Retailers’ holiday promotions and a shift in consumer buying habits generates heavy demand for Monday deliveries by FedEx.
In today’s online retailing market, order fulfillment isn’t as simple as it used to be. “Today a customer can start an interaction in any channel and complete it in any channel and the entire experience has to be consistent,” says Devdutt Yellurkar, president and CEO of Yantra Corp., developer of fulfillment software and systems. “That’s extremely important in today’s market.”
While that sentiment may be to online retailing what Mother and apple pie are to the country at large, retailers are finding a challenge in implementing cross-channel order fulfillment and consistent customer experience. “90% of users still have not achieved the ultimate goal of unifying the customer fulfillment process,” says AMR Research Inc. in its report “Consolidated Order Management-ERP Alone Doesn’t Deliver.”
Fulfillment once was considered the last step in the order process, the culmination of marketing, online presentation, and order-taking. Today, fulfillment is the centerpiece of a customer’s experience, AMR says. “Customer fulfillment is at the center of the model because that it is the reason that companies are in business,” AMR says. “Customer fulfillment strategy is by definition customer- or demand-driven, not driven by production or supply chain economies.”
Says Rod Johnson, AMR vice president of customer management strategies and author of the report: “It’s a strategic imperative. It’s about understanding the customer, what the customer wants and being able to fulfill directly to the customer.”
Effective fulfillment requires visibility into the supply chain, inventory, marketing programs, merchandising and just about every other aspect of a direct marketer’s operation. “Fulfilling the order is the pulse of an organization,” says Stephen Olds, general manager of R.R. Donnelley’s Merchandise Management Services Division. “It sets the tone and dictates how the inventory flows in, how it is positioned and how the shipping gets executed.”
Retailers are recognizing that more today than ever before and, as a result, are demanding more from their fulfillment vendors. “Client expectations are definitely going up,” says John McGovern, president and CEO of Progressive Distribution Services Inc. “They want a wider array of services to make sure customers are provided with the latest features and functionalities at the web store and through all other channels.”
But even as retailers recognize the importance of integrated order management, few are investing sufficiently to ensure a first-rate customer experience, AMR says. AMR reports that across all industries, companies invest an average of $5.5 million annually in order management systems. Of that, 19% goes to new technology or strategic enhancements. “20% is not enough and will only enable IT organizations to maintain status quo with many short-term fixes to address business challenges or opportunities,” AMR says.
The rate of investment in new technology and enhancements is slightly higher in retailing, Johnson says, reaching 23%. But at $2.8 million, retailers’ average annual order management budget is about half of all other industries’. And retail systems are older and more custom-coded than those in other industries. “They’ve spent years trying to piece together different systems and maintaining their legacy systems,” Johnson says.
Ready for improvements
And so the retail market is ready for improvements in order management systems. Many factors drive the demand for more integrated fulfillment today. One is the increasing presence online of traditional retail chains. Those chains face two challenges: many have never sold direct before and they’re looking for cross-channel consistency.
Because many have not sold direct to consumers before, they need support in fulfilling orders to individual customers vs. fulfilling bulk orders to stores. The list of differences between store and direct is familiar to anyone who’s ever sold in the direct channel: back orders are handled differently from a store, sales tax is not an issue in the store, managing returns is a smaller problem in the store, there’s no shipping and handling charge in a store, there’s no delay between when an order is transacted and when the sale takes place in a store as there is online. “National retailers have invested a lot of capital and infrastructure in the point of sale, but direct selling has a unique set of needs that don’t normally need that POS infrastructure,” McGovern says.
The second challenge that chains face when they go online is that many have strong brand identities offline; they want to transfer those identities online and they want the experience across all channels to be the same. “Merchants have smartened up,” Olds says. “They know the experience has to be consistent across channels.”
But selling across channels also means sharing data across channels. In that regard, fulfillment systems face challenges in two areas, Yellurkar says. “The first is distributed order management where you take the order from any channel and fulfill from any source,” he says. “And the other is supply chain synchronization, where the orders you take from any channel feed into the supply chain.”
Yantra offers what it calls a synchronized fulfillment management system to tie the forward movement of goods-the order from the consumer-to the back-end supply chain and product replenishment systems. “Fulfillment is a continuum,” Yellurkar says. Yantra’s customers include both third-party fulfillment vendors who employ a platform that allows them to provide service to multiple retailers as well as retailers who install the Yantra systems on their own servers. “It starts at the order and goes through many steps, sometimes to the point of when a product is returned,” Yellurkar says.
Fulfillment becomes a particular problem in multi-channel retailing because often such retail organizations grew up with the channels operating separately. That’s especially true for retailers that started online operations during the dot-com heyday when conventional wisdom held that retail organizations only encumbered Internet divisions. “Some retailers build up inventory behind each channel,” Yellurkar says. “And it becomes an even bigger problem if a retailer has more than one brand. Cross-brand inventory management is a big challenge.”
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