Buyer's guide: Delivering the goods

Fulfilling your customers' orders takes more work than you might think. Here's what you should know before you outsource your package delivery needs.

You redesigned your Web site, expanded your product catalog, and snared more customers. Now all you have to do is deliver the goods.

Fulfillment--the process of putting products in your customers' hands--is the critical factor that's at the root of most e-business failures. According to Jupiter Research, 44 percent of online retailers lose money on shipping and handling.

In an e-commerce environment, orders are submitted electronically, so you can tie the ordering process in with the rest of the operation. When an order goes to the warehouse for fulfillment, that information can also be sent to the inventory system, which automatically updates the stock on record. When the stock drops to a preset level, this can trigger a purchase order to buy more.

You can set up a fulfillment infrastructure yourself or choose another alternative: contract the service. In this CNET Enterprise Buyer's Guide, we tell you what's involved with the fulfillment process and what to consider before you contract the service.

Services you can get

A fulfillment service acts, in a sense, as an agent for your company, and your fulfillment contractor is likely to have more contact with your customers than you do.

The fulfillment center does much more than put things in boxes and send them out. A full-service fulfillment operation can handle every aspect of fulfillment for you at its own site, including:

  • Warehousing
  • Charge card and check processing
  • Order taking
  • Picking and packing
  • Shipping
  • Call center management
  • Reporting/analysis

Some larger companies such as EDS will design and build your Web site and even maintain the storefront for you, which doesn't leave you with much to do except create your products and collect the money.

What to know before you buy

How difficult is it to put things in boxes, slap some postage on them, and then schlep them down to the post office? Not very, if you sell two or three items per day. But with volume comes complexity. You need to figure out the cheapest method of shipping for your company and the cheapest way of packaging. You'll also want to keep some statistics on what you're doing, and you need to create reports on turnaround time, back-order summaries, and, of course, expenses. A geographic report is also useful; if you have a large number of clients in a certain part of the country (especially if you're in a B2B market and you're shipping large product volumes), you may be able to negotiate more favorable terms with your shipping company.

If you have more than a few items, there must be controls in place to avoid sending a box of pink flamingoes when the customer really ordered a half-dozen lawn gnomes. This is where outsourcing comes in, and you should consider the following angles before contracting a service:

Reporting. You'll need to get detailed inventory information from your fulfillment contractor, such as how many units you're selling and when, which items are selling the most, how many customer service interactions took place, and how many units are in stock. You should be able to access these reports daily, and your service should ideally send them electronically, either via e-mail or direct intranet access.

Call centers. Major fulfillment contractors also usually operate large call centers through which they can take orders on your behalf as well as your customer service calls. Creating an efficient call center is expensive and requires a substantial investment in technology (IVR systems, PBXs, computer-telephone interfaces) and manpower. Look for a fulfillment center with the following features:

  • A state-of-the-art call center capable of taking voice calls and fax inquiries
  • E-mail and chat interactions capability
  • Self-service customer support (to keep live calls to a minimum)

Return management. Although nobody wants dissatisfied customers, you're bound to have returns. Your contractor can take this responsibility off your hands. Some providers will even take the returned products and refurbish them for you. Look for a fulfillment contractor capable of doing light manufacturing and assembly in-house. Of course, you should get detailed reports on returns.

Packing the product. What about actually stuffing the boxes? If you run a large warehouse, this task can be very difficult, with a risk of errors. The most common failure of a paper-based delivery system is poor picking, so look for companies that use an electronic, bar-code-based picking system. Using a large fulfillment provider has the advantage of buying power. Buying cardboard boxes and shipping labels is decidedly the least sexy part of e-commerce, but this can make or break you. Your fulfillment company should be able to buy these materials for all of its clients from the same provider, thereby creating some volume-based cost savings that it should pass on to you.

Multiple sales channel capability. Regardless of whether orders are coming in from the Web, through direct mail, telephone, fax, or carrier pigeon, your fulfillment provider should be able to give each channel the level of attention it requires. Your provider also should furnish you with a detailed report by channel breakdown.

Service level guarantee. How quickly will your fulfillment service send out an order after it has been received? Does your contractor promise accuracy in the picking and packing process? Most importantly, are these promises mere sales puffery, or is it a written service-level guarantee? The guarantee should also address issues such as provisions in the event of a warehouse fire, robbery, or natural disaster. Be clear which party will carry insurance on the goods.

Warehouse location. The physical location of the contractor's warehouses can be vitally important and may have a big impact on both your in-bound and out-bound shipping costs. If your biggest shipping expenses are in receiving goods, pick a service with a warehouse near your biggest supplier. If out-bound shipping is a heavy expense, it may pay to select a provider that has multiple warehouses in strategic locations throughout the country.

