Sterling Commerce Archives

Nordstrom Profits from Improved Multichannel Capabilities

Retail | By Steve Banker • 02/07/2011

Last August, there was an interesting article in the New York Times titled “Nordstrom Links Online Inventory to Real World.” While many retailers at the time were experiencing year-over year sales decreases at stores open for more than a year, sales at the high-end chain Nordstrom were actually improving and outperforming the department store average measured by Thomson Reuters.

Jamie Nordstrom, president of Nordstrom Direct, attributed the company’s success to improvements in its multichannel capabilities. Specifically, Nordstrom customers can now order an item online and pick it up at a nearby store. In the past year or so, Nordstrom’s same-store sales increased by an average of 8 percent. In the 11 months before the shift, sales had decreased by 11.9 percent.

Nordstrom improved its multichannel capabilities in part to improve customer service, something the retailer was already famous for. The number one request to its call center was whether a customer could go to a local store and shop for an item displayed on the company’s website. But the changes were also driven by a desire to increase sales. Mr. Nordstrom pointed to research showing that multichannel shoppers spend four times more, on average, than single-source shoppers do. Once you get an online shopper into the store, they are apt to buy more.

In order to support this change, Nordstrom had to aggregate its inventory across its network and make it visible. As highlighted in the article:

The change works this way: Say that a shopper was looking at a blue Marc Jacobs handbag at Nordstrom.com. She could see where it was available at nearby stores, and reserve it for pickup the same day. More significant, if the Web warehouse was out of that bag, it did not matter. Inventory from Nordstrom’s 115 regular stores is also included. Maybe there was just one handbag left in the entire company, sitting forlornly in the back of the Roosevelt Field store — it would be displayed online and store employees would ship it to the Web customer.

This change occurred in two stages. About two years ago, Nordstrom added the option for customers to shop and buy items online and pick them up at a store. In September 2009, the company started providing visibility to individual store inventory on its Web site.

As a supply chain analyst that closely follows the market, I’m willing to hazard an educated guess that Nordtsrom almost certainly implemented a Distributed Order Management (DOM) system as part of this change. Leading DOM suppliers include Sterling Commerce and Manhattan Associates (both ARC clients)

Why can’t an Enterprise Resource Planning (ERP) solution provide this level of inventory visibility? The problem is that ERP solutions lack the logic to track order fulfillment events from order to delivery and they lack intelligence to support the logistics of multichannel order fulfillment.

All DOMs bolt on to an ERP solution and add extra visibility and intelligence. DOMs have what I call “order parsing logic”–e.g., if the inventory to fulfill an order can come from multiple sources, which warehouse should it be shipped from? Sterling’s DOM, for example, can calculate order lead-times based on service level agreements, carrier pick up schedules, and warehouse or store processing times. The solution can also dynamically allocate customer orders based on priorities, such as channel or customer types, and it can configure payment types and pre-authorize payments even before the order is placed, which reduces the number of uncollectable payments.

So what were Nordstrom’s results? According to the NYT article, “The percentage of customers who bought merchandise after searching for an item on the site doubled on the first day, and has stayed there (although, Mr. Nordstrom cautioned, that doubling was from a small base).” Nordstrom did have to hire more shipping employees to wrap and ship items from each store, but the increased sales more than offset these costs.

Inventory turns have also improved, from 4.84 in 2005 to 5.41 in 2009 (a five year high). A nice side benefit has been fewer mark downs. “If we’re out of something on the Web site, it’s probably late in the season and the stores are trying to clear it out,” Mr. Nordtrom said.

In conclusion, the changes at Nordstrom were driven by a desire to satisfy customers, but it also translated into higher profits for the company.

Guest Commentary: Are Your Order Management Systems Disappointing Your Customers?

Guest Commentary | By Rod Martinez • 07/15/2010

Are you 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? If so, what is this costing you in revenue? 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.

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.

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.

Are you losing revenue and disappointing your customers with a poor customer experience? Do you worry about your internal processes that are struggling to keep pace with orders and changing customer requirements? Then 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.

Rod Martinez is part of the Products and Marketing organization at Sterling Commerce. He has spent over 18 years in various sales support and product and industry marketing roles with multiple software organizations. During his tenure with these software companies his focus has been on CRM, Order management, and Customer Support strategies.

