Many manufacturers and distributors have, historically, treated fulfilment as quite separate and distinct from their traditional and more established logistics processes. And it is not hard to see why, as supplying direct to the end user has a radical impact on a companys order profile.
In a typical supply chain in which a manufacturer is supplying a retailer for example, large volume orders including many lines will be supplied on pallets or in roll-cages to the (regularly manned) back door of a relatively small number of outlets. Yet as soon as that same manufacturer starts to engage in fulfilment, this relatively straightforward profile changes.
The volume of orders increases dramatically suddenly there is a need to pick and distribute 7,000 individual customer orders instead of for 70 retail outlets with individual orders being correspondingly smaller.
Many of the associated costs, however, remain broadly similar. Balanced against the often significant savings of supplying direct to the customer rather than through a retail or extended wholesale chain therefore is the higher cost of distribution per order. And, with todays consumers now more demanding than ever, so the cost of handling returns so-called reverse logistics is similarly greater.
This change in activity levels and distribution profile impacts particularly strongly within the warehouse and, as a result, companies have chosen to maintain a physical separation between the two operations, either via a different in-house location or by using a third party.
Until now the advantages of such an approach have generally held sway, though the downsides have long been recognised and accepted as the price one has to pay by those wishing to pursue multi-channel trading. The most obvious of these is the cost of maintaining parallel stockholdings in several locations, which will be considerably higher than if all orders were picked from a single central source.
Another reason why fulfilment is often handled separately is that it requires different systems to manage the processes involved. In addition to the requirement to be able to handle the huge increase in transactions, the system ideally needs be linked to the carrier in order to provide customers with full track and trace of their order and delivery.
Unlike typical B2B trading, fulfilment processes need to link with the finance system in a way which enables payment to be made direct prior to delivery.
So what has happened to encourage and in some cases force a re-assessment of the role of fulfilment within the supply chain?
For some companies the need to protect margin is critical, as they face the twin pressures of retailer demands to cut prices and cheaper imports. Whilst looking to maintain their retail presence and support their major customers, going direct to the consumer is an attractive way of improving margin but only if the cost of distribution can be strictly controlled.
For most suppliers however, the real driver is the increasing penetration of e-shopping. As the Sunday Times reported recently, online sales over Christmas reached 2.5Bn a 70% increase over the previous year. Online purchases now account for some 7% of total UK retail sales, according to the trade body for on-line retailing, IMRG, with sales across the broadest possible spectrum of consumer products.
Companies maintaining a traditional supply chain model therefore can no longer ignore such a valuable new route to market especially as, in most cases, they will be operating in highly competitive markets in which fierce battles are fought over market share movements of fractions of 1%.
A traditional manufacturer supplying through retail may well recognise the importance of this fast-emerging alternative route to market but still baulk at the significant investment required to support the new channel. Though e-commerce can no longer be ignored, the costs of managing parallel processes effectively may be seen as just too costly and difficult.
For such businesses, third-party providers now offer an attractive alternative, enabling them to maintain existing distribution channels and access the fulfilment needed to trade effectively in the new marketplace, using a single supplier. Distribution specialists, for example, have tackled head-on the issues around the integration of logistics and fulfilment within the supply chain and so are able not only to plug gaps in a vendors existing system but also act as a single source in meeting all their supply chain needs.
Yet with all the complex issues around managing both established logistics and fulfilment, and ensuring that entry into new e-markets fully meets the particular demands of both B2B and B2C customers, what kind of issues should be considered in selecting such a partner?
In the heady days of the dotcom boom, many logistics companies became established through the supply of e-fulfilment solution but have since retreated into the conventional logistics arena.
To deliver equally effective solutions in both channels of course requires both an understanding of the underlying dynamics in each case and a particular blend of skills and experience in meeting the differing challenges they represent.
Together with data management and analysis and customer profiling, this was seen as providing an ideal skills base to expand into e-fulfilment. This means that many of the additional demands in terms of manpower, space and supporting systems which fulfilment places on the warehouse such as the need to pick a much larger volume of multiple orders successfully and accurately within tight timeframes and provide a range of additional services are both recognised and, to some degree, already in place.
As a result, by providing traditional logistics services and fulfilment from a single location in this way, total stockholding costs can be considerably reduced.
Many companies offer expertise in web development as others specialise in fulfilment, yet for the newcomer to e-commerce this can leave a hole in the middle. Any failure to link the front-end order-taking effectively with back-end systems can lead to a failure to fulfil the order successfully and indeed, in its infancy, this was the most common source of customer dissatisfaction in buying on the web.
By using a third party capable of providing an all-embracing fulfilment solution therefore, both delivery quality and after sales service is much more likely to match the up-front promise.
This also recognises that the key to cost-effective multi-contact trading is to minimise client interaction. And here, multiple enquiries can be handled electronically via a well-integrated website with a proper knowledge engine behind it.
Such an approach can be attractive to existing companies looking to go multi-channel and to newcomers to the market. And the cost of entry is made easier still by the provision of services on a pay as you go basis. For many businesses therefore, an outsourced approach may well be preferable to in-house investment in delivering the necessary logistics/fulfilment integration for effective multi-channel trading.
Martin Palmer is business development director at Amethyst Group Logistics Division. Tel: 01580 892888.
