customers cannot find the same or equivalent product elsewhere. Also, in a small business it’s easy to see double-digit growth, because the “last year” number is small. But not to take anything away from them, they are not significantly off plan. And because they are not print catalog or list prospecting oriented, they aren’t suffering from the issues we discussed earlier.

However, many of our gift, fashion apparel and general merchandise clients finished 10% to 25% below plan, which meant many ended below 2007. Plans in even the most aggressive companies may have only been up 5% to 10% over 2007. Circulation plans had been cut because of the postage increases.

Outlook for 2009. The industry leaders we work with—retail and direct companies, venture capital and finance people—expect the downturn to get worse in the first half of 2009 and last 12 to 18 months longer. One retail client with over 500 stores told me at NRF that they are planning, from a financial perspective, that sales for the next two years will be down.

Given the seriousness of the downturn, our major challenge is how to plan 2009 in terms of number of products and pages circulated. We all know that if we reduce pages and products to reduce costs, we decrease revenue further and really shoot ourselves in the foot.

For many businesses, it will be a time of trying to survive.

Another big worry many companies will have is the lack of growth in the 12-month buyer files. Many companies will now have had two Holidays with the 12-month buyer count smaller than 2006.

The downturn, as we all know, is worldwide. We are hearing from clients who have been in the markets here and overseas recently that many of their smaller resources are in trouble and will probably close. And an even bigger issue is that there does not seem to be a lot of new product being offered.

Reducing Expenses. There are many resources on our website (www.fcbco.com), both in the articles and blog, that can help you to reduce expenses. Also, there is an article entitled “70+ Cost Reduction and Productivity Improvement Ideas” which is a good thought jogger for cost reduction and efficiency improvement.

Here are some current projects for which F. Curtis Barry & Company is engaged by clients looking to reduce expenses:

Perform an assessment of how to further reduce call center and fulfillment costs
Determine whether inbound and outbound shipping costs can be further re-negotiated
Do an inventory assessment to determine how to improve inventory forecasting and management strategies
Look at whether outsourcing call center and/or fulfillment can reduce costs

Feel free to call me today to talk through any or all of these ideas.

These are tough times for sure. But it’s also in this time of uncertainty that the smart and well-financed companies will pick up market share.

F. Curtis Barry & Company is a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.

In the Wake of Disaster…Do You Have a Plan?

cbarry@fcbco.com (Curt Barry) — Tue, 10 Apr 2012 13:46:00 GMT

Maybe your business is not located in a hurricane zone or tornado alley but they aren't the only natural disasters that can occur that dramatically affect a business. When something devastating occurs weather related or not, it demonstrates just how important it is to have a disaster plan in place. You have to be ready for the unexpected.

If you think something like this can’t happen to your business, think again. Here are a few stories of direct marketing industry companies that were hit with disasters – and survived thanks to having a disaster plan in place before the disaster event occurred.

2004 Hurricane Season: When the staff at Global Response, a call center in Margate, FL, saw the weather reports indicating that Hurricane Frances might be headed their way, they sprung into action. “We immediately set up conference calls with our clients to notify them in advance of our contingency plans in case of the weather,” recalls Barbara Turner, director of operations. “We had a document for each client indicating what they wanted us to do in the event that we experienced any weather-related difficulties.”

Being based in Florida, Global Response says it has always maintained a Disaster Plan, including a Command Team of key employees in the operations and IT departments who were on-call and meeting several times each day during the crisis. In addition, a Volunteer List was established, comprised of staff people who were willing to stay on site at the call center and work around the clock during the storm. For many staff people, this was actually a blessing, says Turner, who explains, “Our facility is actually a designated shelter, and many of our staff people live in mobile homes. So we welcomed them to stay on site and even bring their families to work. We had other employees who volunteered to run day care and entertain the kids since the schools were closed.”

Adds company CEO Herman Shooster, “Our buildings are like a fortress. None of our technology is on the perimeter, so all of the operations are safe. And there is food and water for all the staff inside. It is a safe place for everyone to remain during the storm.”

Though Global Response never experienced any outages during the September storms, Frances, or Jeanne--which also impacted the area later that same month – the company is pleased with how well it came through the disaster. It received several complimentary calls and e-mails from catalog clients and even received flowers from one client. Global Response says the bottom line was its customers were pleased that that it stayed on top of the situation and kept them informed during a difficult time.

Winter Snowstorm: In February of 2003 heavy snowfall on the East Coast caused the roof to collapse on a roughly 80,000-square foot section at ClientLogic Marketing and Communications’ Dover, DE, facility. The company immediately established a recovery team to evaluate the damage and set up a command center at the Dover Sheraton Hotel to keep employees informed as to the developing situation, the Dover Post reported.

Earthquakes Rock the West: It was in 2001 that an earthquake measuring 6.8 on the Richter scale rocked the Seattle area, causing power outages and some damage to area businesses. Recreational Equipment Inc. (REI) catalog, for instance, went without electricity for several hours, according to Catalog Age magazine. The fact that the company had a backup generator for its Web site meant online business could continue without interruption. However, Help Desk staff had to evacuate while the building was being checked for damage, so a message went out that operators were temporarily unavailable to assist customers due to an earthquake.

But not all companies are as ready for disaster as these companies were. In fact, more than one-third of the world’s leading companies report they are not sufficiently prepared to protect top revenue sources, according to the 2003 Protecting Value Study. In addition, 100 percent of the companies surveyed report a major disruption to a top revenue source would have a negative impact on earnings, with 28 percent stating such an event would threaten business continuity.

The study, by commercial and industrial property insurer FM Global, the Financial Executives Research Foundation and the National Association of Corporate Treasurers (NACT), polled nearly 400 CFOs, treasurers and risk managers at U.S. and international companies across a variety of industries. Among the other findings of the second annual study:

80% of companies report no significant shift in their risk management outlook post-9/11, either strategically or operationally.
88% of financial executives say their companies’ level of preparation to recover from a major disruption to a top revenue source is “less than excellent.”
59 percent of the companies participating in the study report the greatest impact on revenue sources would derive from property-related hazards, including fire or explosion, natural disaster, terrorism, theft, mechanical or electrical breakdown, service disruption, a supply shortage, labor strike or cybercrime.

This last threat brings up an important point to note: Nowadays, you must also add in the Internet risks such as viruses, worms, spam and intentional hackers. Therefore, strategies that protected your company from disaster 10 years ago may not be sufficient today. You must review your Disaster Recovery Plan and see if it has stood the test of time and takes into consideration all of the current technological possibilities.

Another urgent message to companies is you have to practice your Disaster Recovery Plan. Ask yourself, is it executable? Has your plan been updated periodically? Only if you check it regularly and test it will you know it is going to work when you really do need it one day in an emergency situation.

How well are you managing your inventory?

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 12:41:00 GMT

Inventory is most likely the largest balance sheet asset in your company. How well you plan, purchase, and manage your inventory largely determines your level of customer service and profits.

But selling goods in multiple channels means dealing with channel-specific planning and inventory needs.

Based on our consulting work with clients and observations from conducting the F. Curtis Barry & Co. Inventory ShareGroups, we've come up with some strategies to consider with multichannel inventory management.

