F. Curtis Barry & Company » Outsourced services

Reducing The Risk In Using Third Party Logistics

Bob Betke — Wed, 26 Aug 2009 08:45:54 +0000

As we work with clients looking for a third party logistics option to meet their needs, a few recommendations come to mind. One of the greatest fears in giving your fulfillment function to someone else is the unknown factors of how your customers will be treated and what your cost will be for their services. The first concern is best dealt with by calling existing and past clients of the vendor to solicit their reference as to the adherence to the service levels. The second is a bit more complicated.

One complaint we hear often is the surprise that occurs when the first invoice for services arrives. In addition to a detailed Request for Proposal (RFP) outlining requirements and expectations, two additional steps can be used to reduce the risk of surprise.

The first is to make sure the vendor spends time with your operation to review what you do today. Even with all the care and attention you apply to your RFP, some things can be missed. You should ask your proposed vendor to evaluate your operational needs and metrics to make sure their submitted bid is appropriate. If any differences are noted during the site visits, they can be reflected in a revised bid for services. This will permit you to make the most informed decision possible. Make sure the vendor understands that it is their responsibility to discover and point out inconsistencies with the RFP and the actual operation. Your goal should be to have the actual cost per order come within 5% of the proposed cost per order in the RFP response by the vendor.

The second suggestion is to have a set of productivity metrics or standards as part of the contractual Key Performance Indicators (KPI’s). These should reflect the commitment of the vendor to meet certain productivity levels in specific warehouse functions. Many cost estimates are based on applying an hourly pay rate to the hours used to calculate the cost for a functional area. The estimates of cost in the RFP response assume some level of efficiency by the vendor. When the invoice arrives, you should be able to determine if any variance occurring in actual vs. estimated cost is caused by a different volume of activity being required or if the expected level of performance is different than that proposed. Having a committed level of productivity in your contract reduces your risk in this area.

If you are able to use these two suggestions, it should lower your stress level in dealing with the unknown factors of utilizing the third party fulfillment option.

Bob Betke is vice president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in warehouse and distribution, warehouse management systems, order management systems, call center, inventory management, and benchmarking; Learn more online at: http://www.fcbco.com

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Low Hanging Fruit: Is Your 3rd Party Overflow Call Center Cost Effective?

Brian Barry — Fri, 31 Jul 2009 19:28:59 +0000

I spent this morning talking with a good friend who is the COO of a midsized business to business multichannel company. I wanted to get his take on what data and analysis they use at an executive level to make decisions and to develop strategies. He made a point that is something we believe very strongly in, and it didn’t take tens of thousands of dollars to make a $200,000 difference. It took a few weeks and very little effort from the employees.

He related that a few months ago they needed to understand why their call volumes were increasing, but not necessarily in line with revenue. So for a short time period they had each of the phone reps keep a tally sheet next to their computer, and on that tally sheet were 8-10 categories of call reason codes – called to place order, called to track order, called to return a product etc. After each call the rep would record the reason for the call on the sheet.

After a few weeks they measured the results. Only 30% of the calls were to place orders, the other 70% of the calls were true customer service calls. On top of that, they were using a third party call center for overflow to take a large percentage of the overall calls because of the increase.

As it was, the third party call center was not able to answer most customer service calls for them, and the problems quickly became:

1. The customer couldn’t get the answer they were looking for immediately.

2. The third party call center was sending emails back and forth to our client trying to get answers.

3. Most of the time our customer then had to make the outbound call to the customer to try and get them their answer and it usually meant more than one call to reach them.

Throughout this whole process the customer didn’t get an immediate answer and the costs for our client went through the roof. In the end they realized that they needed to do things differently. They needed to be more in tune with the customers and give them the tools they needed to answer their questions.

They opted to hire additional customer service reps in the short term to answer the questions immediately as well as provided more information to the customer to reduce the number of calls back and forth. With the elimination of the third party call center they were able to eliminate almost $200,000 annually. The real cost savings is much higher than that by not having to deal with the additional emails and additional customer service calls to the customer.

To some this may seem like a no brainer, but I guarantee you most companies could benefit from taking a step back and looking at things like this. Not just in the call center but the warehouse and other areas. Everyone has some low hanging fruit that could easily save them some money its just a matter of looking for it.