The costs involved in using a fulfillment service will vary, depending on what services you want to use, what volume you have, and how many different products you have. "Most of our contracts are pay-by-the-drink," says Mike Jansen, client delivery executive in EDS's CRM division. "The customer sells a unit, we charge them a transaction processing fee for the unit to do the order processing and distribution." Obviously, that per-unit cost is going to be higher if you're sending small shipments of hundreds of different items. There will also be some up-front costs, but for a small operator with a plain vanilla system with no changes, those up-front costs are likely to be minimal.

Spotlight issue: Integrating your systems

Fulfillment is connected to virtually everything else in your operation. As a result, you'll need a service that understands the required integration and what it can achieve. "Our order management system sits right behind the shopping cart of the customer's Web [site], so when the customer clicks on the product, it's actually going live against our order management system to determine if stock is available, and [giving] the customer feedback," said Jansen. The fulfillment center should provide you with detailed order and customer interaction reporting, and, of course, financial transactions (because many fulfillment centers also handle credit card processing).

If an enterprise doesn't integrate its contracted fulfillment center with the rest of its e-commerce applications, that company isn't getting full value. Owens Corning, for example, worked with fulfillment contractor Exel to create a totally integrated supply chain system, which resulted in increased capacity, output, and inventory accuracy, as well as improved customer service. Exel placed a high priority on working with Owens Corning's systems staff to understand the company's inventory control system.

Fulfillment checklist
Make sure your contractor provides the following:
• Detailed reporting
• Call center and customer support
• Return management
• Package packing
• Solid service level guarantee
• Efficient warehouse location
Keep in mind that fulfillment differs depending on whether your business is primarily B2B or B2C. In a B2C operation, you're sending out mostly smaller items in lower quantities to a large number of customers. However, in a B2B scenario you're distributing larger quantities to fewer customers. With a consumer site, "there's a lot more complexity in the distribution center on getting the items picked and packed to the individual customer," says Jansen. But B2B has complexities of its own. Says Jansen, "In B2B, you have the ability in your order system to...handle purchase orders, payments on account, and you need to be able to do better screening of credit." Whereas on a consumer site most payments are made via credit card, on B2B sites they are not. Another major difference, Jansen says, is "you have to arrange for transportation." Because of the large volume, he says, "it's not something that would necessarily go on a UPS truck. So there are different logistical needs, different order processing needs."

The integration challenge may even go beyond your own back office to a customer's through the creation of a virtual private network or extranet. Large B2B customers will also want to have greater visibility into your system, which means that your customers may need to be able to see the status of purchase orders, whether a particular item is in stock, shipping status and details, and more. One customer may also have shipments going to multiple locations. Major fulfillment contractors such as EDS will be able to handle this type of intracompany integration.

Beyond integrating with your e-commerce site directly so that orders flow straight to the fulfillment center, you need integration between the fulfillment center and back-end enterprise resource planning (ERP) systems such as SAP. This high level of integration completes the automated workflow model that systems such as SAP create.

The fulfillment future
The Internet has given merchants a new way to interact with customers, but they must also find new ways to interact with suppliers. Jupiter Research says that companies will reduce costs involved in fulfillment by moving toward a drop-shipping model, in which a fulfillment network connects them with various manufacturers and distribution partners. This fulfillment net, a sort of private trading network, would fully automate the drop-shipping process, including order routing, performance monitoring, and real-time inventory checks. Jupiter estimates that a merchant could save up to 25 percent in labor costs by taking this approach.

Fulfillment vendor roundup
Provider Services
EDS Full range of fulfillment services, including integration and consulting, order management, remittance processing, data entry and billing, database and analytics, customer care support, reporting, lettershop (labeling and custom packaging), and e-commerce support. Reporting delivered via e-mail; Web access available soon.
Copera Regional warehouse coverage, order fulfillment, planning and scheduling, exception handling, real-time inventory visibility, and returned/damaged goods disposition. Copera services incorporate physical fulfillment, integrated systems architecture, and value-added e-fulfillment services including supply chain management, collaborative planning, forecasting and replenishment, consulting, and transportation. CoperaNET provides an access point for customers to modify existing business rules and to check real-time statistics and management tools.
Exel Supply chain solutions include e-commerce fulfillment, freight management, supply chain management, solutions design/consulting, and warehousing/distribution. Distribution services include air and sea freight. Assembly services and labeling available.
SubmitOrder Focuses on helping you redesign your supply chain to minimize fulfillment costs and maximize customer satisfaction. Inventory management, receiving, and warehousing are supplemented by value-added services including kit creation, digital imaging, gift wrapping, and returns management.