IN-HOUSE SOLUTIONS

Controlling the entire customer buying experience, from beginning to end, gives an e-commerce business a competitive advantage. However, this also means that you must learn how to make a profit on each shipped package. Yet, the sad fact is that most e-commerce operators cannot quote their business’s cost of fulfillment.

Demand for order fulfillment solutions is reshaping the existing e-commerce landscape. While most web-based businesses initially survived by offering a limited number of products, to compete most have been forced to expand their product range.

Any e-commerce business with more than 1000 orders per day should bring its e-commerce fulfillment in-house for three reasons:

• It gives more control of the operations.
• It leverages economies between existing and online channels.
• It allows differentiation of customer service.

The Small- and Mid-sized Website

The author understands that the small- to mid-sized e-commerce business can’t afford the infrastructure that the enterprise web-based business puts in place, and for these smaller entities it’s not absolutely essential. That’s because they don’t have a large inventory to deal with daily. Remember your logistics plan? Use it to give you a good idea of what you need to do.

Order processing can be tamed if the volume is within a manageable range. As orders come in, send email acknowledgements to the customers. Then, process the orders through the payment authorization process, generate invoices, and log all information into the accounting software and inventory software. With such a system a website can know how much inventory has been sold, to whom, and at what price.

Once the initial processes are completed, it is time to pick the orders (find the physical products in your inventory), package them along with packing lists, invoices, return information and return labels, and any promotional materials.

Now the pick-ups are ready to be delivered to the shipper. Once the packages are in the hands of the shipper, send follow-up emails to the customers with the total charges, shipping information including tracking information (if available), and estimated delivery date.

Once the package is delivered to the customer (and it is up to the web-based business to keep on top of this), send a quick email to the customer to verify that the delivery was received and that the product(s) met the customer’s expectations.

Software, etc.

Inventory issues can lay waste to a website that is “starting to take off.” To alleviate this problem, many e-commerce software packages provide a full-featured inventory control system, including out-of-stock and low-stock notification by email. If the e-commerce software your website uses doesn’t offer this feature, see if an upgrade is available. Or your web-hosting service may offer an online inventory system that you can use to synchronize your offline inventory system, which may be in the form of a flat file database, Corel Paradox, Microsoft Access, Microsoft Works, etc. If using the latter system, test your web-hosting service’s order-activity file formats to see which has the least compatibility issues.

Another suggestion is to use off-the-shelf software like Quicken QuickPOS, Intuit’s QuickBooks, PeachTree Accounting, or Microsoft Excel since all have good inventory management packages which can help small websites manage their inventory and track their orders. Finally, a small but active website might want to take a look at Hallogram’s IntelliTrack Data Management Software (www.hallogram.com).

Whatever inventory system you use, carefully monitor the sales activity of each product in your inventory and set realistic reorder levels (so the website doesn’t run out of its best sellers). If you do run out of a product make sure your system can place a “temporarily out of stock” notice adjacent to that product with approximate replenishment date. Also look for a system that allows you to insert additional information (cross-selling) about another product that may “fill the bill.”

If the website’s volume of orders is such that additional automation is advisable, help might be available through products such as Bonafide Management Systems’ eResponse (www.bonafide.com) order fulfillment software. This product can be useful in all type of e-commerce situations, from the small startup to the large, high-volume e-commerce site.

Another system worth a look, especially for small- to mid-sized website, is Order Desk Pro (www.odpro.com). This order entry, order tracking, sales performance analysis, and customer database management tool is specifically designed for companies that receive orders via a website.

A busy, mid-sized website might want to investigate Verian Technologies’s(www.procureit.com) ProcureIT order processing and inventory software that works with an ODBC database.

Shipping Procedures

We will first discuss the customer’s view. Will you offer shipping options to your customers? Will the website offers multiple shipping methods? If so, give your customers the tools to pick their shipper of choice and the method (i.e., overnight, 2nd day, standard) and calculate the cost of shipping. A good practice for small websites is to offer links to each shipper’s site on the web page where the shipping information is provided. In this way the customers can calculate cost and track their package (assuming it is sent with a tracking number).

Your shipping page should include the website’s shipping policies set out in a clear, concise manner, sample weight/price shipping charts, and perhaps a note about the amount of time that the average package will spend in transit. Educate your customers. Make them aware of all shipping options. Many will opt for second-day service when they realize the difference in cost.

