E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
One of the notions that early-to-web retailers had was that filling orders would be different from the real-world. Many thought they could just send the order to the supplier and have it delivered to the customer. Thus many of the early approaches did not consider real-time inventory management between the web site and suppliers, order and delivery tracking or inventory warehousing.
Once they realized that they would have to pay attention to such issues as fulfillment and inventory management, early players started building expensive warehouses. Virtual supply chain management systems for online retailers did not exist. Today, though, the market to provide virtual supply management is increasingly competitive, with vendors offering everything from virtual supply chains to e-fulfillment, from physical warehouse management to delivery logistics. And many of the competitors have sprung up in the past 18 months.
As a result, the approach to managing fulfillment is just as vast and uncharted as the Internet itself. “A clear e-commerce fulfillment model has not emerged,” says Jeff Maness, senior manager of consumer markets and retail solutions at KPMG Consulting LLC.
There are myriad players from very different core competencies: supply chain management, delivery, warehousing, drop shipping and more. In fact, the “Who’s Who in E-Commerce Fulfillment” directory from Armstrong Publishing of Stoughton, Wis., lists no fewer than 60 companies that offer fulfillment and inventory management services. Choosing the right kind of service provider for an online business can make or break a web-based business. But while the lines are still blurred as to which type of fulfillment firm provides the best model, there is some structure retailers can consider.
The key issue for retailers is to define and understand their requirements for fulfilling their Internet business, analysts say. “The leading players today all have their different strengths so it’s a matter of aligning the retailer’s requirements with the capacity of the emerging players,” says Jim Bunn, senior manager of consumer markets and retail solutions at KPMG Consulting.
Reaching the peak
Easier said than done, however. There is a clear difference between a brick-and-mortar retailer’s fulfillment needs and a pure-play’s, Maness says. A pure-play retailer without a distribution system has fewer options, will be more dependent on a fulfillment company and will require national services. Brick-and-mortar retailers already have warehouses and distribution centers and may need only supplemental outsourcing, such as delivery services or storage and shipping only for certain items.
In shopping for a fulfillment vendor, retailers must predict their peak demand. Once they know that, they should ask each outsourcer if it has the technology to process the orders, if it can handle pick pack and ship, and if it can track orders from the web site through delivery and returns, Bunn says. Currently, the XML-based systems are preferred for e-fulfillment over the EDI-based systems used in offline fulfillment because XML is more suited to the speed and depth of the Internet, Maness says.
Having a scalable warehouse management system that can keep up with growing Internet retailers also is important. “All the dot-coms are assuming their growth is going to be phenomenal,” Bunn says. Knowing about maximum order volume and storage capacity is an important consideration. Retailers need to ask an outsourcing company not only if the company can handle its own volume, but also the company’s ability to handle volume of all its clients, Bunn warns. “Some key players in the catalog space got into e-fulfillment and got in over their heads,” he says. Catalog fulfillment company Minnetonka, Minn.-based Fingerhut Companies Inc., for example, is backing out of the online business.
Some of the well-known names in online fulfillment include pure-plays Submit Order.com and OrderTrust. Others include PFSWeb, NFI Interactive and iFulfillment. Software vendors such as Electron Economy and Yantra sell warehouse management systems to retailers as well as to supply chain management firms such as Commerce Hub, which connect warehouses with suppliers but handle no inventory. There are delivery companies who are heading into fulfillment territories, such as Federal Express and UPS. And there are end-to-end ecommerce providers who also handle the communications among suppliers and manufacturers but do not stock or manage inventory themselves, such as FULLeCOM and Vcommerce Corp. And more companies, such as Marketing Out of The Box, Access Logistics and others, are breaking into the market as online opportunities arise.
Lowell, Mass.-based OrderTrust was among the first players to hit the online fulfillment space in 1995. Its early entry into the market was the result of its background with LytleNet-a service provider to catalog retailers. The company connects everyone in the supply chain for fulfillment-retailers, customer service, suppliers, manufacturers, drop shippers-without ever storing or handling the actual merchandise. Facilitating communication between the players helps streamline the fulfillment process by translating different codes so everyone’s system can communicate with each other’s. “The problem is a merchant wants to sell black pens but the products from the manufacturers are listed as bk pens, blk pens or bpen. So you end up with a different inventory list and customers have no idea how to search the online catalog,” says Chris Long, vice president of strategic marketing of OrderTrust. Clients include 1800Flowers.com, Blockbuster.com and Skymall along with 13 others.
Automated links among real world suppliers are crucial to the success of virtual merchants. iQVC, the online version of the cable shopping channel, uses Clifton Park, N.Y.-based CommerceHub. “CommerceHub is the missing link that makes the virtual model work,” says Steve Hamlin, director of operations at iQVC, which processes up to 25,000 orders per day. The experience of a virtual fulfillment company allows iQVC to provide better customer service than if the company tried to run its own fulfillment house, he says.
Offline doesn’t work online