Choosing an Internet Order Fulfillment House
Web Commerce Today, Issue 27, October 15, 1999
There comes a time when every e-tailer who sells "physical product " (as contrasted with "virtual product" such as software, that can be downloaded over the Internet) must decide how to pick and ship product to customers. There are three main options:
Option 1 -- Inventory. Store product in your own garage or (on a larger scale) in an in-house fulfillment center. This option gives you full control over the process but requires know-how, labor, facilities and often, special equipment, all of which may well be outside the area of expertise of the average e-tailer.
Option 2 -- Drop-Shipping. Purchase product from a manufacturer or distributor that will "drop-ship" products directly to your customers. This method has the advantage of delegating the entire process, from the order and stocking of product through the picking and shipping of your e-tail orders. There are, however, several serious limitations.
You may have no control of when, and in how many packages, your orders are shipped. You may not know if product is out of stock. Your customers may not receive any tracking or shipping status information. Products may even be shipped with the wholesaler’s own name on the labels and packing lists, causing customer confusion on package receipt. Finally, the gross margin you receive from the drop shipper may be 10 or 20% lower than the margin on goods you purchase and ship yourself, significantly reducing your profit potential.
Option 3 -- Fulfillment House. The third option, which we will explore in this article, is to contract with a "fulfillment house" or a "3rd party logistics (3PL)" provider. Even the largest of companies (such as Nike and HP) now concentrate on their core strengths and contract with expert 3rd party providers. In this option, your 3PL will provide whatever services you need or wish at an up-front, agreed-upon price. The e-tailer can concentrate on selecting the products and selling the goods. The 3PL will receive the purchased goods, store them, pick them to fill customer orders, and finally pack and ship them by the method that you or your customers choose. The provider works for you -- labels and packing lists carry your name and logo, so there is no doubt who sent the package.
Since this third option, the fulfillment house, has many advantages, there has been a rush to start new Internet order fulfillment companies. Some of these companies have previously served as providers for the Internet sales' close cousin, the catalog sellers, while others have been started specifically to serve the Internet e-tail community. We will examine two of these.
Shipper.com
Shipper.com* (http://www.shipper.com) is targeted at companies with $10 to $50 million a year in sales volume with their own web-based shopping cart and credit card processing.
Shipper.com is a large, well-financed operation designed to serve serious e-tail websites. They have two large fulfillment centers now and should have several more in key cities nationwide by the end of next year. Their operations are controlled by some of the best distribution and supply chain software on the market. They will interface directly with your web server to pick up orders and drop off ship confirmations. They should be capable of doing almost everything needed to facilitate product movement, including forecasting and placing EDI purchase orders with your selected suppliers.
The services of this 3PL provider are complex and comprehensive, and their pricing must necessarily be custom tailored to your exact requirements. As their nationwide distribution network is built, they will be able to offer one- and 2-day delivery service for your key, high-moving items for ground UPS rates (what I call "next day for ground" pricing). This is done by holding duplicate inventory at each site, and shipping from sites located within one and two day UPS delivery zones of the customer. (See my article on JIT Shipping http://www.elogistics101.com/News/JIT%20Shipping.htm for more information on this cost slashing concept).
Finally, shipper.com is also gearing up to provide SAME DAY delivery for orders that are placed by noon in their key market cities. If you have a product line that would benefit from same day delivery, shipper.com is the only company I know that is planning to provide this service, and at a reasonable $10.00 to $15.00 per delivery. If you are a larger Internet e-tailer that is looking for the most advanced cost cutting and service enhancing delivery options, then I suggest you add shipper.com to your "must see" list.
iFulfill.com
iFulfill.com is targeted at companies with under 50 items, selling 1 to 50 orders a month without a shopping cart or secure server of their own. (Note: iFulfill went out of business in August 2005.)
As you can see from their target market, iFulfill.com aims squarely at the small seller with few items and no Merchant Credit Card Account. Everything about their system is designed to make life easier for the unskilled or small vendor. Sign-up is done on line with an "HTML code snippet" generated for each item; this is cut and pasted directly into the e-tailer's webpage. When a customer clicks on a product description, the selection is sent to the iFulfill.com shopping cart. When all selections are made, the shopper enters name, address and credit card information , and is informed that the purchase will appear as an iFulfill.com charge on his credit card.
The e-tailer is charged a 7% credit card fee plus a sliding per order fee from $4 for the first 10 orders per month, to $1 per order for anything over 50 orders per month. An additional $0.30 is charged for each extra item on an order. There is a minimum monthly charge of $4 times the number of items listed. This is spelled out in complete detail on their web site. With this pricing model, an author selling 5 of his books would have a $20 minimum monthly charge, which would be covered by the first 5 orders placed each month.
While the $4 per order fee is expensive, all the work is done by iFulfill.com. As sales per month increase, the cost per order quickly drops. When inventory is projected to run low, the e-tailer is automatically notified to reorder. Other than selling and depositing checks, this is all the e-tailer must do to run his business. This is a good solution for part-time web entrepreneurs, and a great example of a business model custom-tailored for the web. Foreign merchants can use this system to sell items without getting a US Merchant Credit Card Account, so long as they are willing to ship their products to the Michigan company for fulfillment.
Art Avery is a consultant in fulfillment systems, with over 30 years experience with distribution consulting, logistics consulting, system design, project implementation and order fulfillment management. He is the moderator of the "Fulfillment and Shipping" section of our Web Marketing & E-Commerce Forum (http://wilsonweb.com/forum/). You may contact Art by e-mail (Art@elogistics101.com) or on his website (http://www.elogistics101.com). This article is copyright © 1999 by Art Avery.
*Note: The author is contracted to consult with shipper.com on fulfillment issues, and while he doesn’t believe it has affected his editorial judgment, the reader should be aware of the connection.
