January 3, 2005, 12:00 AM

It’s a web services world—in fulfillment

New technology and a deeper understanding of the far-reaching role of order fulfillment is transforming the pick, pack and ship operation.

At home gear retailer Linens ‘n Things, vice president of guest services and Internet operations Kathy Kimple pays attention to conventional fulfillment metrics such as speed to order. But she also takes the pulse of online fulfillment operations with a regular check on customer e-mails. On an early December day as the holiday shopping season started picking up steam, she was thrilled to see messages weren’t about late or lost orders.

“Instead, they were messages about things like, ‘Do you have cat picture frames,’ or ‘Do you have any more Razor scooters,?’” she says. “That’s the kind of e-mail I want to see at that time of year, not, ‘Where is my order?’”

The basic ingredient

Happy customers are a basic ingredient of retail success, but the fulfillment process that helps retailers create those is now anything but basic. In an evolution from the web’s very earliest days when pioneer retailers processed online orders manually, online fulfillment operations are based on a whole new level of science and technology, borrowing from and expanding on that developed for catalog fulfillment.

At outsource fulfillment provider Progressive Distribution Services Inc., for example, systems combine forward-looking information with historic and client information to generate warehouse forecasts as far as 12 months in advance. What that means for the retailers for whom it manages inventory is the critical metric of put-away time-time elapsed from when an item arrives on Progressive’s warehouse dock to when it’s inventoried and available for online sale-is half of what is used to be. “If we know that next month we are going to need a certain amount of linear shelving to handle what’s coming in, we can reconfigure in advance to fit. If clerks have to walk around trying to find available slots, man hours go up and throughput goes down,” says CEO and president John McGovern.

That’s functionality that can impact online sales from deep in the warehouse. But the customer-facing side of fulfillment is feeling the effects of technology development as well. At Yantra Corp., a service-level agreement with one client, a consumer electronics retailer, required that the fulfillment services provider deliver a click-to-release time of no more than 15 minutes per order. That covered the time elapsed from when a customer clicked to buy an item online until warehouse staff had a ticket to pick and pack the order. Yantra’s integrated platform was able to shave the 15 minutes to an average of 7.

Such improvements are being helped along by a move toward web services-based IT infrastructure that’s penetrating deep into the supply chain and reaching more broadly across a wider range of functions and customer touch points. It’s the latest evolution in information technology that’s progressed from “mainframe computers to mini-computers to client servers to the web-based era,” says Mike Grandinetti, senior vice president and chief marketing officer of Yantra.

In the past, new applications were tied to the systems for which they were developed and their integration into retail IT infrastructure required a lot of time-consuming, expensive custom coding. But web-based architecture allows the packaging of web applications as services that can be rapidly developed by fulfillment providers in response to retailers’ needs, and used across a variety of legacy systems retailers already have in place. It means retailers on such platforms don’t have to do custom coding or re-code what they already have in place to introduce a new service.

And that’s opened up new possibilities for improving fulfillment, as providers use the new flexibility to create new services. When Linens ‘n Things decided last year after outsourcing fulfillment operations to GSI Commerce in 2002 that it wanted to add store pickup of online orders, that service feature didn’t exist on its base platform with GSI. But GSI was able to create it on Linens ‘n Things’ platform, allowing the retailer to roll it out to shoppers quickly. “They had the infrastructure and the data system that allows us to build that, because it didn’t have to be manually built,” says Kimple.

Not glamorous, but compelling

“Web services recognizes the dynamic nature of the world we live in today,” says Grandinetti. The alternative to web services on newer web-based, fully integrated platforms has most often been a several-month software implementation schedule.

Fulfillment hasn’t been the glamorous side of online retail, as even fulfillment providers will grant. “If you’re going to be in this space, there are certain things you need to have to be a viable provider. Conveyer belts, sorting devices-they’re nothing new or exciting,” says Don Murphy, GSI Commerce vice president of supply chain solutions. What is compelling, however, is what web-based technology on an integrated platform can now make equipment do to improve the fulfillment process. “It’s almost to the point where if you can envision it, you can design it,” Murphy says.

Online retailers and their fulfillment providers are measuring those improvements in the speed of order delivery, decreased operational costs, and higher sales-and even in better online security. Progressive Distribution’s order management system this year added the ability to support CVV2 codes as part of the online order process, for example. The unique 3-digit codes, which appear on the reverse side of credit cards, are never printed on receipts. Validating the codes as part of the order helps ensure that the customer placing the order has the card in hand and is not using a card number lifted off a restaurant or service station ticket. McGovern says adding this functionality to Progressive’s fulfillment platform has helped reduce bad debt from fraudulent online orders by 50% among retailer clients over the past 12 months.

Aiding in shrinking those fraud-related costs was Progressive’s switch to real-time credit card processing that is also immediately available to call center agents. Real-time processing also boosted fulfillment performance by allowing Progressive to release about 30% more orders to its warehouse for same-day shipment. “We can go later in the day, and still get back the information we require for fraud checks in time,” McGovern says.

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