FULFILLING E-COMMERCE'S PROMISE TO THE CUSTOMER

FULFILLING E-COMMERCE'S PROMISE TO THE CUSTOMER

If there has been one surprising development in the glamour surrounding the e-commerce explosion, it's that the decidedly unsexy concept of fulfillment has taken center stage.

Even the average consumer has some concept of the supply chain these days, as one-click shopping and overnight delivery give the impression of direct distribution, and the threat of class-action influences order fulfillment.But as any logistics veteran can tell you, the future health of e-commerce, both business-to-consumer (B2C) and business-to-business (B2B), hinges on the ability of companies to manage fulfillment. While it would be shortsighted - and ludicrous - to sound a death knell for Web-based business as a whole, the short-term health and long-term acceptance of e-business depends upon supply-chain management.

One only has to look at last year's holiday season to understand why it's imperative that companies focus on supply-chain management.

While a defining moment in e-commerce's short history, the 1999 holidays did not make or break Web-based business in the eyes of the consumer. But the very public logistics and distribution woes of a few major companies taught us that, in the new economy, customer service is key. What these fulfillment disasters also taught us is that customer service is really another word for supply-chain management.

It seems like an obvious part of the retail process. But in their attempt to establish a brand in an already crowded marketplace, many companies neglect to build their back rooms.

The problem is that, when you take away the Web site, the back room is at the heart of most B2C businesses. No matter what companies are selling, they have to be able to get it to customers faster and cheaper than customers can get it themselves. Dot-com leaders are just beginning to get a handle on what this means and how to deal with it.

That is not to say that dot-com companies have to reinvent the logistical wheel. There are plenty of examples of the supply chain management infrastructure working in the e-commerce environment.

Two oft-cited dot-com winners, in terms of customer satisfaction, are specialty fruit distributor Harry and David and clothier Lands' End. Both companies were able to successfully bring their brick-and-mortar presence to the Internet. Both also happen to be catalog houses that have had solid fulfillment infrastructures in place for years.

But understanding supply-chain management is even more important for Web-centric companies, since their fulfillment requirements are much more complex and costly. Dot-coms have found that there is a lot that goes into the question, ''Do we keep it in-house or outsource it?''

In-house distribution, outside fulfillment centers and order-management integrators all involve varying degrees of risk and cost. The reliability of third-party vendors and shippers needs to be considered, as does the financial viability of the Internet's global nature as companies struggle with customs issues.

What further complicates these decisions is that e-commerce is radically redefining supply-chain management in its own right. Web-based businesses have turned the fulfillment industry on its ear. Shippers and distribution centers have had to adapt structures built for large quantities to the small consumer orders of online bookstores or pharmacies.

Third-party logistics providers (3PLs), the backbone of the logistics industry, have found they need to redefine their services to remain competitive. By leveraging price, inventory management, cycle time and technological capability, many are widening their breadth of services to gain an increasing market share.

Major companies such as USF (US Freightways), UPS Worldwide and GATX Logistics are building national warehousing and distribution networks to handle order fulfillment, hedging on the bet that e-tailers will ultimately bend to cost issues and outsource their fulfillment needs.

In an effort to break into UPS's lock-down on the residential shipping market, GATX has also announced Paxis, a residential parcel service through the U.S. Postal Service. Parcel Plus has announced its intention to handle returns management for dot-coms at its retail stores, undercutting the advantage of click-and-mortar stores.

What does this all mean? In terms of e-commerce fulfillment it means that supply-chain leadership can't be a forgotten or even underconsidered part of the equation. In fact, finding logistics talent should be a consideration from day one.

No matter how many marketing dollars are thrown about, the real success of any e-commerce initiative will depend upon how strategically the company can handle supply-chain management. Not only must e-commerce leaders have the ability to manage a rapidly shifting demand, but they also must be able to blend the immediacy of Net business with the infrastructure of fulfillment. Only then will e-commerce make good on its promise to the customer.