Can You Succeed By Focusing On The Demand Chain?

It's a simple fact — the Internet has drastically changed the way we conduct business, communicate and make purchases today. In manufacturing and distribution, the Internet has helped shift the focus from the supply chain. A supply chain is the creation and distribution of products, where products are created and funneled to the consumer. The focus is now on the demand chain, where consumers search the Web for purchases, ultimately controlling what products come down the pipeline.More than 83 million adults (age 16 and older) are accessing the Internet, according to a 1999 study by Intelliquest Research. Nearly 70% of these adults have recently shopped online. Of these people, 28% actually made purchases via the Internet.

AllPoints Systems, Inc. (Dedham, MA), a $3.5 million systems integrator, has been paying close attention to this radical switch in purchasing behavior. Bruce Welty, company president, believes there is a place for VARs and systems integrators in this new frontier. He expects his business to grow by 30% in 1999.

Founded in 1987, AllPoints Systems provides distribution and warehouse software, hardware and service solutions to retail, food/grocery, automotive and electronic industries. The company has focused on the emerging e-commerce segment since 1995. To date, AllPoints Systems provides solutions for distribution centers for companies such as Boscov's, Toys "R" Us, DaimlerChrysler, Woolworths, NEC, Streamline and Lotus.

In The Beginning…
"We started as a warehouse management consulting company and built customized warehouse solutions for companies like Lotus, Toys "R" Us and Eveready," explained Welty. "In 1992, we embarked on software development to build and market a software product, also named AllPoints. We received a grant from The Bi-national Industrial Research and Development (BIRD) foundation, which is similar to a venture capital fund. We partnered with an Israeli company called Ofek-tech, which was recently purchased by SAP. The original product was an industrial warehouse management system (WMS). WMSs track every aspect of warehouse functions from order placement to package shipment. Since then, it has evolved into a WMS/e-commerce solution for the Internet consumer-direct market. Our first Web customer was Streamline.com, a Web-born company that allows customers to order groceries, videos and dry cleaning services online. Streamline was a pioneer in this industry, so we had to learn together."

Today, the AllPoints Systems line of solutions includes five different products for food/grocery, retail, original equipment manufacturer (OEM), mobile workforces, and the Web. All systems are modular and scalable. This flexibility allows clients to select the functionality that fits their distribution needs. These systems also interface with parcel manifesting, transportation, purchasing, merchandising, accounting and enterprise resource planning (ERP). AllPoints Systems also provides complementary services, which include:

• distribution management systems (DMS) Y2K conversions
• hardware/software setup and configuration
• total project management
• physical and logical design analysis
• online help features
• detailed documentation for supervisors, technical managers and consumers.

The Internet is the source for all orders which are sent through the AllPoints systems. Status information can be posted online so customers and vendors can monitor the order. It can be tracked from the time it is placed to the time it is delivered. And, the Internet also acts as a channel to route orders from vendor to vendor, which completes orders delivered to customers.

Welcome To The Demand Chain
"We are focused on the demand chain," explained Welty. "Our typical customer works closely with consumers. Generally, our customers deal with large numbers of orders in small quantities per shipment. Much of our work involves perishable items. That can be almost any product these days. Even PCs can be considered perishable since they become obsolete if they sit on the shelf in a warehouse for too long. Our customers need to move their products accurately and quickly. We provide accurate shipping at a low cost."

"I recently went to a conference and listened to major vendors in the industry discuss the phenomenon of the demand chain," Welty continued. "One example used was that children can now go online to Mattel's Web site and custom design a Barbie doll. Like most large companies, Mattel is designed to run large productions where they manufacture thousands of dolls with the same characteristics. Focusing on the details of one doll is vastly different from making several thousand copies of the same doll."

Customers Are Kept Through Accuracy
In the demand chain, accuracy is everything. "Typical retailers could normally get away with an inaccurate shipment order because they placed a pallet on the wrong truck," described Welty. "These retailers have the benefit of time or safety stock (extra stock kept in a warehouse to cover mistakes) to correct their errors. That's not possible when dealing with customers over the Internet. These consumers can switch vendors with the simple click of the mouse. If our customers miss one order for one consumer, that consumer will probably talk to a friend. Before our customers know it, they are losing their market through word of mouth."

