View / Download PDF:
As appearing in The Seybold Report - June 08, 2005

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.

MFSA / NAPL Fulfillment Conference 2005

From Strategic Redefinition to World Class Implementation
… this is how to do it!

The best fulfillment conferences have tours to highlight interesting and varied solutions to similar problems. The better top management venues recently try to get a case study of a successful strategic reincarnation from "commodity" market perception to valued long-term partner. Many of these presentations about "client's value perceptions" are pure theory unless it comes from the buyer's mouth. To score on all three key elements is highly unusual for any top drawer gathering, but to do so with a single specific firm and a Fortune 100 supplier touting its totally transformed and reengineered marketing support services offered by this same firm is better than hitting for the cycle in baseball.

That's what happened at the first joint fulfillment conference hosted by the Mailing and Fulfillment Service Association (MFSA) and the National Association for Printing Leadership (NAPL) in Cleveland April 19-21. The most reputable information fulfillment conferences available since 1992 have been those organized by MFSA and yet their attendance admittedly has stagnated since the turn of the millennium. NAPL has had a tiger by the tail, as their membership has been screaming, "Teach us how to do fulfillment right!" Both Boards decided that collaboration would bring the highest level technical venue to a burgeoning new segment of the market, general commercial printers. And as one MFSA Board member very succinctly put it, "This will help us eliminate stupid competitors, i.e., printers who give fulfillment away to run empty press cylinders and in turn disrupt the market." The result was the highest attendance MFSA has experienced in several years with a full half of the non-suppliers among the 150 attendees being first timers and specifically printers.

Covering a half dozen national or international conclaves a year, I have been to well over a hundred leading edge conferences in my three decades in this business. This one could easily have been among the top that I have witnessed. After reading this article, see if you don't agree with me.

Driving the Pennsylvania and Ohio turnpikes leading to my northeast Ohio Mecca gave me first hand opportunities to see the reality of this rusting steel belt. Huge American automotive plants covering acres with only half full parking lots are proof of employee layoffs and manufacturing utilization cascading in a "recovering United States economy." And yet the fulfillment plant tours the first day showed the high level of capabilities and truly innovative and leading edge technology solutions that are available to this regional market and well beyond.

Three firms were included in the daylong plant tours. They included the fulfillment division, GL Direct, of the Great Lakes Companies Integrated, Midwest Direct Marketing Services and both the Distribution Services facility and corporate headquarters with print-finishing of HKM Direct Market Communications.

While GLDirect has been in existence for fifteen years, its square footage has nearly doubled since January 2005 to 185,000 square feet due to market demand plus an option for another 90,000 in the same industrial park. Twenty-five major clients and a like number of secondary customers initiate 750 orders a day from an inventory of 15,000 SKUs. ProMail 5.0 is the inventory control software. Two shifts process these orders within 24-48 hours of receipt. The main building has a 7,000 skid capacity with secured storage provided both behind chain link fence as well as the mezzanine area above the offices inside the warehouse. Less than 20% of the inventory is printed by GLPrint, the 74-year-old originator of the group. Mailing services, kitting, custom finishing, database creation and 24/7 online access all complement the custom pick and pack operation.

It was interesting that they offer NO back order processing. Clients are advised of stock outs and are e-mailed when the item is replenished should they like to reorder at that time.

Jim Schultz, Chairman and CEO of GLIntegrated, in response to a question commented, "We seldom respond to (fulfillment) RFQs as we are not in the commodity business." He further described an ideal major client as being one that is on a three-year contract with periodic review cycles. In several instances GL also owns the inventory to be billed each month as orders are processed. Replenishment by GL is by a mutually agreed upon EOQ (economic order quantity) point. All aging inventory gets billed to the client on the 13th month. While this approach increases GL's inventory carrying costs, it emphasizes the fact that "they have a contractual not transactional relationship," according to Schultz.

The true distinctive competence of the Great Lakes Integrated's approach is their proprietary digital asset management software. Dean Hanisko, CIO of GL's AKSESS division, described their objective as "engaging channel partners to help manage/motivate co-op marketing program" by giving third party access to design, create and manage marketing images. He added that this extraordinary proprietary software investment gets recoup by means of "upfront, maintenance, and transaction fees."

Midwest Direct showed two different though somewhat complementary businesses. Their first class mail barcode and presort services are provided to local customers in the northeastern Ohio area. The ten sorters running at up to 30,000 an hour barcode and sort several hundred thousand first-class letters a day. Nearly 80% of that quantity is presorted twice the same day to get closer to the direct delivery unit routing and therefore to earn the most discount. Midwest Direct is the first and among very few firms in northeast Ohio to have earned the Mail Preparation Total Quality Management (MPTQM) certification from the Postal Service.

Their printing and fulfillment operations are experiencing significant growth. A Halm Jet envelope press is expected within two weeks to complement the Heidelberg DI press as well as their DigiMaster 110. This later digital copier is unusual to the extent that the variable data products being printed are folded inline from the 110. FoxPro does their mail merge, BCC provides all the mail list maintenance services and PrintStream provides all of the business management information services throughout the firm.

