SPONSORED SUPPLEMENT:Every step on the order path leads to fulfillment

Internet Retailer Web Design Conference 2009

Guide to E-Commerce Technology

The new reality of shopping is that a sale transaction online is not over when the customer completes payment, as it is in a store. Now the transaction has a tail that is out of the retailer’s control. Two, three or more days can elapse between when the customer pays for the merchandise and when the customer receives it. And a lot can happen in those days. “Everything funnels down to that moment, when the product is packed, shipped and delivered,” says John McGovern, president of Grand Rapids, Mich.-based Progressive Distribution Inc.

While the importance of that final fulfillment step may seem obvious, how to achieve it is not so obvious. And it’s in the execution that many retailers stumble. “There are still a lot of people out there in the bricks-and-mortar world who don’t recognize the differences between distributing cases of goods to stores and sending individual orders to customers,” says David Himes, senior vice president of e-commerce services provider NewRoads Inc., based in Alpharetta, Ga. “There’s still a significant learning curve.”

But many retailers—especially those coming from a catalog or other direct background—understand not only how fulfillment is achieved but also the importance of doing it right. In fact, fulfillment is such a high priority to some retailers that even when they outsource it to a third party, they want to be personally involved on occasion. “One of our customers is very particular about the look and branding of their package. They want it to be a thing of beauty and it requires special handling,” recounts Connie Warner, president and COO of Bradley Direct, an outsource fulfillment provider based in Midland, Ga. “Their president often comes in and works with the people on the floor.”

Tying fulfillment to supply chain

Generally, retailers and their third-party providers have the fulfillment part under control. A mystery shopping survey of 100 sites by consultants The E-tailing Group Inc. revealed no problems with getting the right product, although researchers never received the order from three retailers and six reported back orders that never came through.

And so with leading merchants and third-party fulfillment companies having pick, pack and ship down pat, many are turning their attention to all the activities that feed into fulfillment. “Excellent fulfillment begins quite in advance of the physical shipment,” McGovern says. “For the entire order and fulfillment cycle to be successful, you can’t ignore all the other areas.”

Some argue that fulfillment begins well before the customer interaction with the retailer. “The Holy Grail is when fulfillment and the supply chain are inexorably tied together,” says Donny Askin, CEO of Natick, Mass.-based CommercialWare Inc., developer of cross-channel inventory management and fulfillment software for retailers and direct merchants. “Whether the retailer has the product or the supplier has it, information between the two needs to be very tightly coupled.”

With such a broad definition of what constitutes fulfillment, large, third-party fulfillment companies today are focusing on the entire consumer transaction. Bradley Direct, Progressive Distribution and NewRoads all operate call centers and offer web site design, hosting and other services in addition to fulfillment. “What we offer has expanded way beyond putting the label on the box and shipping it out the door,” McGovern says. “One of our roles is to facilitate brand growth by providing a robust set of capabilities that clients can quickly implement.”

The same is true at CommercialWare, which licenses its software for in-house use. It has expanded significantly over the past year, acquiring Transaction Smartware Inc., known for its OrderMotion product, that provides order management, CRM and fulfillment from a single database and that is moving CommercialWare into an ASP model. In addition, just over a year ago it acquired Capture.net Technologies, developer of software for hard goods and specialty retail chains’ store management. “We’ve placed our bets on cross-channel integration,” Askin says. “It’s one of the hottest topics out there.”

Checking the list of whats and hows

To many in the industry, fulfillment is one of the fundamental aspects of doing business online, almost to the point where its execution is taken for granted. “We are at the point where physical fulfillment needs to be something like the dial tone,” McGovern says. “It has to be there and it has to be done right every time.”

Fulfillment may be taken for granted, but retailers who understand the complexity of the process often are motivated to go outside for fulfillment services by their own lack of knowledge or their inability to gain economies of scale. Thus they start with the basics of fulfillment services and work into other services from there. “With most clients we spend at least two days and sometimes more going down a long list of all these minute points that they have to make decisions on,” Himes says. “Many of the points are things that a lot of retailers have never thought about before, like how they want the label to look, how they want the box to look, how they want the merchandise presented in the box, what weight of corrugate they want.”

Often what the decision to turn to an outside fulfillment provider boils down to is core competency. Retailers, especially the retail chains, understand product selection, merchandising and marketing, and have the systems in place to operate in all those areas efficiently and at the lowest cost. But the same is not always true when it comes to fulfillment and other web operations. “Major players who have never attempted the direct business before want to leverage the competency and experience that others have gained,” Himes says.

And that pushes the successful third-party fulfillment providers into services that go way beyond fulfillment—and require that they be flexible in meeting the needs of their customers. For instance, while Bradley Direct offers a range of products, many customers buy on a menu basis. “Some want just the call center or just the fulfillment, while others want the web design and the web hosting,” Warner says. “We can—and have to—do any and all.”

