Order management: The new DNA of retailers` multi-channel strategies
By Peter Lucas
Cabela's Inc. is undertaking a big expansion plan. The Sidney, Neb.-based retailer of outdoor gear, which started life as a cataloger, had been opening superstores at a rate of about one every 18 months. It's scheduling four stores this year.
One of the keys to successful growth, the company believes is the much-overlooked order management system. "Having an order management hub integrated into our CRM and warehouse management systems is enabling us to make the move to a true multi-channel environment," says Larry Popps, director of management information systems for Cabela's.
New respect
Cabela's attitude toward order management systems reflect the new respect that a technology that was once considered part of the back-office plumbing is receiving in retailing today. As recently as 2003, multi-channel retailers had a simplistic view of order management systems. The technology was used primarily to track the number of orders placed in a day, availability of inventory to fulfill the day's orders, when an order was scheduled to be shipped, and to where.
Sure, there was other information that could be siphoned off, such as the size and color of specific apparel sold and which warehouses contained the inventory to fulfill the order, but for the most part, multi-channel retailers were content with utilizing the basic functions of order management systems because consumer demands did not require them to do otherwise.
Today, the business model for how order management systems are utilized has been dramatically altered thanks to the web. For starters, consumers accustomed to shopping online now expect multi-channel retailers to allow them to seamlessly move between each sales channel to place an order, track delivery status of an order or initiate a return, without any drop-off in service.
And so, a customer who purchases a product in the store that is to be delivered to her home, for instance, expects to be able to check the status of that order on the retailer's web site or through the call center at any moment. These expectations are prompting multi-channel retailers to integrate order management systems across each sales channel, rather than confining their use and the data gathered to a specific division.
Second, multi-channel retailers are placing increased value on technology that can create greater operating efficiencies by reducing delivery, fulfillment, and restocking costs. Those savings can then be channeled back into customer service.
Plug-and-play
Not only do the new breed of order management systems enable multi-channel retailers to exchange sales and inventory data between all facilities, they can track supplier information on upcoming shipments and real-time status of delivery from third party shipping services.
In short, the latest generation of order management systems are feature rich, plug-and-play applications that require little customization by the end user and that deliver huge benefits across the enterprise.
"The new breed of order management systems is enabling multi-channel retailers to more effectively manage a complex business," says David Schatsky, senior vice president for New York-based Jupiter Research Inc. "Customer satisfaction is key for growing in a multi-channel retail environment and order management systems that can eliminate shipping errors, improve inventory management and create greater operating efficiencies can vastly improve customer satisfaction."
The payoff for higher customer satisfaction can be a 1% to 3% lift in sales revenues, since satisfied customers tend to be frequent repeat customers that spend more than the average customer, according to industry experts.
From an operations perspective, multi-channel retailers who streamline their order management systems can expect to improve order accuracy from 85% to more than 95%, while decreasing handling costs by 10% to 15%, according to Mike Grandinetti, senior vice president and chief marketing officer for Yantra Corp., a Tewksbury, Mass.-based supplier of order management systems.
Quick ROI
"Multi-channel retailers are not only trying to create a unified brand, but operating efficiencies across each channel that extend to fulfillment, delivery, service, installation etc.," Grandinetti says. "Their needs in these areas are changing the features and functionality of order management systems."
Multi-channel retailers--a definition that includes Internet retailers with call centers as well as those with stores--can expect a return on investment in less than a year, on average. While order management systems start as low as $1,000 for small Internet retailers, most mid-sized retailers will pay into the five figures and the largest multi-channel retailers can expect to pay $100,000 or more, vendors say.
Prices have been under pressure for the past few years as retailers' technology budgets have tightened. And further downward pricing pressure is being brought to bear through the use of the ASP model. End users with tight IT budgets can opt to pay a flat monthly fee and a per transaction fee to a service provider hosting the application on its own server, thus saving the cost of installation and maintenance
Chief among multi-channel retailers' needs in an order management system is the ability to integrate the application with any other supply chain management or third party delivery system. Cabela's, which operates 10 stores in addition to its catalog division and web site, is overhauling its operating platform to allow data from its warehouse management, customer relationship management and order management systems to flow into a centralized data hub that can be accessed through any of its sales channels or warehouses.
The initiative, which began last year and uses Yantra Corp's Order Hub, is expected to provide a 360-
degree view of each customer's order. This view includes availability of inventory, expected date of shipment for back orders, where inventory is being pulled to fulfill an order, the channel through which an item is purchased, and the channel through which an item is returned.
Inventory, too
Cabela's intends to use the information not only to serve customers better across all its sales channels, but also to forecast inventory needs and accurately track stock across its distribution centers.
The project is scheduled to be completed in the fourth quarter. "We want to provide our customers with the ability to purchase and return items through different channels without any difficulty, while we know what happens with an order every step of the way," Popps says. "This can eventually help us with forecasting our inventory with suppliers and how they need to break up inventory ordered across our distribution centers."
