Fulfillment Problems

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FULFILLMENT PROBLEMS

Online fulfillment is a cornerstone of e-commerce, encompassing all of the steps involved in purchasing and receiving a product, from order placement and billing to packaging, shipping, and beyond. Fulfillment problems arise when a breakdown or bottleneck occurs at some point in the process. Before the advent and wide use of the Internet, companies could often hide inefficient fulfillment systems, but with e-commerce this is not possible. Online fulfillment differs considerably from fulfillment models used for "brick-and-mortar" stores. Rather than shipping relatively small numbers of large orders to retail chains or distributors, high volumes of smaller orders for individual consumers must be processed. This presents a new set of requirements for retailers, especially in the areas of speed, connectivity, and customer service.

KINDS OF FULFILLMENT PROBLEMS

Most fulfillment problems stem from companies not being able to make good on promises of product availability and fast shipping as made in their advertisements. While accepting orders is quite simple, filling them quickly and efficiently is another matter. Among the factors that cause problems are a lack of real-time connectivity and integration, poor planning or forecasting, and trouble with warehouse operations.

Lack of real-time connectivity—either between businesses and consumers or businesses and other businesses—is a primary cause of fulfillment problems. Generally speaking, e-commerce happens very quickly. The amount of time that elapses between the sales transaction process and when a product is actually shipped can literally be a matter of minutes. To achieve this high rate of speed, a company's Web site must be integrated with its other back-end systems, such as accounting or inventory, and the information must be made available to all trading partners. This creates confidence in the fulfillment system and allows potential problems to be identified before they develop into actual ones.

Providing shipping and order confirmations, notices about problems, and up-to-the-minute details in real-time is critical to an e-tailer's success. As explained in World Trade, —Today's customers want to know a lot about their order: whether it's in stock, when it was shipped, where it is, and how soon they'll get it. Statistics say that Internet customers typically check on their order seven times before they receive it.

When a company's Web site isn't integrated with its other systems, orders may come in via the World Wide Web and sit for days or weeks until they are manually re-entered by someone into another system. Not only does this cause fulfillment to move at a very slow pace, it also makes it difficult for companies to monitor the status of their operations and introduces the opportunity for human error. Product codes, prices, shipping addresses and more can be accidentally altered during manual re-entry.

Whether fulfillment occurs between businesses and individual consumers or businesses and other businesses, effective fulfillment systems are built from the inside out, instead of from the outside in. What this means is that they need to be flexible enough to work with and accept data in various formats from computer systems at other organizations. In the world of e-commerce, companies frequently change relationships with other manufacturers, suppliers, and distributors. Having a fulfillment system that can accommodate different trading partners, no matter what system they use, is attractive because it reduces the need for making special arrangements.

Poor forecasting and planning also creates problems in the fulfillment process. Forecasting involves using information from a variety of different sources to predict business fluctuations, sometimes with the use of special software programs. When this isn't done, companies lose their ability to deliver goods or services on-time due to embarrassing inventory shortages, inadequate warehouse staffing, and so on. Besides forecasting consumer demand for their own products and services, companies also may need to consider production forecasts from suppliers they rely on during the manufacturing process.

Finally, because of the need for constant, real-time information about the status of products and shipments, modern warehouses are a requirement for successful e-tailers. When warehouses are operated under manual systems, inefficiencies and mistakes often occur, such as shipping items to the wrong address and long delays. In the early 2000s, companies relied on warehouse management software (WMS), overhead scanners, conveyor belt systems, wireless computer networks, wearable computers, hand-held bar code scanners and portable printers to streamline operations and automate the movement of goods through their warehouses. The way such technologies were used was complex and varied depending on the warehouse or distribution center. However, in general they eliminated the need for human involvement for tasks like checking incoming shipments against paper purchase orders and figuring out where incoming shipments need to go in a warehouse (to inventory or to another dock for immediate delivery).

EXAMPLES OF FULFILLMENT PROBLEMS

Although many e-tailers had fine-tuned fulfillment systems by the early 2000s, this wasn't always the case. The 1999 holiday season in particular was characterized by a bevy of fulfillment problems. That year, many companies beefed up their physical infrastructures, buying additional servers to make sure no consumer's order went unprocessed. They also spent large sums on advertising their Web sites. However, in the end many consumers did not receive the goods they ordered online by Christmas. Some orders arrived late, some were wrong, and others never arrived at all.

As Planet IT explained, "Many starry-eyed etailers and dot-coms neglected the basics by not keeping a tight rein on inventory and inaccurately forecasting the heightened customer demand, analysts say. And when some e-tailers became buried in orders, they added fuel to the fire by promising unrealistic delivery times and capabilities." In addition to dissatisfied consumers, the mishaps led the Federal Trade Commission (FTC) to levy large fines on leading retailers for violating its Mail and Telephone Order Rule, which according to the FTC requires retailers to ship goods by the promised date, or within 30 days if no date is promised. Companies that are unable to do this must notify buyers with a revised shipping date and give them an opportunity to cancel their order if they desire. Toysrus.com, The Original Honey Baked Ham Company of Georgia, Macys.com, KBKids.com, CDNow, Minidiscnow.com, and Patriot Computer all received fines ranging from $45,000 to $300,000. The e-tailers eventually settled in July 2000 by paying $1.5 million in civil penalties for making promises they couldn't keep.

After the 1999 season, the FTC continued to scrutinize e-tailers who promised fast delivery. Macys.com, which in 1999 updated inventory on its site once per day to once per week, changed its practices in 2000 so that real-time data was available to consumers. In Forbes, Kent Anderson, president of Macys.com, explained the retailer rebuilt its entire order management process and developed a more timely, effective e-mail management system for communicating with customers.

Along with Macys.com, other retailers made enhancements and improvements to their fulfillment systems. However, according to Warehousing Management, Accenture's annual U.S. E-fulfillment study revealed that the 2000 holiday season was fraught with many of the same mishaps. The study, which included Web sites run by mail-order catalog companies, retailers with both brick-and-mortar stores and Web sites, and pure-plays (retailers who do business exclusively on the Web), found that 12 percent of deliveries were not delivered in time for Christmas, and 67 percent were not received as ordered.