Fulfilling orders hasn’t been one of online retail’s most compelling stories--but with new technology, that’s poised to change.
By Mary Wagner
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.
Retailers generally look for an outsource fulfillment solution for two reasons, says Frank Poore. CEO of drop-ship systems provider CommerceHub. Some are seeking operational efficiencies to speed up order delivery times to customers. Others are looking for a way to expand their assortment through drop shipping, a process that can be challenging to manage because of the integration required between the retailer and the multiple systems of multiple suppliers.
“Retailers all have new categories they would like to be in but aren’t,” Poore says. “When thinking about drop shipping they will think about large items first. They’re too big to store in the warehouse, and they’re too expensive to double-handle from the supplier to the retailer’s own warehouse and then from the warehouse to the customer. But once they get connected and see what it’s like, it becomes a merchandising decision and it can extend to everything from perishable foods to high SKU-count items like books or video games—any category where they are not going to be able to warehouse the right assortment.”
Drop-shipping’s role
Shopping channel QVC, for example, has its own merchandise in its own warehouse, and only a limited number of items are drop-shipped to TV shoppers directly from suppliers. It’s a different story at QVC.com. With an assortment that’s broader than what’s shown on QVC-TV, QVC.com vice president of operations Steve Hamlin calls the web site “QVC Plus.” The QVC warehouse acts as a distributor for QVC products, but QVC.com also drop ships to customers from more than 200 outside suppliers.
That’s where it uses the services of CommerceHub. CommerceHub’s platform functions as a universal translator that that allows QVC.com to integrate with the disparate systems of outside suppliers without having to change its legacy systems, says Hamlin, who requires any supplier doing business with QVC.com to integrate with CommerceHub’s platform. That integration provides full viability into the fulfillment status of any order through QVC.com at any drop ship supplier.
“One of our missions when we extended our assortment through drop shipping was to match the customer service levels we have in our own warehouse,” Hamlin says, adding that since QVC.com launched on CommerceHub in 1999, the metrics show the fulfillment services provider has delivered. The average confirmation time on orders from drop-ship suppliers has dropped by 39% during that time, for example, while customer order cancellations for fulfillment-related issues such as late or lost orders decreased 80% to 1.1%.
One of the biggest winning metrics—a 50% reduction in related manual labor costs—stems from one particular web-based service addition to the platform: exception-based order management. That alerts QVC.com to take action only when order processing performance falls below pre-set, rules-based thresholds. Hamlin, a 25-year fulfillment industry veteran, calls exception-based order management “the greatest technology to come along in drop-shipping.”
Boosting productivity
“Before, we had to check on every single order manually,” he says, adding that having to check only on the outliers has allowed QVC.com to reduce head count and pushed up productivity per rep by 26%. “They can handle more transactions because they just review the exceptions,” Hamlin says.
With the web powering an increasing number of back-end operations, fulfillment providers are even expanding what they will do for retailers to offer services historically more closely tied to manufacturing. Personalized and customized products are now one of the hottest trends on online retailing, and that’s partly because web technology has compressed order fulfillment cycles.
“Personalization is great for providing incremental sales without adding additional inventory risk, because you’re taking something already in inventory, adding value, and driving additional sales. But one of the problems, especially during the Christmas season, was long lead times on orders,” says GSI Commerce’s Murphy.
To shorten that cycle for retail clients such as Linens ‘n Things, GSI Commerce this year ended its arrangement with a third-party monogramming supplier and brought the equipment in-house, building an order entry and validation tool into its platform that takes the order specifications in on the retailer’s web site and communicates it directly to the monogramming and fulfillment operations at GSI. That means that orders for monogrammed towels, robes and the like meet the same service level metrics as identical non-monogrammed products. Ditto for accessories it can customize for clients like handheld maker PalmOne, using laser inscription equipment it operates in-house.
Realizing the new fulfillment possibilities offered by web services requires a strong, integrated platform and IT professional team, one reason industry analysts like Rob Garf of AMR Research Inc. say more retailers are seeking fulfillment services outside their own walls. “We’re seeing an up tick in retailers’ interest in the outsource model for the operational savings and the speed to market,” says Garf. “It’s attractive even for smaller to mid-sized businesses because they don’t need to have the upfront investment in infrastructure.”
Achieving economies
Garf says the economics on outsourcing fulfillment changes with scale. AMR fixes the point at which retailers should consider investing to bring outsourced fulfillment services in-house at $80 million to $100 million in annual revenues. But the economics of scale shouldn’t be the only consideration.
“The challenge becomes integration not just from a technology but a process perspective between the retailer and the fulfillment operation as managed by a third party,” Garf adds. “Web-based architecture makes integration easier, but at the end of the day it’s an enabling technology. The trick is process integration.”
He advises retailers outsourcing fulfillment operations to pay particular attention to their service level agreements with providers, including a clear understanding of the specific roles and responsibilities on each side, and how those processes are to be coordinated.
From Linens ‘n Things, which studied its alternatives for a full year before deciding to outsource its entire e-commerce operation including fulfillment, Kimple offers another piece of advice. “Whenever you go to a new provider, you look for the same functionality that you already have, but more importantly, what future functionality you can get, and how flexible and robust that provider will be in listening to your needs and fulfilling them down the road,” she says. “Retailers should be looking for today but planning for the partner that is going to be able to support them tomorrow.”
mary@verticalwebmedia.com
