[September 26th, 2001]

See Also   Why You Need an Add URL Page   A Tale Of Two Sites   Don't Duplicate...Differentiate!   The Continuing Battle Against Online Fraud   Taking Care of the Pennies   How To Recession-Proof Your Business   Your Fulfillment Choices   The Silent Thief - How to Get Rid of TopText   A Checklist for Accepting Credit Cards Online   Five Questions That Will Help YOU Succeed Online   Back To "E" Basics   Beyond SET: Enhanced Security for Online Transactions   Just How Serious is Online Fraud?   Your Direct Channel to Customer Service   Online Customer Service: Best (and Worst) Practices   How to Survive the Dot.Com Shakeout   Step-by-Step to Your Own Profitable Web Business   Where Do Average People Find Business Success?   What's REALLY Required To Start An Online Home Business?   CRM in SmallBiz: Disappointing Misconceptions

With the advent of Web based commerce, many aspects of business to consumer selling changed forever. Almost over night, retailers had to master a host of new skills, such as Web design concepts, secure payment technologies and online marketing techniques. However, amidst all this new technology and jargon, one key area remained largely unaltered: order fulfillment. For at the end of the day most e-commerce transactions (except, of course, those involving downloadable goods) result in a physical package being shipped to a customer.

Consumer expectations of e-commerce were high, usually looking for products at the lowest possible selling price combined with free and fast shipping. E-tailers though were often poorly equipped to meet the demands of consumers, particularly over peak periods like the holiday season. As a result, order fulfillment quickly became a major headache for e-tailers.

Matters came to a head during the 1999 holiday season with many e-tailers failing to deliver their orders on time. These problems eventually resulted in seven major online players agreeing to pay the FTC $1.5million in fines because they had failed to tell holiday shoppers that their deliveries would be late. This was a clear warning that online shoppers were not receiving the level of service that they expected.

In response to this, many e-tailers made major investments in their fulfillment services during 2000 which resulted in a much improved delivery performance during last year's holiday season. However, these improvements came at considerable cost to e-tailers who were also under extreme pressure from their investors to deliver profits as a result of the dot.com stock market crash.

This squeeze has led to many e-tailers dropping their free or subsidized shipping models. But the result of this is that customers are now being driven back to brick and mortar buying. According to a recent report by Jupiter Media Metrix nearly half of online merchants reported losing money on shipping and handling while two thirds of customers have been deterred from completing online purchases because of shipping and handling charges. Of course, cost is only one factor that consumers use to rate the quality of an e-tailer's order fulfillment process. A recent study by Shop.org and the Boston Consulting Group claimed that 40% of online shoppers were dissatisfied with the fulfillment process itself, irrespective of cost. Add to this another key factor in the report - that 25% of shoppers will never return to a Web site if they experience a problem with their purchase - and you can quickly see that poor fulfillment can seriously - if not fatally - damage an e-business.

Quite simply, your choice of fulfillment model will have a major bearing on the success - or lack of - of your online business. Essentially you have three fulfillment models to chose from: a Do-It-Yourself approach, complete fulfillment outsourcing, or forming partnerships with manufacturers or distributors. Here are the pros and cons of each of these approaches together with some useful links where you can find out more:

Do-It-Yourself

Most small businesses making their first tentative e-business steps will be tempted to buy a few shipping cartons and fulfill their orders themselves. This approach does have some advantages: it allows an e-tailer to remain in complete control of the total order cycle, to ensure that orders are shipped on time with the correct paperwork, and enables them to answer directly and personally shipping queries from their customers.

This approach does significantly increase the e-tailers workload. For not only do they have to fulfill the orders and answer customer enquiries, they usually have to maintain shipping cost and sales tax tables on their Web sites. However, the key disadvantage to the DIY approach is its lack of scalability. For while most e-tailers will be capable of shipping a handful of orders a day, smaller businesses usually lack the resources, facilities, labor and special equipment to handle a large volume of orders.

If you think that your order levels will be low or you plan to offer a highly personal service to your customers then this could be the approach for you.

Useful Links:
FedEx
GoShip.com
SelfShip
UPS

Outsourcing

Big businesses have long used third party logistic (3PL) services to handle their fulfillment requirements, but until the advent of Web-based commerce there was no real cost effective way for small or medium sized businesses to take advantage of these. However, a number of organizations have now launched services targeted specifically at smaller companies.

With this approach, an e-tailer contracts with a 3PL to provide whatever services are needed from a list of service offerings that usually includes purchasing and storing inventory, order picking and shipping, managing returns, and answering customer enquiries. The use of a 3PL should be invisible to the end customer, as the 3PL will usually use shipping labels and paperwork that carry the e-tailers name, logo etc.

Fulfillment outsourcing leaves the e-tailer free to do what they are best at - marketing their products - while the fixed cost of the 3PL service allows them to accurately budget for the costs involved.

The biggest challenge with outsourcing is usually system interfacing. A link needs to be set up between the e-tailer's shopping cart and the 3PL's management system to trigger shipments, and a return loop needs to be configured back from the 3PL to the e-tailers back end systems to ensure that sales are accurately recorded.

Useful Links
eSpeed
Fill It
iFulfill.com

Partnerships

The third approach is to for an e-tailer to partner with another company and have them fulfill all orders.

The most common example of this is affiliate programs, where e-tailers refer customers to a third party and they then take over completely, processing the order, payment and shipping.

Another instance is where an e-tailer purchase products direct from a manufacturer or distributor and then arranges for them to "drop ship" products directly to customers. However, while this method means that the e-tailer is able to delegate the entire order and fulfillment process, there are some serious disadvantages: an e-tailer has no control over when or how the orders are shipped, shipments are unlikely to include an e-tailers paperwork leading to customer confusion and the costs charged by the manufacturer are liable to be much more than in the other two approaches discussed above.

Useful Links
AssociatePrograms.com