SPONSORED SUPPLEMENT: Here Come Retailing’s Fulfillment Giants
In today’s online retailing market, order fulfillment isn’t as simple as it used to be. “Today a customer can start an interaction in any channel and complete it in any channel and the entire experience has to be consistent,” says Devdutt Yellurkar, president and CEO of Yantra Corp., developer of fulfillment software and systems. “That’s extremely important in today’s market.”
While that sentiment may be to online retailing what Mother and apple pie are to the country at large, retailers are finding a challenge in implementing cross-channel order fulfillment and consistent customer experience. “90% of users still have not achieved the ultimate goal of unifying the customer fulfillment process,” says AMR Research Inc. in its report “Consolidated Order Management—ERP Alone Doesn’t Deliver.”
Fulfillment once was considered the last step in the order process, the culmination of marketing, online presentation, and order-taking. Today, fulfillment is the centerpiece of a customer’s experience, AMR says. “Customer fulfillment is at the center of the model because that it is the reason that companies are in business,” AMR says. “Customer fulfillment strategy is by definition customer- or demand-driven, not driven by production or supply chain economies.”
Says Rod Johnson, AMR vice president of customer management strategies and author of the report: “It’s a strategic imperative. It’s about understanding the customer, what the customer wants and being able to fulfill directly to the customer.”
Effective fulfillment requires visibility into the supply chain, inventory, marketing programs, merchandising and just about every other aspect of a direct marketer’s operation. “Fulfilling the order is the pulse of an organization,” says Stephen Olds, general manager of R.R. Donnelley’s Merchandise Management Services Division. “It sets the tone and dictates how the inventory flows in, how it is positioned and how the shipping gets executed.”
Demanding more
Retailers are recognizing that more today than ever before and, as a result, are demanding more from their fulfillment vendors. “Client expectations are definitely going up,” says John McGovern, president and CEO of Progressive Distribution Services Inc. “They want a wider array of services to make sure customers are provided with the latest features and functionalities at the web store and through all other channels.”
But even as retailers recognize the importance of integrated order management, few are investing sufficiently to ensure a first-rate customer experience, AMR says. AMR reports that across all industries, companies invest an average of $5.5 million annually in order management systems. Of that, 19% goes to new technology or strategic enhancements. “20% is not enough and will only enable IT organizations to maintain status quo with many short-term fixes to address business challenges or opportunities,” AMR says.
The rate of investment in new technology and enhancements is slightly higher in retailing, Johnson says, reaching 23%. But at $2.8 million, retailers’ average annual order management budget is about half of all other industries’. And retail systems are older and more custom-coded than those in other industries. “They’ve spent years trying to piece together different systems and maintaining their legacy systems,” Johnson says.
Ready for improvements
And so the retail market is ready for improvements in order management systems. Many factors drive the demand for more integrated fulfillment today. One is the increasing presence online of traditional retail chains. Those chains face two challenges: many have never sold direct before and they’re looking for cross-channel consistency.
Because many have not sold direct to consumers before, they need support in fulfilling orders to individual customers vs. fulfilling bulk orders to stores. The list of differences between store and direct is familiar to anyone who’s ever sold in the direct channel: back orders are handled differently from a store, sales tax is not an issue in the store, managing returns is a smaller problem in the store, there’s no shipping and handling charge in a store, there’s no delay between when an order is transacted and when the sale takes place in a store as there is online. “National retailers have invested a lot of capital and infrastructure in the point of sale, but direct selling has a unique set of needs that don’t normally need that POS infrastructure,” McGovern says.
The second challenge that chains face when they go online is that many have strong brand identities offline; they want to transfer those identities online and they want the experience across all channels to be the same. “Merchants have smartened up,” Olds says. “They know the experience has to be consistent across channels.”
But selling across channels also means sharing data across channels. In that regard, fulfillment systems face challenges in two areas, Yellurkar says. “The first is distributed order management where you take the order from any channel and fulfill from any source,” he says. “And the other is supply chain synchronization, where the orders you take from any channel feed into the supply chain.”
A continuum
Yantra offers what it calls a synchronized fulfillment management system to tie the forward movement of goods—the order from the consumer—to the back-end supply chain and product replenishment systems. “Fulfillment is a continuum,” Yellurkar says. Yantra’s customers include both third-party fulfillment vendors who employ a platform that allows them to provide service to multiple retailers as well as retailers who install the Yantra systems on their own servers. “It starts at the order and goes through many steps, sometimes to the point of when a product is returned,” Yellurkar says.
Fulfillment becomes a particular problem in multi-channel retailing because often such retail organizations grew up with the channels operating separately. That’s especially true for retailers that started online operations during the dot-com heyday when conventional wisdom held that retail organizations only encumbered Internet divisions. “Some retailers build up inventory behind each channel,” Yellurkar says. “And it becomes an even bigger problem if a retailer has more than one brand. Cross-brand inventory management is a big challenge.”
Outsourcing shifts focus
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.”