Measuring the fiscal health

Many companies also look beyond the physical capabilities of the fulfillment provider to the financial structure that backs it up to ensure that the provider will be there for the long haul and able to grow as the retailer grows. “When you make your investment in going with a fulfillment provider, you want to make sure they will be there for a while,” says Warner, who notes that Bradley Direct traces its history to 1885. “We have the capital to grow in support of our customers’ behavior.”

The fact that fulfillment is so tightly tied to the rest of the online ordering process is prompting retailers to look at what other services a fulfillment company can provide—and causing providers to stress that fulfillment is closely related to other areas. “Best practices dictate that fulfillment begins quite a bit in advance of the physical shipment,” McGovern says. “To have the entire order delivery and fulfillment cycle be successful, you can’t ignore all the other areas. They are all important.”

One of those areas that may not be so obvious, yet stands in the way of orders being fulfilled, is payment processing, McGovern says. Using a fraud detection system that it developed in-house, Progressive Distribution caught $700,000 in potentially fraudulent transactions in the first 12 months after development. And while it’s important to make sure that the fraud-detection system does its job in catching fraud, it’s also important to make sure that the fraud process is fast and accurate and doesn’t stand in the way of customers getting their orders.

Third-party providers also note that customer service is another important aspect that leads up to successful order fulfillment. Thus the major providers have developed contact centers that, again as they have done with fulfillment, allows them to leverage their investment to provide state-of-the-art capability that many retailers would have a difficult time replicating. NewRoads, for instance, operates two contact centers that offer telephone, voice over IP, live chat and e-mail support.

An intranet-based support center

Bradley Direct also offers customer service support and has gone so far as to web-enable clients’ policies, procedures and product information on an intranet that it calls CAIRnet—Customer Agent Information Resource network. Having that information, which is usually stored in binders in a call center, at an agent’s fingertips has reduced talk time significantly for some clients, Warner says. In one case, Bradley Direct’s average talk time actually came in at one minute less than the company had estimated when the client came on board, due in large part to the information available through CAIRnet, Warner reports. That resulted in cost savings of 25-35% for the customer, she says. “We have a philosophy of one-call resolution,” she says. “With the information we have in CAIRnet, the agent doesn’t have to look something up and get back to the customer.”

In addition, CAIRnet contains all records of a customer’s interaction with the call center, so if a customer calls with a follow-up question and gets a different agent, that agent has a record of the previous call and can easily help the customer.

The stores, the warehouse, anywhere

Just as third-party fulfillment companies and their retailer clients have broadened the scope when thinking about fulfillment, so have other fulfillment vendors. For instance, CommercialWare has just released its CW Locate product, which gives retailers the ability to find inventory for web order fulfillment anywhere in an operation, whether that be in stores, warehouses or the catalog or online distribution center. “Our focus is on inventory visibility,” Askin says. “A retailer needs to fulfill from any and all channels and never lose a sale. A retailer needs to see a product no matter where it is and get it no matter where it is.”

When products arrive at a retail location, the information about the product gets entered into the CW Locate database. CW Locate then stays updated by recording the movement of inventory from warehouses to stores and then by grabbing data from store POS systems in whatever frequency the retailer wants, from near-real-time trickle polling throughout the day to batch reports that are sent nightly. The retailer sets the rules as to the quantity of safety stock.

By optimizing its view into where the inventory resides, retailers will end up with fewer markdowns, Askin says. “If something is selling on the web, but not in stores, you can pull it from the stores and send it to the distribution center to fulfill web orders. It doesn’t have to sit on the shelf in the store until it gets marked down to move it out.”

While all retailers desire an accurate picture of inventory levels, online retailers coming from the direct world are more comfortable with taking orders for out-of-stock products than are traditional retailers, Himes notes. The difference stems from the Federal Trade Commission’s rules about backorders and promised delivery times. “There’s a stark contrast between catalogers and brick-and-mortar merchants,” he says. “Catalogers are comfortable with the FTC regulation and know how to manage to it. Brick-and-mortar retailers are not comfortable at all with it.”

Eventually, Askin believes, inventory visibility will extend into the supply chain. CommercialWare offers the CW Collaborate product to help retailers work with suppliers to ensure that their inventory is available for sale. “We’re seeing growing interest in the supply side,” Askin says. “Retailers and direct merchants have been laggards in that area, but it will become a hot button.”

Leading third-party fulfillment providers will tie inventory data into all the other data that they report to their customers. For instance, NewRoads provides sales and inventory data to customers in the financial format that customers want. “The ability to handle data flow is immensely critical to many clients,” Himes says. “And it only makes sense to make sure that data flow comes from the demand stream as well as elsewhere.”

Expansion into areas that feed into fulfillment does not mean, however, that the fulfillment companies have abandoned their focus on stellar fulfillment. Progressive Distribution, for instance, continues to refine its quality control process, McGovern says. A three-step process ensures the right product is going into the right box before the box is sealed. “Our accuracy level stays above 99.2%,” McGovern says.