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Logistics and Fulfillment for e-Business i Table of Contents ACKNOWLEDGMENT PREFACE 1 INTRODUCTION 3 CHAPTER 1:SETTING THE STAGE 7 Defining E-business 15 E-business Fulfillment 17 You Built It, They Came — Now What? 18 An Unbeatable Partnership 19 B2B 22 E-Tail 23 For Some E-Tailers it was Easy 24 An In-House LFMS 25 Outsourcing LFM 27 Technology 29 Globalization 30 CHAPTER 2: MAKING THE MOVE: E-BUSINESS INFRASTRUCTURE 33 The Case for E-Business 39 The Other Side of the Coin 40 E-Business Strategy 41 The Logistics and Fulfillment Challenge 42 E-tail Model 44 B2B Model 44 Internal Operations 45 Technology Caveats 46 Adopting a Logistics and Fulfillment Model 46 Cardboard Boxes vs Pallets 48 The 3Rs and Then Some 49 The Time is Now 51 ii Logistics and Fulfillment for e-Business CHAPTER 3: ADOPTING A B2B MODEL 53 An Effective Strategy 55 Alternative Solutions 58 E-Marketplaces Might Be the Answer 60 The ASP Solution 66 The Full Monty (In-House Solution) 71 Why Go B2B? Revenue Growth 71 Manufacturing Challenges 73 Supply Management 74 Convincing the Value chain 76 Security 78 The Trickle-Down Effect 79 Return on Investment 81 The Advantages of Integration 81 The Right Choice 90 CHAPTER 4: THE E-TAILERS 93 Lessons Learned 94 Is the E-Tailer an Endangered Species? 97 Post-Transaction Anxiety Disorder 99 Educate The Customer — The Reality 100 Click-And-Mortars 102 Challenges 105 Fulfillment 106 Let the Customer Do the Walking 109 Customer Confidence 110 Four Little Steps 112 The E-Tailers That Don’t Get It 113 Lessons Learned 114 CHAPTER 5: THE PARTNERS: OUTSOURCING THE TECH 117 Tech Partnerships Are A Two-Way-Street 119 E-Business Start-Up Challenges 123 Specialization Vs. Generalization 124 Focus On Technology 125 Partner For Success 128 Some of the Issues 129 Invite That Sales Person In 133 Logistics and Fulfillment for e-Business iii Look For Partners in all the Right Places 134 Stay Alert And Be Cautious 134 One Size Doesn’t Fit All 135 The Integrator or Solution Provider 137 Easing the Move for the Established Enterprise 145 Exchange Of Knowledge 152 Legacy Systems 154 Everyone Wants In On the E-Business Action 159 The Vendor Partnership 161 The Consulting Firm 163 A Tour of the Consultancy Arena 164 The Big Five 168 Mitigating Outsourcing Risks 174 The Search Begins 175 CHAPTER 6: SHIPPING 177 Your Shipping Partner? 179 B2B’s Shipping Needs 181 E-Tail’s Size & Weight Issues 185 E-Tail Shipping Conundrum 189 Shipping Vagaries Affect Sales 190 Shipping Options 191 Shipping Dilemmas 196 Custom Shipping Structure 199 “Last Mile” Solutions 201 Cost of Shipping 202 The Entrepreneur to the Rescue 204 Technology 207 Handling the Exceptions 209 E-Business’s Carrier Choices 213 Courting the USPS 214 UPS and Fedex 216 New Shipping Models 217 Shipping Lines (The Big Boats) 218 They Need It Yesterday 221 Thinking In The Box 223 Tips 224 iv Logistics and Fulfillment for e-Business CHAPTER 7: LOGISTICS AND/OR FULFILLMENT MODELS 227 B2B Buy-Sell Model 231 Sell-Side Online Marketplace 232 Buy-Side Online Market 232 E-Marketplaces 233 B2B Sponsored Model 237 Manufacturer Model 239 Vendor Managed Inventory Model 244 Extended Enterprise Model 247 Direct Fulfillment Model 249 Build-To-Order/Just-In-Time Model 251 E-Tail Model 252 Pure-Play In-House Model 255 Outsourced Model 257 Drop-Ship Model 259 Click-And-Mortar 261 Local Fulfillment Model 262 Kiosk Order Model 265 Click-To-Bricks 268 Same-Day Delivery Model 270 Just-In-Time Model 273 Converged Model 276 Model of the Future? 277 CHAPTER 8: STRATEGIZING AND PLANNING FOR AN LFMS 283 Logistics And Fulfillment Goals 284 The Questionnaire 285 Your LFMS Plan: What’s Involved? 295 3 Stages of E-Business 296 Security 312 Specificity in the LFMS Design 314 Customized Procurement Processes 314 Real-Time Procurement And Forecasting 314 E-Tails And Buy-Side B2Bs 315 Just-In-Time Logistics 319 Click-And-Mortar Synchronization 321 LFM Has “Arrived” 323 Links With Banks 324 Improved Efficiency 325 Logistics and Fulfillment for e-Business v Logistics And Fulfillment Managers 326 A Final Few Words 328 CHAPTER 9: FULFILLMENT: IN-HOUSE OR OUTSOURCE? 