Wednesday, December 19, 2007

Holiday Peak Season Hits for Retailers Alibris and QVC -- A Logistics and Shipping Carol

Transcript of BriefingsDirect podcast on peak season shipping efficiencies and UPS retail solutions with Alibris and QVC.

Listen to the podcast here. Sponsor: UPS.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions and you're listening to BriefingsDirect.

Today, a sponsored podcast discussion about the peak holiday season for retail shopping -- online and via television -- and the impact that this large bump in the road has logistically and technically for some major retailers.

We’re going to discuss how Alibris, an online media and bookseller, as well as QVC, a global multimedia shopping network, handles this peak demand issue. The peak is culminating for such shippers as UPS this week, right around Dec. 19, 2007.

We’re going to talk about how the end-user in this era of higher expectations is now accustomed to making a phone call or going online to tap in a few keystrokes, and then -- like Santa himself -- having a package show up within a day or two. It's instant gratification, if you will, from the logistics point-of-view.

Helping us understand how this modern miracle can be accomplished at such high scale and with such a huge amount of additional capacity required during the November and December shopping period, we’re joined by two guests. We’re going to be talking with Mark Nason, vice president of operations at Alibris, and also Andy Quay, vice president of outbound transportation at QVC. I want to welcome you both to the show.

Mark Nason: Thank you, Dana.

Gardner: Tell us a little bit about what’s different now for Alibris, given the peak season demands, over just a few years ago. Have the expectations of the end-user really evolved, and how do you maintain that sort of instant gratification despite the level of complexity required?

Nason: What we strive for is a consistent customer experience. Through the online order process, shoppers have come to expect a routine that is reliable, accurate, timely, and customer-centric. For us to do that internally it means that we prepare for this season throughout the year. The same challenges that we have are just intensified during this holiday time-period.

Gardner: For those who might not be familiar, tell us a little about Alibris. You sell books, used books, out-of-print books, rare media and other media -- and not just directly, but through an online network of independent booksellers and retailers. Tell us more about how that works.

Nason: Alibris has books you thought you would never find. These are books, music, movies, things in the secondary market with much more variety, and that aren’t necessarily found in your local new bookseller or local media store.

We aggregate -- through the use of technology -- the selection of thousands of sellers worldwide. That allows sellers to list things and standardize what they have in their store through the use of a central catalogue, and allows customers to find what they're looking for when it comes to a book or title on some subject that isn’t readily available through their local new books store or media seller.

Gardner: Now, this is a very substantial undertaking. We're talking about something on the order of 70 million books from a network of some 10,000 booksellers in 65 or more countries. Is that right?

Nason: Roughly, that’s correct. Going in and out of the network at any given time, we've got thousands of sellers with literally millions of book and other media titles. These need to be updated, not only when they are sold or added, but also when they are priced. Prices are constantly changing. It’s a very dynamic market.

Gardner: What is the difference in terms of the volume that you manage from your slowest time of the year compared to this peak holiday period, from mid-November through December?

Nason: It’s roughly 100 percent.

Gardner: Wow!

Nason: In this industry there are actually two peak time periods. We experience this during the back-to-school season that occurs both in January and the latter-half of August and into September.

Gardner: So at the end of the calendar year you deal with the holidays, but also for those college students who are entering into their second semester?

Nason: Exactly. Our peak season associated with the holidays in December extends well into January and even the first week of February.

Gardner: Given this network and the scale and volume and the number of different players, how do you manage a consistent response to your customers, even with a 100 percent increase at the peak season?

Nason: Well, you hit on the term we use a lot -- and that is "managing" the complexity of the arrangement. We have to be sure there is bandwidth available. It’s not just staffing and workstations per se. The technology behind it has to handle the workload on the website, and through to our service partners, which we call our B2B partners. Their volume increases as well.

So all the file sizes, if you will, during the transfer processes are larger, and there is just more for everybody to do. That bandwidth has to be available, and it has to be fully functional at the smaller size, in order for it to function in its larger form.

Gardner: I assume this isn’t something you can do entirely on your own, that you depend on partners, some of those B2B folks you mentioned. Tell us a little bit about some of the major ones, and how they help you ramp up.

Nason: In the area of fulfillment, we rely heavily on our third-party logistics partners, which include carriers. At our distribution centers, typically we lease space, equipment, and the labor required to keep up with the volume.

Then with our B2B partners -- those are the folks that buy from us on a wholesale or distribution basis -- we work out with them ahead of time what their volume estimates might be and what their demands on us would be. Then we work on scheduling when those files might come through, so we can be proactive in fulfilling those orders.

Gardner: When it comes to the actual delivery of the package, tell us how that works and how you manage that complexity and/or scale.

Nason: Well, we have a benefit in that we are in locations that have scalable capacity available from the carriers. That includes lift capacity at the airport, trucking capacity for the highway, and, of course, railheads. These are all issues we are sensitive to, when it comes to informing our carriers and other suppliers that we rely on, by giving them estimates of what we expect our volume to be. It gives them the lead time they need to have capacity there for us.

Gardner: I suppose communication is essential. Is there a higher level of integration handoff between your systems and their systems? Is this entering a more automated level?

