CASE STUDY 9 HAGEN STYLE Nigel Slack Hagen Style' was one of the most successful direct marketing companies in North America, selling kitchen equipment, tableware, containers, small gadgets, salad bowls, and so on. Founded around 40 years ago as a manufacturer of plastic kitchenware, it originally sold its products through department stores. However, soon it had evolved into a pioneering direct marketing operation, which sold its products (only about half of which were now manufactured by itself) through a network of local representatives. Working from home, they were recruited to service a geographic area, usually within a one-hour drive. In total, the company had almost 10,000 representatives, although only around 70 per cent of them were 'active'. Representatives would sell from door-to- door or at places of work, community centres, clubs and so on, and consolidate their orders on a weekly basis. Hagen would receive their orders, pack and dispatch them so that the representatives could deliver to their customers in less than one week. Most representatives still mailed their order to Hagen using pre-printed forms and pre-paid envelopes, some faxed their orders and a growing number posted their consolidated orders by internet. Whereas many representatives now used the internet to place orders, most of their customers were not amongst those who would have access to, or be com- fortable using, this way of placing orders. Most of Hagen Style's products were 'value' items of reasonable quality, with standard rather than innovative design. Orders were received at one of Hagen Style's two distribution centres (staggered through the week so as to smooth demand on the centres). Both centres, one in Atlanta near the company's head office, the other, in New Jersey, used the same processes, perfected over many years. First, the representatives' orders were keyed in to the com- pany's information system (or checked if they came through the internet; mistakes by representative were still common using this medium). This information was fed down to the warehouse where each representative's order (usually containing 20 to 50 individual items) was packed. Much of the packing process was standardised and auto- matic. A standard-sized box was automatically loaded on a moving belt conveyor and, as it proceeded down the belt, automatic dispensers, each loaded with one of the higher selling products, deposited items in the box. At the end of the belt, if an order was complete, as around 45 per cent were, the box would be automatically check weighed (to ensure that no items had missed the box), the delivery note inserted, filler put in the box to prevent damage in transit, sealed and addressed. Those boxes which needed additional items packing (usually these were less popular or large items which would not fit the automatic dispensers) were automatically routed onto a manual line where operators would complete the packing process. At the end of the packing lines were the loading bays where boxes would be loaded onto the trucks for their journey to the representatives. The packing sequence fed down to the warehouse was calculated so as to ensure that all boxes for a certain area arrived at the correct loading bay just in time for dispatch on the correct truck. CASE STUDY 9 HAGEN STYLE 415 Jed Mayer, Hagen Style's vice president of distribution, was proud of his distribu- tion centres. 'It is no exaggeration to say that we run one of the slickest order fulfillment operations in the world. Years of investment and improvement have gone into perfecting it. Certainly, industry benchmarking studies show that we are significantly superior to similar operations. We have lower costs per order, far fewer packing errors, and faster throughput times from order receipt to dispatch. Our information system, transportation and warehouse people have together created a great system. Our main problem is that the operation was designed for high volumes, but the direct marketing business using representatives is, in general, on a slow but steady decline. Jed's anxiety over future business was shared by all the company's management. Direct selling using door-to-door representatives was increasingly regarded as an old- fashioned market channel. Traditional customers were moving towards using cata- logues, TV shopping channels, or just buying from supermarkets and discount stores, most of which now stocked the type of products in which Hagen Style specialised. Recently, even Hagen Style, bowing to the inevitable, had started selling a limited range of its products through selected discount stores and was planning to sell through a catalogue operation. It reckoned that it could maintain, or even improve, its product margins selling through these channels. The company reckoned that around 35 per cent of its business would be distributed this way within five years. The problem was, 'how to distribute their products through these new channels? Should they modify their existing fulfillment operation or subcontract the business to specialist carriers? And what would happen to their distribution centres?' This posed a problem for Jed. 'Although our system is great at what it does, the downside is that it would find it difficult to cope with very different types of onder. Moving into the catalogue business will mean dealing with a far greater mumber of individual customers, each of whom will place relatively small orders for one or two items. Our IT systems, packing lines, and dispatch arrangements are not designed to cope with that kind of onder. FedEx or UPS would be great at that kind of delivery, but we couldn't do it with our existing operations. We would have the opposite problem delivering to discount stores. There, relatively few customers would place large orders for a relatively narrow range of products. That is the type of job for a conventional distribution company, of whom there are many who would just love to provide us with their services. So, basi- cally, we just can't service either of the new market channels from our existing operations. We either invest in new distribution operations, which would be expensive and we don't have the right experience, or we subcontract these activities. As far as I am concerned, it would be better to con- centrate on what we know. For example, I have been talking with Lafage Cosmetics who sell their products in a very similar way to our traditional business. They have always been envious of our fulfillment operation and have indicated that they would be willing to subcontract most of their order fulfillment to us. Also, as our own traditional representative-based business declines, we will have the capacity to move their volume over to our centres. I am sure we could still get profitable business by utilising our distribution skills for the substantial number of companies who still need our kind of service. It's either that, or give up on distribution entirely and subcontract everything."