Success in the realm of e-commerce requires more than an appealing Web site and a compelling advertising campaign. Attracting online customers is important, but delivering an enjoyable, hassle-free buying experience is another key factor. Online fulfillment is a cornerstone of e-commerce, encompassing all of the steps involved in purchasing a product, from order placement and billing to packaging, shipping, and sometimes beyond.
A DIFFERENT GAME
Companies sell their products in different ways. Some provide wholesale products to other businesses or distributors for re-sale. Others sell directly to consumers, and some use a combination of both approaches. E-commerce spending is expected to exceed $3 trillion by 2003, according to Warehousing Management, and the potential for additional revenue has lured companies in all of these categories to the Web.
In the process, those attempting to sell directly to consumers quickly discovered that online order fulfillment differs in many ways from traditional 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, such as providing customers with real-time information about available products in inventory. Once a product is ordered, successful companies provide shipping and order confirmations, notices about problems, and other real-time, up-to-the-minute details. 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."
Having the ability to offer information of this nature to consumers is easier said than done. To do so, companies not only need to make sure all of their systems—including accounting and shipping—are able to handle high volumes of consumer orders efficiently, they also must make sure the systems are integrated. As explained in InfoWorld, "Retail success hinges on what happens behind that fabulous Web site: logistics and fulfillment, payment systems, systems and policies to handle returns, customer service, and, running through it all, integration. Without these the site won't scale, and customers who once loved the Web store will quickly turn fickle and point their browsers elsewhere."
Integration allows data from one order to be shared instantly, in real-time between multiple areas of the organization, including the billing, shipping, marketing, and customer service departments. If systems aren't connected, the movement of data and the fulfillment process slow down.
HOW THE FULFILLMENT PROCESS WORKS
The way fulfillment happens differs from company to company, but many aspects of the process are similar among successful e-tailers. Fulfillment begins after marketing efforts bring potential customers to a company's Web site. At this very early stage, companies take steps to make sure products are easy to find and order. Some e-tailers offer chats with customer service representatives or lists of frequently-asked questions to make this process unfold smoothly.
When consumers select products for purchase online, they often place them into a virtual shopping cart—technology that keeps track of items consumers are interested in until they are done shopping. When items are added to a shopping cart, the Web site may automatically check a company's inventory for availability. Otherwise, out-of-stock items may not even appear on the Web site.
Immediately before a consumer actually submits an online order, shipping and freight charges are often calculated and displayed. If the charges are excessive, this may cause the order to be abandoned. After a customer provides their name, address, and payment information during the order submission, the data is shared with appropriate areas throughout the company almost instantly. If a credit card is used, the number is verified before payment is authorized. The customer's name, street and e-mail addresses might be sent to the marketing department for use in future campaigns, to customer service in case the customer contacts the company with questions or concerns, and to the shipping and receiving department.
Next, the company's warehouse is notified about the new order. If a company has several warehouses or distribution centers in different regions of the country, the order is sent to the one closest to the consumer, taking inventory and workload issues into account. When an order is received on the Web, workers might be notified on handheld devices via a wireless computer network and directed to perform different tasks in order to pack, label and prepare items for shipment. 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).
Eventually, the packaged product makes its way to the loading dock, where a carrier like United Parcel Service (UPS) or Federal Express (FexEx) handles delivery. Those retailers with regional or national networks of physical stores are able to use them as a strategic advantage, whereby goods ordered online are available for pickup at nearby retail locations. This saves consumers money on shipping, and also makes it easier for them to return unsatisfactory products. In the early 2000s, one national convenience store chain was considering contracting with different pure-plays (retailers who sell exclusively online) so its stores could be utilized as locations for online order pickups.
At some point in the process, an e-mail confirmation is sent to the consumer, providing details about the order (product descriptions, model numbers, quantities, colors or sizes) and outlining how the package is being delivered. Information about the company's return policy may be included in the e-mail. A tracking number also may be provided so the consumer can check on the delivery status of their order and stay informed about the date and time it will be delivered. The entire process—from Web order to the shipping dock—can happen in a matter of minutes or hours if an efficient system is in place. But the fulfillment process doesn't always end at the dock. If customers order groceries or large items like appliances, which require them to be home for delivery or setup, a company may enable communication between drivers from its own fleet and the customer.
