October 31, 2001, 12:00 AM

COVER: Using Fulfillment to Stand Out

Online retailers trying to differentiate themselves have found a new way of standing out: fulfillment. Once a lowly operations function, fulfillment is now a tactic in the battle for consumer loyalty. Merchants say 1st class fulfillment is worth it.

Online retailers who are trying to differentiate themselves have suddenly found a new means of standing out: fulfillment. Once a lowly operations function that took a back seat to marketing and web-site presentation, fulfillment is today one of the strategic tools that retailers are using to make themselves special to their customers.

“The warehouse is the last point where we see the package before it goes into the hands of a gift recipient or customer and we want to blow their socks off with the product as well as the packaging,” says Christopher Cunningham, acting COO of online gift retailer RedEnvelope.com, a leader in stand-out packaging. “It’s about doing simple things very well, repeatedly.”

Retailers used to think of fulfillment as a simple pick, pack and ship operation. But increased competition online, a softening economy that is intensifying the battle for customer dollars and the urgent need to make a good impression this holiday shopping season have made first-class fulfillment a key part of a successful online retailing strategy. “We are seeing an increase in the customized fulfillment business because retailers are looking to differentiate themselves online,” says Pete Rector, senior vice president of strategic initiatives at Pittsburgh-based Genco Distribution System, an outsource fulfillment provider.

And apart from making web customers happy, the quality of a retailer’s online fulfillment system has ripple effects throughout an organization. “Consumers do not see the difference between the web site and the store and that means the brand is exposed,” says Donny Askin, CEO of Natick, Mass.-based CommercialWare Inc., which provides software to retailers who want to perform fulfillment in-house. “We’re able to handle fulfillment in a real-time fashion and we can help retailers turn orders around in 24 to 48 hours.”

Instead of following a single fulfillment strategy, retailers today are tailoring their own solutions based on their market focus and how much control they want over the process. Strategies range from fulfilling all orders in-house as a means of maintaining brand control, to outsourcing fulfillment and focusing on marketing and sales, to a hybrid of the two that might combine outsourcing of routine products and fulfilling special orders in-house. Whichever approach they choose, though, many are making sure that it allows them to perform fulfillment in such a way that they stand out from the crowd.

It’s evolving

Though retailers devised their fulfillment strategies when they launched their e-commerce operations, they are learning that, just like everything else in the still-evolving arena of online retailing, they need to scrutinize fulfillment strategies constantly. Now, after several years of online selling experience, retailers are learning what works and what else they need to do to make fulfillment shine and keep customers coming back. “It’s really about synchronizing the whole fulfillment process,” says Frank di Maria, president and CEO of APL Direct Logistics, Jacksonville, Fla.

Customized fulfillment has become a growth area. From special monogramming to handwritten gift cards, as well as the software that keeps track of such requests, retailers are managing more of the fulfillment process than ever before, as customers who become accustomed to the web demand greater flexibility and better service-all delivered to their doorstep in a timely fashion.

And as demands for customization have increased, outsourced fulfillment vendors have come to understand that they too must change their operations if they are to succeed. As a result, many are offering services that go beyond simple pick, pack and ship. “It’s a big trend now for us to do more than warehouse, pick, pack and ship,” di Maria says. “To provide more products online retailers are having to go to more obscure suppliers and they need someone to not only manage the goods coming from that supplier so they can keep track of inventory, but they also need packing lists and quality control.”

As a result, retailers who want more than simple fulfillment are having to manage different suppliers to get the variety of fulfillment options for various customers. “Retail customers want more than just warehouse capabilities from a vendor,” says di Maria. “It’s becoming more about managing outside the four walls.” He cites an example of managing a direct supplier for a retailer: “Some retailers may not want to warehouse all their products. If they need a product from a small custom supplier, such as a wreath maker, the retailer will need some way to make sure that the supplier is providing the right product and the right packing lists that are then sent from the supplier direct to the consumer. Vendors now are getting involved in doing this.”

Retailers who are big enough to have their own in-house fulfillment centers typically have experience in the catalog business, as is the case for Jos. A. Bank Clothiers Inc., a Hampstead, Md.-based multi-channel retailer that has been selling on the web since August 1998. The retailer, which used CommercialWare software to manage its catalog business, turned to the vendor for its new e-commerce product when it moved from a manual process to operating an in-house automated e-commerce software system in August 2000. That system integrates order management, warehouse and fulfillment systems and allows the company to see which items are in stock and to find delivery dates, says Dave Ullman, Jos. A. Bank’s CFO.

Before Jos. A Bank adopted the CommericalWare software, it used a third-party fulfillment vendor while it built up its online business. The main problem, says Gary Merry, CIO, was customer service. “We weren’t giving our customers the speed they wanted,” he says. “In our business, customer service is very important and we need to be able to control that.” The problem was that the vendor was using a manual system to process orders, which meant that merchandise didn’t go out until the day after it was ordered. Partly for control reasons and partly to make sure it could make changes quickly, Bank took the process in-house. Today, it operates a fully automated system that allows it to ship on the same day orders that come in before noon.

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