Magazine Article | July 1, 2001

Faster, More Accurate Shipments With E-Fulfillment

Source: Field Technologies Magazine

Looking for a way to improve your supply chain execution and improve your order accuracy without increasing your workforce? E-fulfillment may be the answer.

Integrated Solutions, July 2001

It seems that if you want to spice up a solution and give it a millennium flair, the easiest thing to do is to put an "e" in front of it. The newly formed word takes on a whole new life. It's like mild-mannered Clark Kent ducking into a phone booth and coming out as the man of steel. Whether it's commerce transforming into e-commerce or procurement transforming into e-procurement, "e" is revitalizing business protocol everywhere. Even more impressive is when a word not only has "e" attached as a prefix, but the former word has an adjective with negative connotations added to it, such as occurs in the case of e-mail vs. snail mail. This latter scenario is akin to Charlie Brown emerging from a phone booth adorned with cape and tights never to be outwitted by that prankster Lucy again. Before you become desensitized to the "e" craze, however, there is one word that is worth adding to the Internet-enabled arsenal: e-fulfillment.

E-fulfillment is the process whereby manufacturers, distributors, and suppliers get their products to their customers with the aid of the Internet. E-fulfillment solutions can operate in a B2B (business-to-business) environment, a B2C (business-to-consumer) environment, or both. These solutions are designed to enable customers to view a supplier's inventory online and to allow customers to order products online. Additionally, e-procurement solutions can automatically check and validate customers' credit online, they can alert designated personnel of the whereabouts of the item(s) to be picked, packaged, and shipped, and they can even help automate the product return process. If installed and integrated properly, all this functionality can lead to as much as 50% more products moved through the supply chain without adding to the workforce.

When integrated with other supply chain solutions, such as supply chain planning and supply chain execution, e-fulfillment solutions play a significant role in determining how suppliers can keep up with the demands of their customers. These solutions help suppliers and manufacturers find the balance between not stocking too much inventory and not making customers wait too long for their products because the supplier has to order it or the manufacturer has to make it. These solutions accomplish this by incorporating one or more of the following types of procurement: demand-driven procurement, consumption-driven procurement, or forecast-driven procurement.

According to Thomas J. White Jr., president and CEO of Circa Information Technologies (Downey, CA), each procurement type has its own strength and weakness. "Demand procurement means that I don't have inventory in my warehouse," says White. "The strength of this type of procurement is that there is the potential of savings on the cost of keeping track of excess overhead. The weakness, however, is that if it takes too long to order (or make) the customers' products, you may lose your customers." Consumption procurement tries to preempt this problem by keeping inventory in the warehouse or DC (distribution center) and reordering products as they are ordered. "The downside to this type of procurement is that a supplier can get stuck with extra inventory if a product loses popularity," says White. The third kind of procurement that is used by e-fulfillment solutions is forecast-driven procurement. "This kind of procurement attempts to predict spikes in inventory, such as during the Christmas season, and avoid running out of hot selling products while at the same time avoid overstocking products that are on the downside of the demand curve," notes White. The drawback with this type of procurement is that the future is not always as easy to predict as Sister Rita spiritual advisor would like you to believe. According to White, the best case scenario is to purchase an e-fulfillment solution that incorporates all three types of procurement, depending on the type of product. For instance, a tire distributor may set up its e-fulfillment solution to track its consistent, all-season tires via consumption-driven procurement, its winter tire inventory via forecast-driven procurement, and the latest "run flat" inventory may be controlled via demand-driven procurement.

Common E-Fulfailment
These solutions are not installed and implemented without their share of problems. According to Bob Kennedy, VP and general manager for MARC Global Services (Dulles, VA), a large percentage of software systems fail for four main reasons. "The biggest reason e-fulfillment installations fail is that companies try to overcustomize the software," says Kennedy. "Even if you have the best software developer at your disposal, you significantly increase your chances of system failure when you make changes. The best thing for a company to do is to leave the software as close to out of the box as possible and make modifications to its business practices instead." Additionally, companies should do a self-analysis before purchasing an e-fulfillment solution and understand the flow of how they do business, so they can find a solution that most closely matches their paradigm without needing to be altered.

