Children's Wear Digest Inc. (CWD), which sells children's clothes through a catalogue and on the Internet, had a problem. Since children grow rapidly, parents frequently order the incorrect size for their offspring. Returns are a challenge.
Outsourcing produced a return on returns. CWD's supplier, New Roads, has an integrated order and warehouse management system with analytics and tracking. "When a return comes back, New Roads has to catalog why," explains Jim Klaus, CWD's President. "Their system makes sure we solve our problems before they become big problems."
In one instance, the supplier's report noted one sweater repeatedly found its way back to the fulfillment warehouse because it was too big. The supplier's management team had a simple fix: Put the words "This sweater runs big" on the Web site. Returns dropped precipitously, according to Hank Reeves, CEO of New Roads.
New Roads also created a new path for handling damaged clothes that brings in working capital faster. The supplier segregates them in a separate area of the warehouse and arranges them by vendor. CWD receives a detailed report about each item, which it uses to apply for credit from its vendors. The sooner the company applies for credit, the sooner it has the money back as working capital. "This is pretty detailed work, since we have over 100 vendors," says Klaus, who pours over the reports daily.
New Roads works overtime during the Christmas and back-to-school periods, the two crunch times for CWD. "They have to work fast to get the returned items that are not damaged back into shape so we can sell them again," explains Klaus. The supplier must inspect the items and repackage them before putting them back into inventory.
Service level agreements (SLAs) state that the turnaround time must be three days. "That's pretty daunting," says Klaus. "During peak times we might get two pallets of returns." There are days when New Roads repackages 500 boxes a day. "It's a hassle we don't want," says the CWD CEO.
CWD, which sees 60 percent of its sales come from its catalog with the remainder from its Web site, has outsourced since 1988, when fulfillment began to seriously eat into management time. "We realized we could be leaner and do a better job of merchandizing if we outsourced," says Klaus.
But money was not the driving factor. Klaus says the outsourcing savings versus keeping the task in-house "was a wash." He said giving up control of the process was worth "giving up the headaches." New Roads handles the incoming orders; packs and ships them; carries the freight to the consumer; and manages returns. "We do everything along the sales spectrum except create the demand," says Reeves.
"Retailers--both brick and click--relentlessly search for ways to remain competitive," says Phil Fersht, Executive Vice President of Research for NelsonHall. He says access to analytics provides a siren call to outsourcing because they (allow retailers to manage their sales pipelines more accurately.
The Challenges of Outsourcing Customer Service
The supplier's software allows Klaus and his team to monitor New Roads customer service reps "to hear how they are handling our customers," he says. The team routinely tunes in at least three times a week for at least 60 minutes. He's developed monitoring sheets, so he can address a problem with New Roads employees immediately.
Klaus says New Roads has one CSR (customer service representative) that only works the CWD account. "I treat her like one of my employees. After two years, she knows our business as well as I do," he says. Last week he got a call from her on Sunday night; it took four hours for them to solve the problem together. "I have her cell phone number. I can find her 24/7 if I need to," the president says. He pauses and adds, "I didn't expect this kind of service from an outsourcer."
Monitoring is key, says Fersht, because retailers have a fine line to walk: they want to cut customer service costs without cutting customer service quality. "Will low prices make up for poor customer service?" he asks rhetorically.
Klaus says employee stability at the supplier is key to this relationship's success. At the outset, there was a lot of turnover in the receiving department, which created problems for CWD. Now, the person in that position has been there two years and the operation is running flawlessly. "The supplier has to find good people and then keep them," he says.
CWD knew it was a good prospect for an outsourcing supplier. It sells children's clothes, which are small, making them easy to pack. They also take up little space in a warehouse. In addition, the clothing company does not do the bulk of its business at Christmas. "We're a year-round business that has two peaks: one in the spring and one in the fall," Klaus explains.
CWD switched to New Roads in because its past supplier didn't have the manpower required to service its customers appropriately. Klaus says one of its fellow buyers was FAO Schwartz (in its heyday before the bankruptcy) who seemed to eat up the manpower. "If there were a rush of orders, it would take two days to fill them. But an extra 1,000 tickets a day doesn't phase New Roads," Klaus reports. .
Lessons from the Outsourcing Journal:
- Stability is a key to success in an outsourcing relationship. The buyer had problems until the supplier's employees stayed and learned the business.
- Outsourcing relationships succeed when the buyer views the supplier's employees as its own.
- When outsourcing customer service, buyers have to balance the benefits of low cost with the disadvantages of poor customer service.