Revenue increased 11.9% in Q1 of 2015, to $17.26 billion compared with $15.42 billion in the year-ago period.
The new reality of shopping is that a sale transaction online is not over when the customer completes payment, as it is in a store. Now the transaction has a tail that is out of the retailer’s control. Two, three or more days can elapse between when the customer pays for the merchandise and when the customer receives it. And a lot can happen in those days. “Everything funnels down to that moment, when the product is packed, shipped and delivered,” says John McGovern, president of Grand Rapids, Mich.-based Progressive Distribution Inc.
While the importance of that final fulfillment step may seem obvious, how to achieve it is not so obvious. And it’s in the execution that many retailers stumble. “There are still a lot of people out there in the bricks-and-mortar world who don’t recognize the differences between distributing cases of goods to stores and sending individual orders to customers,” says David Himes, senior vice president of e-commerce services provider NewRoads Inc., based in Alpharetta, Ga. “There’s still a significant learning curve.”
But many retailers-especially those coming from a catalog or other direct background-understand not only how fulfillment is achieved but also the importance of doing it right. In fact, fulfillment is such a high priority to some retailers that even when they outsource it to a third party, they want to be personally involved on occasion. “One of our customers is very particular about the look and branding of their package. They want it to be a thing of beauty and it requires special handling,” recounts Connie Warner, president and COO of Bradley Direct, an outsource fulfillment provider based in Midland, Ga. “Their president often comes in and works with the people on the floor.”
Tying fulfillment to supply chain
Generally, retailers and their third-party providers have the fulfillment part under control. A mystery shopping survey of 100 sites by consultants The E-tailing Group Inc. revealed no problems with getting the right product, although researchers never received the order from three retailers and six reported back orders that never came through.
And so with leading merchants and third-party fulfillment companies having pick, pack and ship down pat, many are turning their attention to all the activities that feed into fulfillment. “Excellent fulfillment begins quite in advance of the physical shipment,” McGovern says. “For the entire order and fulfillment cycle to be successful, you can’t ignore all the other areas.”
Some argue that fulfillment begins well before the customer interaction with the retailer. “The Holy Grail is when fulfillment and the supply chain are inexorably tied together,” says Donny Askin, CEO of Natick, Mass.-based CommercialWare Inc., developer of cross-channel inventory management and fulfillment software for retailers and direct merchants. “Whether the retailer has the product or the supplier has it, information between the two needs to be very tightly coupled.”
With such a broad definition of what constitutes fulfillment, large, third-party fulfillment companies today are focusing on the entire consumer transaction. Bradley Direct, Progressive Distribution and NewRoads all operate call centers and offer web site design, hosting and other services in addition to fulfillment. “What we offer has expanded way beyond putting the label on the box and shipping it out the door,” McGovern says. “One of our roles is to facilitate brand growth by providing a robust set of capabilities that clients can quickly implement.”
The same is true at CommercialWare, which licenses its software for in-house use. It has expanded significantly over the past year, acquiring Transaction Smartware Inc., known for its OrderMotion product, that provides order management, CRM and fulfillment from a single database and that is moving CommercialWare into an ASP model. In addition, just over a year ago it acquired Capture.net Technologies, developer of software for hard goods and specialty retail chains’ store management. “We’ve placed our bets on cross-channel integration,” Askin says. “It’s one of the hottest topics out there.”
Checking the list of whats and hows
To many in the industry, fulfillment is one of the fundamental aspects of doing business online, almost to the point where its execution is taken for granted. “We are at the point where physical fulfillment needs to be something like the dial tone,” McGovern says. “It has to be there and it has to be done right every time.”
Fulfillment may be taken for granted, but retailers who understand the complexity of the process often are motivated to go outside for fulfillment services by their own lack of knowledge or their inability to gain economies of scale. Thus they start with the basics of fulfillment services and work into other services from there. “With most clients we spend at least two days and sometimes more going down a long list of all these minute points that they have to make decisions on,” Himes says. “Many of the points are things that a lot of retailers have never thought about before, like how they want the label to look, how they want the box to look, how they want the merchandise presented in the box, what weight of corrugate they want.”
Often what the decision to turn to an outside fulfillment provider boils down to is core competency. Retailers, especially the retail chains, understand product selection, merchandising and marketing, and have the systems in place to operate in all those areas efficiently and at the lowest cost. But the same is not always true when it comes to fulfillment and other web operations. “Major players who have never attempted the direct business before want to leverage the competency and experience that others have gained,” Himes says.
And that pushes the successful third-party fulfillment providers into services that go way beyond fulfillment-and require that they be flexible in meeting the needs of their customers. For instance, while Bradley Direct offers a range of products, many customers buy on a menu basis. “Some want just the call center or just the fulfillment, while others want the web design and the web hosting,” Warner says. “We can-and have to-do any and all.”
Measuring the fiscal health