Finding a Strategic E-Fulfillment Partner

As the march of dot-com failures continues, companies that once raced to find gold in the e-commerce fulfillment sector are now retreating. Recent, notable departures from the e-fulfillment segment include:

• Publicly traded ASD Systems (now Ascendant Solutions), which saw tremendous drops in its stock price after its initial public offering and subsequently changed its focus to software development.

• Industry giants Fingerhut and ClickShip Direct, both of which have moved away from outsourcing, their parent organizations, choosing instead to service their core direct marketing businesses.

• Several private start-ups and organizations that either have closed or have begun retrenching with a different focus.

While the dot-com shakeout arguably means fewer potential clients for e-fulfillers, a new study by Jupiter Research, New York, forecasts that one-third of Web vendors will outsource shipping in the next year. These trends mean that companies that want to outsource will need to look long and hard to find quality partners in the shrinking third-party e-fulfillment landscape.

More than ever, the client-vendor partnership is extremely important. How should companies identify the appropriate outsourcer? What should they look for?

A willingness to invest in technology. Precious few of the traditional outsourcers pursuing e-business contracts are truly wired to conduct digital business. The ability to provide real-time integration and share information among myriad systems, vendors, partners and customers is a key driver to success in today’s multichannel world.

Commitment to technology is a major differentiation point between traditional fulfillment and customer service outsourcers that cannot offer turnkey solutions to clients because of their lack of inhouse technology capabilities and personnel.

Thinking outside of the parcel. At the National Retail Federation’s recent annual conference in New York, panel discussions indicated that many large retailers are convinced that the Internet’s greatest business benefit will be in business-to-business streamlining of the supply chain, including product development, procurement, manufacturing and inventory replenishment.

Accordingly, they need sophisticated, versatile outsourcers that can provide these enhanced services, as well as systems integration, e-business development, accounts payable, vendor and supplier management and customer relationship management.

Customer service capabilities. Forrester Research, Cambridge, MA, reports that easy order tracking and simple returns processing are the most significant aspects of customer service, along with responsive customer care representatives. As companies move to using multiple channels, customer service requirements become more sophisticated, placing more importance on the role of technology integration and the availability of Web-enabled call centers.

Clients need to ask outsourcers whether and how they are prepared to manage the real-time flow of customer service data, either by providing customer service themselves or through tight integration with clients’ inhouse or vendor-supplied customer service operations.

A culture of proactive communication. Customers’ traditional objections to outsourcing include concerns about loss of corporate control, service performance and getting proper attention from an organization with multiple clients.

Look for e-fulfillers that provide real-time reporting, not only on inventory and shipping status, but also on their activities and performance levels. In addition, interview potential partners and their clients to determine how closely and how well they communicate. Are there processes for regularly scheduled feedback? What forum exists for client observation and input?

Scalability. The ability to rapidly scale operations to meet business volume and demand is critical. In multichannel commerce, it can be difficult to accurately anticipate spikes from marketing campaigns in site traffic, sales and order volume. However, the consequences are dire for marketers that disappoint their customers. Is the outsourcer prepared to handle large increases in business seamlessly?

Financial stability. Clients have to search diligently for e-fulfillment partners that are financially secure and positioned for the long term. Question No 1: Is the outsourcer profitable? Particularly important will be the source of e-fulfillers’ funding. Companies dependent on venture capital funding are vulnerable to losing their resources on short notice, particularly in today’s volatile environment, as are e-fulfillers with client bases dominated by pure-play e-tailers.

Depth of management. Ultimately, successful outsourcing relationships depend on the caliber of the service organization’s people. Warehouse space and shipping logistics are basically commodities that anyone can buy and sell. However, experienced, strategic managers are key to providing not only high-end implementation services, but also the consultative vision and direction necessary to help clients truly benefit from their outsourced e-business initiatives.

Examine potential partners to see whether their organizations are well run. Have they overbuilt capacity? Is there an abundance of empty warehouse space, or are there lots of empty call center seats? These kinds of signs can indicate a lack of strategic planning or an overall lack of fundamental business management.

Southwest Securities Group, Dallas, which analyzes the third-party fulfillment industry, estimates that there are roughly 85 back-end providers in the business. Investment bank Stephens Inc., Little Rock, AR, predicts that the market will only support a handful of major players in the near future. In this evolving industry, choosing the right e-fulfillment partner will become even more critical to success.

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