The conference attendees toured the spotless 40,000 square foot HKM Distribution Services Center. Built six years ago on 13 acres with ample expansion room through a long break out wall, the six high racks (actually seven when the half racks on the second tier are considered) are served by narrow aisle Drexel right angle, electric lift trucks. Symbol RF (radio frequency) "guns" are used throughout the wireless network to facilitate the picking and managing of all bar coded inventory. Inventory control is via proprietary software.

Their call center works from 8 am to 8 pm in initiating orders, lead verification and answering web inquiries. While they prefer to use their own corporate courier shipping account, HKM is subject to the trend of increasing third party client accounts.

Their downtown facility housed the art department, web design and maintenance (75 sites under contract), electronic prepress, pair of Indigo digital presses, a battery of fourteen sheetfed presses including three six colors and extensive inkjeting, inserting and specialty affixer via a Ga-Vehren.

Their current dynamic growth is being spearheaded by HKM being part of the DirectConnectGroup. As corporate marketing programs become more technically complex, distribution demands exceed regional boundaries to include both coast-to-coast and international coordination of production facilities and security redundancies become commonplace expectations, strategic alliances are absolutely paramount for independent firms.

A general session addressed just this issue, "How to set up successful strategic alliances." Rob Durham, President of HKM Direct Market Communications and Managing Partner of DirectConnectGroup, described his firm's transition from local printing and mailing house to international provider of integrated marketing solutions, which produce, protect and deliver brand messages. After 9/11 the 80-year old company found itself competing in a commodity marketplace in a limited Cleveland economy. They needed to differentiate themselves and expand into more value-added services. Larger, more attractive clients demanded national reach and production redundancy for both security and manufacturing flexibility. Several features which HKM could not provide.

Durham and his management team forged both micro and macro strategic initiatives in repositioning themselves. Locally HKM invested $2 million in new web-based technologies, print on demand applications and alternate delivery channels, such as e-messaging. On a broader scale they reached out to MFSA members that they knew and forged a nationwide solutions-based partnership. DirectConnectGroup was founded in 2003 with current combined sales of $60 million, six plants, 525 employees (25 of which are IT professionals) and 650,000 square feet of space in Seattle Washington, New Jersey and Ohio.

In addition to the desired national reach and production redundancies, the DCG alliance is now able to attract larger client partnerships, realize better economy of scale purchasing savings and offer freight and logistical management.

The final session of the conference included a client testimonial of a major corporation that bought the full package being offered by HKM and DCG. Mike Lyman, Roadway Express' Manager of OnLine Communications, described this $9 billion corporation's transition to customized enterprise wide fulfillment solutions focusing on one-to-one marketing programs. They were dependent upon traditional offset printing, mass direct mail, an extensive product literature warehouse and very basic inventory monitoring. Their goals encompassed in a thorough RFP were to manage printed materials with less staff, target audiences, reduce costs and utilize multi-channel marketing.

The resulting Roadway Literature Center is comprised of four distinct elements: (1) build your own marketing brochure via the web, (2) a unique map builder that is geo-coded, print on demand initiative, (3) timely fulfillment and (4) a virtual sales center where electronic marketing is done multi channel.

The map builder is crucial to Roadway's custom marketing proposals and has these features: standard and average transit times, zoom-in feature, up to date road information and 0-2 day designer turn around time versus the more traditional 1-2 week turn around previously experienced. This is the freight industry's first dynamic map builder. Before the HKM/DCG solution, Roadway produced 500 unique maps one year earlier. In the first nine months of this new program implementation in 2003, 3000 unique maps were completed.

Roadway Express' marketing executives have been well pleased with the new program according to Mr. Lyman. Printing costs have stabilized and are down 20% from the conventional experience, warehousing inventory is down 40% and speed to market is 3-5 times faster than before. When asked what his next big goals are he quickly responded, "Campaign management where we utilize multi-channel marketing of the successful 'silos' currently in place and all of this tied into Roadway's proprietary client relationship management (CRM) software. In his articulate presentation Mr. Lyman emphasized numerous times the importance of "brand identity" and "managing the brand" as crucial to Roadway Express.

Lyman said there were six strong vendors initially considered for this RFP of which HKM was the only one from Cleveland, which is a short distance Roadway Express' Akron headquarters. He emphasized that location of the chosen vendor was of no concern during this yearlong decision process. Because of the magnitude of the project solution, the initial thrust of the transition was the print on demand element.

A feature presentation by NAPL's Chief Economist Andrew Paparozzi was the review of The State of Fulfillment Survey 2005. Two previous surveys in earlier years had been conducted among NAPL members. This one initiated last fall included MFSA members as well and drew 93 responses, which were nearly equally divided between printers and mailing/fulfillment specialists. The final report will be published early this summer via both MFSA and NAPL libraries and websites. The following table depicts interesting statistical highlights.

