COVER: Using Fulfillment to Stand Out

Customized fulfillment has become a growth area. From special monogramming to handwritten gift cards, as well as the software that keeps track of such requests, retailers are managing more of the fulfillment process than ever before, as customers who become accustomed to the web demand greater flexibility and better service—all delivered to their doorstep in a timely fashion.

And as demands for customization have increased, outsourced fulfillment vendors have come to understand that they too must change their operations if they are to succeed. As a result, many are offering services that go beyond simple pick, pack and ship. “It’s a big trend now for us to do more than warehouse, pick, pack and ship,” di Maria says. “To provide more products online retailers are having to go to more obscure suppliers and they need someone to not only manage the goods coming from that supplier so they can keep track of inventory, but they also need packing lists and quality control.”

As a result, retailers who want more than simple fulfillment are having to manage different suppliers to get the variety of fulfillment options for various customers. “Retail customers want more than just warehouse capabilities from a vendor,” says di Maria. “It’s becoming more about managing outside the four walls.” He cites an example of managing a direct supplier for a retailer: “Some retailers may not want to warehouse all their products. If they need a product from a small custom supplier, such as a wreath maker, the retailer will need some way to make sure that the supplier is providing the right product and the right packing lists that are then sent from the supplier direct to the consumer. Vendors now are getting involved in doing this.”

Retailers who are big enough to have their own in-house fulfillment centers typically have experience in the catalog business, as is the case for Jos. A. Bank Clothiers Inc., a Hampstead, Md.-based multi-channel retailer that has been selling on the web since August 1998. The retailer, which used CommercialWare software to manage its catalog business, turned to the vendor for its new e-commerce product when it moved from a manual process to operating an in-house automated e-commerce software system in August 2000. That system integrates order management, warehouse and fulfillment systems and allows the company to see which items are in stock and to find delivery dates, says Dave Ullman, Jos. A. Bank’s CFO.

Before Jos. A Bank adopted the CommericalWare software, it used a third-party fulfillment vendor while it built up its online business. The main problem, says Gary Merry, CIO, was customer service. “We weren’t giving our customers the speed they wanted,” he says. “In our business, customer service is very important and we need to be able to control that.” The problem was that the vendor was using a manual system to process orders, which meant that merchandise didn’t go out until the day after it was ordered. Partly for control reasons and partly to make sure it could make changes quickly, Bank took the process in-house. Today, it operates a fully automated system that allows it to ship on the same day orders that come in before noon.

Internet sales today represent 30% of Bank’s direct retailing business and that portion is doubling each year, Ullman says. In fact, Internet sales growth has been far outstripping growth in the rest of the company: Web sales rose 166% in September over September 2000, while companywide sales rose 13.3%. Thus fulfillment of online orders has taken on a crucial role in the continued success of the company.

Jos. A. Bank, which has annual sales of more than $200 million, invested more than $1 million to bring e-commerce fulfillment in-house and so far it has paid off. Ullman says the company has had no problems with fulfillment since it brought the process to its own warehouse in Hampstead. And even more importantly, the number of customer complaints has dropped significantly.

New York City-based specialty gift retailer UncommonGoods.com has been running its own operations since inception in 2000. “We built our fulfillment center from scratch with an empty room and some software,” says Rob Purle, director of operations at UncommonGoods, which generates annual sales in the seven figures. “We worked with some out-of-the-box software and some we developed ourselves to integrate inventory management and order processing.” For instance, UncommonGoods bought a warehouse management system, then developed an order processing system in-house. Its inventory management system is a combination of in-house development and off-the-shelf software.

As it has done with its entire operation, UncommonGoods.com started small to see what would work and built from there. “We started with a couple of orders a day and tested it until we figured out some efficiency,” Purle says. “Now we take orders up to 3 p.m. and sometimes 5 p.m. each day.” The warehouse occupies a loft in the Chelsea neighborhood of New York City.

It’s worth having fulfillment in-house in order to have control over quality and customer service, says David Bolotsky , president and CEO. Because it’s a gift-oriented site, the company relies on good inside help to customize packaging and ensure quality control on the many different items that come from all over the world. “I wasn’t willing to give up an opportunity to interact with our customers,” Bolotsky says.

Jos. A. Bank and UncommonGoods.com are not alone in their desire for control over the fulfillment process, says Delray Beach, Fla.-based Ecometry Corp., which provides fulfillment software to such retailers as Nordstrom Inc. and Coldwater Creek as well as to large fulfillment houses such as Precision Response Corp. Many retailers want such control and the corresponding flexibility in their enterprise systems so they can customize their marketing and customer relationship management, says Jon Marrah, president and COO of Ecometry.

