Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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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.
The middle ground
There is a middle ground of fulfillment between doing it in-house and outsourcing. That hybrid approach involves a retailer performing some fulfillment in-house and outsourcing the rest, using internal systems to keep control of the fulfillment process while tapping the resources of an outside vendor for its infrastructure and management expertise. Many of these retailers have learned over the course of their e-commerce years that keeping a hand in each pot works best for them.
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.
Working the relationship
Whether a retailer completely outsources or adopts the hybrid approach, managing the relationship is extremely important, retailers and observers say, especially so if a retailer is using custom fulfillment as a market differentiator. Managing the relationship can touch many areas and includes such things as making sure the fulfiller is doing the job efficiently and cost-effectively, keeping the fulfiller out of the customer’s view so the selling relationship is between the retailer and the customer, making sure the fulfillment company can provide all the information that a retailer itself could gather from customer orders and ensuring pricing stays relevant to the value of the goods being sold and to prices in the marketplace. In fact, managing the relationship is so important that Geri Spieler, research director at Stamford, Conn.-based Gartner Group, puts it No. 3 on her list of 10 major problems that Gartner has observed with outsourcing deals.
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.
Click here for the 2001 Guide to Fulfillment Products and Services