Planning and inventory systems

In most companies, the systems for merchandise planning and inventory control remain highly fragmented by channel.

For promotional planning, many multichannel companies need to be more diligent and use a single promotional calendar rather than channel-specific schedules on which merchandise planning is based. These should include in-store promotions, catalogs, and e-mail campaigns.

Detailed channel-level inventory systems cater more to individual channel planning and inventory needs. In retail, assortment planning is performed by merchandise division, department, class, and product/SKU, with another view by region, store level, and product/SKU plans. Large retailers also have store replenishment systems to recommend restocking orders for retail locations.

For most direct companies, assortment planning differs from retail; it's by catalog season, drop, department, class, and product/SKU. The data elements — though similar to retail — have some major differences, using demand, cancellations, returns, space used by category (pages, square inches, depictions), and other direct metrics. Most direct companies have not invested in formalized systems and are using internally developed systems or, more likely, spreadsheets.

Emerging direct businesses with stores don't have comprehensive retail planning systems. Often they can't justify the investment and use spreadsheets or other elementary systems more effectively. But there is a huge potential for sales and profit improvement through better planning.

To get results to flow through corporate planning, inventory and accounting systems, large retail companies identify top level plans, sales and inventory results and display as a store: “catalog store,” “Internet store,” or maybe the direct business combined as a store.

Many companies have tried to use channel-oriented planning and inventory systems (i.e., retail designed or direct designed) for other channels. But these have been less than successful due to the differences in views of the data (e.g., region and store) and the types of detailed data mentioned above.

Internet inventory management philosophies are slowly evolving in most companies. Traditional catalogers now average more than 50% of sales from the Internet, although much of that business is generated by receipt of the catalog.

Products may be active and available longer if there is stock. What sells online is heavily influenced by placement on landing pages and organization and ranking within category product searches.

The online product assortment can be more extensive than that in a single catalog. Internet may have a total chain assortment different from any one store or region. The Website may have a clearance or liquidation aspect. These principles of planning and managing inventory are not industry established best practices, but are being hammered out in the trenches every day.

From a purchasing perspective, companies are rolling multiple channel plans and forecasts together into a single purchase order management system to write Pos.

The eventual multichannel inventory system that evolves will be a new animal. It will need to be a blend of channel-specific function (such as store replenishment logic for reorderable product) and direct (such as promotional and time-based elements more like catalog).

It will also have a single inventory system that can be displayed by product/SKU and allow you to see the plan by channel and promotion, vendor on-order and on-hand by store, and warehouse location. The planning modules will remain channel specific.

When will there be true integrated systems for planning and inventory systems? For most companies, not any time soon. Retail and direct channels have different data needs and processes. It will probably be a few years before commercial software companies that cater to retail and direct have the most basic of systems in place. MICROS Retail, Direct Tech, and Manhattan Associates all have development projects to bring channels together in terms of planning and inventory systems.

Channel Inventory – a distribution view

With all the complexities of planning and inventory control, how are distribution centers accommodating the channels? When multichannel marketing was in its infancy more than a decade ago, the prevalent thinking was to have a single DC that would process both direct and retail replenishment orders. There would be one pooled inventory, one staff and one facility — end of discussion. But logistics thinking is changing.

Looking at the chart “How nine merchants manage distribution” on page 35, the last column on the right shows whether a company dedicates one or more DCs to direct, has separate retail DCs or uses shared facilities between channels.

For example, Companies B and C have multiple distribution centers dedicated to direct orders, and other centers for stores. These two companies' objectives are to shorten the delivery time to the customer and reduce transportation costs to cover the entire country.

But to accomplish this, they have the additional overhead of multiple facilities and staffing, and their warehouse management and order management must be capable of managing multiple inventories and allocating and filling orders.

Adding a second direct DC adds at least 40% more inventory, and sometimes goes even higher. Plus, opening multiple DCs presents a management challenge of transplanting your culture and company philosophy to a totally new group of employees.

As e-commerce in retail companies has grown substantially, logistics management has come to realize that picking, packing, and shipping of small orders is very different from full-carton replenishment to stores. With large volumes it may prove to be more efficient to have dedicated centers for direct.

Company I is a manufacturer with 50 stores and an e-commerce and catalog business unit. It also picks from stores where fast-selling products can be allocated, and the stores ship. The downside to this is that stores are begrudgingly giving up best-selling product. The company's philosophy is to achieve high fulfillment of customer orders, to leverage inventory and to maximize sales.

Another of the real drivers behind this shift is the realization that without having separate sales and stock plans, there is no accountability by business units to make their sales plans. So if the first unit to allocate inventory gets the stock, then there may not be inventory for later drops of a catalog, e-mail campaigns, initial stocks to open stores, etc.

Other companies use a “virtual inventory” concept, not in the sense of drop-shipping, but of the inventory system being able to keep planned sales by product and SKU by channel, and being able to reserve inventory for the channel business unit.

So if quantity of a product is 5,000 and 3,000 is for retail, 1,000 for Web and 1,000 for catalog, while the inventory is housed together in the same bulk and forward allocations, the inventory system keeps each channel's inventory protected. In this way business units are in control of their sales and stock performance.

Importing’s effect

Where we source product is also changing how we can plan and manage it. Much of the multichannel world relies on imported product. Even if you buy from a domestic distributor, chances are that merchandise is imported.

The initial markup, and hopefully the maintained gross margin, is significantly higher to offset the negatives that are cropping up in many businesses. The vendor minimums (often in thousands of pieces) are forcing companies to plan to use product in multiple seasons, leading to higher inventory investment and carrying costs. Long lead times (some below 13 weeks, but most 18-23 weeks) mean that purchase orders are placed long before the promotional planning is finalized, resulting in too much or insufficient stock. Using new products that are imports may lead to large overstocks if a product fails to sell as projected.

Additionally, companies may not be looking at a fully loaded product cost including agent's/broker's fees, demurrage, duty rate, product development costs, and buyer's travel. Couple that with warehouse storage space requirements for container size receipts and the inventory carrying costs. All of this leads to higher inventory and carrying costs and slower turnover.

What to do about it?

Use mixed container loading, where appropriate.
Weigh the increase in per unit cost to take smaller quantities.
Move the entire merchandise and creative planning calendar for promotions back and do each season earlier (no easy task).
Challenge merchants to look Stateside to try to get the product with smaller quantities, or to develop product in the U.S. and later roll it out off-shore if it sells.
Tackle the issue of accounting for all the product costs to be sure you have an accurate, fully loaded cost and sufficient initial markup without being overstocked.

Liquidating overstocks

Inventory that doesn't sell and liquidation are two dreaded aspects to merchandising. Because you have to take in larger imported orders and distribute to more channels, you need a cost effective strategy for in-season liquidation and clearance.

In a cost-based system it's hard to determine how much gross margin is lost in marking down retail prices. Our experience is that it may represent 2% to 4% of net sales at least.

What to do about it?

Develop a liquidation strategy. Options include clearance catalogs, Web specials, bind-in or package inserts, sales pages, and telephone offers.
Develop a report showing candidates for liquidation based on rate of sale.
Develop an age of inventory report that will age products in time brackets (30 days, etc.) to stay on top of inventory.

