"I believe that a retailer with the capability of both warehousing and virtual warehousing is in a position of strength and can sell or move merchandise in the most efficient manner," says Stephen Hamlin, vice president, operations, QVC.com., which is based in Studio Park, Pennsylvania. "Virtual warehousing has given us other avenues to promote merchandise."
If you've seen QVC's cable shopping channel, you might think QVC's core business is marketing, but Hamlin says it's also warehousing. The business model of QVC's cable channel is to display a product on-air, sell out that product's entire stock in the warehouse, and then move on to display and market another product.
An Enhanced Mousetrap
The "enhanced-mousetrap" virtual model utilized by QVC's Internet channel (QVC.com) provides the capability to present more products and options to customers by leveraging QVC.com alliances with external manufacturers' warehouses, distributors and fulfillment operations. QVC.com's virtual warehouse model uses outside suppliers to store and ship the products customers purchase through QVC.com.
QVC, for example, sells Goebel figurines on air, but the QVC.com site presents the broader selection of QVC's Goebel products that are not presented on-air at that time. Goebel ships orders for QVC.com out of the Goebel warehouses. "We have one of the best advertising vehicles there is - television," comments Hamlin. "When we mention on air that QVC has more of a selection of certain products and brands online, that drives the sale of those products on QVC.com."
The sales volumes back up his statement. Cross-marketing is definitely a profitable strategy. Customers buying through the TV and then moving to the Internet channel prove to be worth 20 percent more. New customers that come in through the Internet and then cross over to the TV channel buy double the amount they otherwise would have.
The virtual warehousing model is not new - as evidenced by the past two years of Internet eCommerce horror stories of lousy service, customer dissatisfaction and failed dotcoms. Recognizing QVC.com would have to be able to provide better service for the virtual model and its supply chain, Hamlin turned outside his corporation for the solution.
"When you work with more than 200 warehouses that you don't control 100 percent, you need to manage them extremely well," Hamlin states. They selected outsourcer CommerceHub to provide the management tools and process to accomplish that objective.
Applying the Same Business Rules to Everyone
A virtual warehouse requires capability for a complex set of functions, and QVC.com has stringent shipping standards that must be followed. But the 200+ vendors have their own shipping and fulfillment standards. To ensure uniformity and a seamless experience for QVC.com's customers, CommerceHub performs services rather like a "middleman."
CommerceHub keeps the communication process with those vendors universal, which allows QVC.com to use its same business rules for each vendor. "They translate what we send them into the way the vendor can accept it," explains Hamlin. "Then the vendor sends it back, and CommerceHub re-translates it in the way that we can accept it."
Then they add supply chain business rules. If a vendor does not pick up the orders within a certain number of hours or a customer doesn't confirm the order with a tracking number, for instance, CommerceHub notifies QVC.com. This procedure enables QVC.com to identify problems upfront, instead of waiting until a customer calls and says, "I didn't get my merchandise." So, the CommerceHub software that allows supply chain management through virtual warehousing is critical for good customer service.
The outsourcer's pack slip technology also was a critical deciding point in selecting the best outsourcer. "They developed pack slip technology that allows us to download the information to them, and they translate the information down onto the vendor's printer," said Hamlin. The vendor can then print the QVC.com pack slips and affix them onto QVC.com packages.
Hamlin says CommerceHub was further advanced in this type of supply chain technology than the other vendors they evaluated. And QVC.com - tied to its legacy systems - couldn't have created the tools fast enough to manage the business the way they wanted to.
Hamlin, who has been in the virtual warehouse space for more than 25 years, says they are "extremely happy with CommerceHub. Our service levels are incredible."
So is the customer service. Even though it's sending a huge volume (at least one million) of orders through CommerceHub per year, QVC.com has been rated #1 in the Forrester Power Rankings two consecutive times for its customer satisfaction. Back orders dropped by over 100, confirm rates dropped by at least 25%, and QVC.com's costs were reduced from not inadvertently shipping duplicate orders. The outsourcer's expertise allowed QVC.com to have information sooner and be able to communicate with customers more quickly. CommerceHub also instituted vendor report cards to track vendors' services.
The Back End
The virtual warehouse allows QVC.com to enter new markets, but its customers would not remain loyal if the quality of service decreased by doing so. It's the back-end processes that ensure the high level of service. "QVC has been well known for its back-end infrastructure," Hamlin states. CommerceHub makes it possible to equal those standards through the virtual warehouse model.
That capability allows QVC.com customers to go out to other Web sites and then bring those purchases back to the QVC.com shopping cart. "For instance, you could go to ArtSelect, which is a site that allows a consumer to customize the framing of artwork that they purchase," explains Hamlin. "We, as a general merchant, would never build that type of content or technology to sell those types of products, but the CommerceHub technology allows us to marry other sites' content and their shopping proposition with our shopping cart and back-end infrastructure. In order words, the other site's front end is tied all the way back through our back end, so we are monitoring that vendor's back end. Unlike our competitors, this allows us to actually ensure that our customers get their goods and have the proper experience."
Indeed, the outsourcing strategy for QVC.com is so successful that QVC is now testing the strategy for food and other products it drop ships. Hamlin believes outsourcing allows buyers to do things more quickly and, in many cases, more efficiently. He advises buyers considering outsourcing to perform due diligence to make sure the potential outsourcer will listen to the buyer's needs and meet the buyer's business objectives.
Lessons from the Outsourcing Journal:
- A virtual warehouse provides the capability to present more products and options to customers by leveraging alliances with external manufacturers' warehouses, distributors and fulfillment operations.
- A successful virtual warehousing model requires software management tools and processes that are capable of managing a large volume of separate warehouse and fulfillment operations.
- The back-end processes will make or break customer satisfaction levels.