Panasonic saw it coming early. In 1996, the internet was just beginning to take hold as a powerful medium for sales and service. But a growing need for spare parts, generated by rapid business growth, convinced the electronics giant that it needed to do a better job of managing all of its distribution channels. So the company's service arm, Panasonic Services Co., began building a single system to handle everything.
"If there's a channel, we ship to it," says Brad Moszkiewicz, manager of operations for Panasonic Services in Kent, Wash. That includes product dealers, repairers, retail chains, original equipment manufacturers and consumers buying direct. In addition to service parts, the unit handles accessories, instruction books and even some new products. It also oversees a growing refurbishing operation, where defective items are swapped out, repaired and resold.
None of this would have been possible under Panasonic's old, homegrown systems, which were based on mainframe technology and software that was too rigid to handle the many changes involved in an agile customer-support operation. Back then, a simple request for a report would encounter a bureaucratic jungle. "Six months to a year later, you'd get it," says Moszkiewicz. "If you got it at all."
In addition to gearing up for higher volumes and greater efficiencies, Panasonic saw the internet as a major source of future business. "The head of our systems group was pounding the table, saying that everything's going to the net," says Moszkiewicz. The new channel was also seen as a way to cut costs while boosting customer service. In the end, "We were on the net before our sales company was."
In 1996, Panasonic turned to Software Architects Inc., later acquired by McHugh Software International, which is now known as RedPrairie. SAI was a warehouse-management system (WMS) vendor specializing in the high-tech and third-party logistics industries. Gradually, the system was built out to support Panasonic's multiple channels.
Given the unique requirements of each channel, that's no easy task. Panasonic's products vary widely in size, shipment and customer type. A plasma-display unit calls for far different handling than, say, a circuit board. And shipping pallet loads is nothing like the individual piece picking that characterizes consumer-direct channels. In fact, says Moszkiewicz, Panasonic Services maintains separate shipment centers for different channels. But they're all managed by the same RedPrairie software.
The Kent distribution facility covers 238,000 square feet with approximately 110,000 SKUs on hand. The operation ships some 2,500 orders each day. It houses nearly all Panasonic parts and service for the U.S. - some circuit board repair takes place at a facility in Elgin, Ill. as well as Puerto Rico - and about 10 percent of Toronto's needs.
Consumer-direct business accounted for less than 10 percent of Panasonic Services' warehouse activity in 1996; today it's more than half. With the increase in direct sales over the internet, the number of full-line distributors has been cut from 60 to 24. Orders can range from a single line item to more than 1,000 for a large distributor.
Moszkiewicz's biggest challenge in supporting multiple channels is maintaining visibility of the distribution center's entire workload, regardless of how it was generated and where the product is going. The system must also be able to respond quickly to changes in orders and allocations. Yet another issue is the need to integrate the back-end order system with the manifest system for shipping. For the transportation element, Panasonic Services ties the RedPrairie warehousing software to a small-package shipping system from ConnectShip, Inc., a subsidiary of United Parcel Service.
The rise of the internet virtually demands that major manufacturers and retailers have some capability for direct sales. But when it comes to integrating channels, Panasonic Services might be a tough act to follow.
Yet those who fail to integrate their channels could pay a steep price in the form of lost business. According to AMR Research, customers buying from a given retailer through multiple channels usually spend three to five times more than those who utilize only one. And the best customers want consistency of image, price, selection and responsiveness over all the retailer's channels.
Software vendors are rushing to fill that need, although their products have yet to catch on in a big way. "A lot of this is still a bit visionary," says AMR's Gerald McNerney. "I don't really see companies in general taking full advantage of it."
Companies understand the value of combining physical handling and systems for various channels under one umbrella, says Lisa Hebert, associate partner with Accenture in San Francisco. How they operate from day to day is another matter.
"Store guys don't want to give up any control and risk being shorted."
Scalability is a major problem, Hebert says. Most vendors still can't provide "one-view" systems that support large fulfillment operations, handling several hundred thousand orders per day. So they'll install one system to manage internet and catalog orders, and another to supply retail stores. On the execution side, companies can't easily integrate their warehousing and transportation management systems, which tend to be offered by different vendors.
