SCDigest editorial staff
We’ve been watching with interest the story of television retailer QVC, who’s been on a journey over the last couple of years to dramatically overhaul its transportation processes (and its whole supply chain).
I recently had the chance to hear VP of Supply Chain Dan McDermott describe the company’s transformation.
QVC is a big company, with projected sales of $7.2 billion in 2006, selling everything from jewelry to apparel to household items, even Dell computers and Saturn cars. On the outbound side, it ships 105 million packages per year to its customers, and on a peak day last Christmas season it shipped as many as 675,000 in a single day. On the inbound side, it receives tens of thousands of shipments across it five east coast distribution centers, totaling over a 100 million inbound units.
As part of a larger Supply Chain Management initiative termed “Product Flow,” a couple of years ago the company saw opportunities for significant improvement in its transportation processes and technology.
The “as is” case was similar to many we hear from companies that have not put a focus on transportation excellence. As McDermott said, QVC’s transportation and inbound processes were characterized by the following “poor practices.”
- Paper-based, decentralized carrier selection
- No optimization
- Manual checks and processes for approving vendor shipments
- Little or no use of EDI
- Very little control of actual receipt quantities versus Purchase Orders
- Tremendous amounts of manual data entry
- Lots of effort to bring on new vendors
- Poor inbound visibility both internationally and domestically
“In 2003, we had 12 transportation specialists whose only job was just to manually build shipments based on vendor faxes or emails into our legacy systems,” McDermott said.
To be successful, McDermott said, QVC processes have to be “built for velocity, built for speed.” There was an obvious disconnect between this principle and its approach to transportation.
As a result, QVC launched an ambitious program that achieved significant results in a relatively short period of time. The key drivers:
- Moving to a centralized process characterized by use of best practice
- Nearly 100% automation of a number of vendor interactions
- New TMS software to optimize planning and execution (from i2), optimizing its “collect” inbound freight business, its substantial return to vendor shipments, and some of its outbound moves (there is less opportunity for optimizing outbound the way QVC works, with huge line-haul volumes to local UPS zones for local package delivery.)
- Use of a Service Oriented Architecture (SOA) approach to IT to facilitate integration and enable robust cross functional workflows
- Comprehensive use of EDI and web integration with domestic and international carriers and forwarders
- Detailed ASNs to streamline receiving processes
QVC developed a vendor portal that has a robust set of tools for both QVC and its vendors to manage the PO to delivery process. “100% of our inbound shipments are now built by vendors or forwarders,” McDermott said. “There is zero data entry done by QVC.”
This includes a series of automated checks to ensure that the shipment meets QVC quality and process criteria before approval to ship and a routing instruction are delivered electronically to the carrier.
The transformation has had enormous benefits. Transportation headcount has been reduced, mostly through attrition, and the team now focuses on optimization/planning and working as “supply chain specialists” to improve vendor collaboration and integration. Both these tasks add real value to QVC, as opposed to the low value data entry and administrative work they were doing before.
Work is hugely automated. Transportation specialists get automatic alerts when vendors or carriers have not completed certain steps when they should have, allowing QVC to move to a more “manage by exception” environment.
Visibility has improved dramatically. McDermott said QVC’s goal is to get ASNs 96 hours before shipment. While he acknowledged some vendors believe this is too long a window, “but we’re telling the vendors we need this,” he said. Since QVC plans its television sales programs 5-6 weeks out, it is critical that supply chain disruptions not force the sales side to have to revamp plans because product won’t be available. “We now have high levels of visibility and control,” he noted.
The vendors also benefit from the event management technology. For example, a vendor may get an alert saying it is less than 96 hours until the ship date, and not all of the PO/shipment qualifiers have been met.
As a result of the transportation and TMS initiative, QVC has also been able to significantly increase the percent of its inbound shipments that it controls thru collect freight, versus vendor prepaid. It is also achieving savings on the order of 12% on that collect freight thru optimization and core carrier program adherence.
There was clearly a lot of “change management” required both internally and - critically - at the vendors. QVC also invested in a big educational effort with its vendors to get them up to speed. They relied heavily on a “webinar” type format with groups of 20 or so vendors at a time, McDermott said.
Ultimately, McDermott said, QVC is trying to get “further inside the vendor’s door,” in terms of the manufacturing process. “We think if we do this right, we can have 3000 supply chain specialists, not just our internal ones” he said, referring to the number of vendors QVC has.
Given the size of its operation, QVC’s transportation transformation turnaround over a relatively short period of time is an impressive story.
What is your take on the QVC story? Don’t lots of companies have the opportunity to make these kinds of dramatic transportation and inbound logistics improvements? Why don’t more of them do it?
Let us know your thoughts.