Mercedes Retools its Fulfillment Operations

In 1999, auto manufacturer Mercedes found itself in an unusual position: Its customers were unhappy.

In short, customers and dealers were clamoring because their merchandise hadn’t been shipped or was out of stock, or they had received the wrong products. For months, the company’s fulfillment operations had been building into a dreadful back-order situation.

In addition to offering automobiles, Mercedes is a catalog and in-store retailer of car accessories and luxury Mercedes-branded merchandise for consumers and dealers, as well as a supplier of parts to its dealerships. Fulfillment has always been done by a third party, and in August 1999, backlogs reached a critical mass of 9,000 outstanding orders. At that point, Mercedes officials began hunting for another fulfillment provider.

“We had a parts distribution center bursting at the seams trying to handle automotive accessories, and also carry a small number of auto accessories [for the] catalog,” says Glenn Rizzo, department manager for automotive and personal accessories at Mercedes. “Dealers and customers told us they didn’t have confidence that when they ordered a product it would show up at the right time. It made us go looking for a new fulfillment partner.”

Mercedes also was in the midst of expanding its sales channels to include an online store and a larger consumer catalog. The catalog division had grown from a $5 million to an $8 million business in just five years, and the company hadn’t even tapped the Internet as a sales channel yet. Wanting to approach the problem comprehensively, Mercedes officials realized they needed to tackle their current fulfillment dilemma before adding more demands.

“Our business had grown so fast that we had to catch up on technology,” says Rizzo, noting that the company’s growing pains were beginning to affect its image. “It is very important for our organization to maintain the highest image and brand reputation. Clients expect that. Ultimately, [the fulfillment situation] was hurting our brand.”

Specific Problems Identified

Rizzo, who headed the search for a new fulfillment house, cites two factors that contributed to the fulfillment problems.

First, the consumer catalog and the automobile dealers had separate ordering systems, but a single fulfillment location and a single catalog from which to shop. The fragmentation was further complicated by an inventory system that didn’t provide current information to dealers placing orders or customer service representatives taking orders. As a result, purchases for out-of-stock products were placed even though there was an existing backlog of orders. Because Mercedes’ merchandise is branded, usually with logos, and many of the products are manufactured overseas, replenishing products is not an instantaneous process, and substitute items are not available.

The second factor was the inventory system, which was not automated for either catalog shoppers or dealers. Products had to be manually requested, and there was limited sales volume forecasting.

Rizzo, while under tremendous pressure to solve the company’s fulfillment dilemma, wanted to find the right provider rather than fall into another bad situation. He took a multi-pronged approach to the problem.

Charting a Course

After attending conferences and seminars on operations and fulfillment, Rizzo pulled together a team comprised of an employee from each division (e.g., customer service, dealerships, fulfillment, merchandising) to create the vendor request for proposal (RFP), which details what the company wanted from a fulfillment provider. Finally, he hired catalog consultants Muldoon & Baer to provide expertise in selecting a provider.

Employee team members determined specific components they wanted in the new ordering and back-end operations system that would benefit dealers, consumers and CSRs. The team took a year to create the RFP.

“Once we developed a comprehensive RFP, we hired outside consultant Muldoon & Baer,” says Rizzo. “They came in for an entire year and helped us look for a vendor and work[ed] to integrate the catalog and Internet. They helped us realize that to do it right we had to integrate the front-end and the back-end.”

Among Mercedes’ myriad requirements was an automated inventory system offering real-time information, which could provide details about in-stock products, determine when out-of-stock merchandise could be expected and re-order products automatically. The system also needed to be accessible to dealers, CSRs, fulfillment house staffers and online consumers.

Mercedes’ officials wanted a delivery-tracking system, so CSRs and dealers could get information about when packages were shipped and when they’d arrive. In addition, the company wanted to begin accepting Web orders and provide customer service through Live Chat and e-mail.

And Rizzo had his own requirements. He wanted the system to be easy to use to instill confidence in retailers that their product would be delivered on time, and to ensure that the staff had enough inventory information to manage the re-ordering and selection of products, especially for the Web site. He also wanted a comfortable business relationship with the fulfillment vendor—one that would encourage retailers to communicate with the corporate office and the vendor.

It took several months after the RFP was completed for Mercedes to narrow its search to four fulfillment providers, whose facilities were toured by a handful of the team’s members, as well as by Jack Baer, principal at Muldoon & Baer. He helped Mercedes select Connextions.net, a Florida-based, third-party fulfillment house that specializes in Web-based ordering software and automated inventory ordering and forecasting.

Back-Orders Reduced by 75 Percent

At the same time, Katie Muldoon, also a principal at Muldoon & Baer, guided Mercedes’ separation of its consumer catalog from the joint consumer-dealer catalog. Dividing the catalogs allowed Connextions.net to get a handle on Mercedes’ inventory issue by having separate SKUs to trace from where customer demand came. In just two months of operating under the Connextions.net system, Mercedes’ back-order dilemma had been reduced 75 percent. The goal now is to keep Mercedes at a less than 10-percent back-

order rate.

Connextions.net’s eBusiness system is fairly easy-to use, and was implemented in a little more than month. The system offers Mercedes a unified front- and back-end operating system. It provides CSRs, dealers and customers with real-time inventory availability and order-tracking, and it sends e-mail confirmations for online orders. The system also can recommend other merchandise if a product is out-of-stock, and it notifies customers via e-mail, phone or fax if orders will ship late.

Rizzo said the implementation process was a bit hurried for him. If Mercedes hadn’t been in such a difficult situation, he would have taken more time to integrate the system after he selected Connextions.net.

“You should give yourself a lot of time to integrate at the beginning,” says Rizzo. “We had no choice, because we had to make the best of a really difficult situation. Ultimately, I would have liked another two months.”

As the responsible party for Mercedes’ fulfillment, Connextions.net helped the auto company select merchandise vendors as well as negotiate the contracts. Connextions.net also houses customer purchase and ordering information for all of Mercedes’ sales channels. Mercedes was unable to translate its customer transaction and history data from its former vendor, so electronically it will be like starting over until the information is rekeyed and added back into the database.

“The transition created a lot of work for us,” says Rizzo. “Unfortunately, when you transfer from an old organization it isn’t always possible for them to provide your data in an easy format that can be transferred.

“We have a lot of other databases,” he continued. “But what is interesting is the contract; with a catalog company, you own the names. They provided us with the names but no way of translating the files.”

In its fulfillment role, Connextions.net also picks, packs and ships all merchandise, as well as handles returns. Connextions.net’s fulfillment system uses sophisticated automation that reduces picking and packing time, as well as cost. Mercedes hopes to reduce the cost and number of mis-ships through barcode technology, which matches the product to the pick slip. The cataloger also should realize savings by taking advantage of Connextions.net’s shipping agreements and automated software that evaluates the best route and rate to ship orders.

“Our goal was not to cut corners or save money,” says Rizzo. “We will save money ultimately, but the goal is to give better client service.”