Supply chain managers try to eliminate their weakest links

Supply chain managers try to eliminate their weakest links

Metapack's challenges

1. To sell contracts for e-commerce solutions at a time when companies are wary of online business

2. To develop financial models that show how sales can be
boosted by better online order fulfilment
3. To decide whether to work for conventional retailers as well as online operators

LIKE many entrepreneurs, Michael Hall developed the idea for his business out of frustration.

He was an early e-shopper, buying books and computer equipment over the internet. But the delivery service always let him down.

Once his credit card was charged $250 for a printer that was out of stock. Book shipments were regularly incomplete. And a Christmas tree ordered in December arrived on January 15.

"It was clear to me that these companies were losing money on every order," says Hall. "It had to be possible to do a better job of delivery."

Hall left his job at Deutsche Bank, where he had been made a director at 32. He teamed up with Patrick Wall, a former consultant at McKinsey, and in the autumn of 1999 they founded Metapack, a company offering supply-chain management for online retailers.

The two men, who are joint managing directors of the firm, raised £6.7m from a variety of investors including WPP, the media and advertising group, and Cazenove Private Equity. They started work from an incubator office run by the high-tech investor Brainspark in Clerkenwell, London.

Business got off to a flying start in June last year when the company landed its first contract with Boots, the high-street chemist. Boots was launching an £18m joint venture with Granada. The project was Wellbeing, a television channel and website on health and beauty, selling products from 70 suppliers.

Boots knew it could not risk damaging its brand by failing to deliver to customers accurately and on time and wanted to outsource the operation.

"We shared the same long-term vision about how critical good fulfilment was to customer service," says Hall, who won the contract despite competition from several large consultancies and logistics firms.

The Boots deal, together with other smaller contracts, helped Metapack achieve sales of £2m in its first year, ending March 2001. This year it expects to break even on sales of between £4m and £6m.

But the company, which has 50 staff, now has to compete in a very different economic environment.

The collapse in dotcom valuations and the shortage of ready cash for big e-commerce projects means Metapack faces a much harder sell.

"Two years ago if you couldn't tell the City you had an online presence you were nowhere," says Wall.

"Now bricks-and-mortar companies feel less pressure from dotcoms snapping at their heels. Any spending on e-commerce has to be well justified."

At about £1m per contract, the Metapack solution does not come cheap.

For this sum the company will design and manage an online supply chain – integrating customer orders, warehouse management, call-centre activity and parcel delivery – to ensure orders are accurate and arrive on time.

The customer gets access to an inventory list showing what products are in stock and a clear commitment about delivery times and prices.

Hall believes that effective supply-chain management can save companies a fortune.

Gartner, the consultancy group, estimates the cost of dealing with a returned product is up to seven times that of a successful delivery. Since most e-tailers rely on customers making several purchases to recoup the high costs of acquiring customers, it is in their interests to prevent attrition.

"Jeff Bezos of Amazon has said he aims to spend 70% of his IT budget on back-office systems, not the glitzy front end," says Hall. "Our challenge is to convince clients that instead of blowing £5m for a spot on the Superbowl, they need to spend perhaps £4m on advertising and £1m on fulfilment to make sure the customer has a good experience of delivery and comes back."

But Metapack is still in a tricky position when it makes a sales pitch to prospective customers. The Boots Wellbeing site went live on March 14 this year and Hall believes it will only have enough data to make a meaningful case study after six months. In the meantime, the company has to sell without a proven track record.

The harsher economic climate has forced the company to review its sales strategies. "Business school teaches you to design a marketing strategy, but not how to close a sale," says Wall.

"In our industry, you have to convince customers to trust you with something that might make or break their business."

Metapack's sales pitches initially targeted the logistics directors of large companies.

For example, last October it spent £15,000 taking a group of logistics directors on a round trip from Southampton to the Channel Islands aboard the luxury cruise ship Oriana. While the exercise produced a fistful of hot leads, none resulted in a sale.

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Ready to save the reputation of online retailers: Michael Hall and Patrick Wall offer a complete solution for logistics but, with contracts costing £1m, they have struggled to strike deals

The experience made Wall and Hall realise they had to do things differently.

"Logistics is traditionally seen as a cost centre," says Hall. "The challenge each year is to strip out costs. But if you deliver direct from the warehouse, any mistake you make is immediately apparent to the customer. In the new economy, logistics reaches into the heart of customer service."

As a result, logistics directors may need to consult the heads of customer services and technology before buying a new e-fulfilment system.

With Metapack's solutions carrying a £1m price tag, board authorisation is often necessary and the company realised it needed to aim for a wider spread of decision-makers in each firm.

Acknowledging that they had plenty to learn, the duo hired a new head of sales, Julie Haworth, who had broad experience of selling high-value systems for IBM.

She has already transformed sales pitches to make sure Hall and Wall not only give slick Powerpoint presentations but also talk to potential clients and listen to their concerns.

In addition, new software enables them to track every sales contact. They try to liaise with people in different parts of target companies, using their personal networks and those of their investors and suppliers. They have regular meetings to review the progress of each sales prospect.

Metapack is also developing support materials to help managers justify e-commerce spending to their boards.

For example, a financial model has been built for a large property company to show how improved ordering and delivery systems will cut costs.

In another case, Metapack has sent some members of its own team into the logistics department of an electrical-goods retailer to familiarise themselves with how its supply chain works.

The company must now decide if it should continue to target its niche market or if it should diversify into supply-chain management for conventional retail businesses.

Two potential customers have suggested features such as stock visibility and stock tracking would apply to their entire supply chain and have asked for company-wide solutions.

But Hall and Wall say they must be careful not to get sucked into new areas of business by reacting to one or two big clients.

While such diversification is attractive because greater sales make it easier to prove a return on investment, it also carries a number of risks.

"We operate in a niche, but one that is growing fast," says Hall. "If we land another two big clients we could become the industry standard and growth would be rapid indeed. It might be a mistake to dilute our focus by diversifying across too broad a range of activity. A small firm should have a clear identity."