Challenges and assumptions
Six business models of physical fulfilment processes
supporting e-commerce have been identified. Only four of these
models apply to companies without a retail store base such as
pure e-tailers, most manufacturers, and most distributors. The
differentiation between the models is determined by ownership of
product, physical assets, and the point of delivery to the
Model number 1, “integrated distribution”,
involves building eFulfilment capability into an existing bulk
distribution centre - a tempting, but problematic model for many
retailers. Toys R Us has abandoned this model in its move to
model two – an acquired, dedicated eFulfilment centre.
An American online grocer tackled model 2
head-on and drove down costs from their home delivery service.
The grocer is investing US$1bn in building 26 dedicated
distribution centres and a tiered fleet of delivery vans to
service their customers with high-quality dry and perishable
goods, at competitive prices, within a 30-minute delivery window
chosen by the customer. Their first automated centre handles 20
times the volume of a typical supermarket distribution centre,
enabling customer orders to be directly transmitted from the Web
to the grocer’s proprietary fulfilment applications, then
routed to machines that pick goods from the shelves without human
Third-party eFulfilment models, model number 3,
are often faster to set-up and therefore attractive to start-up e-tailers.
Outsourcing eFulfillment service to a third party with proven
technologies and known performance can be a good starting point
for a company. All of the principal small-package carriers, such
as UPS and Fedex, offer some level of such eFulfilment service
The 4th model, a “virtual” model,
may turn out to be the most cost-effective model overall. If the
supplier has proven capability for one-to-one shipping, it has
many of the advantages of a third-party model. Amazon.com
initially adopted it through Ingram Books. However, it has a
potentially fatal flaw. As the products were sold through and
fulfilment service by the same distributor, substantial
negotiation power is shifted away from the e-commerce company to
the supplier. Amazon.com has progressively moved to model two by
building its own operations.
Model 5 is generally not perceived as
successful. In this model, an order is placed electronically but
is fulfilled by specialised order pickers who pick stock from
regular retail shelves and deliver to the customer’s door.
Technology integration across many fulfilment points, and quality
control are the barriers to this approach.
In model 6, a "pure play" e-commerce
retailer, a bricks & mortar retailer with no local stores, or
a manufacturer ships products to an affiliated store for local
delivery or to a designated customer pick-up location. For
example, an appliance manufacturer might sell a refrigerator
though the Internet to a consumer, but deliver it to a local
supply company which would either deliver the goods or allow the
consumer to pick it up at their store. There aren't many of these
scenarios happening today, but as the use of the Internet
evolves, this model could become significant.
It is too early to tell if there is a “right” way to
do eFulfilment. There are many factors that contribute to the
decision of what a particular company does: What are customer
expectations? What capabilities are needed to satisfy them? What
are the existing assets and capabilities? Can the resulting value-chain
support a viable business? - to name a few. Every company’s
situation is going to be different and the e-Fulfilment “answer”,
at least at first, will also be different.
Making it happen