March 2001

Independent research conducted for Zendor shows a widespread lack of understanding of the outsourced e-fulfilment option. e.logistics Magazine has been given an advanced view of the findings

Despite recent setbacks in the dotcom community, it now seems generally recognised that the home shopping market will expand substantially in the next five years, stimulating vigorous demand for fulfilment and related services. According to the Verdict on Electronic Shopping 2000 report, Internet shopping will grow more than 1,000 per cent to reach £7.4 billion by 2004.

But what exactly is fulfilment? What do current industry leaders expect from it? What are the key issues they will need to address, and what will be the best ways of going about this? Zendor, the distance shopping solutions provider, decided that despite the abundance of opinions on the subject, there was a lack of authoritative, well-founded research.

The company therefore commissioned an independent consultant, Mike Harrison, to seek the views of leading opinion-formers among retailers, e-tailers and manufacturers; and e.logistics Magazine has been given an advance view of the findings.

The research was qualitative rather than quantitative, so it is not possible to present simple statistical lists to illustrate the findings. They were derived from detailed one-to-one interviews, either in person or on the telephone. However, what is known is that the combined turnover of the participating companies was approaching of £3 billion. A breakdown of their main business activities is shown right.

The main objective of the project was to gain a greater understanding of the views, needs and experiences of those currently using, or actively considering engaging, a third-party fulfilment provider. The research therefore focused on the following areas:

• Definitions of "fulfilment" and awareness of services
• The decision to outsource or not, and use of single or multiple providers
• Key issues ­ the "hotspots" for those with fulfilment requirements
• Factors in selecting a provider
• Ways in which needs might change in the future

One of the most striking points to emerge was the fact that there appeared to be little agreement about or clear understanding of the term "fulfilment". Definitions ranged from "core physical delivery to the customer" to "warehouse, pick and pack and call centres", while some respondents also mentioned provision of more specialised services.

This is perhaps not surprising. The research indicates that awareness of fulfilment providers in general is poor, and there is no single source of information about who provides what service. Those currently engaging third-party suppliers apparently use word of mouth, trade press and personal experience as the main sources of knowledge.

When it comes to decisions about outsourcing, most participants in the research are said to have expressed a real interest in using third-party fulfilment providers as an alternative to investing into their own in-house infrastructures. Among perceived benefits of this approach were reduced risk and reduced capital costs, as well as a gain in expertise.

"We haven't got the time or the experience to do it ourselves," one e-tailer is reported as saying. Ironically, though, others cited their own lack of knowledge as a reason not to outsource. "If you're not sure what you want, you can't give it to someone else to do," a retailer commented. It seems many of the respondents indicated a reluctance to take the initial plunge, and a frequent reason for this was simply that they were hindered by not knowing how to word the brief.

The research suggests there are differing views on whether to use multiple or single fulfilment providers. Those who preferred to use a single contractor expressed a desire for one company to provide all the expertise. "Having a one-stop shop means we can focus on one relationship rather than several," one manufacturer said. On the other hand, some were apparently nervous about the risk of over-dependency. As a manufacturer put it, "We're not quite there yet in terms of understanding our requirements, so we're certainly not in a position to place all our eggs in one basket."

Key fulfilment issues
The main priority mentioned by respondents in relation to issue was delivery to the customer ­ the need for the correct goods delivered at the promised time, in perfect condition and in a manner in keeping with the reputation of the supplier. However, while this was seen as the most important factor, it was also considered the hardest to achieve. "Never underestimate how hard it is to meet a customer's expectations," as one e-tailer put it.

Respondents also unanimously stressed the importance of customer service at all points of contact ­ and in particular, during doorstep deliveries and at call centres. This was felt to be especially significant when they were using a third-party contractor, since they were placing their reputation in the hands of an external provider.

Many retailers therefore feared the damage to their reputation that an ill-advised partnership could bring. An interesting point to emerge was that these high standards of customer service were felt to outweigh issues of cost. In other words, retailers are apparently willing to pay more to ensure that the impression the customer forms is enhanced and not damaged by the provider.

Factors influencing the selection of providers
Delivery and systems capabilities were seen as very important factors in the selection of a provider ­ although the research suggests that perceptions about speed are misleading. In general, it suggests that next-day delivery is rarely required, and clients seem to prefer their customers' expectations to be met sensibly but reliably.

Other characteristics of the "ideal provider" were found to be:

• Experience in fulfilment, with strong systems already in place
• Knowledge and experience of e-commerce (this was perceived to drive the speed of development of distance shopping)
• Understanding the client's business, or demonstrable enthusiasm to learn
• Appropriate culture and account management in place

The future and changing needs
Many respondents were uncertain about the future of distance shopping, although all were aware of the possibilities it offers. "It has the potential to become the equivalent of one of our biggest stores, if not our biggest store," as one retailer put it. The experiences of some suggest that mail order may offer more potential than the Internet, at least in the short term. There will be an increasing need for consumers to be serviced at convenient times ­ in the evenings and at weekends, for example. As the market develops, there will be greater requirement for the development of interactive digital TV and convergence technologies, but this was not seen as a "must-have now" for everyone.

Retailers saw distance shopping as an opportunity for the retail sector. Distance shopping was not perceived as "death to the high street", but as a way to supplement their store sales. This tends to confirm the view that multi-channel retailing is seen as offering customers choice more than anything. Retailers appear to be waking up to the fact that if they continue to limit their offering to one single channel, it is unlikely that they will see continued growth and success.

The need to raise awareness ­ Zendor's view

"It's clear that there's a need to raise awareness of the fulfilment industry and its providers, and clarify what services are available and from whom." That is the reaction of Keith Basnett, Zendor's managing director, to the new research. "In our own experience, many entrants to the distance shopping market are still unaware of the choices available, and others have stayed with an inherited provider, simply because they don't know how to go about changing."

When businesses do decide to outsource their fulfilment, he says, some tend to start by using services such as warehousing, delivery and call centres, but then move on to outsourcing specialist services such as marketing and Web site development to the same provider. "Clients may well be more likely to gain from a true strategic alliance, but find they have to go through the learning curve to make that decision to outsource the whole package."

Basnett recommends a hands-on approach to client familiarisation to ensure the outsourced provider and its employees gain a thorough and genuine understanding of the brand. This could include involving the client company in training and recruitment of call centre staff, or store visits and launch events. "Then clients feel more reassured about relinquishing control." On the subject of fast deliveries, Basnett concurs with the survey findings. "Some organisations in the fulfilment industry are killing themselves to offer 24-hour delivery, whereas many customers are in fact happy to wait longer but have the option of timed, evening or weekend deliveries."