To find e-commerce fulfillment,
outsource those back-end chores
By Jay MacDonald • Bankrate.com

When it comes to e-commerce, it pays to watch your back. Your back end, that is.

Granted, you need an effective virtual storefront in order to entice those hordes of online buyers to click you into a more comfortable tax bracket. But how smoothly your back end operates -- in order taking, payment processing, pick and pack, shipping and inventory control -- may play a bigger role in your online venture's success.

In other words, your Web site may talk the talk, but your back end has to walk the walk.

Beauty and the Web
One year ago, the Boston-based beauty-care product company New Basics waded into e-commerce. Its owners were comfortable setting up their front end, designing their Web site, selecting their e-commerce engine and even obtaining the merchant account that allows them to accept credit cards online.

But the back end was beyond them.

"It's not only that it's labor-intensive and costly, but as a startup, that's not where you want to spend your capital," says vice president Sonia Boggs.

After researching vendors, they settled on Fulfillment PLUS, which also happened to be geographically desirable, in nearby Waltham, Mass.

"We're an early-stage company and didn't want to invest in the infrastructure because technology is changing so quickly," says Boggs. "I wanted a turnkey solution that we could learn from and Fulfillment PLUS accommodates our needs on the call center side as well as the pick, pack and ship operation."

Somebody else's troubles
For most small businesses, outsourcing fulfillment is the smart thing to do, according to Evan Armstrong, vice president of Armstrong & Associates, publishers of "Who's Who in E-Commerce Fulfillment."

"If you're a startup Web-based retailer, you usually won't have a distribution process in place, so the easiest thing to do is to outsource it," says Armstrong. "Plus, a lot of e-commerce service providers have warehouse and transportation management systems that they spent a million dollars a crack at, so by outsourcing to them, you don't have to have that kind of capital investment."

Typically, e-commerce fulfillment differs from traditional fulfillment in a number of ways.

In traditional fulfillment, large quantities of merchandise are shipped to regional warehouses. There, the shipment is broken down and distributed to local stores or secondary warehouses.

Online merchants, however, typically ship from a centralized warehouse via parcel post or expedited delivery such as UPS and FedEx. E-commerce orders tend to be smaller, shipments tend to be smaller, there is more manual handling involved, and the focus is on delivery speed -- usually accomplished through overnight delivery or two-day priority mail. E-commerce fulfillment also tends to cost two to five times more for the convenience.

How the back end works
With some variations, here is how an e-commerce back end operates: Orders come in via an 800 number, fax or online order form, and payment is processed. The order-processing system notifies the warehouse to pick, pack and ship to the buyer. The warehouse notifies the order-processing system when the item ships, so it can then relay that information to the customer. In high-volume businesses, an inventory loop is often built into the fulfillment system.

Pricing is most often based on per-order or per-piece amounts that typically range from $6 to $20, depending on services provided. In addition to pick, pack and ship, many fulfillment vendors offer a veritable dim sum of services, including invoice/accounts receivable, call center, bar coding and scanning, returns processing, light assembly, claims processing, import/export documentation and quality control.

Outsourcing fulfillment has several advantages over the do-it-yourself approach. Done correctly, it will have you up and running faster, saving time and money; your brand will shine thanks to trained customer service reps and skilled shipping and inventory professionals, and you'll have more time to spend on rainmaking and product development.

Finding fulfillment
There are dozens of fulfillment providers to choose from; Armstrong's "Who's Who" lists more than 100 and provides detailed information on 60. Besides searching the Internet for vendors and asking others for referrals, you might want to contact the Council of Logistics Management for guidance.

Once you've narrowed the list, make sure you know the specific services you need before sitting down to discuss terms.

"If you're shipping high-value items, the price per piece will be less important to you, whereas if you're Amazon.com, shipping lower value items, your per-piece cost is a lot bigger percent of the total cost, so you have to worry a lot more about how that is handled," says Armstrong.

"If I was setting up to sell jerseys, I'd probably go with a pick-and-pack operation. If there are very few variables in your products, then it's easier to work in the transportation cost. The more variability, the harder it becomes to work that in to a per-piece price. Are you going to sell only shirts, or a shirt with a coat rack? That's going to make the transportation piece a second issue, to where you can't really combine the two. The provider would probably want a percent on top of the shipping price and a separate agreement on per-piece pick and pack."

Tuning your orchestra
Getting all the instruments in your e-commerce orchestra to play beautifully together can take time and patience. New Basics, which had separate order processing, merchant account and fulfillment companies to coordinate, tested their 800 number and online order fulfillment for three months before going live in February.

"It gave us time to really talk one-on-one with the customer and allowed us to get exposure in the marketplace before we selected our distribution channels," says Boggs.

If your operation is simpler, you may outsource your entire back end to a single vendor and cut your time to market from months to days.

How can you tell if your team is performing up to snuff?

"You won't need a call center to handle all the complaints," Armstrong chuckles. "If they're doing the job, you're going to grow because of repeat business."

Jay MacDonald is a contributing editor based in Florida
To comment on this story, please e-mail the Bankrate.com editors

-- Posted: May 5, 2000