The old-school approach to order fulfillment doesn’t fly for many Internet retailers. Warehousing, packing, shipping and return-order processing are labor-intensive and time-consuming. This has led to a growing trend among online sellers — the use of Web technologies to automate order fulfillment.
I’m talking about e-commerce fulfillment providers (EFPs). They take the “friction” out of order fulfillment. In a typical scenario, a consumer will buy merchandise at a Web site. This triggers an order that is sent electronically to an EFP who processes the order. A shipper such as FedEx or UPS is then automatically notified. Upon shipment of the order, an automated notification is sent to the consumer and to the merchant. There is almost no human intervention. In other words, it’s a true Internet fulfillment model.
Fulfillment as a Service
From a strategic perspective, one of the most important benefits of this model is that the retailer doesn’t have to make a capital investment in infrastructure. Yugster.com is an example. The Web site has grown by nearly 500 percent in the last year and is similar to other e-commerce sites, such as Woot.com and 1SaleaDay.com. In the past, such rapid growth for an e-commerce operation would have required an enormous investment in processes, systems, personnel and physical space. Aside from the obvious fact that it’s not easy to raise capital, such an investment could be risky because there’s no guarantee the business will continue to grow. By eliminating the need for a capital investment, EFPs remove a significant barrier to entry for would-be online retailers.
Of course, EFPs do more than ship orders. With advances in Web technologies, EFPs can add value in numerous ways. For example, EFPs can assist with automated inventory management by sending alerts to merchants when inventory levels drop below certain thresholds. Restocking can be done without an employee doing a physical count. This means online retailers can market and sell their products without having to physically handle the merchandise. And even though the EFP holds the inventory, the retailer still manages and monitors everything through a Web-based dashboard. The retailer has access to historical reports as well as real-time visibility into order status, shipment tracking, inventory quantities, and item-level sales data.
Level Playing Field
EFPs are doing for fulfillment what Google has done for advertising. They are taking cost out of the equation. Google has allowed companies to reach targeted audiences for just pennies per ad click. It’s a highly automated process that can fit into nearly any business model. Likewise, EFPs are taking cost out of order fulfillment. The cost of the EFP is covered by shipping and handling charges that consumers pay. And just as Google has nearly perfected online advertising, and has certainly improved advertising efficiency by orders of magnitude, EFPs are built from the ground up to make order fulfillment as efficient as possible. It would be nearly impossible for a retailer to match an EFP’s level of efficiency with an in-house fulfillment operation.
EFPs can support a variety of business models. These include pure-play e-commerce Web sites, multichannel retailers who sell through third-party Web sites such as Amazon, eBay, Overstock and Yahoo, and even merchants who sell through TV infomercials and brick-and-mortar stores. EFPs fulfill orders for all of these sales models. They can provide continuously updated reports that allow retailers to track the sales volume of each channel.
There are several EFPs. Yugster.com uses Webgistix. Amazon is actually the largest EFP, although most people think of Amazon only as a retailer. These two companies take different approaches to fulfillment services. Webgistix offers a customizable solution that is integrated with a retailer’s order-entry system. Amazon offers a self-serve solution that allows retailers to plug into Amazon’s fulfillment infrastructure. Other EFPs, such as WeFulfillIt, are also emerging as demand for these services continues to rise sharply.
Capacity on Demand
The fact is that using an EFP can be a game changer. It makes online retailers more scalable by essentially providing unlimited capacity on demand. Retailers can ship 100 orders one day and 1,000 orders the next day. EFPs can be invaluable whether an entrepreneur is just trying to get a company off the ground, or expand their operations, or protect their profit margins by reducing manpower and overhead. With an EFP, retailers don’t have to lease warehouse space, hire shipping/receiving clerks, or buy shipping supplies and equipment.
And, as every retailer knows, customer satisfaction is critical. This is yet another area where EFPs provide an important benefit. The speed and accuracy of order fulfillment is usually guaranteed by the EFP, which is what a business person should expect when hiring a company that only does order fulfillment. Most merchants are good at sourcing and marketing retail merchandise. They want to focus on that and keep getting better at it. They don’t want to divert resources and time to order fulfillment.
Many Internet retailers are seeing the positive impacts that EFPs can have on their businesses. It would be smart for any online retailer to consider adopting this fulfillment model. It works. It’s easy. And it’ll benefit the retailer’s customers and its bottom line.
Mark Ayotte is the owner of Yugster.com, an e-commerce site that offers a daily special item for sale each day.