Even more fundamental, says Hebert, is the failure of top executives to reengineer business processes for coherent channel management. Merchandising, marketing and product groups jealously protect their turf. They may view another channel as competition, not a complement. "The question is, whose product is it and will it be available for my particular customer," says Hebert. "Store guys don't want to give up any control and risk being shorted."
A retailer's worst nightmare is to lose a sale in one channel due to a stockout, even though it might have the identical product residing in another. Says Hebert: "I think that happens quite a bit."
The 3PL Solution
Third-party logistics providers offer one solution to the multi-channel conundrum. They have benefited from the outsourcing of internet order fulfillment by brick-and-mortar retailers, for whom that channel was too small and unfamiliar to support in-house. Moreover, 3PLs with deep expertise in warehousing, consolidation and transportation are in a position to manage all of a retailer or distributor's logistics, regardless of channel.
Once again, though, the theory doesn't always mesh with reality. According to Vincent Gulisano, senior vice president of global marketing, sales and engineering with APL Logistics, customers are not buying outsourced services "holistically." Because they tend to operate a separate supply chain for each channel, they can't turn over the whole operation to a single provider.
Oakland, Calif.-based APLL learned that lesson the hard way. As part of its acquisition of GATX Logistics in 2000, it picked up the e-fulfillment arm known as Direct Logistics. A few months ago, it divested itself of that operation. The business simply wasn't there, Gulisano explains. To a great extent, the internet fulfillment specialists have not survived the bursting of the dotcom bubble.
APL Logistics does support its clients' logistics requirements from the factory in Asia, all the way through consolidation and delivery to fulfillment centers in the U.S. But it doesn't provide public warehousing or delivery for internet and catalog sales, in support of multiple accounts.
In some cases, APLL will act as manager of a fulfillment operation, providing companies with an overall view of inventory in the chain. "We can still be a single face to the customer," says Gulisano.
Rich Piontek, vice president of business development with Green Bay, Wis.-based Schneider Logistics, believes 3PLs can help clients solve the problem of channel integration. "You need to focus on a provider with a true multimodal perspective - one that's mode-agnostic." The key, says Piontek, is management control. "There is no total, end-to-end solution that's really effective."
On the warehousing side, he says, it's entirely feasible to mix inventory at a single facility to support multiple channels. Warehousers are skilled in the movement of pallets, truckload shipments, parts destined for an assembly line, or small packages direct to the consumer. In fact, says Piontek, companies almost have to turn to multi-function vendors for their varied fulfillment needs. On the internet sales side, "standalone providers have pretty much dried up."
The business processes supporting traditional and consumer-direct channels are vastly different, says Tim Prieve, vice president of supply-chain strategy with Cincinnati, Ohio-based Retek Inc. His company, which focuses on the retail industry, originally built supply-chain execution software for shipping to stores. Over the last five years, it has modified that system to include internet-driven orders.
The direct-to-consumer business is almost exclusively a "pull" environment, triggered by specific customer orders, Prieve says. The e-tailing side encounters greater constraints in packing, determined by the size, color and quantity of individual orders. Order-processing windows are much narrower in the world of consumer-direct.
Shipment status requirements are more rigorous, too. Customers demand the ability to track product every step of the way. And there's far less tolerance for inventory-planning errors. A stockout in the internet channel is more likely to lead to lost business than one on a store shelf, he says. Finally, internet and catalog sales pose a greater challenge in reverse logistics. Retailers in those channels may take back up to 40 percent of product sold, according to Prieve.
Many of the obstacles to multi-channel fulfillment exist at the level of physical handling, says Dan Gilmore, marketing and strategic results leader with Waukesha, Wis.-based RedPrairie.
Efficient cross-docks, with minimal storage on site, are a particular impediment to supporting internet or catalog channels. In fact, he says, "the more advanced the cross-dock environment, the harder it is to go consumer-direct."
Either way, says Gilmore, companies must hold each channel accountable for inventory. Otherwise, they won't be able to plan accurately, or shift product between channels when needed. The most efficient approach is physically consolidating inventory for all channels. RedPrairie's system, he says, can reserve and allocate the same SKU for different channels.
