The Hardest Product to Package

Sept. 3, 2010
For consumers who've become accustomed to socializing and shopping online, the idea of walking inside spaces walled off by bricks and mortar to visit someone made of flesh and blood about buying something off a shelf or rack seems old school. Consumers ...

For consumers who've become accustomed to socializing and shopping online, the idea of walking inside spaces walled off by bricks and mortar to visit someone made of flesh and blood about buying something off a shelf or rack seems old school. Consumers have gotten used to the idea of clicking on websites to see who they like and get what they want.

Little do they care that when they click, the e-transaction they initiate is still fulfilled by teams of flesh & blood material handlers working in bricks & mortar distribution centers. Until we have material transporter rooms like they do in Star Trek, that won't change much. What needs to change is not only the consumer's perception of that process, but how those material handling professionals perceive themselves.

John Brandt, CEO of The MPI Group, a Cleveland-based manufacturing research and benchmarking firm, stated this clearly to me:

“Executives in material handling and logistics must reinvent their firms and their business models so that they're seen as not just vendors of services or products, but as integral providers of the overall value delivered to customers.”

In other words, how do they remain relevant? The world of retail is no longer about just products and services. Those are only two of the deliverables in an overall value package that also contains “an experience.”

Not everybody can be a retailer, but anybody can be an e-tailer. Smart logistics service providers are figuring out “relationship commerce,” which personalizes online fulfillment by taking out the bricks and mortar middleman. For example, there's a new e-commerce fulfillment provider called “OpenSky.” It gives consumers a more direct relationship with suppliers. By suppliers, I mean anybody-- bloggers, editors, celebrities, any kind of social media personality you can name. Think Oprah, who has become quite a book seller. OpenSky helps these people create an online profile, upload product, manage inventory and have direct access to a network of sellers of those products.

OpenSky actually takes responsibility for the logistics discipline of these sellers. I asked Jamin Dick, vice president of supply and fulfillment for OpenSky, about the material handling and logistics challenges of this new online business model of his.

“It's much harder to control our supply chain,” he said. “Getting it right means treating our suppliers as extensions of our own company. We spend a lot of time evaluating their logistics, stock management, packaging and fulfillment capabilities. When they fall short we have to act as if it's us falling short and invest the time and money to fix it.”

The key concept here is complete visibility. OpenSky never takes physical possession of products, which means it depends on suppliers to keep them informed about their stock positions, replenishment orders and goods in transit. The company currently does business with 1100 suppliers—each with different fulfillment capabilities. OpenSky tries to become the common logistics denominator.

“One of our ongoing projects is to provide a menu of solutions for suppliers to transmit on-hand, on-order and goods-in-transit information,” Jamin told me. “On the outbound side we provide systems that automate every step of the order lifecycle. Even a small supplier can look like an EDI shop. That's what customers expect and it's absolutely table stakes for the kind of business we're doing.”

Want to know the dirty little secret about this business? It's really just good old fashioned drop-shipping. It's where the retailer, or in this case, OpenSky, acting on behalf of its seller client, does not keep goods in stock, but instead transfers customer orders and shipment details to the manufacturer, who then ships the goods directly to the customer. What are the logistics lessons to be learned from this e-Baying of America?

“Build systems your mother could use,” Jamin says. “Due to the inherent diversity in a drop-ship business you need systems that are very easy to use or you'll consume way too much time training and handholding.”

OpenSky doesn't benchmark itself against eBay or Amazon where speed of service is key. In fact, as you'll read in our September issue via an article written by Bryan Jensen, vice president and principal with the St. Onge consulting firm, benchmarking is only effective if you're realistic about who you are. Chasing after performance benchmarks that are completely irrelevant to your operation is a waste of time. Focus instead on benchmarks that are bona-fide targets for your operation and should be pursued to elevate it to higher levels of performance.

OpenSky does that by associating itself with assortments of uncommon goods.

“Customers are willing to wait a bit longer than they would for a Kindle from Amazon,” Jamin concluded. “So we focus on making the experience more memorable and special than trying to deliver it in 48 hours.”

An experience can be the hardest product to package. It's also the most valuable.