The second reason for e-fulfillment failure is weak integration with other software packages such as ERP. "This problem occurs when the e-fulfillment vendor does not understand its customer's ERP system and builds a weak interface that results in a bottleneck effect," says White. "The best way to avoid this pitfall is to select an e-fulfillment vendor that is familiar with your specific ERP and, preferably is certified by your ERP vendor to connect its software to your ERP solution."

The third reason e-fulfillment solutions fail is that they are not able to scale to the company's growth needs. As the company grows, the e-fulfillment system needs to be able to handle more data as well as integrate with other software solutions. "This problem was most apparent a couple years ago at Christmas," recalls Kennedy. "Several companies with e-commerce sites were unable to deliver goods to their customers in time for Christmas - some were weeks off the mark. The companies had invested a lot of time and money in their ability to take orders (supply chain planning), but they neglected the rest of the equation, which calls for fulfillment and execution of the orders."

The fourth problem that can be a stumbling block to e-fulfillment success deals with the way that the business data is shared between various software solutions - both internally and externally. There are three basic means that businesses exchange data: EDI (electronic data interchange), XML (extensible markup language), and triggers. Each of these three communication formats has its strengths and weaknesses, but the real problem occurs when a system that can read only one format attempts to communicate with a system incorporating one of the other two formats. It is important for companies to buy an e-fulfillment solution that can handle information in any format, especially considering it doesn't appear that any one of the three will become the standard any time soon. According to Tilo Schultz, COO of Swisslog Consulting (Billerica, MA), there will be no data communications standard for at least six years. "Even though EDI is a complicated format for exchanging business data, the fact is that it's been around the longest and companies aren't going to switch to something else without having some kind of cost justification first," says Schultz. Schultz believes that eventually companies will make the switch to XML because it is more flexible than EDI.

White, on the other hand, feels that triggers will be the data exchange format of choice and will become the standard within the next couple years. "Microsoft and Oracle are working together to enable the Oracle database to communicate with the Microsoft SQL server via triggers," says White. "Because these two companies own about 80% of the market already, this will have a major impact on how companies exchange data. One of the main benefits of the trigger method of sending and receiving data is that information is transmitted and updated on the receiving databases' end in seconds vs. 20 to 25 minutes for EDI-based or XML-based data." The downside to triggers is that legacy systems that use XML or EDI will still require these formats to send and receive data.

E-Fulfillment Trends
Besides the basic changes in the way data is formatted and transmitted between supply chain solutions, there are two important trends to be aware of in this arena that are further enhancing the way businesses move products through the supply chain. "There is a big trend in outsourcing to 3PL (third party logistics) companies," says Chris Newton, analyst for AMR Research (Boston). "Companies that previously sent out pallets are now sending out onesies and twosies. The 3PL company works transparently by receiving the customers' purchase information (in any format) and even packaging and shipping of the company's products." While this option may help some companies reduce the complexity of doing business, it doesn't come without risk. "Any time you share your data with a third party you run the risk of your confidential information getting into the wrong hands, especially the hands of vendors who are going to be bidding against you," says White. Checking a 3PL company's references should alleviate some of this worry.

A second important trend related to e-fulfillment is consumer product tracking capabilities. "Because of our innate human desire to have things now, e-commerce businesses are being challenged to show their customers where their orders are every step along the way," says Kennedy. "It's this same human trait that is pushing more businesses to operate in a 24/7 environment. E-commerce businesses must have such added conveniences to make it more attractive for people to buy from them vs. the brick and mortar alternatives."

Enough Already
Even though all the details have not been ironed out with the future of e-fulfillment, it is apparent that companies are using e-fulfillment solutions to realize tremendous time savings and to improve their customer service. In light of "e" mania, however, it is still important to remember a few basics. "The 'e' in the whole thing is not the most important part," says Schultz. "Having visibility over the entire supply chain is where the savings are realized." Kennedy further adds, "It's still about a guy in a warehouse who gets the right box on the right truck."

When all else is said and done, companies still have to deliver the goods. Anything that promises to benefit a business without helping accomplish these ends is simply erroneous.

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