Nason: It is, year-round. For peak season it doesn’t necessarily change in that form. The process remains. However, we may have multiple pick-ups scheduled throughout the day from our primary carriers, and/or we arrange special holiday calendar scheduling with those carriers for pick-up, perhaps on a Saturday, or twice on Mondays. If they are sensitive to weather or traffic delays, for example, we know the terminals they need to go through.

Gardner: How about returns? Is that something that you work with these carriers on as well? Or is that something you handle separately?

Nason: Returns are a fundamental part of our business. In fact, we do our best to give the customer the confidence of knowing that by purchasing in the secondary market, the transaction is indemnified, and returns are a definite part of our business on a day-to-day basis.

Gardner: What can we expect in the future? Obviously this volume continues, the expectations rise, and people are doing more types of things online. I suppose college students have been brought up with this, rather than it being something they have learned. It’s something that has always been there.

Do you see any prospects in the future for a higher level of technology need or collaboration need, how can we scale even further?

Nason: Constantly, the improvements in technology challenge the process, and managing the complexity is what you weigh against streamlining even further what we have available -- in particular, optimizing inter-modal transport. For example, with fuel costs skyrocketing, and the cost of everyone's time going up, through the use of technology we look for opportunities on back-haul lanes, or in getting partial loads filled before they move, without sacrificing the service interval.

These are the kinds of things that technology allows when it's managed properly. Of course, another layer of technology has to be considered from the complexity standpoint before you can be successful with it.

Gardner: Is there anything in the future you would like to see from such carriers as UPS, as they try to become your top partners on all of this?

Nason: Integration is the key, and by that I mean the features of service that they provide. It’s not simply transportation, it’s the trackability, it’s scaling; both on the volume side, but also in allowing us to give the customer information about the order, when it will be there, or any exceptions. They're an extension of Alibris in terms of what the customer sees for the end-to-end transaction.

Gardner: Fine, thanks. Now we’re going to talk with Andy Quay, the vice president of outbound transportation at QVC.

QVC has been having a very busy holiday peak season this year. And QVC, of course, has had an illustrious long-term play in pioneering, both retail through television and cable, as well as online.

Welcome Andy, and tell us a little bit about QVC and your story. How long you have been there?

Andy Quay: Well, I am celebrating my 21st anniversary this December. So I can say I have been through every peak season.

Although peak season 20 some years ago was nothing compared to what we are dealing with now. This has been an evolutionary process as our business has grown and become accepted by consumers across the country. More recently we’ve been able to develop with our website as well, which really augments our live television shows.

Gardner: Give us a sense of the numbers here. After 21 years this is quite a different ball game than when you started. What sort of volumes and what sort of records, if any, are we dealing with this year?

Quay: Well, I can tell you that in our first year in business, in December, 1986 -- and I still have the actual report, believe it or not -- we shipped 14,600 some-odd packages. We are currently shipping probably 350,000 to 450,000 packages a day at this point.

We've come a long way. We actually set a record this year by taking more than 870,000 orders in a 24-hour period on Nov. 11. This led to our typical busy season through the Thanksgiving holiday to the December Christmas season. We'll be shipping right up to Friday, Dec. 21 for delivery on Christmas.

Gardner: At QVC you sell a tremendous diversity of goods. Many of them you procure and deal with the supply chain yourselves, therefore cutting costs and offering quicker turnaround processing.

Tell us a little about the technology that goes into that, and perhaps also a little bit about what the expectations are now. Since people are used to clicking a button on their keyboard or making a quick phone call and then ... wow, a day or two later, the package arrives. Their expectations are pretty high.

Quay: That’s an excellent point. We’ve been seeing customer expectations get higher every year. More people are becoming familiar with this form of ordering, whether through the web or over the telephone.

I’ll also touch on the technology very briefly. We use an automated ordering system with voice response units that enable my wife, for example, to place an order in about 35 seconds. So that enables us to handle high volumes of orders. Using that technology has allowed us to take some 870,000 orders in a day.

The planning for this allows the supply chain to be very quick. We are like television broadcasts. We literally are scripting the show 24-hours in advance. So we can be very opportunistic. If we have a hot product, we can get it on the air very quickly and not have to worry about necessarily supplying 300 brick-and-mortar stores. Our turnaround time can be blindingly quick, depending upon how fast we can get the inventory into one of our distribution centers.

We currently have five distribution centers, and they are all along the East Coast of the U.S., and they are predominantly commodity driven. For example, we have specific commodities such as jewelry in one facility, and we have apparel and accessories as categories of goods in another facility. That lends itself to a challenge when people are ordering multiple items across commodities. We end up having to ship them separately. That’s a dilemma we have been struggling with as customers do more multi-category orders.

As I mentioned, the scripting of the SKUs for the broadcast is typically 24 hours prior, with the exception of Today's Special Value (TSV) show and other specific shows. We spend a great deal of time forecasting for the phone centers and the distribution carriers to ensure that we can take the orders in volume and ship them within 48 hours.

We are constantly focused on our cycle-time and in trying to turn those orders around and get them out the door as quickly as possible. To support this effort we probably have one of the largest "zone-jumping" operations in the country.

