[From iSource Business, December 2001] As corporations continue to place increasing importance on supply chain processes as a means of gaining competitive advantage, the role of fulfillment has been drawn into the spotlight. That newly shed light is raising the bar for fulfillment providers and opening new doors as many rise to the occasion.
In the enabled world, the fulfillment part of the supply chain is taking on a more dynamic role. As corporations placed serious focus on B2B processes beginning in 2000, supply chain management and all its core areas, including fulfillment, came into the spotlight. According to AMR Research, the supply chain has become part of the common parlance -- not only of the business world but also the public at large. AMR Research further suggests that professionals in charge of fulfillment, planning and logistics increasingly see their skills as being supply chain driven. This raises the bar for software suppliers providing fulfillment tools to prove their value and justify their pricing. Traditional organizations are setting expectations in today's volatile market and, in turn, such expectations are driving greater improvements in this segment of the supply chain.
At its core, fulfillment is a misleadingly simple word for a process that involves a complex array of activities. Most supply chain experts define fulfillment as a network of activities that link warehousing, transportation and information to successfully meet customer fulfillment requirements. In addition, these same experts suggest that the most effective fulfillment systems orchestrate a balance of scalable functional abilities across multiple partners -- creating a successful closed loop in an enabled supply chain. It's due to the coordination of such complex activities that performance varies so dramatically across different fulfillment systems, directly impacting customer satisfaction.
In the Real World
For the B2B and business-to-consumer (B2C) customer, fulfillment is often thought of as being the last step that consummates a given transaction. For B2C customers, this step occurs when they are able to take physical receipt of a product. For the B2B consumer, it's typically when a delivery is made and a purchase order is reconciled. In both cases, the activities and infrastructure that satisfactorily complete fulfillment typically depend upon multiple providers acting together as part of an overall network.
To carefully break down the coordinated process, consider the simple example of BellSouth and Innotrac, broken down into the three basic steps of the fulfillment process, order fulfillment, delivery and requisition reconciliation. To begin, BellSouth, planning to upgrade its current telephone equipment, orders telephone components after a cross-functional team has sourced for the best new equipment. The company's purchasing manager then goes to BellSouth's Web site to obtain the required equipment. After locating and selecting the desired products, the company chooses how it would like to be billed and the order process is completed.
Now the fulfillment process kicks in. Innotrac, BellSouth's fulfillment provider, manages the equipment inventory out of four warehouses that operate as part of a national fulfillment network -- the de facto coordinator of fulfillment and, in this case, a source of billing information, credit authorization, customer service and product returns. Innotrac's warehouse then aggregates all orders received since the last fulfillment cycle was processed. A pick ticket that lists the needed products is then generated for the warehouse worker who is gathering the ordered items from a designated inventory location. Next, the part is routed to a packing area to prepare it for shipping. This mundane, but essential, activity ensures that the part is securely packaged and addressed to the correct recipient. Then it's scanned-out at a shipment manifesting station and included with other packages in an outbound queue. This activity triggers the actual charge to the customer.
At this point, the carrier, UPS, arrives during a scheduled pick-up time and scans the package in, which often activates the line-item delivery cost to the shipper. UPS will then route and manage the package according to the destination; class of service; and applicable accessories, such as weight or special handling needs. In this case, it's likely that the package will travel by ground from the origin to a sorting center. It will then be placed in an air cargo container and transported to an airport ready to head to its destination city where it will be resorted and loaded on to a ground vehicle for delivery. UPS will continue to track the package to its destination until delivery is executed.
Finally, in a daily act millions across America take for granted, the brown-uniformed delivery professional will hand the package over to the business that initially ordered the equipment, shoving the clipboard in front of a company representative for a sign-off. The company is now ready to have its information technology staff install the new equipment to ensure the latest in telephone service for the small but growing business.
