Digital transformation in retail: Connecting up the e-commerce supply chain

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E-commerce inventory-management and supply-chain systems provider CommerceHub has customers including Walmart, JC Penny, Dell and Walgreens. The company helped 11,600 brands and distributors sell $16 billion worth of goods last year. ZDNet talked to CommerceHub founder and CEO Frank Poore about all-things merchandising.

ZDNet: In March the company was bought by two private-equity firms for $1.1bn. How did this come about?

Poore: I sold it in 2006, then I left the company. After a while I and came back in 2011. We built it up and took it public in 2016 and the we had the buy-out in March.

Why make that decision?

We took it public to unlock value for shareholders and we did that. Then we got an offer that we liked and thought it was a good price and that was it.

And we also thought that it would give us the opportunity to do some things. You know, it’s sometimes harder to maneuver as a public company. If you want to do acquisitions or you want to make certain types of investment. it’s much easier to do that outside of public scrutiny and the spotlight.

When did you found the company?

That was in 1997, right on the cusp of e-commerce when it was just sort of starting. Going back to then, it was really difficult to raise money because there were still people out there — venture capitalists — who believed that no-one would ever put their credit card online. We are talking about the earliest of days of e-commerce.

frank-poore-commerce-hub.jpg

Poore: Retailers must delivery to customer expectations.

Photo: CommerceHub

At that time I was working with a videogame distribution company. They had thousands of videogames and I noticed that on a lot of the different retail web sites that I would go to — even the big guys, the Walmarts, the Targets — they only had about 10 or 15 videogames for sale online. I would call them up and I would use the videogames as a way to get in.

I would say: “I’ve got thirty-five hundred videogames with product descriptions that I could use to populate your site. And I could integrate our distribution company via EDI and ship the products directly to your customers. All the incremental revenue and incremental margins would go to you as a reseller.”

So then they would invite me in and I would go to do it. Then, of course, the true nightmare started. They would be selling things that we didn’t have in stock, they would be overselling, orders would get lost and neither party would know about it until customers called weeks later to complain.

So then we set out to build this platform that was a perfected drop-ship fulfilment model. Using that, retailers could not only radically increase their assortment and revenue but also be able to achieve that same level of customer service — the same level of fulfillment, delivery performance and the same brand identity as if they had actually bought those goods, stocked them and shipped them themselves.

Today we are working with about 50 major retailers, QVC, Costco, Walmart, Home Depot, Kohl, JCPenny, Macey’s and so forth, and we have got close to 12,000 suppliers. And that’s distributors and brand manufacturers shipping products directly to customers. Last year we did that to the tune of $16bn.

You’ve got a very impressive customer list but what services do you perform for fulfilment?

Typically these retailers have a number of different processes inside — their own retail operation that they have to adhere to. What we do is connect to them electronically. We support things like EDI and XML and Flat Files and other kinds of custom, bespoke connections. But that’s only part of it.

Messaging is necessary but not sufficient to run a drop-ship fulfillment plan. You really need some model, so we model the retailer’s business processes — how they handle returns, how they handle cancellations.

SEE: Digital transformation: A CXO’s guide (ZDNet special report) | Download the report as a PDF (TechRepublic)

We model that choreography of business processes across the network. And then we give them a toolset. It’s a web-based application that allows them to monitor these orders and monitor these suppliers like big brother. We make sure that they are picking up the orders on time, that things are getting out of the door on time and so on.

If things are going wrong the system will take a proactive approach to resolving issues before they impact the customers.

What we do is provide technical integration and applications that allow them to monitor suppliers and then we do the service of on-boarding those suppliers

It seems that you take a lot of trouble to relieve the companies of a lot of the problems involved in this?

Basically it’s a digital supply chain. It’s virtual inventory, it’s endless aisle, there’s a number of different names that can be ascribed to it, but generally speaking it’s leveraging the inventory that’s sitting in their supply chain.

It’s being able to expose that inventory for sale through additional channels. We sell to the retailers but the suppliers are also our customers.

So this is all working transparently — you’re doing it but as far as the companies and customers are concerned, they are the ones doing it?

Exactly. We’re doing it so that everything looks the same. Regardless of what retailer they work with their orders all come through in one way, which is their way. And everything comes back from them in their way. We take care of making sure that it’s right for each party.

Fundamentally, you’re taking a huge amount of complexity out of their hands?

When you think about it, when I first started the company I used to say: “If there are 100 retailers connecting to a 100 suppliers, then there are be 10,000 IT projects.”

If the whole world was mandated by government that we all had to use Oracle, every database would still be set up differently. We would have different ways of calling things. Some might call it by ‘part number’, some might call it ‘Part underscore no’. There’s a million different ways that you can set things up.

Everyone’s got a different approach and a different way of setting up their systems and a different way of modelling their business. We not only model the disparities that exist between the parties in terms of system messaging, but we also model and handle the different business processes that they have.

I could get into the complexities but basically each retailer has a different way of running their business.

As a company you’ve been doing this for some years now. In all that time, what are the lessons you’ve learned about the things that companies do wrong?

One of the things I learned in the early days was that you have to be really persistent. We were ahead of our time. Back then, people were just trying to figure out how to sell anything online. They had their own inventory and their own warehouses. They weren’t looking at how to extend it, they were just trying to figure out how to get their own inventory available for sale on a website.

We were sort of ahead of our time and one of the things then, the biggest thing, was thinking that you can just connect to a supplier — be it through EDI or some web portal — and this is all going to work, magically.

SEE: Sensor’d enterprise: IoT, ML, and big data (ZDNet special report) | Download the report as a PDF (TechRepublic)

Anyway, that’s what I thought until the nightmare ensued. You’d get a call: “Hey Frank, where is this order, Mrs McGillsauddy called, she didn’t get her order.” And I’d say: “Let me just look the order up.” And I’d look for the order number and find that I didn’t have it. I would tell them I didn’t have it and they would say it was in bundle 12345. I’d look that up and tell them I had never got that bundle. And then they would say: “There were 2,000 orders in that bundle!”

And so now I know that there are 1,999 customers who are going to call me up and complain.

We learned, really early on, that retailers who wanted to do this, sort of glossed over what it meant to deliver a customer experience using third parties. You can’t do it with just EDI. There’s people that try. Most in-house systems from some retailers are being done by EDI, but it’s a damaging customer experience. All you’ve done is give a customer to Amazon.

So for retailers today, it’s one thing to have an assortment expansion, but it’s another thing to have an assortment expansion with that degree of control so that you can achieve that branding, you can deliver that performance, you can meet the delivery performance that you promise to customers. It’s critical.

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