Planning for out-sourcing operations

At a time when even Governments are struggling to deal with the disruption caused by an unlikely scenario, it is not surprising that some retail businesses have found their own contingency planning to be lacking. Those lucky enough to have found themselves with an unanticipated peak in demand have had to deal with increased activity with depleted resources. Those unfortunate enough to find demand stopping overnight are left to cope with fixed costs and draining cash reserves.

It is with the 20:20 vision of hindsight that some businesses may now be observing how others, having outsourced their operations, have been in a better position to ride out the storm.

However, this mode of operation cannot be switched on overnight. It requires careful and thorough planning, the selection of the right partner or partners, and a complete cost benefit analysis of adoption.

So, for those of you pondering the future in a positive way, here a few pointers to get you started with that planning.

Know your own business metrics

Of course, you already know how many orders you have taken and plan to take by channel; you already know your suppliers, how many products you offer and how you deliver them to your customers.

Of course, you will already know your revenue, margin and cash flow. But when it comes to explaining your operations to a potential provider, there are a host of other details that are important to be able to share.

It is probably easier to consider two separate operational strands in the context of outsourcing: Customer Contact and Product Supply. Both will require modelling of activity at a minimum of weekly time-slices to be useful and to flush out seasonal, sale and other variations in activity. Some outsource partners can service both aspects, and this could be beneficial depending on your mix and fit with their services.

Customer contacts

What channels of communication do you offer? On-line, telephone and/or mail?

Do you have B2C and B2B sales?

For each,  a weekly breakdown by channel will be needed:

  • Orders
  • Enquiries
  • Returns/Refunds

The telephone channel is particularly sensitive to average call durations by type of contact.

On-line enquiries by email can be unexpectedly time-consuming and invite multiple issue raising.

On-line chat can also extend much longer than you might think.

Data capture of shopping list type order forms can seriously extend order processing times.

What service levels on each activity type do you require to match your brand values?

What level of product knowledge is necessary to communicate properly with your customers?

Does your product range change frequently, requiring retraining of agents?

Do you have refund or return policies that you would be unable to delegate to a third party?

Do you service an international market requiring multi-lingual communication?

Do you service an international market requiring services out of normal UK hours?

What payment methods do you accept?

Do you offer customer accounts or credit?

Do you use prize draws or similar promotional methods?

Is your market servicing a specialist sector? for example: Charity, Special Needs, Age, Sport, High Net Worth.

And leaving what is probably quite challenging until last …

How transferable is all this data from your system?

 Product Supply

If you supply by electronic media or have a 100 per cent drop ship supply model, you can skip this section, but for most of you there will be a lot of information required to scope out a suitable partner.

Starting with the stockholding, how many SKU’s do you carry? For the non- operational amongst you the SKU or Stock Keeping Unit is the smallest uniquely identifiable piece of stock. Some retailers think in terms of Products or Styles, which may have many variants or SKUs. Just so that we are on the same page.

So how many SKU’s do you carry?

How do you categorise the range of stock?

Within each category, what are the average dimensions, weight and cost value?

Do you hold bulk (palletised) stock? If so, how many pallets on average and at peak?

What is the average stock churn?

What is the current layout of your storage/ distribution area in terms of locations, square feet and rack height?

How many Suppliers do you have? How often do they deliver? How many SKU’s are there in each delivery? Is the product delivered barcoded at SKU level? What is the carton size and number of units per carton? Is the supply Just in Time for immediate despatch or for stock holding?

What Quality Control procedures are needed for each supplier?

Are any SKU’s fragile, flammable, aerosols, perishable, food, pharmaceutical, temperature sensitive, liquid, alcohol, high value, or weigh more than 12kilos?

Are any SKU’s longer than 1.2metres?

Do any SKU’s require re-work, personalisation, make up to kit products, special packaging, gift wrap or handling whilst packing for despatch?

Do you have any special requirements for outer carton fill or branded packaging?

Moving on to order flows …

Do you have B2C and B2B orders?

For each a weekly breakdown by channel will be needed:

  • Orders
    • % from Stock
    • % from Cross Dock
  • Average Order Value
  • Items per order
  • Carrier service used
  • Returns %

What service levels on each activity type do you require?

Do you offer express/same day despatch?

What procedures do you require for returns when received?

  • QC to return to sale stock
  • Process refund to customer
  • Return to Supplier
  • Quarantine for merchandiser review
  • Secure Destruction

Again, leaving what is probably quite challenging until last …

How will order and stock data integrate with your systems?

Partner Selection

Having gathered all the information about your business you will be in a good place to approach potential outsourcing partners with a solid brief.

Make sure you have extended your current business metrics with reasonable projections for the next year or so. Most outsourcing providers will be looking for a long-term relationship.

More on the vendor selection process in the next article.

by Mike Thom, Independent Consultant

About the author:

Mike Thom founded and ran a successful Fulfilment business in Farnborough for 30 years which is now part of the Whistl Group. A recipient of the Direct Commerce Lifetime Achievement Award, and occasional speaker at DCA events, he now operates as an independent consultant specialising in Customer Service and Operations.

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