Vendor compliance and supply chain

In most multichannel businesses the size of the product assortment and vendor base have grown dramatically. Supply chains have become increasingly complex with modes of transportation, importing, retail versus direct packaging, technology used in the supply chain and DCs, etc. All this necessitates setting standards with vendors so that you aren't working on an exception basis with every one.

Vendor compliance is at the heart of efficient supply chain management. Routing inbound shipments to reduce costs and scheduling inbound appointments can help speed product flow through the DC, significantly helping in turn to reduce inventory levels. Automating the supply chain through advanced shipping notifications (ASNs), RFID, and cross-docking to stores can go a long way toward reducing costs, but these cannot be implemented without a comprehensive vendor compliance policy.

Start small by communicating your company vision, the need for on-time delivery, routing guides, inbound dock standards like carton labeling, product specifications, accounting and paperwork requirements, contact list, and the costs of back orders. Begin a charge-back policy and implement it with your largest vendors. Later, you can add other items that are typically included, such as service level standards, packaging, labeling, case labeling, valued and value-added services, logistical requirements, scheduling appointments, cross-docking and direct-to-store requirements, charge back for non-compliance, etc.

The trend is to push compliance back up the supply chain. This means as many value-added services as possible — packaging, marking, quality inspections — performed by vendors or merchant reps in factories. Catching errors at the source and using source-based services speeds inventory flow, and any such issues are cheaper to deal with in the vendor's environment.

Organization overview

In larger retail specialty stores, merchandising is a separate organization from distributors or allocators who plan, manage and liquidate inventory. Merchants select and source product. Distributors or allocators determine the quantity of product that goes to which stores, generally the quantity to purchase and reorder and when to take markdowns.

In department stores, buyers may still do the selection, vendor sourcing, and inventory control as a team divided into categories or departments. But larger retail businesses have adopted the distributor/allocator model.

While the same group of merchants may select product for a multichannel business, store inventories and direct channels may be managed by separate inventory control groups.

Ten years ago, many companies had separate merchants for e-commerce. Today, there are positions called Internet merchandising, but they're more about how to depict product on the Website. Merchants and inventory control source, purchase, and manage most assortments.

In direct companies, inventory control is also split from merchandising (product selection and sourcing). The concept is that a separate group will have more time to manage and analyze inventory and place rebuys. Inventory control is where much of the everyday vendor communication on purchases, deliveries and compliance resides. The reality is that inventory control may be more attuned to working with advanced systems and analysis.

Many multichannel merchants today are hiring a forecaster rather than have each control buyer do the forecasting. An evolving business model has inventory control reviewing marketing's projections, getting their input and adjusting their projection systems to what they feel the plan is — if they feel that the catalog is faster or slower — to calculate more accurate inventory rebuy requirements.

Accountability for inventory

There are many inventory metrics that retail and multichannel businesses measure. Because the channels are different, the metrics vary. Here are a few of the major ones.

Retail: sales and stock plans; weeks of supply; store service levels (stock outs); turnover; gross margin return on investment (GMROI); returns; markdowns or write down plans; age of inventory; new store inventory coverage.

Catalog and e-commerce: sales and stock plans; turnover; gross margin return on investment (GMROI); cancellations; returns; markdowns or write downs; age of inventory; initial customer order fill rates; final order fill rates; coverage percentage when catalog mails.

The overall accountability of merchants, buyers and inventory managers for sales and inventory is important, since inventory is the largest single balance sheet asset, and how it's planned, managed and deployed largely determines customer service and profitability. Building some of the key measures into individual performance evaluations of buyers and inventory control personnel is essential.

This is old hat for large retailers, but direct marketers are implementing more metrics each year. Inventory management and its business models must evolve to meet multichannel growth.

HOW NINE MERCHANTS MANAGE DISTRIBUTION
	BUSINESS	TOTAL SALES AND % DIRECT	TOTAL ASSORTMENT (ACTIVE SKUS ANNUALLY)	SHARED DCS BETWEEN CHANNELS?
Company A	General merchant, 200+ stores	>$3 billion, 5% direct	>100,000 SKUs	1 DC dedicated for direct; multiple retail DCs
Company B	Sporting goods, 50+ stores	>$2 billion, 25% direct	>100,000 SKUs	3 DCs shared, all channels
Company C	General merchant, 200+ stores	>$5 billion, 10% direct	>100,000 SKUs	3 DCs dedicated to direct; multiple retail DCs
Company D	Women's apparel, 100+ stores	>$1 billion, 20% direct	25,000 SKUs	1 DC dedicated to direct; 1 DC retail
Company E	Manufacturer, 50+ stores	>$1 billion, 20% direct	40,000 SKUs (apparel)	1 DC shared all channels
Company F	Specialty apparel, 100+ stores	>$1 billion, 15% direct	25,000 SKUs	1 DC dedicated to direct; multiple retail DCs
Company G	Home and gifts, 50+ stores	>$750 million, 15% direct	25,000 SKUs	1 DC shared all channels
Company H	Gifts and tabletop, 30 stores	>$100 million, 25% direct	10,000 SKUs	1 DC shared all channels
Company I	Manufacturer, 50 stores	>$100 million, 15% direct	10,000 SKUs (women's and men's apparel)	1 DC shared for wholesale, retail, direct; some direct fulfillment from stores
As you can see from this chart of nine multichannel merchants, each with three or more channels, Companies B and C have three DCs across the country where direct orders are filled. Company C also fills store orders from the three DCs. Companies B and C are shortening the transportation time and cost to cover the entire country. But they have multiple DCs and staff, and have warehouse management and inventory systems that control order management for multiple facilities. Source: F. Curtis Barry & Co.

Why Importing Raises IRE

Most merchants couldn't stay in business without the margins that imported goods provide. But importing creates hardships in higher inventory and carrying costs. Imports also contribute to slower turnover, according to one vice president of inventory control for a large home decor merchant: “I don't have exact figures, but there is absolutely a relationship between increased importing and decreased turns. I know several other direct marketers who have experienced this,” the VP says.

The decor marketer, which is about 40% imported, has also seen a significant increase of importing tax. What's more, “the past several years during peak spring receipts, we experienced backlogs at the receiving docks of several weeks,” he adds. “The merchandise is especially bulky furniture and outdoor products, and very little could be done to flow goods in to prevent this.” This cost the company thousands in surcharges for delays and backorders.

“It is often a difficult sell to the merchants, but I am a proponent of bringing a percentage of spring/summer merchandise in beginning January 1 to help alleviate some of the surge,” the VP notes. Importing spring goods is often compounded by Chinese New Year (in late January or sometime in February), as many people in China take weeks off from work to prepare for and celebrate the holiday.

Importing heavily can certainly hit cash and backorder hard as well. When calculating/considering the retail price, merchants need to use a larger markdown percent for imported goods to accommodate for these extra expenses. “Five percent off the retail price is a good starting point,” according to the VP.

Keeping Vendors Compliant

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 12:37:00 GMT

A formal compliance program can help reduce costs

How important is vendor compliance? Imagine the following scenario: An apparel retailer's shipment of dresses for a catalog drop arrives late; in the meantime, hundreds of customer orders have gone on back order. Or how about this one: A hardware merchant finds that a shipment of tools has reached the distribution center — but the products are all the wrong sizes, because the factory failed to label them correctly.

