October 25, 1999

Fulfilling Expectations
The real test of E-commerce this holiday season will be integration with back-end fulfillment systems

By Alorie Gilbert

Related links:

Logistics Building Blocks

And from our sister publications:

InternetWeek Fulfillment Systems Put To The Test

ost E-retailers spent last year's holiday season worried about establishing an online presence and keeping their Web sites up during peak holiday traffic. On the verge of this year's stress test of the Internet economy, customer-savvy E-retailers are turning their attention to logistics--the ability to deliver the right goods, at the right time, to the right place, while keeping customers informed along the way.

"You can have great graphics, but if you don't have a fulfillment system on the back end to live up to the customer's expectations, you're not going to get the bookmark," says Jon Ricker, president and CIO of Limited Technology Services, the technology division of The Limited Inc., which owns Victoria's Secret and Victoria's Secret Online.

Eyeing the opportunity, several distribution companies, software providers, and E-commerce startups are stepping up with new products and services. USFreightways Corp. last week launched a business unit for online retailers that will manage warehousing, distribution, and delivery of merchandise to consumers. Warehouse-management systems vendors such as EXE Technologies, Optum, and Yantra are introducing E-commerce order-fulfillment software to help companies handle Internet orders and let customers track orders through the delivery process. Startups such as Electron Economy and Escalate Inc. are offering a full range of E-fulfillment services.

To be done right, E-commerce logistics requires integration of systems from the Web front end to the customer's signing for a package. It also requires managing the complexity of delivering thousands of mostly small packages daily to their unique destinations. Analysts say that E-retailers, with few exceptions, have simply shrugged off the demands of the back end, leaving consumers in the dark about product availability and delivery. "You still can't track fulfillment on Web storefronts--that is the next thing that will hit these guys," says Meta Group analyst Hollis Bischoff. "Consumers want to check if inventory is there and when it will arrive."

Concerned about the possibility of a disconnect with customers, some E-retailers have decided to make logistics a key part of their business. Petstore.com, an online pet shop in Emeryville, Calif., implemented Yantra's fulfillment suite at its first warehouse before going live with the virtual store in April. The product has helped Petstore.com fulfill as many as 100,000 orders in one day and track the status of deliveries. That ability is critical, particularly to Petstore.com's Flying Fish Express unit, which offers hundreds of varieties of exotic fish for overnight delivery. "To ensure the best customer service, you can't separate the warehouse from order management," says Chris Luhnow, president and cofounder of Petstore.com. "It was important for us to have an end-to-end system."

Toysmart.com in Waltham, Mass., is another online retailer that's counting on logistics to give it a competitive edge. Bracing for 40,000 orders a day during the holiday-shopping season, the online toyseller just completed an implementation of Yantra's software, letting it track every order and guarantee on-time, accurate delivery. "For us, logistics is a critical part of the overall customer experience," says Mark Reese, chief E-commerce officer at Toysmart.com. "It's a challenge and a complexity we've chosen to take on."

E-retailers that opt not to take logistics on themselves are the target of third-party providers offering combined E-commerce and fulfillment services. USFreightways' new eLogistics division provides E-commerce technology based on transportation-management software from supply-chain vendor i2 Technologies Inc. It also offers proprietary logistics applications, along with its existing trucking and warehouse infrastructure, to provide inventory and shipping data to consumers via the Web in real time.

The USFreightways business unit is in its infancy, with three full-time employees and no customers. But it offers integration services to tie its systems to the Web storefronts of its customers in two to six months, according to Doug Christensen, CEO and president of USF Logistics. (For more on how the Internet is transforming traditional logistics vendors, see "Shippers Repackaged As E-Providers").

Companies such as Electron Economy, Escalate, and Fingerhut are also betting on a growing demand for the packaging of logistics with E-commerce software and services. Electron Economy is a startup that's pitching itself as a one-stop shop for online companies that want to outsource management of their E-commerce software, as well as contracts with logistics companies and call centers.

"It's not an easy task," says Andrew Leary, CEO of Style365, a high-end fashion and lifestyle E-merchant that's one of Electron Economy's first customers. Leary says coordinating the work of various subcontractors is daunting for a small E-retailer. Style365 has postponed its launch until after the holiday season because it couldn't get all the pieces together in time, even with Electron Economy's help.

Style365 is an object lesson: If E-retailers don't have their logistics infrastructures ready by now, analysts say, they may have missed out on this shopping season. "This is a sophisticated technology buy," says John Fontanella, a logistics analyst at AMR Research. "If retailers haven't gotten the message about how important this is, it's too late now. They should have started the day after last Christmas."

800.Com Inc., a consumer-electronics Web retailer in Portland, Ore., did just that. Following its first holiday online last year, the company completed a rollout of Assist, an inventory-, warehouse-, and transportation-management suite from Cornerstone Technology Inc. With that technology and an additional warehouse, Greg Drew, CEO of 800.Com, says the company is better-prepared for holiday traffic than last December, when it ran out of inventory during a three-for-a-dollar CD and DVD promotion and was unable to deliver on time--or at all. "We haven't taken a moment's rest since the last holiday season," Drew says.

Even for consumer-catalog companies that have mastered direct-to-consumer fulfillment, getting Web logistics right can be a major effort. For instance, the launch of Victoria's Secret Online took nearly a year and a half, even though the company had a fulfillment infrastructure and call center for its catalog operations. Though that capacity helped, says Limited Technology's Ricker, the hard part was integrating the Web site with inventory and distribution systems and a data warehouse.

"We got dinged for coming to the Web late," Ricker says. "But our focus was on quality." In addition to systems integration, Ricker says, his team worked to ensure that logistics systems could support a round-the-clock data center running the Web store, as well as surges in orders driven by online events and promotions, such as the online fashion show advertised during this year's Super Bowl.

According to analysts, speed to market may be a compelling reason to outsource logistics, especially for smaller vendors. "Single delivery isn't a competence you grow overnight," says Meta Group's Bischoff. Still, given the closeness of the holiday season, speed-to-market may be a moot point for E-retailers if the logistical capability isn't there already. Says AMR's Fontanella: "There's always next year--if they're still in business."

--with Gregory Dalton, Ramin P. Jaleshgari, and Marianne Kolbasuk McGee

Photo by David Weintraub

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