A Few Thoughts on Order Management
October 20, 2010
In blog she wrote while with AMR Research, Lora Cecere talked about the vision of Brad Blizzard, Senior Director of Logistics at Colgate [“Brad Has A Dream,” Connecting the Dots, 30 October 2009]. Brad’s vision is revealed in the form of a question. It goes like this:
“Retailers want us to deliver trucks more frequently; and at the same time, they want us to reduce greenhouse emissions. They want to order by product category and flow it through their warehouse. As a result, we are either shipping more trucks with less product or facing greater stock-outs. Each of us have warehouses in Chicago, Atlanta, Dallas, Newark, and Los Angeles, why can we not work together to meet these needs?”
In order to achieve Brad’s dream, Cecere claims that “we need to redesign order management. It is a stumbling block to making Brad’s idea a reality.” She reports, “The average order reflects a demand lag of 14 days from a customer purchasing a product at the shelf to the consumer products company receiving an order. As a result, … the order signal lags true demand replenishment needs.” She continues:
“To make Brad’s vision a reality there needs to be more discipline in the order process. Order management is not simple. There are many ways to take an order, and consumer goods companies are struggling with how to consistently take and respond to orders. In the research, we find that order lead time is variable based on how orders are accepted (e.g., phone, fax, B2B, VMI, etc.) and that only 20% of companies have a good handle on how they prioritize which orders get which products. … So, while I think that Brad is on the right track, and his ideas make sense, to make it work will require a redesign of order management.”
Brad’s and Lora’s vision viewed order management from the manufacturer’s perspective. Guneet Paintal, Principal Consultant, Enterprise Solutions – Supply Chain Management at Infosys Technologies, provides a look at order management from the retailer’s perspective [“Retail Customer Order Management Blog Series: Part 1 – An Introduction,” Supply Chain Management, 1 February 2010]. He writes:
“My focus is not to describe the traditional order management process typically associated with a single channel (i.e., the steps required for managing the lifecycle of an online order or a retail replenishment order), but instead highlight the cross channel benefits and challenges of managing a customer order from a retail stores perspective. Cross channel or multi-channel retailing at its most basic consists of retailers & customers interacting over multiple channels to find, decide on and transact products and services. The conventional sales channels include the online channel, ordering over a phone or simply walking into a nearby store to pick up the product. A customer is engaged in a cross channel experience if he browses say for an LCD TV online and goes to a store next door to buy it. He could also be browsing a mail order catalog after which he goes online and orders the product from say a BestBuy.com. After receiving the TV, he may try it in the privacy of his home and if he does not like the picture or the sound, he may choose to drive to the nearest store to return or exchange it. More and more customers consider this a natural and intuitive process to find, evaluate and buy their products. This ‘natural’ behavior of the consumer is however exposing the chinks within the processes of the traditional store or even pure plays online retailers.”
If retailers don’t have a good handle on order management, you can understand the frustration that suppliers and distributors have since they often rely on point of sales data to help them forecast sales, distribution schedules, and production cycles. Paintal continues:
“While it is understood by retailers and retail practitioners that online sales are growing at a fast clip, there is a much more limited understanding of the fact that as customers are exposed to a multitude of channels they expect these cross channel experiences to be seamless. Recent consumer behavior studies have shown that more than 50% of consumers researched a product online and purchased it offline thus influencing in-store sales. … Other reports are predicting that the number of cross channel shoppers will increase significantly in the next few years. It has thus become a business imperative for retailers to do some internal soul searching to assess their cross channel capabilities, identify gaps and put together plans to enhance or transform them.”
Paintal focuses in on retail cross channel capabilities because he believes they represent the cutting edge of retailing. He continues:
“As the name implies cross channel capabilities analysis is a rather ambitious concept that encapsulates all the functions and capabilities required by a retail organization to enable a seamless experience for customers irrespective of the channel through which they interact. … Let us begin by going back to my example of a customer Joe Shmoe walking into an electronics store to buy a TV. He would try to locate the relevant ‘video’ section of the store and start browsing there. He would browse through the various TV models and sizes based on various factors such as size of his living room, his perception of the brands available based on recommendations and reviews of friends and experts, the capabilities of the TV, the price range and so on. He probably consults with a knowledgeable sales associate to fill in the gaps of his understanding. This would be classified as the ‘Find and Decide’ stage of his decision making process. Based on all these factors, he chooses a TV to buy. He now starts thinking of how he can get such a large TV back to his home and whether he would be able to setup such a complicated piece of equipment on his own. The sales associate reassures him that a delivery truck would deliver it to his home the next day. If required he would be accompanied by somebody who will install the TV and walk Joe through the process of using it. He then walks to the nearest register with the details of the TV he wants to buy. He asks questions about what kind of warranties and return policies exist for his expensive investment and decides to buy an extra 3 years of protection. He pays for the TV, the delivery & installation the warranty and taxes using a combination of a gift card he got for Christmas and a credit card. He thus completes the ‘Buy’ phase of his traditional retail store buying experience.”
