January 2002

If you want to set up an e-tail operation, or provide logistics services for one, where do you begin? What are the pitfalls? How much of the fulfilment work should you do yourself, and how much should you let others handle for you?

After charting the rise, fall and resurgence of online selling over the past two years, e.logistics Magazine is delighted to launch a major new series for those prepared to look beyond the dotcom disasters, and grasp the nettle themselves.

Over the coming months we'll be looking in detail at the practical fulfilment issues you'll need to tackle - designing a Web site that really works for you; taking payments online; connecting the front end with the stock systems behind it; planning and procuring a warehouse to store the product in; handling customer contact, packing, despatching and delivering it; and bringing it back if there's a problem. As the series progresses, it will build up into an invaluable template for online selling and e-fulfilment and all its complexities.

In this issue we look at the subject as a whole, and consider some of the issues you should address before you even start on the journey towards e-fulfilment.

Forthcoming features in the Road to e-Fulfilment series

1. planning your strategy
2. web front end
3. catalogue management
4. online payment processing
5. back-office integration + call centres
6. finding your warehouse
7. order picking and packaging
8. last mile deliveries
9. unattended delivery solutions
10. returns

So you want to sell online?

Forget the dotcom collapse; the e-commerce industry is maturing; more and more consumers are prepared - indeed, eager - to shop online; and an amazing range of companies are making money meeting this demand. So now you've finally decided to see whether you can claim a piece of the action.

But e-commerce is a very different animal from traditional retailing, and requires a completely different approach. For a start, a Web site can reach a much wider audience than a bricks-and-mortar store, so merchants must decide if they are prepared to export. Doing so can increase potential sales enormously, but can also pitch you into a legislative and fiscal minefield.

You also need to decide which products you want to sell online - all of the range or just part of it (and if so which part). Many online traders such as supermarket chains start with only a few items and expand as sales grow. Others decide to target a particular market and sell only goods that are suitable for that market. Music giant Arbiter, for example, entered e-tailing by targeting the karaoke market, selling CD-G graphics discs used by karaoke machines.

Once you know what you want to sell, and why and how you plan to market it, you have to design your Web site, register a domain name and decide how to handle the payment process. We'll be discussing all this in future issues of e.logistics Magazine.

For many, getting the Web site up and running means job finished, now let's wait for the orders to flood in. Such e-tailers will get a very rude awakening, though, when they realise they have no fulfilment processes in place - especially if they are faced with the volume of orders everyone would like to have, and don't know how they're going to deliver the goods.

Research carried out last year by NetWorks IT Marketing (issue 13, September, 2001) found that out of 152 companies interviewed - all of which sell online - only two considered fulfilment to be the most important element of a successful online commercial presence; a few more listed fulfilment in the top three "must haves". Most, though, went for the ease of use of their site, the appeal of their products and the extent of their range - forgetting, as one logistics director put it, that "you can't enjoy the product you have bought if it doesn't arrive."

Fulfilment probably presents more of a challenge than any other aspect of e-tailing; and experiencing a poor delivery service is one of the major reasons why consumers fail to return to a site, or abandon online purchases altogether. Even clicks-and-mortar companies accustomed to running warehouses and distribution networks to serve their retail shops will find e-fulfilment a very different proposition.

Retailers serving a network of stores can hold goods in regional distribution centres, pick in volume and deliver any time they wish, subject to local restrictions on vehicle movements. E-tailers serving home consumers have to pick single items for delivery to addresses that could be anywhere in the country, or abroad. How can a regional distribution centre be set up if the customer base is widely dispersed, rather than concentrated in a given region?

Packaging issues have to be addressed, too. Instead of, for example, putting 50 jumpers in one box, with no protection apart from tissue paper between them, you will need to pack each individual jumper separately, usually with tissue and polythene, and then put it into either a padded bag or a box for final delivery. Each individual order will require documentation - at the very least a shipping note listing the contents with instructions for return. In some cases you will also wanted to include further marketing material, such as the new catalogue or information about a special offer.

Delivery issues

And then there is the delivery itself: costly because it involves a separate drop for each of the (hopefully) many orders an e-tailer will receive; difficult because drivers have to manoeuvre vans, or even lorries, down narrow residential streets; and frustrating for both merchant and consumer because there is no guarantee that anyone will be at home to accept the parcel. If a delivery can't be completed first time, arrangements have to be made to get the goods to the customer later.

Returns - said to figure in 30 per cent of all home deliveries - have to be dealt with, too. Consumers can't take a faulty, damaged or otherwise unwanted item back to a Web site, or to a contact centre or warehouse that could be hundreds of miles away.