Now we will look at getting the product to the customer. Check with the customer service representatives at the larger courier services, including the U.S. Postal Service (if your business is located in the U.S.). Ask about rates and services for new business accounts. Compare times for last drop off and delivery times. Ask if they offer guaranteed delivery, refunds, insurance, and free supplies.

The U.S. Postal Service provides Express Mail Corporate Accounts, which are a big help since they let patrons avoid weighing packages, affixing stamps, and battling with postage meters. To set up an account, complete the application on the Postal Service’s website (http://new.usps.com) and either mail it in or take it to a local post office with the initial deposit.

Note that because of heightened security restrictions by the Federal Aviation Administration, any domestic mail other than Express Mail weighing 16 ounces or more and bearing stamps must be given in person to a retail clerk at a post office or given directly to a letter carrier.

The U.S. Postal Service, either through its website or at the local post office, offers many of the supplies needed by a fulfillment center. For example, Express, Priority, and Global Envelopes, rolls of Priority Mail tape, sturdy boxes for shipping fragile items, padded envelopes for small items, pre-printed Express forms and self adhesive Priority Mail labels with the web-based business’ return address. It is also noted that the U.S. Postal Service offers what it calls an “e-merchandise return” service — check it out.

Courier services including Federal Express, Airborne, and UPS, make it easy to set up an account online. Most courier services will schedule daily package pick-ups although some may charge a small weekly fee for pick-up service, others will do it for nothing (especially if you have an established business account with them). Still, if your shipping facilities are located near any of the major couriers’ drop-off points, or near one of their drop boxes, it might be easier to just drop off the packages.

FedEx offers several software packages to ease your e-commerce business’s shipping chores. Airborne offers a number of software packages to help you to better manage shipping products through its service. UPS offers its Online Office software to help web-based businesses process shipments, print address labels and pickup records, and track packages. DHL has Easy Ship software that it provides to businesses that meet specific criteria.

Negotiate with the shippers — it can’t do any harm and most of the time it is possible to obtain volume discounts, especially if the rates offered by their competitors are brought into play. Then pass on any savings obtained to your customers. As orders increase, re-open the negotiations. It is possible to optimize your website’s shipping solutions by exploiting each shipper’s strengths while getting the lowest rates possible.

Insure all packages that contain items with a retail value in excess of $100 should be insured. The standard insurance provided by couriers usually cover the first $100. Simply fill out the corresponding space on the air bill — there will be a small fee charged for each additional $100 beyond the first $100.

Stay on top of the delivery time of all shipments. If a certain courier offers a guaranteed time (or day) of arrival, and that guarantee is not met, ask for a refund. In all probably the website will have a disgruntled customer when a package arrives a day later than expected, and your business will be the whipping boy, not the shipper. Passing the refund on to the customer can assuage that anger, while building your reputation as an e-commerce site that offers outstanding customer service.

Large and Enterprise Websites

As stated previously, for a brick-and-mortar making its move to the Web one of the first steps is to integrate its back-end systems. Until now, website integration issues were limited to the applications residing within the web-based business’s own domain. However, logistics technology requires that integration now extend outward toward the four corners of the world and application program interfaces (APIs) are the passports. Most e-commerce systems have APIs but they vary widely in capability — legacy systems have APIs with varying capabilities and there are even custom-built legacy systems without APIs (but it still might be possible to modify these system to directly use the website system’s APIs).

EXPLANATION OF BACK-END INTEGRATION STANDARDS

Application Programming Interface (API): Software that an application uses to request and to carry out lower-level services performed by a computer’s operation system. In short, an API is a hook into software. As such, an API is a set of standard software interrupts, calls and data formats that applications use to initiate contact with network services, mainframe communication programs, etc. Applications use APIs to call services that transport data across a network.

Electronic Data Interchange (EDI): A series of standards that provide computer-to-computer exchange of business documents between different companies’ computers over the Internet. EDI allows for the transmission of purchase orders, shipping documents, invoices, invoice payments, etc. between a web-based business and its trading partners.

eXtensible Markup Language (XML): A standard system for organizing and tagging elements of a document. XML has the ability to structure exchanges of data between computers attached to the Web, thus allowing one web server to talk to another web server. This means manufacturers and merchants can quickly swap data, such as pricing, stock-keeping numbers, transaction terms, and product descriptions.

