March 31, 2006, 12:00 AM

An orderly process

The latest Internet Retailer Survey asks online merchants about their shipping and order management practices.

Web retailers know that online shoppers have short fuses and long memories if there is even a perception that the merchant has made a mistake in picking, packing and shipping their order.

If their order is processed and shipped in a timely manner, the customer thinks highly of the experience, bookmarks the site and returns in the future, usually with multiple items and bigger tickets in mind. But if a package arrives late or not at all shoppers are quick to contact the retailer with angry comments and cancellations.

Retailers certainly can`t avoid upsetting some customers and making occasional fulfillment mistakes. But the latest Internet Retailer Survey on E-Retailing—this one on shipping and order management operations—finds that retailers in general are doing a good job with fulfillment while at the same time running bigger and more complex order processing operations.

The survey also reveals that web merchants are taking less time to ship orders, prefer internal order fulfillment to drop shipping and view shipping fees as a profit center. For example, 77.3% of merchants say it costs them less than $8 to ship an order, including 27.3% with average shipping costs of below $4 and 9.1% with shipping costs under $2 per parcel. But 50% charge more than $8 to ship a single order, with 27.3% charging $10 or more.

The survey was e-mailed in early March to all subscribers of IRNewsLink, the magazine`s newsletter, and more than 220 responses were collected and analyzed using Internet survey technology by WebSurveyor, which has partnered with Internet Retailer in a series of monthly surveys of the e-retailing industry.

Keeping it in the family

The results show that web retailers like running their own operation, as opposed to outsourcing to a third-party, and integrating their fulfillment operation with their front-end e-commerce and order management systems. For example, only 31.8% of chain retailers, catalog companies, web-only merchants and consumer brand manufacturers taking part in the research outsource their fulfillment operations to a third-party versus 68.2% who keep order management, shipping and warehousing in-house. Unsurprisingly, the retailers with the most experience in direct selling outsource the least: 20% of catalogers and 12.5% of web-only merchants outsource fulfillment vs. 40% of chain retailers and 33% of consumer brand manufacturers.

But whether fulfillment is handled in-house or by a third-party, more retailers are placing a premium on systems integration. The survey found that 86.4% of web merchants have their order management system and fulfillment operation integrated with their customer service department, compared with 13.6% that don`t. 72.7% also have fulfillment systems that can track orders and inventory in real-time.

Web-enabled and real-time order management systems help retailers track stock levels. But the survey shows that a majority of web merchants only use real-time data internally—54.5% of merchants in the Internet Retailer survey say they still haven`t integrated their back-end systems and databases with tools that customers can use to track their order in real-time. A breakdown shows that only 40% of chain retailers and catalogers offer customers real-time order tracking tools versus 62.5% of web-only merchants.

A profit center

Overall, the survey finds that participating merchants operate highly diverse fulfillment operations. For example, 59.2% ship fewer than 100,000 orders per year, compared with 27.3% with order volume of 100,000 to 250,000 shipments, 4.5% with annual shipping levels of 251,000 to 500,000, 4.5% with annual volume of 501,000 to 750,000 parcels and 4.5% with programs that handle more than 1 million annual packages.

But whether they are running bigger and better or leaner and meaner fulfillment departments, Internet Retailer`s latest survey reveals that merchants of all sizes are getting faster with order processing. A majority—54.5%—note that their inventory management and fulfillment operations can process most orders in just a single business day, followed by 31.8% that take between 2 and 3 business days. In contrast, just 4.7% of retailers in the survey ship parcels in 4 to 7 business days, while 9.1% take more than 7 days.

A majority of web merchants taking part in the fulfillment survey see shipping fees as a profit center. For instance, 60% of chain merchants and catalogers charge more than $8 for an average shipment, while consumer brand manufacturers had an even higher percentage with 66.7% indicating that their average shipping charge exceeded $10.

The survey finds that it costs 80% of catalogers $6 or less to ship an order, compared with 66.6% for consumer brand manufacturers, 62.5% of virtual merchants and 40% of chain retailers.

Integrating systems

For many retailers, their shipping costs are becoming a more reasonable expense because they`ve committed time and resources to upgrading their order management program with better technology. Integrated systems, networked with the systems and databases of third-party carriers, allow retailers to track orders once they`ve been shipped—and know precisely how many return orders are due in the morning.

For instance, 72.7% of respondents have their fulfillment systems networked with their returns systems. 54.6% of those surveyed indicate that their product return rate as a percentage of total web sales is less than 1%. 22% said the rate is 1% to 3%; 9.1% said 4% to 5%; and 13.6% said more than 10%. 60% of retail chains said their return rate is less than 1% of web sales, compared with 50% for web-only merchants and 20% for catalog companies.

The Internet Retailer survey shows that most online retailers—77.3%—use multiple carriers. The survey also shows FedEx to be the most popular shopping option, with 40.9% of all respondents indicating that Federal Express is the carrier they use the most versus UPS at 27.3%, the U.S. Postal Service with 18.2% and DHL with 4.5%. A total of 9.1% of survey respondents use another outside service, which may include regional shipping and third-party logistic companies.

Of chain retailers, 80% cite FedEx as their top carrier followed by UPS at 20%. In comparison, 60% of catalogers say they use FedEx most frequently followed by UPS at 20% and other carriers at 20%. Among virtual merchants, 37.5% cite UPS as their most frequently used shipping company.

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