Many consumers are no longer loyal to brands and don't need to shop within certain geographic areas, thanks to the Internet. Shopping by price is now as easy as shopping by location. "In the past," explained Welty, "we, as consumers, only dealt with local vendors because they were the most accessible. For example, we bought cars from dealers in our own neighborhoods because it was too expensive to travel out of town to compare automotive prices. Today, we can shop online through Autobytel.com or Microsoft and search for the cheapest prices in the country. If it is economically feasible to live in Massachusetts and order a car in New York, then there is nothing stopping the consumer from buying that car. Before the Internet, there wasn't an easy way to compare the prices of a car in New York City to the prices of a car in Boston."

"The only thing that keeps online customers coming back for more purchases is the quality of the Web page and the quality of service the company provides," he continued. "If VARs and systems integrators can create ways to help their customers provide this continued quality, they have captured their customers. If VARs can't maintain or improve upon the quality, they don't survive."

Pay Attention To The Super Middlemen
According to Welty, VARs and systems integrators should pay attention to what he calls the super middlemen, for example, companies like Amazon.com and Autobytel.com. These companies have successfully navigated the relationship between the consumer and the manufacturer. Amazon does not have a huge warehouse filled with books. They purchase their books from a vast array of suppliers, warehouses, manufacturers, distributors and wholesalers. A solution is needed to help Amazon gather the order and bundle it. This way, the order looks uniform to the consumer – not as if it came from more than one source. When consumers open their order, they should have no reason to believe Amazon didn't assemble it.

"The best way for VARs and systems integrators to survive the increasing popularity of shopping via the Internet is to develop skills pertaining to the needs of these super middlemen," Welty said. "These middlemen are working in uncharted territory and need to maintain high-powered solutions."

AllPoints Systems survives by giving its customers the capability of providing better customer service than competitors. "Complex solutions are needed to provide the capability needed for shipping," Welty explained. "Our job is to get the orders, feed into the supply chain, and then to gather all of the components of the order to be packaged and shipped to the customer." "Some companies are outsourcing this whole order fulfillment," he continued. "Warehouses are being established to receive orders from the Web and make the products appear as if they were shipped by a large retailer like Sears or JCPenney. We have provided some great solutions that are able to support this kind of activity."

The Technology Behind The Scenes
While AllPoints Systems' solutions are transaction-oriented, there are technologies besides software and the Internet that get results. "We provide different technologies that improve the speed at which these transactions occur," said Welty. "We use computer and database technology, but we also use wireless handheld computers, voice-recognition software and batch-collection devices. The hardware includes infrared, radio frequency (RF) and fiber-optic technology." "Wireless technology is a big part of what we do," Welty continued, "because our customers can't always bring the work to where they are. They need the flexibility in a warehouse or mobile work setting to bring the technology to the work."

"We also use handheld computers to track products through the supply chain and the demand chain," he explained. "For example, certain pharmaceuticals, like vaccines and serums, are susceptible to temperature changes. We can use a radio frequency identification (RF/ID) tag coupled with an electronic thermometer to record the temperature of pharmaceuticals at various intervals. RF/ID allows information to be written to and extracted from the tags regardless of where they are placed on the package or carton. The tags are attached to the case and collect temperature history as the units move through the supply chain. We use Psion Workabout handheld devices to program the RF/ID tags and capture data from these thermometers. Then, we transmit the information over the Internet to the vendors so they know that the pharmaceuticals were shipped to the customers within tolerance."

The Big Picture
AllPoints Systems has been riding the technology wave instead of scrambling to get on board. "We are fortunate that we realized the importance of the Internet as early as we did," he admits. "The big decisions regarding the Internet are the same for all of us. We must understand what this technology means and reshape our companies so they can handle the demands of our customers. The Internet makes it easy to find channels that are tailored to specific tastes. The ultimate winner is going to be the company that figures out how to consistently provide the consumers with what they want, the way they want it."