To successfully make the transition into the multi-channel environment, retailers require real time data to properly manage their growth. In addition to knowing available inventory, multi-channel retailers may also need to schedule installation dates and provide customers with an estimated time of arrival for the installers. Knowing the availability of space on a delivery truck to determine when an order can be shipped, as well as receiving alerts that indicate the company is reaching its maximum capacity for order fulfillment can also positively impact customer satisfaction levels.
Reduced training costs
"Real time operational information is critical to multi-channel retailers, because the web has created a sense of immediacy as far as consumer expectations when they cross over into other sales channels," says Donny Askin, founder and CEO of Natick, Mass.-based CommercialWare Inc. "Multi-channel retailers need to be able to locate a product or any piece of information about an order anywhere in the supply chain at any time, regardless of the channel the customer uses to make the purchase, and then contact them."
Funneling all order and fulfillment information into a single database also allows multi-site Internet retailers to evenly apply business rules across each site. Business rules may include running each transaction through a scoring application to determine the risk associated with a customer buying on house credit, detect the potential of fraudulent payment, apply the correct state sales tax or create reports on transaction processing costs.
Such information can be presented on a single screen to customer service agents, which in turn speeds training. It also allows agents to handle and track orders through more than one site more efficiently, which is a boon for Internet retailers selling through multiple sites under multiple brand names. Having one screen for all order management needs can reduce agent training costs by as much as 50%, according to Jim Mangan, vice president of sales and marketing for Indianapolis-based Sigma Micro Corp.
"Order management systems are becoming a core part of the multi-channel retailer's business, but they still need to be able to be integrated with other applications that are part of the order process," Mangan says. He adds that Sigma Micro recently added an interface to Providence R.I.-based Retail Decisions fraud detection applications.
The ability to integrate order management systems with software from other vendors can provide a huge edge in service and dramatically lower operating costs. Sunnyvale, Calif.-based HPshopping.com, the e-commerce arm of Hewlett-Packard Co., has tied its order management system to FedEx's delivery tracking application.
HPshopping.com ships all orders made through its web site via FedEx.
The link to FedEx notifies HPshopping.com when two unsuccessful delivery attempts have been made. After three failed delivery attempts, FedEx places the item in a holding pen before returning it to the sender. For HP, that means having to wait several days before it can regain custody of the package, eating the cost of the return fee, plus the cost of restocking and reshipping the item at a later date. Less than 1% of orders are returned to the warehouse due to delivery failures.
Heading off dissatisfaction
"It's the 1% of orders that go sideways we want better tracking on, not the 99% of orders that get delivered," explains Michael Butler, supply chain and logistics program manager for HPshopping.com. "It does not matter what the value of the order is, because when a order is not delivered as promised, it creates customer dissatisfaction."
Once an order has been flagged for two unsuccessful delivery attempts, HPshopping.com will contact the customer to identify the problem. Sometimes it is as simple as having the wrong address or that the customer lives in a new subdivision for which FedEx does not yet have accurate street maps. "That is a common occurrence in rapidly growing areas like Las Vegas," Butler says. "In those cases we usually end up getting directions from the customer and passing them on to the delivery agent."
The operating efficiencies gained from order management systems are also enabling multi-channel retailers to redistribute human resources. Vancouver, B.C.-based UrbanFlorist.com, for example, has been able to free personnel from having to troubleshoot orders containing errors and reassign them to taking orders. Prior to installing its CommercialWare order management system, the company had to halt taking orders the week before Christmas 2003 to fulfill orders taken up to that point.
"This year we went right through the holiday season without skipping a beat," adds Alif Somani, CEO of UrbanFlorist.com. "Ideally, from a consumer perspective, good customer service requires interaction with a person. But as with most companies, we have limited human resources, so it made sense to find a solution that allowed us to move personnel from order processing to customer service."
Managing rapid growth
More efficient use of personnel can also be achieved by providing packing clerks with an electronic image of each item and the weight of each item to be included in the order. Having an image helps ensure the right item is packed by visual verification. Knowing the weight in advance makes it easier to calculate shipping charges and notify the customer before the item goes out so there are no surprises when the customer receives the final invoice.
"Small Internet retailers want this type of information so they can start running their business more seriously and better manage rapid growth," says Barney Stone, president of Blue Bell Penn.-based Stone Edge Technologies Inc., which includes 30 order management events in its application.
With consumers increasingly zig-zagging between a retailer's web site, call center and store while shopping, multi-channel retailers can no longer afford to rely on order management systems to simply track availability of inventory. Nor can small Internet retailers afford to go without one.
The reason is simple, consumers expect the same level of service regardless of whether they order through one sales channel and follow-up on the order through another. "Service is more complex than just processing an order," says UrbanFlorists.com's Somani. "It is having a better understanding of customers' needs so they can be cared for in a better fashion."
Peter Lucas is a Highland Park, Ill.-based freelance business writer.