From a customer standpoint, things seemed to go well for Joe. Paintal wants to see how things went from the retailer’s perspective. He writes:
“To enable easy and intuitive Find and Decide, the store must stock a large variety of TVs. It must provide a large amount of information about these TVs and make sure this information is easily accessible and understandable to their customers. This function is typically provided by an item or merchandise management system. The store must have sufficient quantity of each TV displayed so that when a customer decides to buy one, they can walk out with one. This thus is an availability function managed by the inventory systems. In order to ensure that a large product gets to a customer’s home on time, the store must have a fulfillment and delivery system. This must not only take care of the tangible products bought by the customer but also the scheduling and delivery of intangible services such as installation and warranty support. When the customer wishes to pay, the payment tendering (POS) and accounting systems need to support the many means by which a customer chooses to pay for his purchases. Also if in the future, Joe wants to return his TV, the returns management system must be able to pull up his original sale transaction, return the product and refund Joe the amount he paid for the TV. The above describes the microcosm of customer and retailer interactions within the traditional store buying environment. Now imagine that the store runs out of the specific TV, Joe has so painstakingly decided to buy. This then is the point where our story of Retail Customer Order Management begins.”
It is also the nexus of manufacturer/distributor/retailer collaboration. Paintal continues his story in a second post entitled Retail Customer Order Management Blog Series: Part 2 – The Retail Order. [15 February 2010] He writes:
“The ultimate objective of the retailer is to provide an environment and processes which facilitate the customer in buying products they want (i.e., convert the need or intent to buy into a sale). Product availability is one of the key drivers for making this happen. However the supply chain mantra of keeping it ‘lean and mean’ implies that ensuring product availability is always a balancing act where the retailer juggles with the conflicting principles of lowering inventory carrying costs while preventing loss of sales due to unavailability of stock.”
To read more about the built-in tensions currently found between lean supply chains and flexible supply chains, read my post entitled Flexible and Lean Supply Chains. Paintal continues:
“In such circumstances many retailers are looking to leverage their inventory as efficiently as possible. As the traditional brick and mortar retailers have experimented with the online model, they are using the learning’s from that process to improve their traditional store selling models. They have realized that in case of stock out situations in the store, if they can reassure the customer that the product would be delivered to them in a timely and low cost manner, they would most likely not lose the sale. This then leads to the retailers attempting to offer different means of fulfillment from within the store.”
To read about how Nordstrom is dealing with this challenge, read my post entitled Supply Chain Helps Nordstrom’s Bottom Line. Paintal continues:
“[Attempting to offer different means of fulfillment from within the store] started with merchandise locate systems which helped a sales associate determine if a certain product was available in the backroom or another store in the neighborhood. They could then pull the product from the back room or ask the customers to drive to the nearby store and pickup the item. With improving systems and visibility to available inventory, this feature was enhanced to lookup availability in warehouses and shipping/delivering the product from the warehouse to the customer. With the explosion of choice in product categories such as books, movies, music etc, the online concept of ‘endless aisles’ became very relevant. Now the retailers wanted to offer the same variety and choice in a store environment without holding large amounts of stock which it would otherwise entail. The first stage of implementing this in the stores was based on pragmatic decisions of costs – since the online channel already had the mechanisms in place to manage these endless aisles, why not bring the web into the store and so emerged the ‘kiosk’. This started off with basic desktops and later standalone kiosks in the stores which allowed the customer to browse the retailer’s website and get products delivered to their homes through UPS or FedEx.”
Although merging virtual endless aisles with brick and mortar sales is tempting (and working for Nordstrom), Paintal indicates that it also has “disadvantages in today’s highly competitive retail environment.” He explains:
“More profitable product categories such as furniture, large electronics and appliances cannot be kept in large quantities in the store and also cannot just be shipped using UPS. They not only require specialized delivery but also installations and setup. Retailers are also looking for high margin revenue streams from the selling of services. There is an increased emphasis on selling a complete package or project which includes consulting services, installation & setup, maintenance services in addition to the delivery of products. These services require different operational models which involve scheduling appointments and then executing on them through service & capacity management, in home payment options etc. Also as retailers target small and medium sized businesses, the interaction model required does not match that for traditional B2B or B2C customers. It lies somewhere in between where a small business owner may go into the store and buy 10 laptops and an annual maintenance plan. He wants to be treated like a business with special pricing and benefits but cannot justify the retailer dedicating a separate channel and disproportionate resources for his volume of business. This convergence of new opportunities within the store environment is really challenging the traditional store systems. As these opportunities and challenges have emerged at different points in time, they have led to a multitude of stop gap processes and systems which provide a fractured & often time broken customer experience.”