Gardner: And what does "zone-jumping" mean?

Quay: Zone jumping allows me to contract with truckload carriers to deliver our packages into the UPS network. We go to 14 different hubs across the country, in many cases using team drivers. This enables us to speed the delivery to the customer, and we’re constantly focused on the customer.

Gardner: And this must require quite a bit of integration, or at least interoperability in communications between your systems and UPS’s systems?

Quay: Absolutely, and we carefully plan leading up to the peak season we're in now. We literally begin planning this in June for what takes place during the holidays -- right up to Christmas Day.

We work very closely with UPS and their network planners, both ground and air, to ensure cost-efficient delivery to the customer. We actually sort packages for air shipments, during critical business periods, to optimize the UPS network.

Gardner: It really sounds like a just-in-time supply chain for retail.

Quay: It's as close as you can get it. As I sometimes say, it's "just-out-of-time"! We do certainly try for a quick turnaround.

Coming back to what you said earlier, as far as the competition goes it is getting more intense. The customer expectations are getting higher and higher. And, of course, we are trying to stay ahead of the curve.

Gardner: What's the difference between your peak season now and the more regular baseline of volume of business? How much increase do you have to deal with during this period, between late-November and mid- to late-December?

Quay: Well, it ramps up considerably. We can go from a 150,000 to 200,000 orders a day, to literally over 400,000 to 500,000 orders a day.

Gardner: So double, maybe triple, the volume?

Quay: Right. The other challenge I mentioned, the commodity-basis distribution that we operate on -- along with the volatility of our orders -- this all tends to focus on a single distribution center. We spend an inordinate amount of time trying to forecast volume, both for staffing and also planning with our carriers like UPS.

We want to know what buying is going to be shipping, at what distribution center, on what day. And that only compresses even more around the holiday period. We have specific cutoff times that the distribution center operations must hit in order to meet the customers' delivery date. We work very closely on when we dispatch trucks ... all of this leading up to our holiday cutoff sequence this week.

We try to maximize ground service versus the more expensive airfreight. I think we have done a very good job at penetrating UPS’s network to maximize ground delivery, all in an effort to keep the shipping and handling cost to the customers as low as possible.

Gardner: How about the future? Is this trend of that past 21 years sustainable? How far can we go?

Quay: I believe it is sustainable. Our web business is booming, with very high growth every year. And that really augments the television broadcast. We have, honestly, a fair amount of penetration, and we can still obtain more with our audiences.

Our cable broadcast is in 90 million-plus homes that actually receive our signal, but a relatively small portion actually purchase. So that’s my point. We have a long way to go to further penetrate and earn more customers. We have to get people to try us.

Gardner: And, of course, people are now also finding goods via Web search. For example, when they go to search for a piece of apparel, or a retail item, or some kind or a gift -- they might just go to, say, Google or Yahoo! or MSN, and type something in and end up on your web site. That gives you a whole new level of potential volume.

Quay: Well, it does, and we also make the website very well known. I am looking at our television show right now and we’ve have our www.qvc.com site advertised right on it. That provides an extended search capability. People are trying to do more shopping on the web, in addition to watching the television.

Gardner: We have synergies on the distribution side; we have synergies on the acquisition, and of using information and how to engage with partners. And so the technology is really in the middle of it all. And you also expect a tremendous amount of growth still to come.

Quay: Yes, absolutely. And it’s amazing, the different functions within QVC, the synergies that we work together internally. That goes from our merchandising to where we are sourcing product.

You mentioned supply chains, and the visibility of getting into the distribution center. Our merchants and programmers watch that like a hawk so they can script new items on the air. We have pre-scripted hours that we’re definitely looking to get certain products on.

The planning for the television broadcast is something that drives the back end of the supply chain. The coordination with our distribution centers -- as far as getting the operation forecast, staffed and fulfilled through shipping to our customers -- is outstanding.

Gardner: Well, it’s very impressive, given what you’ve done and all of these different plates that you need to keep spinning in the air -- while also keeping them coordinated. I really appreciate the daunting task, and that you have been able to reach this high level of efficiency.

Quay: Oh, we are not perfect yet. We are still working very hard to improve our service. It never slows down.

Gardner: Great. Thanks very much for your input. I have learned a bit more about this whole peak season, what really goes on behind the scenes at both QVC and Alibris. It seems like quite an accomplishment what you all are able to do at both organizations.

Nason: Well, thank you, Dana. Thanks for taking the time to hear about the Alibris story.

Gardner: Sure. This is Dana Gardner, principal analyst at Interarbor Solutions. We have been talking with Mark Nason, the vice president of operations at Alibris, about managing the peak season demand, and the logistics and technology required for a seamless customer experience.

We’ve also been joined by Andy Quay, vice president of outbound transportation, at the QVC shopping network.

Thanks to our listeners for joining on this BriefingsDirect sponsored podcast. Come back and listen again next time.

Listen to the podcast here. Sponsor: UPS.

Transcript of BriefingsDirect podcast on peak season shipping efficiencies and UPS retail solutions. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.