Autumn 2008

Although a major player in dedicated home deliveries, DHL Exel has held back from shared-user fulfilment, but that's all changing as its new

solution hits the streets

The whole B2C fulfilment market is somewhere we intend to be.' Fighting words from any outsourced logistics provider, but when they come from Nigel Spooner, development director for DHL's home shopping fulfilment business, they take on extra significance.

The fact is that despite its massive involvement in dedicated home delivery contracts, DHL has never before set out its stall to handle the generality of work in the fulfilment market. Now it starting to offer shared-user fulfilment, in which customers could range from substantial high-street names to modest pure-play etailers despatching fewer than a thousand consignments a week.

 

The first shared-user site went live earlier this year at Warrington, handling products for a range of customers (see News Update, page 5), and more such sites are expected to be opened progressively.

So should DHL be seen as a giant of the industry, dipping its toes into unfamiliar waters, or as a keen but modest player, hoping to create a reputation in a marker where it is not well known? The answer is probably both, but you need to understand a bit about the DHL organisation to see why.

As a whole, DHL is now a truly massive organisation, turning over more than 60 billion euros. But in the public perception, it is probably still seen first and foremost as an express carrier. Nigel Spooner's division, by contrast, is DHL Exel Supply Chain, which is built round the old Exel business: all about contract logistics, and nothing to do with parcels.

'But even people who know that we are a supply-chain business still tend to think of us as moving large consignments from A to B,' Spooner says. 'We need to change their perceptions, and show that we are in the front line of e-fulfilment as well.'

DHL may have the weight of the larger organisation to draw on, but in terms of shared-user e-fulfilment, DHL Exel can also offer that indefinable attraction of being the newcomer who is trying harder. That's why it's tricky to sum up its market position in a single phrase.

By e-fulfilment, Spooner means storing home shopping products; picking single items for home delivery; packing and despatching them, and dealing with returns. And by shared-user, he means handling deliveries for several customers in shared premises, using common systems and procedures whenever possible. He means economies of scale.

So why exactly has DHL Exel decided to break into this market? 'Home shopping is growing all the time,' Spooner says. 'We've been developing new service offerings, and wanted to have a presence in expanding markets.' He smiles as he offers an analogy from the world of music. 'We didn't want to miss an opportunity, and end up like the record company that turned down theBeatles.'

He's frank in his analysis of market demand. 'I won't say we were getting massive pressure from our existing retail customers to offer e-fulfilment as well,' he says. 'They often saw it as just a by-product of what they were doing already.' But he says that potential demand is picking up all the time. 'There's much more interest in this kind of service now than there was two years ago. We decided we simply had to be in this market.'

Where DHL Exel's size does offer it tremendous advantage is that it has such wide-ranging resources at its disposal. 'We have multiple sites, for instance,' Spooner points out. 'If we need more space for fulfilment, we'll always have empty premises available somewhere. It's simply not a problem for us.'

Complex configuration

So what else does Spooner think DHL Exel can bring to the table that is not available elsewhere already? 'Fulfilment is a highly complex kind of logistics,' he says. 'There's a lot of talk about it, but not many third-party contractors really offer it. It takes complex configuration to run a shared-user operation efficiently, and also training.' DHL, he says, has the size and expertise to deliver these things.

He points out that among established retailers, few have so far been willing or able to move to the position of fulfilling both traditional store orders and home deliveries from common stock. DHL, however, is already involved in just such an operation for Arcadia. Ironically, this doesn't come under the aegis of his new e-fulfilment initiative, but nevertheless it has created a pool of experience from which the whole business can benefit.

While DHL is targeting a wide range of possible users, it has narrowed down the type of goods it will handle to products that can justify next-day delivery. 'There was a lot of internal debate about this,' Spooner says. 'We decided we should aim for a high-quality service, rather than take on products that had such low value that there was hardly any margin for a premium delivery.'

Retailers themselves of course continually have to address this point. Nigel Spooner says DHL can contribute to their deliberations by helping them understand the true economics of fulfilment in relation to product value.

Plenty of products meet the DHL specification, including for instance DIY goods, gardening products and wines and spirits.

When it comes to the actual delivery, DHL Exel has to use third-party carriers, like any other logistics business. Naturally it attempts to direct customers to its own sister-company DHL Express, but Spooner emphasises that customers are free to choose their own carrier. 'This is not an exclusive DHL club. It's only natural that some organisations will want to maintain existing carrier relationships.'

