Elegant Simplicity
Netflix partners with the USPS to deliver pertinent content, next-day, virtually anywhere in the U.S.
By George Linkletter, OutputLinks
If you ever get a chance to tour a Netflix distribution facility, you may well come away with a ‘glass-is-half-full’ kind of feeling --- a sense that the firm’s approach represents a huge amount of unrealized potential.
Not on the part of Netflix -- because the firm is phenomenally successful --- but on the part of others who are not replicating the Netflix model.
The 10-year-old company has taken a simple concept --- distributing movie DVDs via the U.S. Postal Service – and created a hugely successful, $1 billion a year Internet-based business. The firm did it by marrying the USPS benefits of universal service and next-day delivery with what every postal consumer wants: pertinent content.
But it makes you wonder: aren’t there other businesses that could partner with the USPS to achieve a similar level of success?
Netflix serves roughly one in every 11 households in the U.S. In some areas its penetration reaches 20 percent of households. Nationwide it distributes 2.2 million DVDs every day. And it is successful because it consistently delivers on its promise: fast delivery of pertinent content, in the form of the DVDs requested by subscribers. It wasn’t always so.
Initially, the firm operated a single distribution facility, in northern California, which served customers regardless of where they lived. Managers reviewing reports on customer satisfaction discovered that customers who lived closest to the distribution facility, and received their requested DVDs the soonest, had the highest level of satisfaction.
A single, large distribution facility is more efficient and less costly to operate than a network of dispersed sites. But it also results in slower receipt of DVDs due to the time required for delivery via the USPS across the U.S.
Faster Delivery
To speed delivery, the firm embarked on an ambitious expansion effort, first in Santa Ana, CA, then on to Gaithersburg, MD, Worchester, MA, Newark, NJ and other locations. Today the firm operates nearly 60 distribution facilities, scattered across the nation, like the one I toured near Hartford, Connecticut. And it now achieves next-day delivery for 97 percent of shipments. (Some rural areas of the country just don’t have sufficient population density to enable next-day delivery.)
Consequently, each of the nearly 60 dispersed distribution sites is relatively small, and hardly high-tech. The one I visited consisted of about 20,000 sq. ft. (with plenty of space to spare) employed about 50 full and part-time workers, and easily kept up with the volume, even on a Tuesday morning, which is a peak return day due to weekend viewings. The Hartford-area facility is just over a year old and was the 55th to open. It serves subscribers throughout CT, and some in eastern NY, southern MA, and RI as well.
The Netflix workday starts at about 3:00 a.m. That’s when a pair of unmarked, white trucks picks up the day’s supply of returned DVDs, usually around 90,000, from the nearby USPS Distribution and Processing Center.
Netflix makes a point of keeping its processing facility under the radar to “eliminate confusion on the part of members who may see the distribution site and want to drop-off or pick-up movies,” says Steve Swasey, my guide and a spokesman for the firm.
Indeed, avoiding distractions of any kind is a top priority since distractions can trigger mismatched orders. The interior is decorated with a few movie posters, but the overall look is hardly retail-oriented. The interior signage stresses speed and accuracy.
The majority of workers wear red T-shirts with a modest Netflix logo. They sit at a simple desk-style workstation and begin their day shortly after 3:00 a.m. They manually open each of the distinctive red envelopes (which are eventually recycled) and visually inspect the DVD to verify that each disk is undamaged and in the proper sleeve. DVDs with labels or sleeves that are worn or damaged are placed in a new sleeve outfitted with a fresh laser-printed label.
E-Mail Messaging
After the DVD is inspected, it is scanned at high speed, which triggers an automated e-mail message, alerting the member that the DVD has arrived in good shape and that the next DVD on order will soon be shipped. The DVD is then scanned a second time to it match it up with whoever ordered the film next. (The sorter also handles and records employee time cards.)
The remainder of the work is mostly automated: inserting the outgoing DVDs into the outgoing envelopes, and then placing the DVDs on the high-speed sorter once again, so the DVDs can be arranged in ZIP Code order for more efficient handling by the USPS.
The entire process is usually completed by 5:00 p.m., when outgoing DVDs are trucked to the USPS DPS. It starts up again less than 12 hours later.
The scope of the Netflix operation is impressive: roughly 100,000 movie titles in inventory, nearly 90 million total DVDs, more than 2 billion movies shipped. In fact, the member who received the 2 billionth delivery also received a free lifetime membership. He promptly bought another membership for his parents, according to Swasey.
Netflix is also hoping to improve delivery to the home even more, by streaming movies directly to a PC, Mac, and TV, and by adding a sixth day of processing, on Saturday, to speed delivery via the USPS. The USPS financial woes may put a crimp in those Saturday plans.
Swasey acknowledges the long-term future for delivering movies to homes is likely to center on streaming. But he forecasts at least another five to ten years of solid growth for physical delivery of DVDs via the USPS before the trend line starts downward.
Comments? Contact georgelinkletter@charter.net.