Mobile accounted for 25% of Ulta's e-commerce revenue during Q2.
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Vcommerce and Schatsky agree that it is impractical to outsource fulfillment for expensive items. In fact, Vcommerce won’t handle such items.
One of the difficulties with outsourcing is the newness of the e-economy. “A lot of fulfillment companies don’t know how to service e-commerce,” Brooke says. “A lot don’t have the staffing to deal with the personalization that e-commerce requires. They’re not used to the item that needs to be wrapped in special tissue paper or bubble wrap tied with a ribbon and have a card inserted.”
The lack of fulfillment experience is also seen among retailers. “Many retailers who thought they could provide in-house retailing have come running for cover,” Vcommerce’s Kuhns says. “They have found they don’t have the expertise required. They also found in-house fulfillment does not allow them the flexibility to adjust to the seasons. Going from Q4 to Q1 becomes a trauma because your organization has been built to handle your high point.”
Outsource fulfillment companies are increasingly aware that they must be accountable for their services. “Nobody ever doubted their primary mission was getting the right thing to the right place, it’s just the bar has risen on the precision with which they can make a promise,” Schatsky says. “They go to market with the proposition that they are a crucial element of customer satisfaction. It all has to do with fulfilling promises to consumers.” l
It’s an integration thing
Central to making in-house fulfillment work is having a system that integrates fulfillment into each function of a business. “A lot of online retailers’ weaknesses from Christmas 1999 had to do with poor integration between fulfillment and inventory systems and the web site,” says David Schatsky research director with Jupiter Media Metrix. “Since then, retailers invested significant sums in integration, and they were much better prepared going into 2000.”
That is harder than it sounds. “It requires a pretty sophisticated IT-driven order management system,” says Ashford.com’s COO Bill Hensler. Ashford’s in-house system is fully integrated from ordering through customer service through shipping so that nobody has to re-key any information. “Being able to integrate the order, special instructions such as gift cards, have it packaged, and a tracking number and label printed within 20 minutes can’t be done with just hard work and good intentions,” Hensler says.
And integration is important even when outsourcing fulfillment. “A good fulfillment company will give you real-time reports so you can watch your inventory to see when things are being pulled and shipped,” says Barbara Brooke, fulfillment manager with MuseumShop.com. MuseumShop uses Fulfillment Plus to warehouse and ship orders.
BlueLight.com’s outsource fulfillment company integrated the warehouse management system with BlueLight’s order management system. “They are the masters of our inventory,” says Alex McNealey, BlueLight’s director of operations. “They replicate the warehouse management in our order management so that there is real-time inventory knowledge displayed at the storefront.” At BlueLight, the online arm of Kmart Corp., orders move directly from the order page to the fulfillment house.
Even with an outsourced fulfillment system, the retailer should never have to intervene in a transaction, says Michael Small, vice president of sales with Skokie, Ill.-based 3PF. Systems must be integrated so the shopping cart ties to the inventory. It is critical that both the front and backend are adjusted for returns and new stock, Small says. And with technology what it is, there is no reason e-retailers with outsourced fulfillment should re-key any of the order information-the customer should do all the work online. “The beauty of the Internet is that the retailer should not be touching the order,” Small says.
Last mile outsourcing
The question of outsourcing fulfillment or keeping it in-house does have a middle ground answer. One company, Atlanta-based SmartMail, offers what it calls last-mile fulfillment. In other words, the retailer picks and packs and SmartMail ships. And about half its business comes from e-commerce clients.
The 4-year-old SmartMail has 12 Smart Centers in major metropolitan areas such as New York, Chicago, Los Angeles and San Francisco. The company will pick up packaged and addressed items from clients’ warehouses, verify each item’s address, add a tracking code and ship the items through the U.S. Postal Service. SmartMail President and CEO Jim Martell says the company doesn’t pick-and-pack items. “We take it from that point on; we are an alternative to any other shipping means,” he says. This service will save retailers about 15% on shipping costs compared with first-class postage, Martell says. The savings come from standard USPS discounts for volume shipping. Martell says his clients also save on internal costs from not dedicating staff to verify addresses and entering tracking information.
“Our customers say they save 5 cents to 10 cents per piece shipped after we take over,” he says. And because the company matches USPS’s service, SmartMail does not add to the delivery time.
David Schatsky, research director for Jupiter Media Metrix, says managing costs is a major headache for fulfillment. Shipping cost was the No. 2 concern among online retailers, according to a Jupiter study. “In many cases they are losing money because they are not managing their costs effectively,” he says. “As we see more retailers looking for ways to cut costs, a company like this may have an answer for some of them.”
But this service works better for some than it would for others. It makes most sense for customers shipping high-volume, lower-value, more durable items, Martell says. And although SmartMail will not turn a customer away, those who will realize the most savings are ones with items lighter than 5 pounds, with several hundred items per day and within 75 miles of a Smart Center. The company offers free daily pick-up for customers within 75 miles that meet minimum order size; others can drop off items.