DHL Express is in practical terms a separate business, and therefore has its own profit margins to take account of, but Spooner is already looking for ways to mitigate this effect for customers. He says he is in talks with his parcel colleagues that might enable the two organisations to offer a single fulfilment service offering. 'We're trying to create a joined-up product,' he says. If this move is successful, he says it is likely to see results next year.

DHL Express in fact already offers a service called DHL@Home. 'People who don't know our organisation might think it's an e-fulfilment service,' Spooner says. He feels that this gives even more force to the logic of a joint offering. 'We think it could definitely have resonances with customers.'

When it comes to two-man deliveries, DHL Exel is using the resources of two established third-party specialists with a track record in this sector. 'At this stage there's no point in trying to emulate what these companies already do very effectively,' Spooner says. In practice, though, two-man operations are expected to be only a small part of the new DHL Exel operation.

Whether fulfilment clients use the express company or another carrier, DHL Exel has the wherewithal to manage the delivery side of the business. Its resources include its own in-house carrier information management system, MTS-CIM, which reviews item pick lists and allocates products to the most suitable carrier (see panel, page 24).

Savings from sharing

Just how prepared will the market be to approach e-fulfilment from a shared perspective? Spooner says that in the present economic climate, there's more willingness to share resources than ever before. 'In what you might call *normal' logistics, there has previously been a reluctance to share,' he says, 'but now we're seeing a change. Businesses are recognising the savings they will make.'

He points out that as a whole, DHL Exel already generates major savings for customers by measures such as sharing the use of trunk vehicles on return journeys. 'Sometimes the companies in question don't want to publicise these measures, but the benefits are significant.'

He adds: 'Some retailers simply don't want to share resources under any circumstances, and that's a decision we have to respect, but more and more of them do.'

On other fronts, DHL Exel is determined to keep its fulfilment package as clear-cut as possible. 'We're avoiding automated warehouses, for instance. We aim to keep the warehouse technology simple in order to cater for the maximum range of activities.'

Clearly DHL has most of the building blocks in place to create a substantial and convincing e-fulfilment operation. In the early stages success will probably depend more than anything else on market awareness. The company is not yet known widely for its expertise in this specific market, and the close identification of the brand with parcel deliveries might cause some confusion. However, these are issues Nigel Spooner and managing director Jonathan Chadburn are determined to address.

As Spooner sums up: 'We're as convinced as we can be that this is the right thing for us to be doing for the future.' With that degree of commitment, the rest seems bound to follow.

BOX: Getting smart about home deliveries

Early in 2008, DHL Exel took the unusual step of announcing well in advance that an upgrade to its Homesmart IT suite was due in the autumn. True to plan, this is about to be rolled out now.

Homesmart is basically in in-house order management system for home deliveries, providing a visual interface to a system that links order input with the warehouse management and fulfilment processes.

It takes orders taken through various channels – web site, a call centre or physical shop – then triggers picking via a warehouse management system, and passes the delivery list to a proprietary Paragon routing and scheduling system to build delivery journeys.

Whilst it does not in itself provide warehouse management functionality, it does have an inbuilt capability to deal with failed deliveries and returns, which (if fit for re-despatch) are placed in a 'virtual' holding warehouse, saving the need for them to go right round the loop and back into stock.

The system includes provision for staff to view individual routes on screen and contact consumers in the event of difficulty. 'It's left to the individual retailer how to deal with a delivery failure,' explains information systems manager Donna Unitt, 'but we can provide them with the information to make that judgement.'

The system has been developed in-house in Visual Basic and more recently VB .NET, and uses DHL's own EDI electronic communication system, ESI (Enterprise Systems Integration) to transmit order details. Both pass-through and data mapping options are available, depending on individual customer requirements.

Nigel Spooner says Homesmart can be integrated with more or less any mainstream warehouse management system. 'Often our customers will have their own system in place,' he acknowledges, but adds that where there is a choice, DHL will steer customers towards its favoured WMS, which is from RedPrairie.

Homesmart is modular, coming in eight separate segments, and is hosted externally for DHL, using a standard browser interface. In theory, says Spooner, it could be offered as a stand-alone product to third-party users, though the intention is to provided it only to fulfilment customers.

Homesmart stands alongside DHL's various other in-house IT products, including its MTS-CIM carrier management system. This takes a data feed from the RedPrairie WMS that itemises picked items; identifies the appropriate carrier on the basis of service, price or customer preference; and prints labels in the carrier's own format.