If taking the API route is too pricey, risky, or inadequate, the next course to take is Electronic Data Interchange (EDI) or Extensible Markup Language (XML). Both provide integration between systems. EDI is a well-established standard — the EDI messages are normally transmitted between businesses by Value-Added Networks (VANs). XML is an emerging standard for describing information and can be transmitted directly between businesses over the Internet, but translation will be required between the legacy system and the e-commerce system.

The Options

After evaluating its present back-end systems and their current needs, an e-commerce site usually has the choice of three options for its e-commerce platform:

A Custom Solution: This is a good choice, but only if you have the capital and the time to design a comprehensive solution to give your website the integration it needs.

A Packaged Solution: This can, at times, be less pricey than a custom solution. A packaged or product solution is not the typical “out of the box” product (this solution can’t be bought in a retail store). While less costly and time-consuming than a custom solution, a packaged solution still requires specialized integration, i.e. there is an additional expense for “professional services” and it will take time to get everything working smoothly. If considering this type of solution, do your research to find the right packaged solution that can integrate with your business’s existing systems since not all APIs are equal. Also determine how the packaged solution’s APIs will operate with remote systems and with the website’s specific fulfillment needs and existing systems. Finally, don’t forget to check out how the solution handles or affects your systems’ security features.

Many high-end packaged solutions offer API, EDI, and XML capabilities. But it pays to be careful, a product that states it offers EDI capabilities could only mean that it simply sends an EDI850 purchase order message in response to an order. This falls short of the kind of meaningful interchange needed to support a website’s fulfillment needs.

Finally, if the existing e-commerce system is currently running on a packaged product, it may be that the necessary usable hooks and tools to integrate the product will cost many times more than the original cost.

Application Service Provider (ASP): It seems every day a new ASP offering a specialized service opens its doors for business. There may be an ASP out there calling your name. In fact, ASPs may be a good alternative solution for some websites since ASPs maintain software and infrastructure for many clients, the cost can be spread across the landscape, resulting in lower costs for its clients.

The ASP model works because the costs — software and integration — are often built into a long-term contract and amortized. A good ASP can provide an e-commerce solution that seems like it is customized but without incurring the huge development, maintenance, and infrastructure costs.

You can find ASPs that offer third party software and/or proprietary software. If the ASP offers third party software then there might be a few complications: The ASP may have built-in cost factors that could limit the value proposition to a website. The ASP is forced to rely on the third party vendor to fix bugs or to provide answers to technical problems.

An ASP that offers its own proprietary software usually provides a lower ongoing cost factor and greater flexibility. These ASPs also seem to be more flexible in their pricing policies. A website also might find this ASP model to be more responsive to adding product features or fixing bugs.

The shared infrastructure of the ASP model also provides architectural advantages, which can reduce the cost and time required for setup and integration. Just be sure that your IT people go over everything with a fine tooth comb to verify that the ASP can meet the website’s specific needs.

Once everyone is satisfied with the decision — be it custom, packaged or ASP — get those legal eagles involved and set it down in writing how integration is to be addressed, what the costs will be, and how long it will take. Get warranties and guarantees with penalties for overruns.

NOTE
Another consideration for brick-and-mortars: From an economic standpoint, many traditional brick-and-mortar businesses should keep their web-based business separate from their traditional business to enable them to track actual costs — especially if the web-based business experiences early losses.

Upgrading Fulfillment Operations for E-Commerce Activity

Although customer-centricity is the key for the rush to upgrade fulfillment capabilities, some websites are wondering whether they can simultaneously update their fulfillment process and avoid compromising the customer experience. The astute e-commerce operator knows that to maximize efficiencies and benefits it cannot afford to make fulfillment an either/or decision. What you could do when selecting the methods and tools to optimize the fulfillment process is to not integrate the entire customer experience immediately. However, each component should be fully knowledgeable of the other, otherwise response to the customer’s needs won’t be personalized, and delivery won’t made to the customer’s satisfaction.

Even large e-commerce businesses find it difficult to master direct-to-consumer fulfillment. It takes a lot of guts to set up your own fulfillment center, especially since most e-commerce sites make the majority of their gross income during the November and December shopping season. If you haven’t done everything right, your fulfillment operations will fail under the holiday crunch. Nevertheless, a huge plurality of the large and enterprise websites (mainly click-and-mortars) are adamant about bringing fulfillment processes in-house.