With all of the processes involved in order fulfillment, customers’ needs can often be lost in the maze. Paintal is not surprised because “one of the major reasons the store’s organization is still struggling with [cross channel sales] is the inherent lack of understanding of the differences between their core cash and carry fulfillment model and the order based fulfillment model.” He explains:
“The cash and carry model is based on the here and now – pay for the product and walk away with it. This has and will remain very successful for a large part of the stores core business but it also leads to an inherent bias. Every interaction with the customer is looked at from a transaction by transaction basis and the life of each transaction is very short ranging from a few minutes to a few hours. On the other hand, an order is a promise of services performed which ranges from days to weeks or even months. Look at each of the scenarios described above. All of them involve a promise which is not fulfilled immediately but extends over a period of time. The question which arises now is – how does viewing a customer interaction as an order vs. a transaction help the retailer provide a better customer experience? The order as a construct has been around for many years especially in the online and catalog businesses. An order has a well defined lifecycle from its creation to its fulfillment. One customer order can enable the shipment of multiple products at different points in time from different partners which include warehouses, vendors, stores and wholesalers. An order can be the single source of truth about fulfillment statuses for both the customer and the retailer. An order can handle fulfillment of services which require scheduling and capacity handling. An order has an inherent work flow which helps orchestrate and streamline the very complex tasks required over an extended period of time to satisfy a highly discerning customer. At this point somebody may justifiably ask as to why the store’s organization has not embraced this concept wholeheartedly? The answer lies in my earlier assertion that stores have a ‘here and now’ mindset and when you try to force fit an order into that mindset, you find many challenges.”
Order management should be invisible to customers. Rod Martinez believes that if you are “asking customers to do business with you based on processes defined by your systems rather than the way they want to do business with you” it may be costing you revenue [“Are Your Order Management Systems Disappointing Your Customers?” Logistics Viewpoints, 15 July 2010]. He writes:
“As the economy improves, the top priority of many organizations will be improving the customer experience to win new customers and enhance existing relationships. The main thing people will remember about your company is how easy you are to do business with. Having the right solutions in place will allow your company to differentiate itself in the marketplace. Customers are demanding more choice in products, how they purchase those products and how their orders are fulfilled. If your order management systems cannot adapt to these customer-driven changes, you risk losing the brand loyalty that has taken so long for you to establish. Having customers define the way they interact and conduct business with your company is an entirely different business paradigm – a customer-centric paradigm.”
In posts about demand driven supply chains, Lora Cecere has also noted that customer-centric paradigms will likely define the future. Martinez continues:
“Many companies have resorted to implementing manual internal processes to meet customer requirements because they lack the systems to automate their order lifecycle. For instance, a company with multiple divisions will often take an order and then manually split the order and send the segmented orders to appropriate divisions for fulfillment and invoicing. Or worse, they make the customer place multiple orders, one with each division. This stop-gap approach does not scale, increases the time to fulfill the order and introduces the likelihood of errors. It prevents the customer from seeing complete order information via the website and forces them to interact with multiple CSRs and/or web portals in order to conduct business with the company. The alternative is to have the customer call into one location and have the CSR use multiple systems to check availability, place orders, check status, and initiate returns, and manually provide a consolidated view to the customer. This is costly for the company and offers a poor customer experience. So, you must ask yourself, is it difficult to make changes to your current business processes in order to support your ever-changing customer demands? How easy is it to find the status of a complex order for your customer? How easy is it to add additional participants and/or steps in the fulfillment process without having to make code changes? Most systems lack the flexibility to support these changes and need to evolve or be replaced with new systems that can provide the experience customers expect.”
By now it should be apparent that order management is going to remain painful for everyone in the supply chain from manufacturers to consumers until automation and collaboration are greatly improved. The more real-time the information the better. Martinez concludes:
“If your company needs to make this shift and gain additional flexibility, here are some of the attributes you should you look for in a solution:
- Extend across your total enterprise, and all of your enterprise applications, to aggregate/consolidate the information into a central repository for consistent promising, order status and alerts to your customer.
- Are intelligent enough to determine the optimal fulfillment option for each line on the order based on business rules that are important to the organization.
- Allow users to quickly configure business processes utilizing a graphical business process modeler that integrates event management.
- Can be implemented on-premise, or if IT resources are a concern, on-demand for fast implementations and quick ROI.
… It’s time to take a transformational approach to order management, replacing inflexible systems with new agile, flexible solutions that will make it easy for customers to do business with you. The results will differentiate you in the market and will positively affect your brand loyalty.”
You can see why Brad Blizzard’s dream is a difficult one to achieve. It is a vision that requires close collaboration from all stakeholders in the supply chain. Technologies are just now emerging that permit this vision to become a reality. Ironically, when the order management process is fully mastered, customers will probably be oblivious to the tremendous amount of effort it takes to make their experience pleasurable and effortless.