These are the sorts of issues that vendor compliance policies seek to eliminate. Although it cannot eliminate every possible problem, a well-thought-out formal policy can protect you by specifying sanctions and charge-backs for vendors' mistakes.

While picking, packing, and shipping are the final steps in making sure customers get what they ordered, a truly efficient direct merchant will have planned to eliminate as many potential pitfalls as possible long before the merchandise is pulled off the shelf in the DC. At any significant scale of operation, the relationship between merchant and vendor has to run on more-structured and stringent guidelines than mutual trust. Companies without vendor compliance policies run a much greater risk of snafus than those that have spent the time it takes to develop detailed guidelines.

The Challenge

There's no doubt that rationalizing vendor relations poses a significant challenge to the retailer. All direct marketers receive goods from offshore and/or domestic vendors. Most merchants have to handle inbound consolidation of product from multiple vendors; multichannel merchants may need to cross-dock shipments directly to stores without opening, inspecting, or repackaging them. All merchants use reverse logistics to consolidate their inevitable returns, and many may also be faced with such complex, vendor-related logistics as warehouse-to-warehouse transfers, vendor-direct-to-store shipments, or merchandise shipped from a vendor to the closest warehouse that then must be allocated to other warehouses.

So it's easy to see why vendor compliance is at the heart of efficient supply chain management. Routing inbound shipments to reduce costs and scheduling inbound appointments can help speed product flow through the DC, significantly helping in turn to reduce inventory levels. Automating the supply chain through advanced shipping notifications (ASNs), RFID, and cross-docking to stores can go a long way to reducing costs, but these measures are not a substitute for a comprehensive vendor compliance policy.

Considering that labor accounts for 50% of the cost per order, anything a merchant can do to reduce the number of times product is touched — by way of repackaging, marking, and inspection, for instance — will help to reduce those costs. Domestic inbound freight accounts for 2%-4% of the cost of goods sold. Although offshore sourcing costs are higher, the increased margin pays for freight and product development costs. Some industries are especially prone to high labor costs. Because of the high return rates in the apparel industry, for example, costs for receiving and returns can be as much as 30%-35% of a DC's total direct labor costs.

All Aboard

Establishing and monitoring vendor compliance is a team effort among the merchandising, operations, finance, and inventory control departments. Everyone has to be in agreement. In fact, a frequent obstacle to implementing vendor compliance programs is that merchants are afraid that a more comprehensive and careful accounting may upset vendor relationships that [What you need to know to implement an effective vendor compliance program] they have worked to develop. The merchant has to weigh that possibility against the probability that improved vendor compliance will reduce costs and improve customer service over time.

For the many companies that have major problems in processing receipts in a timely fashion — those companies that incur higher warehouse costs and costs per order than their competitors, and whose store replenishments are not streamlined to flow through their DCs to stores or directly to stores from vendors — vendor compliance is a necessary step to reducing costs by increasing efficiency.

Without a formal vendor compliance policy, the warehouse has no recourse but to absorb both direct and hidden costs for noncompliance. Without compliance it is impossible for a merchant to implement advanced supply chain systems, ASNs, just-in-time inventory, source marking and ticketing, or future RFID programs. A good vendor compliance policy will not only avoid pitfalls, but it also will help the merchant get receipts on time and in compliance, which in turn will reduce the time spent dealing with vendor disputes, claims, and charge-backs.

Making it Formal

WHAT CAN GO WRONG:
VENDOR CHARGE-BACK
CATEGORIES:

The following is a sample of chargeback categories from a midsize direct merchant whose vendor compliance manual is 25 pages long:

-Improper purchase order (PO)
number on carton or label
-Wrong product sent
-Product not labeled with SKU #
-Style or product substitution
without approval
-Inbound receipt past
cancellation date
-Incorrect labels or placement of
labels
-Merchandise not bagged to specs
-Product not labeled with country
of origin
-Shipment lacks certificate of
origin
-Invalid PO
-Product specs not sent in
advance of shipment
-No photo sample
-Merchandise not packaged
according to specs, repackaging
required
-Early shipment without approval
-Merchandise required 100%
inspection
-Mixed POs on pallet or in
cartons
-Mixed SKUs per carton
-Failure to meet cross-dock-to-
store requirements
-Bill of lading not complete
-Shipment did not conform to
routing guide
-Late delivery, causing
backorders
-Merchandise damage not
attributed to carrier
-Did not ship in correct option
-Incorrect placement of packing
list, incomplete packing list, no
packing list
-Shipment on nonstandard pallet
-Failure to protect fragile
merchandise
-Delivery to wrong address
-Delivery without appointment

Ultimately vendor compliance works best when a company can clearly state to its vendors consistent compliance parameters and goals — and just as important, specific sanctions for noncompliance. The major benefits of a formal vendor compliance policy are significant: reduced cost of warehousing, reduced freight in, and increased speed of processing orders and through-to-store replenishments. These benefits in turn have a direct effect on customer satisfaction because they reduce return rates due to incorrect sizing, color, and damages.

How comprehensive should a vendor compliance policy be? Best practice calls for a company to develop a detailed, written policy and to then enforce it by instituting a charge-back policy to which both vendors and management agree. In general, a merchant should aim to push compliance back up the supply chain. One way to accomplish this is to have as many value-added services as possible — packaging, marking, quality inspections — performed by vendors or merchant reps in factories. Catching errors at the source and using source-based services speeds inventory flow, and any such issues are cheaper to deal with in the vendor's environment.

It's a good idea to ask the vendors to review the policy, sign off on it, and fax the signed copy back to inventory control. Many multichannel companies also have their compliance policy manuals on their Website and give vendors a link to it.

Starting a program may seem daunting, since a fully developed vendor compliance manual for a midsize company can run to 50 single-spaced pages of instructions and explanations. Such manuals have usually been developed over time, and although the draft of a new manual may be based on an example from another business, each individual company will have to use its own history and data to develop a compliance manual.

If you're just beginning to implement a comprehensive vendor compliance policy, it may be more useful to concentrate on some areas over others. Here are some key compliance starting points:

• Create a routing guide (or shipping instructions) that tells vendors how to ship small packages, pallets, and containers via the carriers you have negotiated rates with. The shipping instructions should include when to use which transportation companies based on weight, dimensions, and other criteria. Vendors charge a 20%-60% premium for shipping, so a best practice that yields big savings is to switch from vendor-paid to collect or third-party consignee billing.
• Make human-readable and bar-code labeling requirements.
• On-time merchandise delivery should be a priority.
• Enforce quality by stating item specifications for each product.

Charge-back rates vary widely, and it's up to the individual merchant to determine the real charge-back costs in his business. On the low end of the scale charges are $25-$50 per shipment, but some companies charge $100 or more per shipment (see “What can go wrong: vendor charge-back categories” table). For late shipment of merchandise that causes backorders, companies use a cost per backorder — $7-$12 in actual cost for most companies. Or they may use a graduated percent of the cost value of the late shipment and invoice.

