In its second-largest acquisition, Amazon buys the company for $970 million.
Fulfillment means a lot more than just shipping packages.
Fulfillment has come a long way since the 1990s when newly online retailers learned-some the hard way-the importance of fulfillment. First there was the bad press about late and missed deliveries for holiday shopping 1999. Then in 2000, the Federal Trade Commission levied high-profile fines totaling
$1.5 million against retailers who had violated rules regarding timely shipment.
Today, timeliness is almost the least of the worries of online retailers. They have timeliness under control-the real challenge today is meeting customers’ demands. And as consumers buy more online, their expectations go in only one direction: up. Not only do they want their orders soon, they expect to be able to track their orders online, they expect notification if there’s a delay and they expect appealing presentation-especially on gifts-when the packages arrive.
As a result, many retailers have hired outsourced fulfillment operations, turning over to the experts the picking, packing, shipping and tracking of orders, and the accepting, processing and disposing of returns. And since many retailers are new to direct selling to consumers, they are happy to have someone else deal with the problems so they can avoid making huge warehouse, personnel and technology investments. “Although handing over control of order fulfillment to a third party seems counter-intuitive, most retailers probably lack the operational expertise to efficiently pick, pack and ship orders cost effectively,” says Geri Spieler, research director in Gartner Group Inc.’s Gartner G2 Retail Services Group. “Outsourcing your fulfillment operation lets you focus on your core competency: selling.”
Growing up in the non-EC era
The same shake-out that reduced the number of dot-com retailers also has reduced the number of fulfillment companies. That resulted in two conditions that will benefit retailers, observers say. The first is that the fulfillment vendors who are left tend to be the ones that have been around and thus have depth of expertise and great efficiencies. The second is there is an excess of warehouse space, Gartner says, which puts retailers in a positive negotiating position.
Many of the fulfillment companies that remain today stress their backgrounds in the pre-Internet era. “What makes us strong is that we have financial stability because we grew up in a traditional business environment,” says David Ellin, senior vice president of sales and marketing at Atlanta-based Innotrac Corp., which has acquired a number of fulfillment companies. “We were not developed for the electronic commerce industry, we were not backed by venture capitalists. We’re an 18-year-old company with a great record.”
In fact, Ellin says Innotrac eschews identification with the EC market. “A lot of people were calling electronic commerce an industry,” he says, “but we never called it an industry. We called it a sales channel. Product distribution through a web site is just another sales channel.”
In choosing a vendor, a retailer must make sure that the vendor’s culture and the retailer’s culture mesh and that the vendor’s services meet the needs and business objectives of the retailer. While that sounds obvious, it’s not as easy to figure out as it seems, Gartner says. “Every retailer has different needs so the importance of different services will vary,” Spieler says. She recommends ranking criteria on whether they are critical to success, nice to have or not important.
Among the criteria she recommends considering:
- Does the vendor provide other business services? If so which are important? For instance, does the retailer want the fulfillment vendor to be able to report inventory needs into a supply chain system? Does the retailer need the vendor to assemble kits?
- Does the vendor supply customer service? If it does, does it provide live telephone support, as well as e-mail and chat?
- Does the customer support center have samples of products on hand so if a customer calls with a problem, the rep can walk the customer through a solution?
- How much data, such as demographics, mailing history, re-shipping, order resolutions and so on can the vendor report?
- Does the vendor provide printing, mailing and bindery services for catalogs and literature?
- Does the vendor handle returns?
- Can the vendor’s fulfillment system tie into a retailer’s web site for automated processing of orders?
“When you evaluate a vendor, you have to ask very serious questions because you want to make sure your outsourcer will give your customers the same service you would give them,” Spieler says.
Indeed, the importance of serving customers as the retail organization itself would serve them cannot be overemphasized, Ellin says. “Companies spend hundreds of millions of dollars building their brands and their reputations; they don’t want to trust the brand to just anybody,” he says. Innotrac provides fulfillment services for such internationally known brands as Coca-Cola Co., Walt Disney Co., Nordstrom Inc., Bell South Corp. and Porsche Cars North America Inc. “We think of ourselves as brand stewards.”
Innotrac’s retailer fulfillment services are part of a broader range of services that the company provides. It started as a business that fulfilled premiums and literature requests. In the late 1980s and early 1990s, it became a major shipper of caller ID devices for Bell South, so much so that analysts began to think of the company as being part of the telecom industry. It then expanded to retail, providing direct-to-consumer fulfillment, as well as store replenishment services. Today, it provides a range of retail-related services, including operating a call center where the reps are trained in cross-selling and up-selling, handling returns, and even sourcing products and providing marketing services. “These are not typical services that a fulfillment company provides, but they are part of our core competency,” Ellin says.