It didn’t take a ton of cash to find these problems; it just took some patience and the realization that audits like this are important. For assistance with thoughts on how to identify this and other low hanging fruit, give us a call and let’s see how we can help your business.

Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com.

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Escalate Retail Delivers Landed Cost Capabilities

Brian Barry — Thu, 30 Jul 2009 14:33:36 +0000

In a recent press release, Escalate Retail has landed a beta site for its newest release. And it’s the direction the application has taken that will really allow multi channel businesses to reach peak efficiency and profitability. Here is an excerpt and one of the most important pieces of the press release:

San Diego – July 13, 2009 — Escalate Retail today announced that Homemakers, Iowa’s largest furniture store, will launch as the Beta partner for the latest Enterprise1 version 12.1 this July. Additionally, Homemakers will upgrade its customer-facing solution by moving to the latest release of Customer1 version 4.2.

Version 12.1 of Enterprise1 provides Homemakers with functionality they can begin using immediately, including:

True landed cost tracking: Provides a breakout of all costs for freight, customs, and more for every item on a purchase order; also tracks that cost throughout the life of the item within Homemakers’ inventory until the item is sold

True landed cost is one of the most important cost aspects that a company can utilize. What is so significant about landed cost? Landed cost will allow you to understand the following:

1. It will allow you to really understand how much freight, duties, agent commission, etc. you are spending to bring in the product, and its true impact on the margin earned.

2. It also allows you to drive at the true net contribution to profit for that item.

3. A company can also utilize the landed cost to determine their buying strategy by understanding whether they can afford to bring in smaller shipments on a more frequent basis, turning the inventory faster and investing less cash in inventory.

I feel that this type of functionality will greatly improve a company’s understanding of product profitability while assisting with the development of a comprehensive inventory strategy. I encourage you to read the rest of the press release and to visit Escalate Retail online at http://www.escalateretail.com

Need help reviewing your inventory strategy, if so we offer inventory assessments for typically $6,500 – designed to be performed quickly with a high ROI and actionable recommendations – click here to learn more.

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One option for going direct to your customers

Brian Barry — Mon, 27 Jul 2009 16:04:09 +0000

In this economy, everyone is looking for some kind of advantage – a way to build their brand image, how to increase product margins, reduce warehouse and logistics expenses – all while sticking to their core competencies. This can be especially difficult for consumer product goods companies and manufacturers. Often times they sell through vendor networks or distributors in order to reach retailers and end consumers. Many manufacturers have addressed the potential channel conflict issues and have decided to develop direct to consumer business offerings. But in trying to go direct to the customer, it means these companies need to invest in software, infrastructure, personnel and a new logistics process.

More importantly this means the company is moving away from what it does well. For some this isn’t a problem, for most this can be a major problem. Managing call centers, small package pick pack ship operations, and dealing with customers for a direct business is entirely different than a manufacturing operation.

But this doesn’t mean that it can’t be done. For those not wanting to invest in operations necessary for a direct ecommerce or direct marketing business, there are options. One option that several manufacturers and consumer product goods companies have turned to is Jagged Peak. Not only have they developed a strong warehousing and logistics division, but they have also developed exceptional order management and ecommerce applications.

What does this mean – if you want to take your products direct to your end customers, Jagged Peak can provide all of the applications necessary but also provide end to end services to support order fulfillment. By doing this, Jagged Peak allows their customers to remain focused on what they do well and leave the rest to them. Third party options like this are often times a great way for companies to test new markets and new channels in order to meet their financial goals.

F. Curtis Barry & Company assists companies of all types to develop fulfillment strategies which include the sourcing of third party options. If we can help your company develop a plan or evaluate different third party options, please contact us today.

Jagged Peak can be found online at www.jaggedpeak.com

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Measuring Your Employee’s Performance

Curt Barry — Tue, 02 Jun 2009 21:52:32 +0000

The following is from a recently received email sent to Curt Barry…

Dear Curt -

We met briefly at the NCOF conference in Vegas, and I wanted to reach out to you regarding performance errors. I was hoping you could provide me with some insight into how other 3 PL fulfillment companies manage employee errors. Currently, we don’t have a strong policy in place to deal with these issues.