Online fulfillment allows companies to tie manufacturing more closely to actual demand, thereby reducing storage space and financial resources associated with large inventories. If a company doesn't manufacture its own products but resells goods from other manufacturers (such as a sporting goods e-tailer), an effective high-speed fulfillment network will allow it to see inventory and supply information from one or more trading partners, giving them the ability to spot supply shortages before they cause problems. Additionally, by using special software, companies can forecast demand and make necessary adjustments for seasonal or cyclical fluctuations.
HOW COMPANIES MANAGE FULFILLMENT
The generalized fulfillment process outlined above reveals the many steps and technical systems involved in delivering a positive customer experience. Often, this is too difficult or costly for companies to handle independently. In order to focus on what they do best—developing and marketing new products, for example—retailers often turn to third parties to handle the fulfillment process on their behalf. Because they focus exclusively on fulfillment, third parties often are able to perform this function more effectively and efficiently. According to Logistics & Distribution Report, a large number of Fortune 500 companies had outsourced transportation, inventory and warehouse management by the late 1990s. In 1999, third-party logistics contracts grew by 16.5 percent, with total revenues of $46 billion. Growth rates of 15 to 20 percent were expected through 2003.
When a third-party fulfillment provider is used, a company usually continues to manage its own Web site, but everything that happens after an online order is submitted is handled by the third party. Third-party fulfillment companies come in all shapes and sizes and vary in the services they offer. Most offer the ability to process orders, manage inventories in a warehouse and ship products, but some provide customer service via phone or e-mail, printing, e-commerce services, assembly, promotional fulfillment, and more. All are invisible to consumers, meaning that when they ship goods on behalf of a retail client, packages normally carry the client's logo.
Transportation & Distribution divided third-party fulfillment companies into three categories—physical infrastructure providers; technology providers; and integrators, which offer the services of both physical infrastructure and technology providers.
Physical infrastructure providers store and manage inventories for their clients, distribute products for them and provide value-added services, including customer support and the handling of returned merchandise. Technology providers, unlike physical infrastructure providers, don't warehouse products or handle shipments on behalf of clients. Instead, they provide the technical systems that are used to link trading partners together, including the processing of credit card information.
TRANSPORTATION COMPANIES GET INVOLVED
Leading transportation companies like United Parcel Service and FedEx began to play more involved roles in e-commerce during the early 2000s. Going beyond the delivery of packages, each company established business units focusing on the fulfillment aspect of e-commerce. UPS created a subsidiary called e-Ventures to identify, test, and launch new e-commerce-related businesses within the company. The first such business to emerge from e-Ventures was UPS e-Logistics, a business unit that offered clients "turnkey supply chain management solutions," by taking advantage of its transportation and warehouse networks. The services it offered included inventory management, shipping and delivery, warehousing, order fulfillment (pick, pack and ship), management reporting, customer care and telephone support, and returns management. UPS previously offered similar services to large corporate customers like Nike.com.
In May 2000, FedEx Logistics announced that its FedEx Supply Chain Services, a third party provider of supply chain solutions, had created FedEx eLogistics—a new division focusing on providing e-commerce logistics solutions to businesses. According to Doug Witt, then vice president and general manager of new division, FedEx Supply Chain Services helped customers to decrease cycle times, improve the management of returns, and lower fulfillment costs.
E-commerce moves at a fast pace. Marketing, sales, ordering, packaging and shipment all can happen in a manner of minutes or hours. Fulfillment problems arise when a breakdown or bottleneck occurs at some point in the process. Before the Internet, companies could often hide inefficient fulfillment systems, but with e-commerce this is not possible. Among the reasons e-tailers experience problems with order fulfillment are a lack of integration and poor forecasting.
When a company's Web site is not integrated to its other back-end systems, such as accounting or inventory, fulfillment happens slowly. In such a situation, orders come in quickly via a company's Web site and then sit for days or weeks waiting to be manually re-entered by someone into another system. The chance for human error also becomes a problem because product codes, prices, shipping addresses and more can be accidentally altered. When companies do a poor job of forecasting, they often fail to deliver on the promises of product availability and fast shipping made in advertisements. The failure to look ahead and plan for seasonal or cyclical spikes and dips can lead to embarrassing inventory shortages and inadequate warehouse staffing.
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SEE ALSO: FedEx Corp.; Fulfillment Problems; Shipping and Shipment Tracking; Supply Chain Management