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 trend among online sellers to outsource its fulfillment operations.
This isn’t drop shipping or outsourcing to a traditional warehouse. I’m talking about ecommerce fulfillment providers (EFPs). They take the “friction” out of order fulfillment. In a typical scenario, a consumer will buy merchandise from a company’s website. This purchase 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 my company. There is almost no human intervention. In other words, it’s a true Internet fulfillment model.
Avoids capital investment
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. My own website, Yugster.com, is an example. Yugster.com is a “deal of the day” site that offers different products each day, at very low prices. The site has grown by nearly 500 percent in the last year. In the past, such growth for a retail 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 very risky because there’s no guarantee the business will continue to grow or even sustain its current sales pace. 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, our EFP provides automated inventory management. We receive alerts from the EFP 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 our EFP holds the inventory, we still manage and monitor everything through a web-based dashboard. We have access to historical reports and we have real-time visibility into order status, shipment tracking, inventory quantities, and item-level sales data.
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 clicked. 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 serve various client types
EFPs can support a variety of business models. Yugster.com is a deal-of-the-day website. We sell directly to many thousands of customers each month. However, I know that our EFP also has clients who sell through other channels, including Amazon, eBay, Yahoo! and affiliate networks. Some online merchants also sell through TV infomercials and many even have brick-and-mortar stores. EFPs fulfill orders for all of these channels. They can provide continuously updated reports that allow multichannel retailers to track the sales volume of each channel.
There are many EFPs. Ours is Webgistix. Amazon is 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 try to differentiate themselves in a variety of ways, such as focusing on small retailers or focusing on fulfillment in specific countries.
Easy to scale
I can tell you from my firsthand experience that using an EFP is a game changer. We’re much more scalable today than we could ever be without an EFP. When I say scalable, I’m not just talking about capacity. It’s also timeliness. With an EFP, expansion of fulfillment capacity is instant. We can ship a hundred orders one day and a thousand orders the next day. We don’t have to lease our own warehouse space, or hire shipping/receiving clerks, or buy supplies and equipment.
And I would be remiss if I didn’t mention the impact that EFPs have on customer satisfaction. The speed and accuracy of order fulfillment is outstanding, which is what you’d expect when you use a company that only does order fulfillment. We are good at sourcing and marketing retail merchandise. We want to focus on that and keep getting better at it. We don’t want to divert resources and time to order fulfillment. That’s not our area of expertise.