The deciding component of a website’s success when building an in-house fulfillment system is its willingness to view the entire fulfillment process as a realm without borders. When optimizing the fulfillment processes the web operator must examine everything from the customer’s initial product order through to delivery to the customer’s door. This means a website cannot restrict its view to internal operations alone.

Another problem with building an in-house system is the lack of a “single” solution to integrate all of the back-end order processing operations — from finding products from alternative suppliers, to expediting orders, keeping customers informed, through to the financial end. Even with a good logistics plan, all of this involves a mess of prickly specifications:

• Taking care of credit-card authorizations.
• Routing one order to multiple suppliers.
• Routing status updates from suppliers to customers.
• Handling order cancellations and product returns.
• Keeping up with the availability of inventory and the forecasting thereof.
• Shipping specifics.

And that’s just the beginning; the list goes on and on.

The main dilemma is that all of these applications have no de facto communication standards. One solution might be to bring an extensive library of pre-built connectors into play; the connectors could reside at the website’s hub, speaking the language of and translating between the various applications that must communicate with each other. Of course, this means that such a comprehensive integration project may be a long, resource intensive process. Most websites will find that the complication of building out customized solutions is their only alternative.

Some website operators also may realize that developing the needed expertise internally is not cost-effective. That group may decide that the faster, more efficient option is to contract with one of the new breed of consultants and software vendors who can help a web-based business forge a trail through this technological briar patch.

Before taking the upgrade route, you must first assess your business’s current fulfillment needs and capabilities and compare that with your long-term goals. Then, determine what is missing in terms of operational and functional processes, strategic direction, technology and organization.

Once everyone has grasped what needs to be done and what can be done, the task then is to set out the tactical steps to fill in the missing pieces. Then begin the move toward complete implementation.

It’s easy to agree upon a strategy and to identify what is missing but the sticky wicket is defining the tactical operational requirements. If a web-based business can set out a feasible plan that cuts to the nuts and bolts of the process, then it has a fighting chance. E-commerce operators that are willing to do their homework will have a better chance of success.

Once work has begun, everyone on the team should be available for daily or thrice weekly conference calls to avoid duplicated effort and to assure that everyone is in adherence to the logistics plan and timetable(s). Everyone must stay focused on the unequivocal requirement for a system flexible enough to grow over time.

Use an Existing Direct-to-Consumer Operation

When a brick-and-mortar is planning a move to the Web, it assumes the easiest and most economical route is to keep order fulfillment in-house. But as its web-based business grows, it must come to grips with the fact that its distribution system is based on pallets or many-item orders, and 9 times out of 10 it finds that it is struggling to handle the one- or two-product, small-package shipments that a web-based business encounters.

One option for enterprise websites choosing to keep their fulfillment in-house is to look for either a direct-to-consumer competency buried somewhere in-house (such as a small catalog operation) or buy a logistics firm or a competitor with e-commerce fulfillment capabilities already in place. Either alternative can make it easier to implement technologies to handle basic e-procurement or elementary e-commerce tasks.

However, this course won’t give a web-based business complete integration of internal and external systems across the entire value chain. Click-and-mortars that want to integrate their systems to support real-time two-way flow of information throughout the value chain (the entire supply chain: customers, internal applications, and financial) will need require additional custom solutions.

FULFILLMENT: IN-HOUSE OR OUTSOURCED

A PriceWaterhouseCoopers and eRetailing World study looked at how e-commerce businesses handle their logistics and fulfillment chores. Here is what they found:

E-Commerce Startup	Inventory Warehousing	Picking/Packing	Shipping	Returns	Replenishment
In-house	47.2%	41.6%	36.1%	63.9%	52.8%
Outsourced	41.7%	44.4%	47.2%	22.2%	25.0%
Combination	8.4%	11.2%	13.9%	13.9%	16.7%
Other response	2.7%	2.8%	2.8%	0.0%	5.5%
Click-and-Mortar
Company handles	71.8%	69.2%	66.7%	79.5%	76.9%
Outsourced	20.5%	20.5%	23.1%	12.8%	12.8%
Combination	5.1%	7.7%	7.7%	5.2%	7.7%
Other response	2.6%	2.6%	2.5%	2.5%	2.6%

As the figures show, although there are benefits of keeping fulfillment activities in-house, outsourcing is still a popular option for many e-commerce sites.