Holiday EDInomics Part 3

It’s December 24^th.  For many gift buyers panic is beginning to strike (if it hasn’t already).  There are only a few hours before the stores will close for Christmas and the window of opportunity for 2007 holiday shopping will have closed.   The panic is especially high for shoppers who may not have received all of the gifts they purchased on-line.  There are only a few hours of parcel delivery remaining for those critical packages to arrive.  Some of these on-line gift buyers may find themselves disappointed.  What to do if you are one of these panic-stricken shoppers still missing a few essential gifts?

·         Some will stand by the window with nervous anticipation, hoping to hear the familiar roar of a parcel carrier’s truck engine as it travels down their street.

·         Others will frantically head to the stores, hoping to purchase a back-up gift just in case the shipments bought on-line don’t arrive.

But most will probably start by logging onto the Internet hoping to get an up-to-date status on their anticipated deliveries.  Unfortunately, many will fail to find satisfaction on-line. 

Lost Packages 

The largest, most experienced retailers provide consumers with visibility to the status of their Internet orders on-line.  A popular technique is to provide the consumer with a shipment tracking number.  The tracking identifier can be used on a third party site such as FedEx, UPS or DHL to identify the last known location of package.  However, many second and third tier on-line merchants still lack such an order tracking capability.  Status information is typically limited to “order received” or “expected due date.”  Those retailers without on-line order tracking sometimes provide a toll-free phone number for consumers to call.  However, customer service representatives in retail call centers rarely have more information about the location of the package than can be obtained on a web site.  Not only do these retailers not know when the package will arrive, but many do not even know when the package shipped. 

How is that possible you might ask? 

You place the order with the on-line retailer and then someone in the warehouse puts a packing label on the box and sends it to you. 

How hard could it be to track this process? 

Right? 

Wrong! 

Drop Shipped 

Unfortunately, it is not that simple.  Many retailers use a process called “drop ship” for on-line orders.  With drop ship, the retailer forwards the consumer’s order directly to the manufacturer for fulfillment.  The manufacturer ships the package directly to the consumer straight from their warehouse.  Some retailers even provide the manufacturer with custom-branded packaging materials to create the appearance that the package shipped directly from the retailer.  99% of the time this drop ship process is a strong positive for consumers.  By shipping direct from the manufacturer’s warehouse the package arrives faster and the price is lower.  If the shipment were routed through the retailer’s distribution center first and then forwarded onto the consumer, several additional days would be required.  Furthermore the shipping costs would be higher due to the use of multiple carriers and the need to involve more warehouse personnel.  The drop ship process is efficient for the retailer as well.  Using drop ship, the retailer does not have to hold as much inventory in their distribution center.  Drop ship is especially effective for:

·         Infrequently ordered products which would not be cost-effective for a retailer to stock

·         Expensive products which may be costly to stock in any significant volume

·         High turnover products which may be challenging to keep in stock

·         Time sensitive products which need to be transported as quickly as possible

The challenge with the drop ship process is visibility.  The retailer lacks visibility into when the product shipped and where it is located.  This is not an issue until something goes wrong.  And usually nothing does go wrong.  However, in the peak of the December holiday shipping period, some packages will inevitably be improperly labeled, incorrectly routed or accidentally lost.

So what is the answer?  Don’t wait until the last minute to buy gifts online?

Well…that is one option, but probably not realistic for many of the procrastinators who make the last minute on-line purchases.  A better option is for on-line retailers using “drop ship” models to ask their suppliers to send an “Advanced Shipment Notice” or ASN.  The ASN, often referred to as “the 856”, which refers to its ANSI X12 document number,  is an EDI document used to communicate key information about the consumer’s shipment to the retailer.  Common data within an ASN includes the transportation carrier, point of origin, expected arrival date, package dimensions, content weight and the shipment tracking identifier.  Once received from a supplier, the ASN data can be stored in the retailer’s system along with the consumer’s order.  The shipment information can be exposed on the retailer’s web site or be available to customer service personnel in the call center.  Either way, the consumer’s questions about when the package was shipped and where it is located can be answered quickly.

Lost Customers and Dropped Relationships 

So why don’t more tier 2 and 3 retailers use ASNs?  As with any IT initiative, key reasons businesses do not deploy technology are:

1) Lack of experience

2) Costs to implement and support

3) Inability to justify

The full cost of an ASN including creation by supplier, delivery over a network and receipt by the retailer is less than a first class postage stamp.  So it adds negligible cost to both the manufacturer and retailer.  In fact, many manufacturers are already providing ASNs to their retail customers for traditional orders delivered to the physical store.   Expanding an ASN program to include drop ship orders is a natural extension of their existing program. 

As for justification - it is much more cost effective for retailers to warehouse the ASN data (rather than the physical product).   But more importantly, the risk of losing consumer loyalty is too high to not provide this type of customer service.  For Internet shopping, the competition is only a click away.  Being empty-handed on Christmas is a memory one doesn’t easily forget.  The odds of a consumer making a repeat purchase at a retailer who failed to deliver last Christmas are remote at best.

Steve Keifer

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