BUS303: Strategic Information Technology

Tech also lies at the heart of the warehouse operations that deliver customer satisfaction and enhance brand value. As mentioned earlier, brand is built through customer experience, and a critical component of customer experience is for subscribers to get their DVDs as quickly as possible. In order to do this, Netflix has blanketed the country with a network of fifty-eight ultrahigh-tech distribution centers that collectively handle in excess of 1.8 million DVDs a day. These distribution centers are purposely located within driving distance of 119 U.S. Postal Service (U.S.P.S.) processing and distribution facilities.

By 4:00 a.m. each weekday, Netflix trucks collect the day's DVD shipments from these U.S.P.S. hubs and returns the DVDs to the nearest Netflix center. DVDs are fed into custom-built sorters that handle disc volume on the way in and the way out. That same machine fires off an e-mail as soon as it detects your DVD was safely returned (now rate it for Cinematch). Most DVDs never hit the restocking shelves. Scanners pick out incoming titles that are destined for other users and place these titles into a sorted outbound pile with a new, appropriately addressed red envelope. Netflix not only helps out the postal service by picking up and dropping off the DVDs at its hubs, it presorts all outgoing mail for faster delivery. This extra effort has a payoff - Netflix gets the lowest possible postal rates for first-class mail delivery. And despite the high level of automation, 100 percent of all discs are inspected by hand so that cracked ones can be replaced, and dirty ones given a wipe down.B. McCarthy, "Netflix, Inc". Total in and out turnaround time for a typical Netflix DVD is just eight hours!

First-class mail takes only one day to be delivered within a fifty-mile radius, so the warehouse network allows Netflix to service over 97 percent of its customer base within a two-day window - one day is allotted for receipt; early the next morning the next item in their queue is processed; and the new title arrives at the customer's address by that afternoon. And in 2009, the firm added Saturday processing. All this means a customer with the firm's most popular "three disc at a time" plan could watch a movie a day and never be without a fresh title.

Warehouse processes don't exist in a vacuum; they are linked to Cinematch to offer the firm additional operational advantages. The software recommends movies that are likely to be in stock so users aren't frustrated by a wait.

Everyone on staff is expected to have an eye on improving the firm's processes. Every warehouse worker gets a free DVD player and Netflix subscription so that they understand the service from the customer's perspective and can provide suggestions for improvement. Quality management features are built into systems supporting nearly every process at the firm, allowing Netflix to monitor and record the circumstances surrounding any failures. When an error occurs, a tiger team of quality improvement personnel swoops in to figure out how to prevent any problems from recurring. Each phone call is a cost, not a revenue enhancement, and each error increases the chance that a dissatisfied customer will bolt for a rival.

By paying attention to process improvements and designing technology to smooth operations, Netflix has slashed the number of customer representatives even as subscriptions ballooned. In the early days, when the firm had one hundred and fifteen thousand customers, Netflix had one hundred phone support reps. By the time the customer base had grown thirtyfold, errors had been reduced to so that only forty-three reps were needed. Even more impressive, because of the firm's effective use of technology to drive the firm's operations, fulfillment costs as a percentage of revenue have actually dropped even though postal rates have increased and Netflix has cut prices.