Success Stories

Here are several examples of what retailers have saved by developing, adopting, and enforcing vendor compliance policies:

• Scuba gear merchant Divers Direct — with eight stores, a catalog, and a Website — achieved a gross margin improvement of 0.7% and better accounting control. With Federal Express consignee billing, its vendors now use FedEx as the preferred carrier, so Divers Direct can better manage its inbound shipments and realize significant savings on inbound freight costs. Another benefit is to use FedEx InSight to track shipments online and then to use FedEx DirectLink to download invoices automatically and allocate all freight invoices to the appropriate general ledger accounts.
• Timberland, which sells footwear, apparel, and accessories, improved its inbound visibility using a “scan and pack” process as product was packed at factories in Asia (90% of Timberland's product is imported). Shipment-related data, including container number and packing list, are sent electronically to the retailer's receiving system.
• In October 2005, Wal-Mart touted the early results of its mandated RFID compliance program. They are impressive: It has reduced out-of-stocks by 16% in stores where RFID is installed, as well as reduced excess inventory. It is three times faster to restock RFID-tagged items than to restock comparable items that are instead marked with bar codes. Overall, RFID-enabled stores were 63% more effective in replenishing out-of-stocks than the control stores.

As automation helps extend supply chains, the last frontier in efficiency and in automation may well be the way in which direct merchants manage their vendor relations. Those that ignore this potentially volatile aspect of their operations do so at their peril, while those with a seasoned, well-planned vendor compliance program can achieve significant savings.

LOOK IT UP IN THE MANUAL

Vendor compliance manuals typically address these elements:
-Company history, vision, and expectations for customers
-Cost of backorders to the
business
-Service standards
-On-time delivery to committed
delivery date
-Products delivered in proper
condition, delivered in agreed
upon manner
-Product quality according to
specs

-Product packaging and polybag specs
-Label marking for retail
shipments vs. direct
-Supply chain systems
requirement (electronic POs,
ASNs, etc.)
-Master pack and inner pack sizes
-Case labeling guidelines
Accounting and paperwork
requirements
-Logistical requirements
-Routing guides to reduce costs

-Scheduling appointments
-Cross-docking requirements
-Direct-to-store requirements
-Drop-ship instructions
-Schedule of charge-backs for
noncompliance
-Customer return of merchandise and credits
-Contact list, including
merchandising, distribution
center, accounts payable, drop-
ship orders, and inventory control

How to Improve Your Vendor Quality Control

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 12:08:00 GMT

Quality Circles, Total Quality Management, Dr. Deming’s 14 Point Theory and Six Sigma are all various programs aimed at improving quality in an organization. They have been successfully implemented in many corporations, but have failed to attract a following in the direct-to-customer fulfillment industry. Major reasons for this are the complexity and resources required to implement these highly touted quality control programs.

If you are seeking ways to improve your vendor quality control without having to dive headlong into a new way of doing business, take heart. There is an option that relies on the basics of upholding merchandise quality. The following are ten proven strategies for improving your vendor quality control program. These techniques also can be used to design such a program if you do not have one in place today.

1. Get accurate item specifications.
Both the catalog retailer and the vendor should have something in writing that accurately depicts each product’s specifications, including important factors such as representing colors as accurately as possible and using the correct sizes and measurements. The catalog retailer should specify these standards.

This step is even more important if you have a unique product. Apparel items, for instance, must have detailed specifications, because it is critical to ensure that your customers are getting what they expect. Many return codes that list “not as pictured” as the return reason are caused simply by depicting an item in your catalog inaccurately. Eliminate that problem, and you likely eliminate a number of your returns.

2. Write a vendor compliance manual.
Vendor compliance means that product arrives from a vendor as it should—in proper condition and delivered in the agreed-upon manner. In addition to product quality, compliance standards that vendors must meet include packaging and shipping requirements, advanced shipping notices, master case and inner case, case labeling, product packaging and polybag specifications, accounting and paperwork requirements, logistics requirements and routing guides, scheduling and statistical sampling requirements, to name just a few.

Many operations don’t have a good vendor compliance manual, but admit they should have one. This document lays out the details of how you and your vendors will handle each and every step in the product fulfillment relationship. While creating such a manual requires a bit of an investment in time, it can save a lot of headaches later on. When questions arise as to how to handle situations with vendors, you’ve already determined your company’s position on the issues - it’s in your manual! For example, when it comes to bar codes, the manual may specify to vendors what type of bar codes should be used, their location on the package, and whether they need to be human-readable.

Other topics a manual should cover include service expectations, packing and shipping instructions, invoicing, chargebacks and reasons, packing list information, purchase order and other forms, transportation, labeling, palletizing, shipping carton identification and labeling, ship-alone carton specifications.

3. Establish good vendor relationships.
This sounds like a no-brainer — it’s not. You’re probably dealing with hundreds of vendors, and it is important to establish clear, two-way communication with each of them. Mutual site visits can be an effective tool to promote understanding. For example, to facilitate good working relations with vendors, a large multichannel retailer held an open house recently at which it spent half a day showing all the company’s vendors through the different parts of the warehouse and demonstrating how product was handled from receiving through shipping. If you deal with a large number of vendors, it makes sense to concentrate on those who supply the majority of your products.

It is important to create a contact list for your vendors so they can ask questions and resolve problems by type of issue (e.g., product questions, chargebacks, accounts payable, traffic, etc.). In turn, your vendors should provide a single point of contact to whom you can direct questions concerning quality or performance. Establishing such a communications protocol is critical to streamlining the process.

4. Use vendor scorecards in the review process.
Develop a scorecard to measure and evaluate the performance of your vendors. Used on an ongoing basis, a scorecard enables you to rank your vendors-for example, as level A, B and C. These rankings can then help you determine how often you need to inspect and sample product shipments from those vendors: An A-level or “best”-ranked vendor is not going to require the same level of scrutiny as is a B-level vendor.

Some catalogs are extending the evaluation programs to include performance standards such as on-time delivery, product design, knowledge of the market segment, price competitiveness, and packaging and paperwork accuracy.

Make vendor review a part of the merchandise ordering cycle. Schedule a planned vendor-review process to coincide with placing orders for product. It is a great time to review performance and gain commitments for improvement while using the leverage of the purchase order.

5. Set up correction and remedy procedures.
You should clearly define the process and time for vendors to undertake any necessary corrections if your product or quality specifications are not met. Both parties should agree in advance on the steps to correct any continuing problems, as well as penalties if the issues are not resolved within a specific period of time.

Define the amount and method of applying vendor chargebacks when entering into a contract with a vendor, and record this information in the compliance manual. Depending on the problem, the correction process should be given some “teeth” to provide escalating steps toward improving quality.

6. Push compliance upstream.
Wherever possible, push the quality control program to your vendor facilities rather than to your receiving dock. For example, it is helpful if you can participate in inspections and approvals of product before they are shipped.

In addition, try to have your vendors complete as many value-added services as possible under the quality umbrella established at the vendor site. The more work they can do at their end, the less you have to do in your warehouse.

7. Invest in infrastructure and gain management support.
To implement and conduct a vendor quality control program successfully, you’ll need some dedicated infrastructure: computer systems, inspection equipment, fixtures, space, staffing, and travel expenses must be allocated to the program. In addition, keep in mind that it is impossible to implement a successful program of any kind without complete buy-in and support from top management. This is required not only to obtain finances to purchase the necessary infrastructure but also for the program to benefit from an ongoing commitment to its objectives. Vendor compliance cannot be enforced on a token basis.