Table 1 State of Fulfillment 2005
	Printers	Mailing/Fulfillment Specialists
Total respondents	42	51
Average annual sales	$25.2 MM	$5.3 MM
>$10MM in sales	71%	8%
Ave. number of years offering f/f	10	12
Proportion < 5 years	43%	32%
Offering variable digital print	17%	21%
Average # of clients served	23	34
< 11 clients	60%	46%
> 25 clients	20%	36%
Fulfillment revenue proportion from largest 5 clients	62%	48%
Total ave. space utilized (K sq. ft.)	20	42
Average skid capacity	1,600	3,100
Skid capacity utilization	61%	65%
>75% utilization	36%	41%
Average SKUs warehoused	1,850	6,600
Average Dock to stock time (hours)	12	10
Average weekly orders processed	878	6,869
< 100/week	55%	32%
Order turn around of < 48 hrs	82%	82%
Shipment time:
Overnight	17%	11%
2-4 days by standard ground	79%	89%
Fulfillment software used:
Proprietary	53%	41%
WMS vendor package	47%	31%
Proportion part time hours	23%	23%
Part time labor source:
Temp Agency	57%	54%
Personal contacts	28%	33%
DAM & web design offered	23%	14%
2005 Expectation for business:	73.5% expect business to increase! Average increase in '05 +14.8%

Before drawing any conclusions it would be fair to assume that these respondents have mature fulfillment operations with a fair degree of success. Some immediate conclusions drawn by the author not Mr. Paparozzi are that the mailing and fulfillment specialists are more diversified with more clients and less dependence upon their largest clients. While these specialists have twice the space and skid capacity, they are storing three times the number of line items and processing nearly eight times the number of orders. Servicing turn around times as well as the use of temporary labor appear to be comparable.

The implication of average size for both groups suggests that a firm must be quite large to be successful. This would clearly be false from the author's experiential knowledge! However, it might be fair to assume that the larger fulfillment practitioners are more willing to share their operational and organizational statistics in order to learn from their peers and improve in this clearly dynamic market place.

Additionally printers were asked if print volume increased from their fulfillment clients; 76% confirmed that point. Printers were also asked if the client profitability improved for those clients subscribing to fulfillment services; 62% of the printers said yes while 24% did not know! This final 'don't know' might suggest that enterprise wide MIS capability is lacking.

The mailing and fulfillment specialists were asked to rank their concerns for the future;

•   92% Competition, pricing, margins due to printers entering the market
•   56% Rising costs
•   50% Client loyalty
•   42% Personnel issues

There were popular, "break out" round table discussions on numerous topics. In the Selling Fulfillment exchange, Shelley Plunkett of Concord, California's Plunkett & Associates suggested that each line item in your fulfillment price lists must be backed up by your management information system documentation. Otherwise the billing process is difficult and time consuming not to mention back up data for certain metrics to be shared with the client.

Co-moderator for the conference and Operations Director for Consolidated Market Response, John Woodruff pinpointed a number of trends evident among larger fulfillment clients:

1. Dedicated as opposed to shared account managers even on a 24/7 time table,
2. Increased security due to the development and expansion of their proprietary prospect and customer data bases,
3. Documented disaster recovery plans due to increased sensitivity about 9/11,
4. Metrics standards and benchmarks reported frequently and
5. During presentations they want to talk to the Operations Manager and the CSR rather than salesmen and when up and running they want to talk with floor supervisors.

MFSA's Director of Fulfillment Services and Conference Organizer Tom Quinn offered a thorough perspective on how to start a fulfillment operation. He suggested the key corporate prospect was responsible for their firm's marketing communications. And every corporation with at least $20 million in sales has a marketing department with one of these individuals needing your assistance. In first choosing fulfillment software Quinn advised beginning with the back end or warehouse management systems (WMS) before the front end or order management systems (OMS) as inventory accuracy was paramount to having a successful fulfillment operation. He sighted seven viable software vendors (among the 100 or more available); Morse Data, Direct Edje, Dydacomp, InterlinkOne, Streamline Solutions, Visual Systems and Software Marketing Associates. Contact points are available from mfsanet.org.

Benchmarking metrics are becoming essential tools to both gauge fulfillment efficiency as well as offering costing options to clients. Jim Rushing with Denver's Holden Marketing Support Services reported on the latest MFSA benchmarking survey. A summary of that is shown in Table 2. The detailed report showing median as well as average reported results may be obtained from MFSA (mfsanet.org).

Table 2 Fulfillment Operational Metrics
	Average Accuracy
1. Fulfillment (internal): Correct orders vs. total orders	97.6%
2. Fulfillment (external): Correct orders as reported by client	99.2%
3. Receiving cycle time: Dock to stock time	11.9 hours
4. Receiving accuracy: SKUs received correct vs. total received	97.4%
5. Inventory accuracy: Inventory system balances vs. actual count	97.3%
6. Order picking accuracy: Orders with correct items and quantity	98.5%
7. Shipping accuracy: Proper service level receipt	98.9%

Printers and 3PFs hear that a key to future success is being more client centric. This first MFSA-NAPL Fulfillment Conference not only emphasized that point but repeatedly gave examples of how to accomplish that end result.

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.