How to Improve Yard Management

Logistics Technologies | By Steve Banker • 09/23/2009

The benefits from Yard Management Systems (YMS) are driven by their ability to enhance five key processes within the yard. Here are some of the key benefits in those different process areas:

YMS Improves 5 Processes Within the Yard (click to enlarge image)

On-Line Dock Door Appointment Booking

A best practice, which is more common in Europe, is to have carriers book delivery appointments within a narrow window, the load is tipped on arrival, and the driver departs with an empty trailer. This practice is less common in North America, where yards are larger and can accommodate drop trailers waiting to be unloaded. Trailers tend to sit in the yard for a couple of days. However, having fully loaded trailers sitting in the yard acting as a safety buffer between transportation and warehouse processes is inherently poor practice.

Often, carriers book appointments by telephone, which can require a full time clerk, who handles between 200 and 300 appointments a day. A best practice is to have carriers or suppliers book appointments online. Leading yard management systems identify the best dock door for unloading and put-away, and enforce capacity constraints for that dock.

Gate Reception

Traditionally, a yard gate is manned by a security guard that tells inbound drivers where to park. The driver parks and then delivers his paperwork to the office. However, until these documents are processed, no one has visibility into what loads are currently sitting in the yard. Best practice automates this check-in process by eliminating unwieldy paperwork and inventory blind spots. In some cases, all that is required is a trailer and driver ID, which the system matches to data from the TMS and procurement systems to fully identify the load. The second benefit of logging in the truck at the gate is that the warehouse gets the earliest visibility that the load has arrived. If this load contains “out of stock” items, then the “live” load can be immediately routed to an inbound dock, improving warehouse and supply chain performance.

Visibility of Loads in the Yard

Most yard managers have stories of finding trailers in the yard containing loads that they knew nothing about. Even worse, if the trailer is a reefer, then the fuel will have expired long ago and the load will be spoiled, which creates additional removal and disposal costs. The knock-on effect of losing a load probably means that there was either a stock-out in the warehouse, or a customer was short-shipped, and in both cases sales were lost.

Companies, especially those that have a problem with shrinkage, have a clerk audit what trailers are sitting in their yard every two hours. Yard management systems provide visibility of what trailers and what stock is actually sitting in the yard, obviating both problems.

Yard management systems can also provide visibility of reefer fuel levels, with alerts to inform managers when the reefer fuel is about to expire. Again, this proactive approach can dramatically reduce the number of spoilt loads.

Visibility of Upcoming Demurrage/Detention Charges

The ability to control container demurrage and trailer detention costs is a cost bucket that companies should and can manage better. The first challenge is the ability to identify containers and trailers that are about to incur additional charges, so that these can be unloaded and released in time. However, whether or not these containers and trailers should be unloaded depends on the current priority of the tasks in the warehouse. For example, bringing forward the unloading might result in delaying fulfillment of a customer’s order. Therefore, identifying the best action requires tight integration and coordination with warehouse processes.

Maximize Throughput Capacity of the Yard

For most yard managers, the number of daily ins and outs is increasing, and is unlikely to decrease. Particularly in Europe, where land close to highways or motorways is expensive, yards tend to be relatively small. The combination of improved dock door scheduling, and visibility of empty trailers sitting idle in the yard, enables yard throughput to be increased. Typically yard management systems generate a 20 percent throughput increase. The cost benefit of avoiding additional building construction or renting/acquiring satellite yards can often justify the investment in yard management systems.

(This posting is an excerpt from a white paper—“How to Improve Yard and Supply Chain Performance”—ARC published last year on behalf of Sterling Commerce. The author, Simon Bragg, identifies several other benefits of YMS and also discusses the benefits of buying an on-demand solution versus a traditional, internally-deployed solution. You can register to download the full report here under the Sterling Multi-Channel Fulfillment section).

Evaluating the B2B Communication Capabilities of 3PLs

Logistics Outsourcing | By Steve Banker • 03/13/2009

Every year since 1996, Professor John Langley of the Georgia Institute of Technology has published a report called “The State of Logistics Outsourcing” that highlights trends and issues in third-party logistics. Over 1,600 logistics executives participated in last year’s survey. According to the report, “One area warranting particular scrutiny is a 3PL’s planned technology investments: the gap between user IT expectations and 3PL’s ability to meet those expectations has persisted over several years of the study.”