This example clearly shows how many disparate parties are involved in the fulfillment process and how complex this process can become. And to further add to the complexity of the process, there are some additional common events that participants must also be prepared to accommodate:
* Multi-product fulfillment, often from separate distribution centers
* Product returns and authorizations due to customer dissatisfaction, damage, spares management (e.g. reusing toner cartridges) or fulfillment errors
* In-process order cancellation due to a change beyond the control of the fulfillment network
* Customer service inquiries to meet customer expectations of order familiarity and status
* Drop ship management to direct-ship a product that is not immediately available in a fulfillment warehouse to the customer from the original manufacturer
* Credit management to assure credit worthiness before committing resources
Each of these events have an impact on the fulfillment partners involved in the process, they place a premium on the information infrastructure in place to support collaboration, and they form the basis of funds flow for each of the participants. Customers as well as logistics and distribution professionals will tell you that the difference between a superior fulfillment system and a poor one is not how well it works in ideal or error free conditions. The difference is how well it accommodates and responds to the inevitable issues that occur in fulfillment. Given the preceding mix, the supply chain world begins to appreciate the effort required to manage a successful fulfillment system.
During the past 18 months, we have seen the demise or significant restructuring of a number of specialty fulfillment providers. WebVan, Kozmo, UrbanFetch, AHL Services, Ascendant Solutions, and others all sought to develop a broad fulfillment network, but, in many cases, they failed to initially recognize the logical boundaries of their capabilities and how they fit into a multi-party network. However, as traditional companies have more clearly defined their needs in this area of the supply chain and the market demand has forced enablers to provide better technology, the tools are being reshaped.
At present, much of the technological functionality that enablers offer has been custom developed. While there are excellent order management solutions emerging from such providers as Peridyne Technology Solutions, Viewlocity, Vizional Technologies, SupplySolutions and Sameday Technologies, the state-of--the-market is currently surmounting issues of basic connectivity. Many trading networks are now adapting and advancing technology to support event management. This refers to the process of monitoring anomalies, notifying affected participants and triggering corrective action. As standardization and connectivity obstacles are overcome, multi-partner network optimization will become increasingly possible.
Innotrac serves as just one example of a company that carefully and successfully managed two critical objectives to offering fulfillment capabilities: specific requirements and their network role. They focused on specific fulfillment capabilities in markets that differentiated them from other providers, and they recognized and managed their specific role within a network of fulfillment participants. In the example illustrated earlier, they were able to recognize and complement BellSouth's ability to attract order-placing customers. Likewise, Innotrac exploited UPS's massive network, reach, and track and trace capabilities to fulfill orders and execute delivery in a competitive manner.
Most customers will continue to take fulfillment-related activities for granted. However, these same customers will continue to expect increased fulfillment performance. Advances in partner connectivity and order management capabilities will enable larger numbers of trading partners to come together and jointly deliver highly scalable fulfillment solutions. The fulfillment organizations that survive and prosper will do so only by selectively partnering and leveraging the capabilities of complementary tools to create superior solutions.
SIDEBAR: The Elements of Fulfillment
As detailed in the main article, BellSouth, Innotrac and UPS were all players in the process of fulfillment. The warehousing, transportation and information elements of their efforts are explained in greater depth here.
Warehousing: Innotrac has to manage the customary pick, pack and ship operations. Additionally, it has to ensure, in advance, that it possesses the needed products in the desired quantity, thus necessitating the need for a perpetual inventory system and an information link to or through the BellSouth Web site for visibility and available-to-promise capability for the customer. Distribution centers of any significant size also depend on a warehouse management system to coordinate activities of multiple orders at the same time, based on availability, priority and workload. In many cases, the fulfilling warehouse is part of a network of facilities that may have to synchronize activities for multi-item orders. In Innotrac's case, they maintain four of their own warehouses in greater Atlanta, Ga., Chicago, Ill., Pueblo, Colo. and Reno, Nev. to provide national coverage.
Transportation: The transportation provider, UPS, has to maintain a major investment in both transportation assets (vehicles, aircraft, sortation centers), as well as in information infrastructure (end-to-end track and trace capabilities, customer manifest transmission, etc.). Note that UPS is the only participant in this example to come into physical contact with the customer during the fulfillment process, which makes the selection of the carrier a critically important decision.
Information: While information is broken out separately as a category, it is, in fact, the coordinating element. In our example, Innotrac receives and coordinates orders from the BellSouth Web site. However, to be effective, each of the participating partners must also take and receive information throughout the entire order cycle. While the customer may be physically distant from the warehouse, the information link facilitates his precise impact on its operation. Shared visibility throughout UPS' system allows both Innotrac, as the fulfillment agent; and the customer, as the receiving party, to monitor the satisfactory progress of the in-process order.
Foster Finley is vice president of A.T. Kearney in Atlanta, Ga. Additional information was provided by AMR Research.