January 31, 2001, 11:24 AM

When it absolutely, positively has to be there, e-retailers turn to outsourcing

(Page 2 of 2)

Fulfillment for e-retailers can be so complex that even highly experienced real-world merchants turn to e-fulfillment companies. For instance, BlueLight.com, K mart Corp.’s online store, uses Columbus, Ohio-based SubmitOrder, which also counts Zany Brainy as a client. Bluelight.com uses SubmitOrder for fulfillment because its K mart offline distribution chain is not equipped to fill web orders. Launched in May 1999, SubmitOrder has an automated distribution center in Memphis, Tenn., and three in Columbus, that have more than 1 million square feet. The company says it can receive merchandise from suppliers and be ready to ship products within 24 hours. “Most click-and-mortar companies want to be brand leaders. To do that they need to outsource fulfillment rather than trying to invest millions in their own fulfillment facilities. It’s not their core competency, it’s ours,” says J.T. Kraeger, president.

One thing that sets many e-fulfillment companies apart from old-line warehouse managers is the focus on Internet time that many have adopted. “It’s all about real-time demand and execution, while traditional retail distribution is about planned activities,” says Chris Sang, chairman and CEO of 1-year-old, iFulfillment.com of Chicago. “The Internet is about no-cycle time-every day is different.” Clients of iFulfillment.com, which owns a 350,000-square-foot warehouse, include NordstromShoes.com, Boutique Jewels and Golden Books. Nordstrom, which uses iFulfillment to handle its fast-moving shoe inventory, says it chose iFulfillment because its system integrated easily with Nordstrom and because it allowed the retailer to maintain strict control over fulfillment and in dealing with customers.

An emerging approach in e-fulfillment comes from the delivery space. Delivery companies like UPS and Federal Express can link fulfillment services with their delivery capacity, Bunn says. UPS, which has worked with Nike.com for almost two years, in September launched an e-logistics division that offers a plug-and-play e-fulfillment system. UPS’ e-logistics division has five clients operational, says Tim Zach, director of marketing, although he won’t identify them because they are in a “soft launch” mode. UPS handles all the back-end processing-inventory management, order fulfillment, customer service including a call center support service and return services-as well as shipping and transportation management.

Clearly, players like UPS will leverage their delivery capabilities to drive down transportation costs. The e-logistics division has distribution centers in Louisville, Ky., and Ontario, Calif., both of which are near UPS delivery hubs. “We have aggressive plans to build out our infrastructure with Southwest and Northeast distribution facilities as well as six more centers in the U.S. by the end of 2001,” Zach says. UPS believes that its strength in delivery and shipping will help it offer advanced services to retailers, such as advanced shipping notifications, in which retail clients can be notified when new inventory is on its way to the UPS-run warehouses.

All these e-fulfillment players have snagged at least one if not many high profile clients, evidence that no model has yet emerged the winner. “At this point, there is still opportunity for a variety of online fulfillment players because retailers are still figuring out the optimal outsourcing options,” says Julie Breen, e-commerce research analyst at Toronto-based Boston Consulting Group.

It could also be that online retailers have yet to figure out the right business plan. “Some companies have not done the right analysis to predict their fulfillment needs,” Maness says. If any proof of that is required, Maness points to 1999’s holiday delivery debacle, which put major online retailers such as ToysRus, CDNow and others in hot water with the Federal Trade Commission as well as with online shoppers.

Retailers that remain online and profitable will likely have efficient fulfillment systems to thank for it, Maness says. What form those services will take is still questionable. But Maness feels sure about one thing: A dominant method will emerge as the sheer number of providers will cause a shakeout here-just like everywhere else on the Internet.

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