Some questions that arise in my mind are:

1. How many mistakes is too many?

2. Should the consequence be different in receiving than picking or packing?

3. If there is a larger mistake that causes our company should there be a more severe consequence?

I understand that everyone makes mistakes and I would like to allow for learning and coaching, but I also want to make sure that our employees have a formalized consequence to ongoing errors, and they know what to expect. If you have any feedback on this I would really appreciate it. Or, if you know any warehouse managers I could speak with to get ideas on what they do that would be great!

Thank you so much for your time!

Sharon, VP of Client Services, 3PL Company

Dear Sharon -

In my opinion, there are a couple levels of issues:

Weekly productivity reporting by person through out the call center and fulfillment. Our clients display these by department and person on white boards, reports and monitors throughout the facilities.
Contact center monitoring should be in place. There should be a form for evaluating the calls and a weighting system for the responses. What are your standards for monitoring experienced core employees versus new hires? Companies have developed coaching approaches to improve employees, get them to accept responsibility for improvement or a basis for asking them to leave the company.
Personnel policy that deals with severe HR issues. These include theft, embezzlement, sexual harassment, etc. These should have clear documented policies which employees understand.

In terms of error rates, we would expect that controllable error rates would be only 0.5%. Meaning, 99.5% of all major transactions are error free. In bar coded systems it will be much higher.

In a speech a number of years ago when I made the statement about error rates of 0.5%, a national FedEx manager pointed out that meant 73,000 of their customers would not get their package on time in any given day. What is your management’s attitude about errors? And you are in a 3 PL service so what guarantees are you making to clients? Hope this helps. Call me if I can further explain.

Curt Barry

Hey, blog readers, what’s your company’s approach?

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Ways to Save Money

Curt Barry — Mon, 11 May 2009 15:30:48 +0000

The following is a brief email that we received from one of our eNewsletter readers, in response to an article we wrote about saving money in your company…

Curt:

Just received your electronic May newsletter and wanted to send you some ways we are saving money.

Cut utility usage
Drop non productive associates
Reduce fulfillment goals from 92% to 85%
Keep 15% of your OTB in your back pocket
Only mail your best customers ( we are thinking of prospecting again this summer )
Drop marginal books
Flow inventory, more smaller orders, more frequently.
Keep margins high, but salt the assortment with redlines for the illusion of markdown.
Offer free personalization instead of a mark down.

We are actually making money on a reduced sales plan.

Hank

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Managing Customer Call Center Costs in an Uncertain Economy

Curt Barry — Mon, 02 Mar 2009 10:00:41 +0000

Today’s call center mantra is, “Do more with what you have.” In this uncertain economy there is even more pressure to perform miracles by increasing productivity while lowering costs, yet still continuing to provide expected customer service levels. In our consulting engagements with direct call centers and through our F. Curtis Barry & Company Best Practice ShareGroups, we’ve been able to observe the latest call center trends and how managers are dealing with them. Here are some of the major issues that direct customer call centers face, as they examine their costs and try to reduce them without major disruptions to customer service.

Higher Labor and Benefit Costs

There has been a tremendous acceleration in hourly labor rates over the past five years. In addition, our industry is in competition with call center jobs in banks and other financial services, which often pay more and have stronger benefits. As recently as 2003, many of our clients had average pay rates in the $7.50 to $9.00 range, with benefits adding 15% to 20%. Today those same clients are paying an average of $10.50 to $13.00 per hour. Some of those in urban areas are faced with $16.00 to $17.00 per hour, with added benefits in the 25%-30% range. However, there are still fortunate direct call centers with labor rates of $7.50 to $9.00 in smaller cities and rural areas.

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How to Select the Right Front- and Back-End Systems for 3rd Party Fulfillment

Curt Barry — Fri, 27 Feb 2009 15:18:24 +0000

More and more companies today are outsourcing fulfillment to avoid making investments in that non-core area, or in the technology necessary for it. We’ve also seen hundreds of start-up e-commerce companies that simply don’t want to be in the fulfillment business. All of these companies are turning to third-party fulfillment (3PF) providers like you. With so much riding on it, it is very important that your front-end (call center, customer service, and marketing) and back-end (warehousing, order management, and fulfillment) systems and technology give you a continuing competitive advantage. The systems you select will have significant ramifications for your personnel’s productivity, as well as how effectively you serve your customers and help them grow their businesses—and the management information these systems provide can help you grow your business. No matter what type of system you’re considering, the purchase is a long-term investment. In short, selecting the right front- and back-end systems for your 3PF business is a major undertaking.

