August 12, 2002, 12:00 AM

Fulfillment’s key role in e-retailing

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But the heart of Innotrac’s operations are the fulfillment centers it operates around the country with a combined 1 million square feet: two facilities in Atlanta, one in Pueblo, Colo., a 280,000-square-foot center in Reno, a 396,000-square-foot facility in a northern Kentucky suburb of Cincinnati, and a 354,000-square-foot operation in a Chicago suburb with another facility opening nearby soon.

Its geographic diversity is one of the keys to efficient fulfillment, Ellin says. For instance, when Innotrac acquired Universal Distribution Services in Reno, the company was fulfilling Gateway Learning Corp.’s Hooked on Phonics products from its sole facility-in Reno. Yet 65% of customers were on the East Coast, Ellin says. With the acquisition, Innotrac was able to route the fulfillment order to the warehouse closest to the customer. That not only sped deliveries, but also reduced shipping costs, Ellin reports. Innotrac is seeking an acquisition in the Northeast, Ellin says, that would give it a facility close to a major population center. Innotrac ships about 5 million packages a year and handles 6.3 million calls at its call centers.

Multi-channel fulfillment

Multi-channel retailing is having an impact on fulfillment companies every bit as profound as the impact it is having on retailers. “We’re seeing many more companies looking for multi-channel solutions,” Ellin says. “Store replenishment and handling fulfillment for Internet, catalog and direct mail are big.” In fact, Innotrac recently signed Smith & Hawken to a fulfillment contract. It will handle multi-channel duties for the home and garden retailer: Internet and catalog fulfillment as well as store replenishment. Smith & Hawken will occupy 296,000 of the 396,000 square feet at Innotrac’s Kentucky facility.

Especially in today’s environment, where retailers are trying to reduce costs wherever they can, store replenishment is important, Ellin says. “With the cost of store floor space being what it is, most retailers don’t want to stock a lot of product for a long period,” he says. “So we store it and ship it.”

For the future, Innotrac expects more acquisitions and further investments in technology as it adds clients. Innotrac will not be alone as it grows, as outsourced fulfillment is likely to be a growth industry, Gartner says. “In 2003, more retailers will look to outsource fulfillment as a cost-cutting measure and service improvement option,” Spieler’s report, Retailers and Fulfillment Outsourcing: A Decision Guide, says. “The benefits of outsourcing coupled with the current glut of warehouse space will be hard to pass up. By 2004, the benefits of fulfillment outsourcing will be better understood by retailers and more will capitalize on the opportunity to outsource this function and focus on selling.”

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