Special Delivery

When you type in www.nike.com and click to talk with customer service, an operator in Dallas or Dublin answers the phone and asks how he may help you. The call centre workers are employees of UPS Worldwide Logistics, but they’re trained to answer specific questions about Nike Corp. products-plus capably shoot the breeze on sports topics, from Mats Sundin to Mia Hamm.

Beyond the Web browser, logistics firms are pushing the bounds of merely handling the freight. Storing, packing, shipping, and then tracking hundreds of thousands of products from Web-based retailers is a booming business for express shippers and transportation companies-at least, for those poised to take advantage of it all.

Of 50 leading shipping companies polled earlier this year at the World Express & Mail Conference in Brussels, more than half (29) cited e-commerce as the single most important factor driving their growth. DHL Worldwide Express, for example, is projecting 40% annual growth for its online business. And Fingerhut Business Services Inc. in Minneapolis says 70% of its fulfillment business comes from Internet companies, including new customers such as Wal-mart Stores and eToys Inc.

There’s money to be made on the back end of online shopping. By 2003, the number of people who buy over the Net will have increased sixfold to 183 million-up from 31 million last year. Despite the remarkable growth, we’re still just scratching the surface. Speaking at the Parcel Shipping and Distribution Expo in Chicago last month, United Parcel Service senior vice-president of operations Chris Mahoney cited a recent survey in InternetWeek magazine reporting that 65% of Fortune 500 companies have no overall e-commerce strategy. Nearly 25% lack a basic business and implementation plan for e-commerce.

Perhaps that’s why so few transportation companies are positioned to take advantage, reasons Riss Estes of Clear Commerce, an Austin, Tex., consulting firm. Speaking at the annual meeting of the Council of Logistics Management in Toronto last month, Estes lamented that apathy or confusion about e-business among shippers has made transportation firms reluctant to invest in e-commerce solutions themselves.

“If third-party logistics companies are looking to develop closer strategic ties with their customers, e-commerce is it,” Estes says. “Successful 3PLs anticipate how e-commerce will affect product distribution, embrace their customers’ e-commerce initiatives, take charge of the supply chain right down to home delivery if necessary, and execute consistently well every time.”

That last point is critical, because in e-commerce, supply-chain snafus are felt more acutely by end-users than ever before.

UPS’s Mahoney says the growth of e-commerce transforming the supply chain from a “push” to a “pull” environment. In the old “push” model, the supply chain starts with raw suppliers, who are connected to manufacturers, who are connected to distributors, who are connected to end customers.

“While this model was great for suppliers-they got to set production levels, determine inventory and set price-it wasn’t always so good for the end customer, who had less to say in the process,” Mahoney says.

He believes e-commerce and the new online shopping experience allow customers to “pull” what they need from each member of the supply chain. Using e-commerce, logistics firms can become the new middleman-and profit from it.

Take, for instance, the case of Bax Global Inc., an Irvine, Calif.-based logistics firm which transports, among other things, seafood. Currently, fishermen phone in the results of their catch to middlemen who have salespeople call potential buyers. It’s an inefficient method that often leads to fish being stored for several days before it reaches the customer.

Bax is testing a Web-based “marketplace,” a brokerage system called Baxmart.com. Customers can post their inventory of the day on the Web; buyers immediately get an estimated total price, including overnight shipment. Bax collects a small brokerage fee-and, of course, hauls the freight. The company hopes that $10 million to $12 million worth of seafood will be sold through the system in its first year, generating $2.5 million in transport revenue. That number should quadruple by the second year.

The result is faster and more reliable service for the customer and a reduced cost for the supplier. To make the pull strategy successful, companies must establish electronic connections with other members of the supply chain and re-engineer their information systems so that they can work together. UPS Worldwide Logistics in Charlotte, N.C., has spent the past three years assembling a supply-chain infrastructure that supports everything from reserving inventory for Web customers to letting consumers schedule the pickup of return merchandise over the Internet.

“A lot of the work we do is dependent on having real-time information about what stock is in a warehouse and what customers are ordering,” which requires integrating with customers’ back-end systems, says CIO Jay Walsh. For example, with real-time sales information, UPS can configure its warehouses so its customers’ hottest-selling products are located closest to the loading dock. This, in turn, speeds handling times, which is critical in the online world of instant gratification.

