Value-Chain Report -- Are Your Customer's E-Satisfied?

Dec. 21, 2004
E-fulfillment is a must to compete in today's Internet environment.

One of the most significant challenges in the accelerating business environment created by the Internet is to optimize the value chain while simultaneously providing value to customers and meeting their increasingly demanding expectations. As successful e-businesses have learned, fulfillment reaches far beyond the warehouse or loading dock and affects bottom-line results even more than before. Unfortunately, existing fulfillment processes are typically incapable of supporting the increasingly complex fulfillment needs of e-business, or e-fulfillment, such as end-to-end value-chain visibility and the elimination of excess inventories. However, these challenges can provide the opportunity for significant competitive advantage to those companies who can successfully reinvent their fulfillment model. Customer demands drive change Customers have become more demanding than ever before and will continue to become more demanding in the future. As a result of continuous improvements in value-chain capabilities and responsiveness, customers expect their orders to be delivered on time, wherever needed, and in the manner they want it -- without exception. These escalating customer expectations have placed a significant burden on those companies still struggling to gain control of, and leverage, their value-chain operations. Competing on price is becoming less and less a choice, and quality is the price of participation. To compete successfully, companies are finding that they must distinguish themselves with superior service throughout the entire business cycle -- from the buying experience to the delivery experience. For many products, the Internet has effectively eliminated the cost of changing suppliers -- the competition is just a click away. To be a market leader today, companies must strive for execution excellence, measuring success via customer retention. Because the Internet has lowered the cost of changing suppliers, companies are forced to differentiate themselves with superior service and consistent delivery performance. The rise of e-commerce also has forced companies to increase the velocity and responsiveness of their value chains in order to rapidly respond to changing demand and supply conditions. As customers, products, and business models continue to change, fulfillment processes will need to be increasingly flexible and capable of accommodating new initiatives. Traditional fulfillment processes are not capable Traditional fulfillment systems and processes lack the capability to support the increasing demands of the Internet economy. E-commerce is projected to grow from $51 billion in 1998 to over $1.4 trillion by 2003, according to Forrester research. The rapid growth of B2B and B2C volume is raising customer expectations and creating significant pressures on value chains. Some of the key differences between traditional fulfillment and e-fulfillment models are outlined below: Traditional Fulfillment Model

  • Orders are typically large and palletized, typically full truck load and LTL shipments.
  • Customer demand is fulfilled on a supply (push) basis driven off forecasts.
  • Standardized processes; all customers are fulfilled the same way.
  • Customer order shipping destinations are concentrated and standard.
  • One-way product flow with few returns. E-Fulfillment Model
  • Customer orders are smaller with more frequent small parcel delivery.
  • Customer demand is highly variable with many last minute changes.
  • Customer demand is pull oriented with demand fulfilled from actual orders.
  • Fulfillment is executed on a customer-by-customer basis.
  • Customer order shipping is highly dispersed with ship points and destinations varying on an order-by-order basis.
  • Two-way product flow with frequent returns. Current logistics infrastructures focus on delivering efficiencies driven by economies of scale. The rise of Internet-based commerce is forcing companies to adopt a new fulfillment model that operates with a high degree of velocity, flexibility, and customer-responsiveness. In the new economy, customers expect rapid delivery of physical products ordered via the Web and instant access to accurate information regarding delivery. The Internet economy also is forcing companies to take an extended view of their value chains. This "extended enterprise" may span from the supplier's supplier to the customer's customer, including all trading partners. Fulfillment processes can no longer be viewed solely as a cost of doing business. In the e-business environment, fulfillment is a customer-facing activity that is directly linked to customer satisfaction and retention. Flawless execution in fulfillment processes is one of the key differentiators for companies seeking to deliver an outstanding customer experience. Value-chain challenges Although B2C remains a small part of total e-business, there has been a tremendous amount of attention for clever Web sites and the latest IPOs. And while the customer-facing experience is important, such as that provided by Inc. and Lands' End Inc., this is just the beginning of the entire order-to-delivery cycle and the customer experience. Leading companies, such as and Lands' End, have invested heavily in their fulfillment capabilities. Lands' End was quick to recognize what many businesses now realize -- that the way to succeed is to combine the Web with existing distribution infrastructure. For some companies, this means retail or distribution businesses, for Lands' End it was the existing mail-order business. Another example, GE Plastics' customers can now use the Web to track orders, in some cases right to the location of the delivery truck, instantly getting information that previously required multiple phone calls. With new competitors emerging and an alternative supplier just a click away, companies who intend to grow their Web-based business understand that the key to achieving growth, building customer loyalty and retention depends on their ability to achieve flawless, end-to-end fulfillment. New value-chain software for managing orders, deploying inventories, and controlling logistics has emerged within the last few years to enable end-to-end fulfillment capabilities. Companies such as i2 Technologies Inc., Optum Inc., and Manugistics Group Inc. have introduced solutions that provide companies with the tools they need to get the right product to the right place, at the right time and cost, for every order and every customer. These new solutions are the foundation tools that enable e-fulfillment success.

    Kevin P. O'Brien is a Cap Gemini Ernst & Young practice leader for supply-chain consulting with high-growth and middle-market companies.

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