How to Compete With the Big Guys
Some e-tailers have understood this from the beginning. The warehousing and fulfillment infrastructure in place at Amazon.com is an example of a tremendous investment on the promise of future profits. Customer-focused e-tailers such as Amazon.com understand that by capturing transaction data they can tailor promotional offers and provide fulfillment services that are important to customer retention and ROI.
But how do mid-sized e-tailers (those making between 50,000 and 2 million shipments annually) meet or exceed the customer service levels set by their high-volume bricks-and-mortal competitors?
Traditional retailers and manufacturers wanting to use the Web as a direct line to potential customers quickly learn that existing distribution channels do not translate easily into successful fulfillment of electronic commerce. The traditional retail supply-chain system is suited for large bulk shipments of the same items. E-tail systems must handle customized orders that vary by shipment and are unique to each customer.
E-tailers must also manage their inventory differently than traditional retailers. A retailer may recoup a sale on an out-of-stock item by offering a substitute or rain check to customers, but the stakes for e-tailers are much higher. Online shoppers expect e-tailers' Web sites to have up-to-date stock information. A site that does not have the merchandise can be quickly replaced on-screen with a competitor who can deliver.
The issues become even more complex for start-up e-tailers. Building state-of-the-art warehouse systems for customized consumer fulfillment can cost a minimum of $1 million. The commitment in time and internal resources can be even more prohibitive. Managing fluctuating labor costs and resource requirements to fit demand curves can add further costs and complications.
E-tailers have tried a variety of solutions to the fulfillment issue with varying degrees of success.
Furniture manufacturer Ethan Allen has taken an unusual route. To take advantage of the strong customer service provided by its independent licensees representing nearly 75 percent of its stores, Ethan Allen chose to include independent stores in its online sales program.
In Ethan Allen's e-commerce distribution program, a licensee receives a percent of the sale price for any item sold and delivered within its store's territory. The amount varies with the level of involvement by the store. Ethan Allen uses this strategy to ensure the high level of back-end fulfillment services that are so critical to its success.
Finding the right system with the services needed to help deliver product and create customer loyalty is critical. Some
e-tailers engage consultants to help determine the best fulfillment solution and write a request for proposal if a third-party provider is recommended.
Other e-tailers may conduct their own search. Without the correct search criteria and understanding of available systems and value-added options, however, e-tailers risk choosing a partner that is unable to grow with their needs.
While some e-tailers may prefer the idea of buying and installing their own system, many have found the start-up costs to be prohibitive, regardless of their projected growth curve. For most retailers who enter the quickly changing world of e-commerce, a third-party fulfillment services provider in a shared environment may be the best solution.
Whether building, buying or sharing services, there are important guidelines to consider. Be sure that the fulfillment systems interface with your Web site and other internal systems, and that the order entry, forecasting and reporting systems are integrated to provide real-time updates that support your inventory management. Establish what benchmarking metrics will be used to keep performance within established quality standards. Be sure that the customer service capabilities and staffing are adequate.
If you are considering an outside fulfillment provider, find out how well the provider meets the needs of clients with requirements similar to yours. If you will share a fulfillment environment with other companies, be sure their fulfillment strategies are similar to yours. Find out about such companies before you make your final selection.
Be sure your fulfillment partner is in a "make" rather than "move" environment. The make environment lets you make special offers to your customers and provide personalized a la carte fulfillment. Movers specialize in shipping the same thing to everyone. In addition to all of the information a potential fulfillment vendor provides, you will also want to make a site visit before you make a final decision.
Third-party shared-environment providers offer flexibility and scalability. This can help you manage your costs more effectively. You pay a variable rate based on what you use. Some days you may require 40 hours of labor. Other days you may need 2,000 labor hours based on order volume. When you share costs and resources with 25 or more other companies, you may be able to cut your costs for customized individual shipments as much as 60 percent.
By sharing a fulfillment environment with other companies that have strategies similar to yours, you'll find significant efficiencies enabling you to lower costs of distribution, increase customer loyalty, reduce dead inventory, and better manage the peaks and valleys of your business cycle, positioning your company to compete with the giants.