In this article, we’re going to lay out the major functional considerations for new software and the methodology for selecting a system. Over our past 25 years as industry consultants, we have both assisted companies in selecting third-party fulfillment providers and helped third-party providers select new front- and back-end systems to improve their fulfillment services, reduce costs and improve customer service.

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Outsourcing to Save Call Center Costs

Tocky Lawrence — Mon, 16 Feb 2009 21:09:45 +0000

Having managed a call center, I have always been a proponent of in-house call centers, but times are tough and they are changing. Every company today is looking for ways to save money without hurting sales and customer service. As the pressure on businesses to dramatically reduce costs intensifies, you need to look at domestic or off-shore outsourcing of some or all call center and data entry functions as a way to improve your bottom line. Companies are also outsourcing these functions more because they can avoid using capital for new order management and telephone systems.

Recently, one of our clients outsourced 300,000 phone calls off shore, resulting in a substantial reduction in costs. How substantial? This client’s fully loaded internal cost per minute was $0.72, while a fully loaded off-shore cost per minute for this client is $0.42—and most of the customer service remains in house. Additionally, the client’s 90,000 mail/fax orders cost only $0.15 per order: scanned, transmitted to Asia, keyed overnight and available on-line for picking and customer service the next morning.

Clearly, you need to look at the potential savings of offshore outsourcing. How should you approach doing this type of study?

Know your internal costs. In order to compare your internal costs to outsourcing, you need to identify your fully loaded internal costs. “Fully loaded” includes direct and indirect labor, occupancy and telecom costs. This needs to be converted to a cost-per-minute basis, which is how outsourcing will generally be proposed and invoiced. You may say that you can’t control occupancy costs, however, there may be other uses for that space, if call center is outsourced.

Competitively bid out to multiple vendors. It goes without saying that you need to competitively bid the potential project to a short list of qualified bidders. This is the only way to get the lowest costs.

Formalize an ROI (Request For Proposal). This should include:

A pro forma for your business, meaning the types and volumes of transactions (actual and multi-year forward projections)
Required services
Service level standards for total call length, abandonment rate, and average call service level standards
Request references and boilerplate contract
Details about order management systems needed, systems integrations including e-commerce site, etc.

Decide what to keep in house. In my opinion, you should keep your custom service internal. This gives you a way to monitor the service levels of the outsource company.

Ask other critical questions. Among the things you’ll want to know:

How will training be conducted about your product(s) and company policies?
Is the provider PCI credit compliant and certified?
How will you monitor your customers’ calls?
Who are the company’s references? Come up with standardized questions to ask each of the references so you can compare their responses.

Domestic outsourcing has some advantages over off shore. Here are a few that I think are important:

There may be an advantage in the area of English speech. However, I am greatly impressed with how well the Philippines has performed for some of our clients.
Shorter travel distance means you can visit centers more often.
Understands US culture.
Keeps jobs in the USA. This may or may not be as much of a factor for you.

Of course, domestic outsource providers’ costs will be higher than off shore, but that is not necessarily a dead end. We have one client, a major non-profit with a high average order, that outsourced 100% of its direct orders domestically while keeping customer service in house. They were able to successfully renegotiate with their domestic outsource provider so that the costs were not so widely different.

Tocky Lawrence is Vice President of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at www.fcbco.com.

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Sales Without Inventory

Curt Barry — Thu, 04 Dec 2008 20:25:19 +0000

Sales without inventory—now there’s an oxymoron. Many of us who cut our teeth in the retail and catalog trade know that you have to own inventory to make sales. In fact, for many businesses it’s the largest balance sheet asset.

In the late 1990s, dot.com companies with their “virtual inventory” concept tried to change all that. And guess what? That business model never really went away; it continues in both large and small businesses of many different types today.

There are two scenarios for running a business with little or no inventory. The first is the traditional vendor drop-ship, which requires no inventory. The other is to build a just-in-time inventory model, which entails warehousing certain products, typically those that need to be fulfilled frequently.

