March 31, 2003, 12:00 AM

SPONSORED SUPPLEMENT: Here Come Retailing’s Fulfillment Giants

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Yantra offers software that ties inventory across brands and across channels, Yellurkar says. The company spent four years building out its business process-centric software that offers a web-based set of applications to manage an order all the way through the supply chain, he reports. “The first thing our large customers talk about is channel integration,” he says. “Our solution solves the entire continuum so retailers can manage seamlessly across all brands.”

Yantra counts among its 40+ customers Best Buy Co. Inc., with its multiple brands including Sam Goody, Future Shop and Suncoast; multi-brand Target Corp., which owns Target, Marshall Field’s and Mervyn’s; and the U.K.-based Kingfisher plc. It also provides software to such third-party fulfillment customers as NewRoads Inc. and Innotrac Corp. “We are seeing a definite interest in our product as a strategic play,” Yellurkar says. “It’s not a Band-Aid approach. It’s a very strong growth engine.”

But also driving demand on the fulfillment front is a concern with the costs of building inventories and shipping orders. Especially as retail sales move to the web, retailers are finding that the cost of inventorying and shipping merchandise can add expenses to their structure that could make them less competitive.

Thus some turn to outsourcers who help them manage drop-ship relationships with vendors or who inventory and ship product for the retailer, or do both. Donnelley’s Merchandise Management Services Division is one such provider. “Companies are moving toward outsourcing, working with third party logistics companies to drive efficiencies,” Olds says. “That allows them to move their focus from internal efficiencies to overall supply chain effectiveness.”

Moving in bulk

Donnelley’s Merchandise Management Services warehouses inventory in 24 processing facilities around the country that are part of Donnelley’s retailer services, including not just order fulfillment but also fulfillment of collateral materials and shipping. Typically, Merchandise Management Services will stock a fast moving product for a retailer and ship it to customers from one of those centers. With its network, Donnelley is able to stock products near the largest demand. So, for instance, if a product is selling particularly well in the Southwest and the Northeast, it can house inventory in facilities serving those areas.

That approach not only puts the purchase in the customer’s’ hands faster, but it also reduces shipping costs, which in turn gives the retailer the ability to charge a lower price, Olds says. Shipping costs are calculated by zone and by having products closer to the recipient’s zone-something that most retailers would be hard-pressed to achieve on their own-the shipping costs are lower. “It’s always cheaper to move inventory in bulk than in eaches,” Olds says. Merchandise Management Services also provides such services to other third-party fulfillment companies.

Merchandise Management Services also offers a drop-ship service, which links retailers to manufacturers who ship products on the retailer’s behalf. Under that service, Merchandise Management Services receives all the orders that a retailer wants to drop ship, sorts them by manufacturer and forwards them to the vendors. It also has built into the service automatic monitoring to ensure that the manufacturer is fulfilling orders under the terms of the contract with the retailer. “The biggest issue in drop shipping is control and visibility,” Olds says. “A successful drop ship program boils down to information flow.”

Centerpiece of CRM

Order fulfillment has become such an important part of the customer relationship process-”Fulfillment should be the centerpiece of CRM,” says AMR’s Johnson-that some outsourcers are finding themselves offering more and more services all related to the order. Progressive Distribution, for instance, offers, in addition to warehousing inventory and fulfilling orders, credit card processing, customer support and service through a call center staff of 35 that it expects to double this year, through its OrderLink product. It even offers web hosting and an in-house production studio. Its customers include Steve Madden Ltd., Chiasso Inc. and ECKO.com. “From a customer standpoint, offering all those services creates enormous convenience,” McGovern says.

Flexibility

On the fulfillment side, Progressive can deal with orders based on clients’ business rules, fulfilling certain orders and re-routing others, such as high-value orders that a customer may want to fulfill itself, to a different fulfillment system. It’s all part of the increasing complexity that online and multi-channel retailing presents. “We’ve seen a very marked recognition by retailers of the ability to accelerate their businesses by outsourcing more of the infrastructure,” McGovern says.

Progressive offers its services on a custom-built platform in which it has invested 40,000 staff hours of development since 1984, McGovern says. It chose development over buying because it did not find any products in 1984 that it felt would allow it the flexibility to change as the market changed. “This has allowed us to evolve with the marketplace, to react to clients’ requests for features and functionality,” he says.

Flexibility can be a valuable differentiator for retailers, AMR’s Johnson says. “Most companies talk about what’s good for themselves in terms of efficiencies and inventory reduction. But they should be talking about what the customer needs,” he says. “Letting customers define the fulfillment process is what defines leadership.”

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