Ecometry can add software modules that allow a retailer to keep track of orders that require embroidery, thank you cards or other custom work. The software routes the order to the correct custom work station then back into the order flow for packaging and delivery. “Our software improves fulfillment efficiency so retailers can provide customization in an integrated manner,” Marrah says.

But while many retailers are bringing fulfillment in-house, outsourcing remains a viable option, especially for retailers who want to focus on selling rather than shipping. Pittsburgh-based American Eagle Outfitters, which sells clothing to twenty-somethings, outsources its growing e-commerce fulfillment demands to Columbus, Ohio-based SubmitOrder Inc. “Utilizing SubmitOrder allows American Eagle to focus on our core competencies—building a brand, creating a store, catalog and web site—that speaks directly to our customer and designing and selling clothing that is the right fashion at the right price,” says Mike Rempell, senior director of AE Direct. Rempell says last year’s e-commerce revenue was $20 million, which was 2% of American Eagle’s $1 billion in revenue.

For American Eagle, SubmitOrder has done custom jobs such as adding free flip-flops to each order, which coincided with an in-store promotion. “The web is important for us in that it’s driving real dollars to the bottom line. It’s important that customers get the same promotions online as they get in the store,” Rempell says. SubmitOrder’s ability to do custom work helps the retailer achieve that. “Due to their sophisticated infrastructure which allows them to easily handle our volume of business, SubmitOrder has allowed us to brand the entire experience, such as packaging, gift wrapping, inserts, and promotions, and still provide the high level of service that our customers expect,” Rempell says.

Customized fulfillment can mean other than getting an embroidered jersey to the right customer. It also can mean managing large stocks of specialized merchandise—and that is a niche that some outsource companies have carved out. Ethnic Grocer, for instance, relies on its outsourcing fulfillment vendor, APL, to do customized services that extend beyond simply sending out orders. “We ship products from around the world,” says Parry Singh, president and CEO. “Keeping track of all the different points related to fulfillment—from the POS system to managing the distributors to the final transportation of goods—is difficult.”

Because of the complex requirements of such a system, Ethnic Grocer did not want to invest in a fulfillment system. “APL does all our fulfillment which is good for us because we don’t have to invest in that,” Singh says. Singh says APL is able to do light assembly for gift baskets as well as the standard fulfillment requirements. “We develop a gift box and APL sources it and assembles it in a nice box before shipping,” he says.

In an example of a hybrid fulfillment strategy, San Francisco-based RedEnvelope decided to perform some in-house fulfillment and outsource the rest to be able to keep control over product presentation. Cunningham, the COO, says the company provides merchandise and a warehouse enterprise system that keeps track of orders and inventory, but works with Wilmington, Ohio-based 3PF for a warehouse, fulfillment labor and delivery services. “Early on we felt that certain pieces had to be in-house. As a gift retailer, we absolutely need clear and visible inventory so we can tell our customers what’s available, rather than throwing it over the wall and have someone else tell us what our inventory status is,” says Cunningham, who says RedEnvelope has never had disappointments with its fulfillment plan.

Most recently, RedEnvelope and 3PF have expanded the fulfillment department to provide customized orders, such as glass etching and monogramming, an example of how RedEnvelope and 3 PF are working together to manage fulfillment. RedEnvelope decides which improvements it wants and 3PF provides the labor and infrastructure to carry it out. “This year we are trying to bring some capacity to fulfill those needs within our warehouse operation,” Cunningham says. Having more specialized packaging improves the experience for the customer and also the RedEnvelope image, he says

A fourth approach to fulfillment is the wheel and spoke method, in which a retailer leaves fulfillment to an outsourcer as well as to its suppliers, who drop ship orders to consumers. Kmart Corp.’s online arm, Bluelight.com, has developed such a unique strategy for fulfillment. While it started with SubmitOrder for outsourcing, it has since switched to King of Prussia, Pa.-based Global Sports Inc. in a deal that allows Kmart to do more marketing, such as couponing.

Since Bluelight moved its merchandising back to Kmart, Kmart selects and owns the merchandise, while Global Sports handles fulfillment, customer service and operates the Bluelight web site, including creative development, hosting, e-commerce applications, checkout and order processing, says Michael Conn, senior vice president of business development at Global Sports. Bluelight says 40% of its fulfillment is done by Global Sports, while 60% comes directly from such suppliers as Omaha Steaks.

With so many fulfillment strategies, it’s not likely that any one will prevail. More than anything, the state of the economy and the relative costs of doing business online are more likely to encourage changes in fulfillment operations.

But one constant will remain, and that is that retailers will always be looking for new twists in the fulfillment game and new ways to stand out.