Vendor drop-ship
Here’s a few examples of traditional vendor drop-ship: One of our clients is a retail specialty department store that has direct sales of $400 million. During the holiday season, its direct business approaches 20% of net sales. Holiday assortments that are drop-shipped include food, specialty items, wreaths and garlands, along with big-ticket items such as furniture, rugs, draperies and other home products.

Another company we are working with sells unusual hardware. It keeps bestsellers in stock and drop-ship the slower moving products, which can all be sourced and shipped within a seven- to 10-day window.

That may not be the highest level of customer service, but then the company doesn’t have a major fulfillment facility and the attendant inventories, concern for forecasting with required tight accuracy, or the significant overstock and liquidation problems common to other direct businesses.

A third client that specializes in business supplies has a small internal inventory and extends its assortment offering 80% by drop-shipping directly to the customer.

I’ve also seen a mega-retail/direct sporting goods company expand its line tremendously to include many slower-selling products that could not “break even” in the catalog’s merchandise selection process.

The point is, with drop-shipping you can open up a much broader assortment to your customers than you could justify for inclusion in print media and internal DC stocking.

What do these businesses have in common that makes this strategy effective?

–Systems functionality: These merchants’ Website and call center order management systems provide connectivity to the major vendors participating in vendor drop-ship programs. These systems validate, credit and process the orders out to the vendors.

The better systems download customer orders throughout the day or in batches. The systems are connected to terminals and printers in the vendors’ DCs to process all during the day. As orders are viewed and printed by the vendor, the drop ship system controls the process and gives the retailer visibility into the various order statuses.

As the vendor prints the pick tickets and the order is ship-confirmed to the system, those confirmations are sent upstream to customer service files online or in batches. This allows the retailer to eliminate all the costly manual processes that usually make drop-ship a nightmare and lead to poor customer service.

–Domestically sourced product: Imported product, exclusive and long lead-time products are not candidates for vendor drop-shipping because of the length of time required to get them. True fashion product is not a candidate because the retailer gets only one chance to purchase product, and possibly one reorder — by its nature the product is new, with no selling history and little reorder ability.

This concept generally works best when the replenishment is short: one to 10 days. This way you can continue to provide higher customer service, but without the attendant inventory and facility costs.

–Vendor reliability: Since the vendor is shipping directly to your customer on your behalf, they have to be as good or better in terms of accuracy than your internal fulfillment. This, I’m afraid, eliminates many vendors that do not understand the direct industry.

What’s more, the retailer must develop and enforce vendor compliance standards for processing orders, accounting paperwork for POs, invoices, possible returns processing, etc.

Just-in-time fulfillment
Some businesses have migrated to the just-in-time model and are warehousing products with longer lead-times or which need to be fulfilled more frequently. Several companies we work with hold inventory that is exclusive. Many of these merchants use a mix of just-in-time fulfillment and drop-ship programs.

With these just-in-time programs, not only can you achieve lower inventory costs, you can:

–Reduce the number of packages received by the customer
–Gain the ability to insert company materials (value-added service)
–Use cartons and labels with the company name
–Reduce freight costs with fewer shipments

Like the vendor drop-ship scenario, the merchant has to be responsive and reliable. They have to be willing to hold some inventory in order to cover anticipated customer orders.

Each of these scenarios can help you build your sales without being forced to carry a huge amount of inventory. Both can help you reduce the occupancy and labor costs associated with processing product and fulfilling customer orders.

–

F. Curtis Barry & Co. works with multichannel businesses to increase catalog profitability through the evaluation and implementation of order management systems, inventory management systems, warehouse management systems that match client objectives.

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F. Curtis Barry & Company » Outsourced services

Reducing The Risk In Using Third Party Logistics

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Low Hanging Fruit: Is Your 3rd Party Overflow Call Center Cost Effective?

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Escalate Retail Delivers Landed Cost Capabilities

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One option for going direct to your customers

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Measuring Your Employee’s Performance

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Ways to Save Money

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Managing Customer Call Center Costs in an Uncertain Economy

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How to Select the Right Front- and Back-End Systems for 3rd Party Fulfillment

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Outsourcing to Save Call Center Costs

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Sales Without Inventory

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