331 Meet the Challenge 334 Get the Tech Partners Involved 339 Logistics and Fulfillment Experts 340 Fulfillment Service Providers 342 Taking It In-House 343 Upgrading an Existing Warehouse, Distribution or Fulfillment Center 344 Technology Issues 360 Other In-House Fulfillment Considerations 362 Outsourcing 362 Some FSP Facts 364 Effective Fulfillment Outsourcing 366 The Outsourcing Plan 369 The Partnership 374 Issues Specific to a Small E-Business 375 How Much Does It Cost 376 The Contract 376 Technical Issues 377 Drop-Ship 380 Outsourcing Wrap-up 383 Returns 384 Solutions 389 The Bottom Line 399 CHAPTER 10: EXPLOITING LOGISTICS AND FULFILLMENT TECHNOLOGY 403 A Balancing Act 409 The Big Guns — ERP 410 Linking ERP Systems 421 Working with ERP Vendors and their Partners 424 Best-Of-Breed Vendors 426 Linking the LFMS 429 E-Commerce Platforms 434 Other Software Solutions 437 EDI 442 The Languages of E-Business 445 HTML and HTTP 448 vi Logistics and Fulfillment for e-Business Java 449 BizTalk 449 XML 449 CPFR 456 An Option 459 Tech Musings 463 CHAPTER 11: IT’S ALL ABOUT THE CUSTOMER 467 Customer Relationships 467 The Internet Simplifies Life? 470 Managing the Customer Experience 473 Time - A Valuable Commodity 473 LFMS: Your Map to Great Customer Service 474 Customer Service Strategies 481 Keep It About the Customer 484 CHAPTER 12: THE 3RS GO GLOBAL 487 The Small E-Business Dilemma 489 The Servicing (Or Non-Servicing) Of The Global Customer 490 The Global Localization Issues 494 Global Logistics And Fulfillment 495 The Global Enablers 497 Global Challenges Hit the Stage Three LFMS 502 Traditional Customer Brokers 503 Global View 503 CONCLUSION 505 GLOSSARY 509 INDEX 531 Logistics and Fulfillment for E-Business ACKNOWLEDGMENT Acknowledgment I MUST EXPRESS . My tremendous gratitude to Phil and Nat (you know who you are) for for- going much needed time and attention while Deborah worked with me on this book. As always, I give much of the credit for the readability of this book to my editor, Deborah — thank you. I also want to thank the staff at CMP — Robbie Alterio for the wonder- ful cover and the speedy and artistic layout of the book; Saul Roldan who took over from Robbie so the book could get to the printers on time. Then, of course, many thanks go to the staff of the CMP Book Division who have exhibited enormous patience in dealing with my peccadilloes — Christine Kern, Lisa Giaquinto and Frank Brogan. Special thanks also to Richard Grigonis who was always ready to lend support and also Madeleine (this time spelled right) Delrow and Cliff Perciavalle for always being there. Logistics and Fulfillment for E-Business 1 PREFACE Preface ALTHOUGH THE WEB HAS quickly evolved from a browser-based information tool to an e-business enabler, the virtual world of e-business is increasingly blending with the realities of com- merce: supply chain management, procurement, inventory manage- ment, order fulfillment and delivery of products to customers. I’ve seen the confusion and frustration in e-business executive suites and IT departments, especially when it comes to implementing a viable logistics and fulfillment management system (LFMS). The necessity for a practical logistics and fulfillment solution can’t be downplayed. The “duct tape” systems in place today must be re-engineered for an e-busi- ness to thrive. In this day and age, failures in an e-business’s infrastruc- ture result in problems, difficulties and outages that can not only turn away customers, but also garner negative global media attention. I wrote Logistics and Fulfillment for E-Business, explicitly, to guide the non-technical executive through the ways and means of implement- ing an architectured infrastructure incorporating the correct tools to achieve a fail-safe LFMS. This includes walking the reader through the labyrinth of technical and outsourcing choices and helping them to understand the complex and comprehensive services that good partner relationships can provide. A robust, fail-safe LFMS is the only way for an e-business to be successful in this new competitive landscape. A best- of-breed LFMS is not only a means for increasing customer satisfaction 2 Logistics and Fulfillment for E-Business and, therefore, retention; it also introduces efficiencies and cost savings throughout an enterprise. If your business deals with e-businesses, is planning to adopt an e- business model in the near future, or is having trouble with its existing logistics and fulfillment system — whether it’s B2B or e-tail — this book is written for you. — Janice Reynolds New York, NY Logistics and Fulfillment for E-Business 3 INTRODUCTION Introduction THE MAJOR PORTION OF e-business is logistics. The Council of Logistics Management defines logistics as the process of plan- ning, implementing, and controlling the efficient, effective flow and stor- age of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. Let’s not forget the partner of logistics, fulfillment, which also plays a major role in many e-business models. Fulfillment comprises the back- office systems. For e-business sites, it’s the systems that provide the link between the customer experience and the actual physical delivery of goods to the customer, which include inventory management, order cap- ture and management and reconciliation. As the year 2000 ended, several e-businesses, even pure-plays, began to turn the corner toward profitability.