8. Hire outside expertise where needed.
If the expertise you require is not available within your company, you should consider going outside and hiring people familiar with vendor quality control programs. Often, you’ll actually save money by hiring outside help. There are industry experts available for hire in a huge variety of areas, from product sampling and quality testing to instituting vendor compliance standards and shipping programs.

9. Use a routing guide for inbound freight.
Often overlooked, inbound freight costs are among the top eight operational expenses for catalog and retail operations. Inbound freight costs an average 2% - 4% of gross sales for most direct marketers. One way to control these expenses is to have vendors ship freight collect using a pre-determined list of carriers, known as a routing guide. The latter is often combined with a vendor compliance manual.

In most cases the retailer, not the vendor, should be responsible for carrier selection and routing. In my experience, “best practice” companies allow little or no prepaid freight.

10. Don’t forget drop-ship controls.
Vendors who drop ship to your customers require a slightly different type of control. There are software systems available that can track drop-ship performance and order status information. Having some degree of control over the service levels being met by your vendors in drop shipping is critical.

You still need a type of system in place to make sure the order gets to the customer, even though it doesn’t physically go through your hands. You may have to pre-approve the vendors, see a certain number of samples, or institute some other measure of control with regard to drop shipping.

Implementing a vendor quality control program - and enforcing it consistently - is not easy, but its potential benefits make the effort worthwhile. Such a program can keep your overall costs in line, improving your bottom line and at the same time enhancing long-term customer satisfaction and the lifetime value of your customers.-

Have questions on improving vendor quality control, give us a call at (804) 740-8743. Need more information on this topic just complete our request information form.

Order Management Software Selecting the Right Vendor

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 11:41:00 GMT

Selecting an Order Management Software solution, or some other system, is a challenging task. The process normally begins by documenting a set of requirements, constructing a Request For Proposal (RFP), identifying vendors, viewing web demos, and conducting site visits and reference checks. Recently a trend appears to be emerging to select vendors based on word of mouth recommendations and two-hour web demos. Is that really the right approach? Selecting the right vendor is critical to the success of your company. The choices in the software marketplace are overwhelming, and if the software solution meets your requirements, how do you determine if a vendor is the right vendor for your business? Here are a few points to consider.

Full Cost
No matter how many times I’ve heard businesses claim that cost is not the primary factor in the selection process, in actuality it always becomes a prime factor after RFP responses are returned. But is enough information provided in the RFP to ensure the vendor’s pricing is accurate? Does the pricing include the software, hardware, number of user licenses, transactional volumes, upgrades, maintenance, training, integrations, modifications, conversions and implementation services? I’ve seen instances where clients developed what they thought was a good RFP, which the vendor responded to appropriately with an initial cost based on the defined requirements—but after due diligence determined the real cost was more than double the original. The best course of action is to have an RFP that not only covers all the requirements but also identifies any and all unique business processes. The more detail provided to the vendor, the more likely the pricing will be closer to actual. Key areas that affect pricing are data conversions, integrations and implementation services.

Stability
When investing in software, either purchasing a licensed software solution or using a Software as a Service model, vendor stability is key to ensuring that the vendor will be around in the future. Does that mean a vendor has to have been in business for 25 years? No, but there are questions that need to be answered. Besides how long the vendor has been in business, consider if the executive team includes proven industry leaders. What is the size of the vendor? What is their core business, and does their software support your industry? How is the vendor staff organized? How many people are within the organization? Is their software solution proven in the marketplace? Inquire about where the vendor stands in the market: Do they consider themselves a top-tier, mid-tier or low-tier player? Inquire if the vendor is being acquired or acquiring other companies. Are they involved in any litigation or lawsuits that may affect their services?

Financials
Along with stability, you should try to determine if the vendor is financially secure. Is there an investment group backing them? Are they public or private? Have the vendor describe their ownership structure, including any parent or holding company. Ask for their total billings/revenue and the revenue for the type of business segment you are in.

Client Base
The client base will indicate the vendor’s experience relating to your business segment or industry. Is the vendor a strong player in Business to Business or Business to Customer (Direct to Customer)? Do they specialize in apparel, gifts, furniture, electronics, etc.? Most vendors are willing to share their entire client list. Other key questions to ask are:

Does the vendor hold annual user meetings?
What size are most of their clients?
Would you be the largest or smallest client?
How many of their clients are in your business segment or industry?
What modules of the software are clients using?
How many clients are currently being implemented?
How many clients have left the vendor in the last 24 months?

Reference Checks and Site Visits
A critical aspect to identifying the right vendor is conducting reference checks and site visits. Vendors will typically provide a list of 3 to 5 clients for reference checks. It’s best to take that a step further and contact clients outside of the list the vendor provides. And don’t just ask typical simple questions such as, “Does the software work?” or “How did you configure order entry?” Ask more revealing questions, such as, “Did the vendor do what they said they were going to do?” “How did the vendor treat you?” “How did the vendor respond when things went wrong?” “Did the install meet the implementation schedule?” The face-to-face with a client using the software has always proved to be worth the investment in travel and expense. Visiting at least two client sites will provide a good indication of how well the vendor does what they say they are going to do. Not only is it recommended that you visit at least two client sites, you should also consider visiting the vendor’s headquarters to meet with the executives of the company, the implementation team and the application developers.

Vendor Strategy
Does the vendor have a long-term development strategy for the software? Do they utilize user input for implementing new features, or do they require that each client fund modifications, which are then incorporated into the core application? How does the vendor prioritize new features?

Implementation
It is equally important to meet the implementation/project manager along with the account liaison or future account manager. You will want to know the project plan, timeline and the number and amount of resources needed to keep the project on track, on time and within budget. If the vendor cannot provide any of these it usually indicates that they don’t use a proven methodology for implementation.

A Successful Partnership
Last, but not least, one of the most important keys to successfully selecting the right vendor is having a good culture fit. Creating a partnership with a vendor that understands your business, is willing to work with you and “gets you” is paramount to a successful relationship. That is why you want to spend the time onsite at the vendor’s location to meet with the executive team, project manager and account manager to make sure the “fit” exists. Doing so will give you a clear understanding of what it will be like to work together. At the end of the day, creating a successful vendor/client relationship means being able to look them square in the eye and trust them to deliver on whatever is promised.

How To Avoid IT Project Waste

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 11:34:00 GMT

Management often bemoans the fact that IT projects fail to be delivered on time and within budget. And the truth is, the IT spending waste that occurs in our industry is at times mind-boggling. At F. Curtis Barry & Company, we currently have four clients—ranging in size from $7 million to $650 million in sales—all struggling with the same schedule and budget problems as they attempt to implement new order management and warehouse management systems. Another client invested $350,000 with one of the industry’s leading OMS companies, but after a failed implementation, backed off the project.

What’s at the root of this waste? It’s the lack of project management on both the client and the vendor side. Here are some tips based on the lessons we’ve learned that could help you avoid the same fate with your IT implementations.