Likewise, rival Federal Express is investing in systems integration projects to support its burgeoning cyberlogistics business, says David Roussain, vice-president of e-commerce in Memphis.

The projects include developing software tools and interfaces that directly link customers’ ordering, manufacturing and inventory systems with FedEx’s network of highly automated warehouses, call centres and worldwide shipping network. The idea is to make the handoff of all information and inventory-from the manufacturer to FedEx to the consumer-seamless and lightning fast.

For example, when a customer orders a printer at the Hewlett-Packard Co. Web site or over the telephone, the order actually goes to FedEx, which stocks all the products that HP sells online at a dedicated “e-distribution facility” in Memphis.

FedEx ships the order, which triggers an e-mail notification to the customer that the printer is on its way and an inventory notice to HP that the FedEx warehouse now has one fewer printer in stock. “We call this high-velocity distribution,” Roussain says. “The inventory in this type of warehouse is turned over quickly.”

For returned merchandise, Federal Express introduced a reverse logistics process known as “Net Returns,” which is growing at a rate of 50% annually, thanks largely to the increase in e-commerce. Companies contract FedEx to handle customer returns, which FedEx ships directly to the manufacturers whose goods the companies sell. A shipper enters return information into its own system, which is linked to FedEx. This signals a FedEx courier to pick up the unwanted item at the customer’s house or business.

Customers don’t need to fill out shipping labels or package the item. Instead, the FedEx courier uses information transmitted over the Internet to a computer in his truck to print a label from a portable printer attached to his belt.

But “seamless” data exchanges between the shipper, carrier, and end-user require a high level of collaborative planning and forecasting. Without it, companies will fail to provide the level of customer service online shoppers expect. Because customers can place orders so quickly and easily online, they tend to expect instantaneous results.

A recent study by Giga Information Group determined that many Web sites languish because of inattention to how and when goods get to buyers, including how to keep them informed about the progress of their orders. Causes range from incomplete systems integration, to hiccups in the supply chain and delivery logistics.

In many instances, Giga found that some sites selling goods coming from third-party manufacturers do not keep any stock themselves, nor do they link up with the manufacturer to check availability or track the status of its shipments.

Even if sites keep their own stock, there may be no link to inventory control and dispatch systems. The business challenge is to plan for keeping customers informed and ensuring that their orders are not only accepted electronically, but shipped and delivered promptly.

That adds pressure on transportation companies to expand their delivery options. That may mean adding residential deliveries to their menu, or at least finding a partner to do it for them.

For transportation companies, that’s where the Information Highway becomes a dirt road. It’s hard to compete with UPS and Canada Post; it’s tougher still to offset the cost of dropping off one package rather than stopping at an office building and delivering 50.

But new delivery options, like new technology, are something transport companies are going to have to consider-either through alliances or on their own-if they want to be in the e-commerce distribution loop.


SIDEBAR: Joining the E-volution

Isn’t there some way to “ease into” this electronic commerce stuff? Sure: e-commerce-the buying and selling of information, products, and services over the Web-is really just a part of the overall buying process. Just as there are many things a business does to prepare for selling over the telephone or in a retail store (i.e., advertising, public relations, special offers), so, too, are there a number of preparatory steps to electronic commerce.

They’re nothing fancy-or expensive-but here are some things you can do to test the waters:

o Collect e-mail addresses of customers and prospects. One way to do this is to routinely ask for e-mail addresses when you are updating business addresses and phone numbers. Another approach is to post a Web form and ask users for their e-mail addresses, in exchange for providing them with regular product or service updates.

o Use e-mail alerts. Send out a regular e-mailed newsletter, with information about new product or service features, special offers, interesting ways to use your product, and so forth. Include links back to your Web site for more details.

o Provide customer support on your Web site. This can be done via a section of “Frequently Asked Questions,” along with an e-mail system to permit questions that are not addressed. Just be sure to reply promptly.

o Advertise your new Web features offline. Let customers know about the Web catalog and other online features through print advertising, invoice statements and any other regular communications you have with them. Provide as much detail as possible-reassuring them, for example, that even though the ordering process will be different, they will receive the same product quality and on-time delivery that they are accustomed to.

Once you’ve implemented some of these steps, assess the level and nature of interest. Do customers respond? The answers should go a long way toward letting you know how and when you should move to full-fledged online e-commerce.

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