Amazon is growing on-demand services after reporting a 20% sales increase in 2015.
Picking, packing and shipping efficiency can make or break profitability.
“OK, you got the order. Now what?” The question is both rhetorical and practical for e-retailers, much the same as it was for catalogers before the Internet came along. Always important, order fulfillment has taken on epic significance since retailers began selling on the web.
Expectations of fast delivery and receiving products in pristine condition now are the norm and play a huge role in customer satisfaction-and e-retailers’ profitability. But without evolving information technology tools and processes, many retailers simply could not manage product flow once orders arrive in the warehouse.
A key component in the shipping process is product packaging. For companies like Sealed Air Corp., a maker of air-filled packing materials, customer satisfaction depends on packages arriving intact as well as on time. “We’ve always thought of damage as a cost,” says Bill Armstrong, technical development manager for Sealed Air. “It’s a significant competitive area today. If you can’t get the product there and right the first time, every time, it’s simple for a shopper to click down to the next company on a search engine’s list.” If a package is on time but damaged, no matter whose fault it is, that customer probably won’t be back, he adds.
On the retailer’s cost side, major shipping companies such as UPS and Federal Express are moving to charging by dimension weight for packages, instead of the old rates based on weight and distance. “With the increased use of the Internet, more products are being shipped to homes and there are a lot more packages distributed by the carriers. Lightweight, low density packages, take up a lot of space in delivery trucks, so the carriers were not making a lot of money,” Armstrong says.
New dimension weight rates coming from UPS and Federal Express early next year mean that packages over three cubic feet will be assessed a rate equivalent of nine pounds per cubic foot, Armstrong says. Depending on a package’s shape, a 16 pound package could be charged the same as a 27 pound package was in the past.
Sealed Air’s test lab is studying ways to carve one inch off any dimension to get larger packages below three cubic feet, which could cut retailers’ shipping cost by half, Armstrong adds.
Fulfillment systems manage picking, packing and shipping processes for many online retailers, whether selling via the web only or multiple channels. For efficient operations, fulfillment systems today need to interact with many others to ensure visibility-where products are at any point in the order process. Order management and inventory systems ideally should be fully integrated with fulfillment and other systems, says Curt Barry, president, F. Curtis Barry & Co. Inc., a consulting firm specializing in e-retailing logistics.
“A lot of the data used in marketing and merchandising comes from fulfillment systems, including what products are in demand, sold and shipped. There are lots of nuggets to be mined from those applications,” Barry says. But not all e-retailers have mastered that interplay. “From a technology point of view, we still see a lot of Internet companies, especially small ones, that have not fully addressed integrated order management,” he says.
The continuing challenge
Systems integration is a continuing challenge for online retailers, but fulfillment systems have come a long way since the early days of stand-alone boxes, says Jeff Kawasugi, an independent web retailing consultant based in Los Angeles. “There has been a huge increase in efficiency and preventing problems like back orders. The customer experience is improving,” he says. For multi-channel retailers with multiple distribution points, integrating data from several channels into the same program is critical, Kawasugi says, to ensure products are shipped from the most efficient distribution point.
New and more sophisticated fulfillment technology tools that manage picking, packing and shipping are good reasons why technology managers need to think about systems holistically, Kawasugi says. And they face the nettlesome task of predicting the future in a rapidly changing world. “Retailers need to anticipate and forecast their technology needs over three to five years, and pick components that not only integrate well but that don’t create a bottleneck in their systems,” he adds.