In the first part of our series on preparing for the holiday, we listed the information that should be gathered for taking your operational pulse.
It's been less than a decade since the word “multichannel” came into use to describe selling through more than one medium. But the complex new world of multichannel merchandising includes potential pitfalls that at best may confuse customers and at worst will alienate them. Chief among these pitfalls: maintaining different strategies and tactics for different channels.
The direct to customer industry (catalog and Internet) finds itself at a cross roads in terms of shipping & handling policies and charges.
Today’s call center mantra is, “Do more with what you have.” In this uncertain economy there is even more pressure to perform miracles by increasing productivity while lowering costs, yet still continuing to provide expected customer service levels. In our consulting engagements with direct call centers and through our F. Curtis Barry & Company Best Practice ShareGroups, we’ve been able to observe the latest call center trends and how managers are dealing with them. Here are some of the major issues that direct customer call centers face, as they examine their costs and try to reduce them without major disruptions to customer service.
Having managed a call center, I have always been a proponent of in-house call centers, but times are tough and they are changing. Every company today is looking for ways to save money without hurting sales and customer service. As the pressure on businesses to dramatically reduce costs intensifies, you need to look at domestic or off-shore outsourcing of some or all call center and data entry functions as a way to improve your bottom line. Companies are also outsourcing these functions more because they can avoid using capital for new order management and telephone systems.Read More >
I’m with a firm that spends much of its time helping clients improve productivity and reduce costs. We are ever mindful of the negative side—the “dark side”—of productivity projects. What is the dark side? It’s what happens if we don’t take the human factor into account. As someone with 30 years of experience in industrial engineering, I can tell you that there is no way to achieve long-term success in a re-engineering project without considering the effect it will have on people.
Many multichannel merchants focus on how they can lower operating costs when they consider outsourcing certain tasks. But when you outsource operations, you also outsource the investment. Sounds obvious, but maybe the magnitude isn’t all that clear until you’re faced with replacing an order-management system, moving into a new fulfillment space or upgrading your Web site.
When outsourcing your investment, you don’t have to invest in those upgrades as your business grows and changes. Let’s look at some examples that show the size of these investments.
* Order-management systems. Software as a service (SaaS) can free up a potential investment of $25,000 for an emerging company. If you’re a $500 million company — with several hundred users adopting a SaaS model — it eliminates an $8 million to $10 million investment. For a $20 million cataloger, the spend runs $280,000 to $400,000 to license and buy hardware. Then you implement an order-management system with call center and warehousing functions.
* Specialized forecasting and inventory management system (working in conjunction with your fulfillment system). Here, investment and implementation costs for a 10-user system will cost, on the low end, $150,000. Larger companies invest several million dollars.
* Replacing an e-commerce site. SaaS business models can eliminate an investment of $750,000 to $1.2 million for a multichannel cataloger with sales in excess of $100 million. With the e-commerce that growing companies experience, there’s also often a need for an e-mail management or chat-system investment.
* Call-center operations. Outsourcing eliminates investment in the required space, telecom terminals, headsets, ACD, scheduling software, call-monitoring hardware and software, e-mail management, chat systems, etc.
* Fulfillment center. You avoid investing in the construction and/or build-out costs, as well as the racking, conveyors, material handling, warehouse management systems, shipping systems, furniture and fixtures. Plus, you avoid a long-term lease.
It should be pointed out that when looking at these investments on a five- to seven-year basis, many would have been amortized and depreciated over that time. But many companies are struggling to make the initial and ongoing investments because of the competition for financial resources.
Here are some of the questions you need to answer as you look at outsourcing and the business investment:
1. Are you keeping pace with investment in the infrastructure required?
2. What alternatives for capital use does your business have rather than investing in physical assets?
3. Does the outsource provider have the finances to grow and expand? What’s its track record of doing this for clients?
4. How will those costs be passed onto your business as it grows and changes?
5. Can a major activity be outsourced and not result in a total loss of control (e.g., call-center overflow, peaks and weekends)?
6. Which provider best understands your category of product (e.g., apparel with its high SKU storage needs, returns, etc.) and mode of operation (e.g., e-commerce, catalog management systems, etc.)?
7. Which provider will be the best long-term partner?
8. How vulnerable will this leave you if the provider’s performance isn’t up to par?
9. If you wish to sell your business and don’t own major assets, does this help you (the prospective owners aren’t paying for assets) or hurt you (you may need to remain operationally independent of the other businesses a prospective owner has invested in)?
The Issue of Control
Many companies see turnover as a necessary cost of doing business, especially in managing a call center or a fulfillment center. However, have you taken a good look recently at your staff turnover levels and the actual dollars this costs your company? Whether it is in fulfillment or in the contact center, the costs are high. Industry turnover averages are hovering around 40%-50%. In many call centers it may unfortunately be as high as 90%-100%. Industry experience is that turnover costs range from $3,000 to $10,000 in people time, training, testing and the ramp-up to full production. This does not include expenses for agencies, ads, etc. which must be added on.
Most of the direct world uses internal fulfillment. This is a mistake many companies make because they don’t think high-quality service levels can be achieved and maintained using third party fulfillment (3PF). The truth is that many companies want to manage their own operations and they are dubious about turning over control to a third party. And yet fulfillment and operations distractions often do not let companies concentrate on marketing and merchandising their businesses which is vital to profitable growth.
In many areas of the country, the labor costs for CSRs are increasing quickly, and these rates are not going to decrease. Additionally, the quality of the labor pool to draw from is not ideal due to low unemployment rates in many markets. And the direct-to-customer industry is in competition for CSRs with other sectors such as financial services.
The direct industry has a difficult balancing act to perform. On the one hand, we want to provide a high level of customer service—and that's getting tougher each year. On the other hand, the cost of direct labor per hour has increased from less than $7 to more than $11 per hour during the last five years. In some markets rates are well over that, as high as $14 an hour. Benefit costs have also increased, and now average 15% to 20% of pay.