Jim Kitz, vice president of business development with Exel Direct in Westerville, Ohio, doesn't think the move toward cross-docking is necessarily a barrier to simultaneous fulfillment of internet and catalog channels. (Exel Direct, formerly Merchants Home Delivery, is the unit of Exel Logistics which handles home delivery of big-ticket items such as furniture and appliances.) Cross-docks can accommodate small packages, too, Kitz says, as long as product is allocated and drawn from standing inventory further upstream. The handling of home deliveries at the cross-dock facility can be pre-scheduled so as not to interfere with product moving in other channels.
A cross-dock or flow-through center can be an extremely valuable tool for improving customer service in the home-delivery market, Kitz says. One of Exel Direct's customers, a furniture retailer, has dramatically reduced the order cycle for customized product through bypassing traditional distribution centers. By shipping over a cross-dock, normal turnaround times of eight to 12 weeks can be cut to less than three weeks.
Blending WMS, TMS
Manhattan Associates, a WMS provider headquartered in Atlanta, Ga., has been pushing hard to integrate warehousing and transportation systems. Recently it acquired the transportation software of Logistics.com. David Landau, director of product management, says customers are looking for single solutions that embrace both functions.
Manhattan's clients place and allocate inventory in a variety of ways, Landau says. Some keep all stock in a single place, others outsource all or part of their inventory management to 3PLs, and still others hold select consumer-direct products at specialized sites.
Landau agrees that the trend is toward physical consolidation of inventory, with a single IT system to manage it all. Manhattan's experience in consumer-direct predates the internet, going back to catalog customers whose fulfillment needs are highly similar.
Regardless of where the physical inventory sits, the important thing is a common information system, says Rich Nutinsky, vice president of strategy and research with Industri-Matematik International (IMI) in Mt. Laurel, N.J. Such a tool can provide a unified view of demand signals from all sources.
Piece picking and case picking will remain independent warehouse functions, Nutinsky believes. But order management and tracking must reside in a single system. In addition, he says, companies can do a better job of integrating their pricing strategies, so that one channel isn't undercutting the other. Such an approach carries "enormous business benefits."
Companies are pursuing the same lean-inventory strategies on the internet side that they have adopted in traditional retailing, Nutinsky says. The goal is to push inventory back up the supply chain, or remove it altogether. That requires better systems for capturing point-of-sale data and other information on consumer demand. Yet with less inventory on hand, they must speed up the order cycle even further, to ensure product availability in the service-intensive internet channel.
There's no hard and fast rule as to where the inventory for various channels resides. Barnes & Noble is a user of WMS software from Dallas-based EXE Technologies. It maintains separate warehouses for its retail and dotcom fulfillment channels, according to Ben Hood, vice president of product strategy with EXE. Safeway Inc., by contrast, draws from the same distribution centers to service its chain of grocery stores and internet operation.
Those seeking to add internet fulfillment to existing warehouses must acquire material-handling equipment that can pick low order quantities. Installing the information system to manage it all is not a problem, claims Hood. Last year, United Parcel Service rolled out EXE software at 48 sites, both for small packages and more traditional fulfillment. EXE's system can query inventory and initiate orders from various locations, he says.
Optum Software, based in White Plains, N.Y., built its order-management software expressly with multiple channels in mind. Chief operating officer Kevin Hart says the vendor can support all modes of fulfillment, even though orders may have many points of origin.
One of Optum's customers, Home Shopping Network, uses the vendor's MOVE warehousing software to manage the flow of product from various suppliers. Some items are shipped directly to the buyer, while others go into HSN's regional distribution centers. Optum also supports multiple channels for W.W. Grainger Inc., the big distributor of tools and industrial supplies. Still, Hart acknowledges, the company has encountered customers whose channels are managed within separate corporate silos, making it hard to implement the software across the enterprise.
Such obstacles are likely to fall as business realizes the benefits of meshing logistics and fulfillment systems feeding various channels. They may feel a special urgency, given slumping retail sales and little expectation of an early recovery. Says RedPrairie's Gilmore: "For companies looking to grow the revenue pie, channels are often the best way to do that."
Enjoy curated articles directly to your inbox.