A 3PL that is unable to exchange timely, accurate, and complete data/information/documents with its customers, relating to planning, execution, and performance measurement, will not have happy customers. Therefore, what B2B communication capabilities should a prospective 3PL customer look for? To answer this question, I interviewed Lori Brofford at Sterling Commerce and Chris Jones at Descartes Systems Group. Both companies provide B2B communication solutions to customers in various industries, including logistics service providers.

My key premise was that 3PLs need advanced electronic data interchange (EDI) capabilities to communicate effectively with customers. I asked Ms. Brofford what she looks for in a 3PL to help insure they can do this well, and she highlighted four things:

Security – Is the 3PL, for example, ISO/IEC 17799:2005 certified? This standard establishes “guidelines and general principles for initiating, implementing, maintaining, and improving information security management in an organization.”
Availability – How often is a 3PL’s EDI solution up and running? Customers should include this metric as part of their 3PL performance dashboard.
Reliability – How well does the 3PL perform against its B2B communication requirements? Does the 3PL reliably use the documents your company specifies (e.g., advanced ship notices, freight invoice, shipment schedule, UCC128 container labels)? Do they execute these transactions in the required timeframe? For example, you might require a 3PL to send advance ship notices to both you and your customers within a certain timeframe. Receiving an ASN after the goods have arrived is useless, but this is a common problem. Both Descartes and Sterling Commerce gave examples of customers whose 3PL partners are only 50 to 60 percent compliant in this area. Companies can’t expect a 3PL to automatically achieve high reliability; they really need to assign people to track compliance on an ongoing basis and work with 3PLs to improve in this area.
Flexibility – A 3PL should support various transport and communication protocols-e.g., File Transfer Protocol (FTP), Hypertext Transfer Protocol Secure (HTTPS), frame relay, and Virtual Private Networks (VPN). Flexibility, which may be even more difficult for a 3PL to achieve than reliability, should not require customers to download software.

The other point both Sterling Commerce and Descartes made is that EDI “standards” are far from standard, which often leads to data quality problems. If a 3PL is using a B2B communication technology supplier, and that supplier runs a single instance multitenant network, data quality problems can be greatly reduced (for an explanation of why this is so, you can read my colleague’s recent posting on “More Questions About Software-as-a-Service“).

Chris Jones of Descartes made some additional points. First of all, B2B communication does not only occur between the 3PL and the shipper. A 3PL’s B2B strategy needs to include the ability to communicate with other trading partners like carriers, suppliers, and customs agencies. Non-asset based 3PLs, for example, subcontract transportation to third-party carriers, who in turn need to communicate effectively with 3PLs.

This point leads directly to his second point: B2B communication needs to be more than just EDI. A 3PL must have the ability to address what Mr. Jones calls “high tech, low tech, and no tech” scenarios. EDI is the “high tech” scenario, and it’s commonly used by large companies. But if a 3PL is managing your transportation operations in China, for example, it’s unlikely that the Chinese carriers they’re using are EDI-enabled. Some of those carriers might have the ability to exchange information via web forms (“low tech”), while others still rely on phones and faxes (“no tech”). Those “low-tech, no-tech” transactions then need to be converted into real time B2B data, which means the 3PL (or their B2B technology partner) needs a robust trading partner on-boarding process.

Another reason why a 3PL’s B2B strategy needs to encompass more than EDI is that many communication requirements extend beyond the defined EDI transaction sets. For example, customs agencies around the world are beginning to require importers and carriers to electronically submit additional pre-shipment data (e.g. “10+2” regulations). These data sets are currently outside the EDI transaction world. Another example is proof of delivery, which may include, in addition to a 214 EDI message, signature capture and document scanning information.

The bottom line: when companies evaluate the technological capabilities of potential 3PL partners, they need to think beyond software applications like warehouse management or transportation management systems. They also need to consider and understand a 3PL’s B2B communication capabilities, taking into account factors such as security, availability, reliability, flexibility, and “high tech, low tech, no tech” on-boarding capabilities.

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