It starts with the deal. Some projects should simply never be. Usually it begins when management accepts the vendor’s selling proposal, which turns out to be flawed. Take the case of one of our largest clients: They have been struggling for two years now to work with the vendor, basically to rewrite much of the vendor’s system. The client is determined because there is a huge potential ROI. But while it will be a big deal for the vendor when it gets finished, it is taking them off their commercial systems path. The client should have looked at the proposal more realistically at the start.

You have to have a plan. Vendor proposals are full of boilerplate—simple task schedules and bar graphs. The real plans for a complex systems implementation require all the details to be thought out, agreed to and then scheduled. One mistake companies make is that they don’t update the plan weekly; they may use it to get started, but then the updating is infrequent. Also, plans often don’t take dependencies into account; everybody involved is continually surprised because the major subtasks are not in synch with each other.

Who is in charge? Both the client and the vendor have to have a project manager. Too many times the client leaves that up to the vendor—and that’s a bad idea. For one thing, the vendor doesn’t know your business or organization. For another, it’s expensive. The client needs to be in control of the process and the implementation.

How often do you talk? As we all know, systems projects involve a lot of verbal and written communication, with documents constantly passing back and forth. It would seem on the surface that you are talking many times every day. But that’s really not the issue. You should have weekly meetings between the two parties, conducted by the two project managers, reviewing the total project and the schedule and resetting objectives, if necessary. Other critical parties can and should join, if available. Then the two project managers should circulate the updated schedule and meeting notes. Once you’re inside 30-45 days, you should be having a brief conversion meeting daily. This is an excellent way for all parties to stay committed to each other and to get the implementation done.

If you commit to follow these basics religiously, everything else should fall in line. As a result you’ll have a much better chance of finishing your IT project on time and within budget.

How To Shop For A System

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 11:26:00 GMT

If you’re on the hunt for a new system, you know the process and the choices can be daunting. You have to remember that the vendors' job is to sell; yours is to match up your application requirements with the best application strategic approach.

The following five factors will help you do this.

Return On Investment
How will the system improve my bottom line or increase sales? While there are always many intangibles, management should strive to get the user community involved to determine the system’s feasibility based on savings.
Typically, this may cover the current year to the first year under the new system, or the current year operation to several years out to reflect growth. Companies are now striving for short-term paybacks—less than three years, and often as little as 12-18 months.

Total Cost Of Ownership
A frequent mistake that companies make is to look only at the purchase price and what the vendor has in the proposal. You also need to consider the vendor costs for modification, systems integration, adequate training and on-site services, conversion, etc. It’s important to look at this on a multiyear basis: What are the incremental licensing costs as your business grows?

Build Vs. Buy
If you’re developing your application in-house, should this be the strategy
longer term? Consider your growth and complexity—and the rapidly changing technologies of servers and the Internet.

Matching Application Needs To Vendor Functions
There are several steps involved in any reliable process for system selection and implementation:

Establish a project team, including the project manager
Develop detailed user requirements across the enterprise, including business statistics and transaction volumes (peak and average)
Conduct general vendor research and explore IT models: license, SaaS, etc.
Develop your request for proposal (RFP) and send to a short list of vendors
Conduct a gap analysis comparison matrix between your requirements and vendors’ responses
Evaluate vendor proposals and third party software and hardware if necessary
Invite vendors from your short list to do scripted demos. This will verify vendors’ responses and show most of the critical applications
Identify potential modifications and get detailed specifications with estimates for inclusion in the agreement
Determine the amount of hardware redundancy you’ll need for failover and for testing and version upgrade environments
Identify integrations to other internal and external applications and service bureaus
Create the detailed implementation plan, milestones, training and conversions required
Review ROI
Do vendor due diligence by conducting scripted reference calls and site visits
Select and negotiate final partner.

Implementation Planning

Interview the vendor’s implementation team and evaluate their experience
Review expected time frames and major milestones with the vendor
Develop internal training and conference room pilot programs
Work up a detailed plan with responsibilities and completion dates
Determine conversion plan; what and how much, and what tables/files are going to be built manually

And finally, as part of the implementation plan you have to develop necessary contingency plans, since you never know what could happen.

Is There a Wall Between IT and the Rest of the Company?

Jeffrey Barry — Tue, 10 Apr 2012 11:23:00 GMT

Here’s the picture: A multichannel company with sales of $20 million has an aging order management system that has been in place for over 20 years. While there are some things that the users like about it, they have basically outgrown the system. They need far better marketing information, e-commerce site to business systems interfaces, forecasting and inventory management, and the ability to deal better with light manufacturing and tracking sets and kits, which are a major part of their business.

The president authorizes a project to investigate replacing the system. Immediately a turf battle ensues. IT is already researching the Internet for the most technically up-to-date IT platform. The users’ comments are predictable: “They’ll pick the most expensive, technology-driven system out there regardless of whether it fits our business.” There is a proverbial glass wall between the two groups in many companies.

The outcome: After months of no progress, the president shrinks from his responsibility and says, “We’ll keep the current system.”

Unfortunately, this scene is played out on a daily basis in many companies both large and small. In defense of the IT department, they are often given responsibility for everything from telephone systems, to help desk, to advanced WMS systems, e-commerce systems and e-mail systems. Most often they are under budgeted. Management backs into a percent to net sales that the company can afford to spend. Additionally, the technology is diverse, complex and represents generations of different languages, databases and standards.

But in defense of the users, IT more and more takes a technological point of view rather than a business perspective. By a “business perspective” I mean that, in many cases, IT no longer knows the company’s business—not the mechanical things like how to enter an order. They lack knowledge of the industry overall. And they lack the understanding of how to help you grow and manage your business. Examples include details about what will make your marketing more effective; what do the merchants need to plan, grow and evaluate their merchandise selection; and how to help operations become more efficient. In many companies, IT often looks at application function as secondary to technology. Additionally, they hide behind a lot of technical jargon that pushes users away from them.

And systems software vendor salesmen are no better off. Gone is the day when talented sales and support people really understood the industry. Many barely know their company’s system, and many can’t even demonstrate their system without the aid of a support analyst.

The result of all this is a collection of negatives.

A technically advanced system or a system that fits the IT standard is selected. It may be a weak system from a business perspective. Technology by itself rarely gives an ROI.

The IT department’s lack of a business focus means that users don’t ever make high-level use of the systems in place, because they don’t know what applications and capabilities exist in commercial systems or in previous generations of in-house developed systems.

Another result is that there isn’t a partnership between the user departments and IT, which optimizes the full, untapped potential of IT. The company suffers because the rather large investments in critical applications don’t materialize or they are years off of the projection.

Tear down the wall
You will have to start thinking differently in order to change things.

Is there failure to recognize problems with IT? This amounts to costly neglect. Ask, is IT an expensive utility or a necessity in your company? Your management team and IT need to have a clear understanding of the mission and charter of IT, to provide information systems that assist in company profit and growth.
Is there failure to get IT to realize its role in the future of the business? Put IT management in place that understands the bigger picture of your business and the information that is required to manage and grow it.
Is there failure to make your IT director an equal partner in your strategic planning process? There must be exposure to the company’s direction and an understanding of where IT plays the crucial role. Get IT buy-in early rather than just handing them a list of requests after many months of meetings.
Is there failure to fully utilize IT resources? Develop internally, or hire, business analysts who are interested and dedicated to maximizing the user community’s use of the systems.
Is there failure to hold users accountable? Don’t let the users hide behind IT flaws and shortcomings. They should know the business and they need to take responsibility for understanding the applications with which they’ve been provided.