To deal with such very different and difficult problems, some retailers set up separate e-fulfilment operations. And for dotcoms, there is no alternative to dedicated e-fulfilment operations, since they have no other type of business. CPC, a vendor of CD disks, computer manuals and technical documentation for the computer industry, set up its e-distribution centre in Wiltshire last year; Sainsbury's uses dedicated picking centres; Entertainment UK is developing separate retail and direct sale channels.

The complexity of e-fulfilment understandably leads many to outsource. Waitrose, Sainsbury's, Tesco, Dixons, Boots, Marks & Spencer, French Connection, House of Bath and John Lewis are just some of the big names that have decided to let someone else take the aspirin. NetWorks IT Marketing's research found that 30 per cent of traditional retailers outsourced all or part of their e-fulfilment. Consignia, in another survey of 100 major distance-selling retailers, recorded 33 per cent outsourcing Web design and hosting, 18 per cent outsourcing warehousing and 16 per cent logistics. Call centre facilities and customer support were outsourced by 13 per cent of those interviewed; order processing and payment processing 9 per cent each.

Reasons for outsourcing

There are many reasons for outsourcing, chief among them being that by offloading non-core businesses, e-tailers can concentrate on what they do best - which usually means merchandising and marketing their goods. "More retailers are recognising that the skill sets required for distance shopping (be it online, telephone or mail order) are fundamentally different from those of traditional warehousing," comments Keith Basnett, managing director of Zendor, the e-fulfilment division of home shopping organisation N Brown. "They are realising that outsourcing to known experts is often a faster, safer and more cost-effective path to take."

Outsourcing also provides a degree of flexibility not available for in-house operations. "It is hard to predict volumes of business," points out Mike Trenough, group commercial director of e-fulfilment specialist iforce. "You can shrink or expand an outsourced facility to match your volumes, but you can't do that if you set up your own e-fulfilment centre."

Some companies begin with an in-house operation, then move to outsourced e-fulfilment when they reach order volumes that they cannot cope with. As Trenough explains: "The point when most businesses start thinking about outsourcing is when their business grows beyond their control. That is usually around 500 orders a month."

E-tailers may not outsource everything, either, which means they have to choose which parts of the business are considered important enough to keep in-house - perhaps for branding reasons, or because it is deemed core business. Among the first activities to be outsourced are often the warehousing and distribution functions, or possibly just the home delivery element of the equation.

"E-fulfilment demands a total overhaul of a merchant's warehouse and transport system, as its customer service requirements are so much higher [than for other types of retailing]," emphasises Nick Turner, product marketing manager at LIS, a warehouse management software company. "Most conventional supply-chain distribution operations are optimised for larger deliveries with longer lead times than expected for e-fulfilment so the retailer outsources that part of the business."

Quite. After all, who wants to deal with the 25 per cent-plus non-deliveries or the 33 per cent of goods that are returned?

When it comes to other activities such as packaging, labelling, quality control or contact centre operation, the decision about whether to outsource depends on how strong a feeling of ownership the retailer has, or wants to retain. While iForce finds that 80 per cent of its customers outsource everything, there are some activities which simply might not be appropriate to take outside the retailer's organisation.

"Merchants operating in business sectors which need to offer consumers specialist help may need to keep this in-house," agrees Trenough. Specialist sports equipment vendors, for example, may need to answer questions such as "What boots do I need to walk in the Himalayas?" or "What bit should I use on my horse, which has a sensitive mouth but keeps running away?" The warehouse and distribution operations could still be outsourced, though.

Fine wines or gourmet foods may need specialist knowledge and handling, to ensure the right item is picked (for instance, a 1999 Mouton Cadet as opposed to a 1998, or an extra virgin cold-pressed, first pressing olive oil rather than just an extra virgin one) and treated correctly (wine shaken up as little as possible, delicate foods packed extra carefully and so on).

Expertise

Companies which have built up successful catalogue/telephone sales operations may not need to outsource e-fulfilment, since they will already have developed the expertise in single picking, specialist packaging, home delivery, returns and so on. Laura Ashley is one example of a mail order company running its online sales operation in-house.

However you goes about it, though, setting up e-fulfilment and opting for either an in-house or anoutsourced operation involve decisions that cannot be taken lightly. As Zendor's Keith Basnett points out, many dotcom collapses can undeniably be attributed to poor e-fulfilment. "Some of the early dotcom companies made a mistake in trying to manage the whole process themselves," he says. "Many of the pitfalls could have been avoided had they chosen to work with an expert in distance shopping/fulfilment before embarking on huge brand awareness campaigns."

So before you go live online, make sure you've got the right type of horse ready and willing to pull your cart. If you don't, you might just find the wagon overturned, upsetting customers awaiting their orders and destroying any e-tailing plans it might have contained.