Outside resources can help your company make this transition. In our consulting assignments, we have successfully assisted companies in making these types of sea changes.

We believe that IT—for good or bad (and ineffectiveness is certainly bad)—governs the productivity and profitability of this industry. How well is your company tapping its potential?

Let Your Software Do Your Scheduling

jbarry@fcbco.com (F. Curtis Barry & Company) — Tue, 10 Apr 2012 09:45:00 GMT

Scheduling staff for your customer contact center is much more than simply plugging your customer service representatives’ names into time slots for each day of the week. It’s an infinitely complex task. You have to factor in days off, vacations, skill sets, seniority, and individual availability against the needs of the entire center, call volumes, and fluctuations in volume based on catalog mailings, TV ads, and special promotions. Scheduling all these variables manually can take days – and can leave supervisory staff little time for other important tasks.

Doing a poor job of scheduling can have serious ramifications for your business. If your call center’s seats aren’t filled when you need them to be, your service levels will drop, your abandonment rate will rise, and ultimately, you’ll lose sales and customer loyalty. On the other hand, if you have too many reps scheduled at a particular time, you can waste thousands of dollars and drive up your cost per call. With a scheduling system in place, staffing decisions can be made on the spot as problems unfold, instead of days or weeks later.

Up in the tower
With the scheduling software tools on the market today, there’s no need for reps to acquire the skills of, say, Quasimodo. Prices for scheduling software base packages start as low as $30,000, and with all of the bells and whistles can push $100,000 or more. But the right software package will pay for itself in many ways. Most clients we’ve worked with report that their scheduling packages have reduced their staffing process time by 50% or more per week. Abandonment rates can also be reduced by 5% to 10%. Many software companies claim that their products will result in savings of 10% or more for labor expenses; however, based on our clients’ experiences, we think reductions of 3% to 5% are more achievable.

Automating your schedule will also result in intangible benefits such as better employee retention through better scheduling, more time for supervisors to perform other tasks, and more effective hiring decisions. You’ll begin to see how, after a few months, you will be managing the process of scheduling instead of just spending hour after hour producing schedules.

If you are running a call center with 25 seats or more and you have 24/7 operations, you are at the point where a scheduling package could make a significant difference in your weekly and monthly scheduling routine. In fact, if your operation has reached this size and you’re not using scheduling software, someone in your organization is probably spending an inordinate amount of time producing inferior schedules.

Starting bell
There are many call center scheduling packages on the market, but not all are designed for direct-to-customer operations. It’s wise to limit your search to packages that are designed for catalogs. Within this category, too, some packages are more limited than others. It’s a good idea to have a sense of what the various vendors offer as you start out.

The telephone switch you use will influence your choice of vendor. These scheduling systems are independent from the telephone switch, which typically just forecasts calls, but the two must be compatible. Before you start to shop, review the specs of your current switch. Likewise, your personnel resources will be important in getting the most out of your scheduling software. Make sure you have personnel who have the skills necessary to learn and run the system.

As with many software packages, what you’ll get out of your scheduling software is only as good as the data you put in. It’s best to have at least one to two years of call history from your ACD. The system will need this information to configure the proper curves of incoming calls by day, week, season, and for events such as mailings and promotions. The more history you’ve got, the more accurate the scheduler’s predictions will be.

Because call centers handle informational inquiries, catalog requests, complaints and other calls, it’s important to look at overall call volumes and call-to-order ratios – not just order history – to get an accurate idea of your staffing needs. You’ll also need to compile your call center’s service goals, such as acceptable wait times and abandonment rates.

Bells and whistles
Scheduling software packages come with all sorts of options. Some of the latest versions interface with e-mail management systems, so that phone and e-mail of customer service reps can be scheduled on one master schedule. Others have Web-based systems that individual service reps can access to download their schedules, chart their productivity, or request time off without leaving their work stations.

Some features and functions are sold as add-on modules, which can increase your total investment, so it’s important to clarify with the vendor what’s included in the base package. Many vendors will tell you – and we agree – that it’s a good idea to start with the base package and master it completely before adding more advanced modules such as schedule adherence scorecards.

Nor should you assume that all basic packages are created equal. We advise our clients to start by asking about a system’s basic capabilities, features, and functions.

System requirements. Most scheduling software packages run on Windows or Windows NT platforms, and in most cases, you buy a standalone server that will network with your ACD. The packages that we have listed in the accompanying box are all interfaced with all of the major telephone switch makers. If appropriate, you’ll also want to ask if the system supports multiple or mixed ACD environments and/or multiple time zones.

Service rep scheduling variables. You’ll want to ask how precisely you can program your schedule. How much information can it digest about your customer service representatives? How many fields of information can each service rep’s individual file accommodate? Does it define work rules for employees, allowing for seniority or productivity? Are there interactive scheduling functions that service reps can access from their desks, enabling them to remain in their seats for their entire shift?

Overall call center variables. It’s important to ascertain which variables about the overall call center operation the system takes into account and how flexible it is. Can it schedule for multiple and simultaneous events that take place throughout the seasons? What about multiple queues or skills? Does it allow you to specify varied service levels for different queues, times of day, days of the week, or teams and/or catalogs? Does it factor in service levels like average speed of answer, acceptable abandonment rate, minimum/maximum calls handled?

Management functions. How can the scheduling package help you with key management decisions? Can it create “what-if” scenarios for budgeting or planning? Can it schedule for meetings and training? Can it tell you when you need to hire more staff and what skills and availability you’ll need to look for? Does it analyze the effects of suggested hiring on your budget? Does it include a real-time or batch adherence function (or offer an add-on module) so that you can track absenteeism and tardiness?

Reports, analyses. Does the system print out individual service reps’ schedules easily? Does it have robust and graphical reporting for management functions? Can it generate graphs to help service reps track their own productivity and attendance and compare themselves to the overall call center?

Installation, training, and support. How long will it take to set up the system and go live? How much training will your people need? Will training take place on your premises or off-site? How much ongoing technical support can you count on? Remember that you will likely need support not only for your staff, but also for the interface between the scheduling software and your telephone switch.

E-mail and Internet functions. Does the system interface with e-mail or chat management software so that you can centralize scheduling for reps who handle phone, Internet, or both? Is it accessible on the Web, so that reps can download their schedules from home or from their seats during their shift? Does the Web access enable supervisors to perform scheduling functions by logging on from wherever they are? Does it allow individual reps to communicate directly with their supervisors via e-mail – or with their peers to swap days or schedules?
Call center scheduling is a complicated and potentially costly proposition, but the right scheduling software package can save both time and money and make your operation more efficient. Software developers in this field are continuing to come up with ingenious features and functions that will leave you more time for management duties and make you a better scheduler.

Curt Barry is president of F. Curtis Barry & Company, a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.

He can be reached at 1897 Billingsgate Circle, Suite 102, Richmond, VA 23238, phone: 804-740-8743; email: cbarry@fcbco.com; website: http://www.fcbco.com.