E-Commerce and Fulfillment

The trials and tribulations of last year’s e-Christmas season were eye-opening. According to research by Anderson Consulting, 40 percent of online shoppers had a problem with their Christmas shopping experience, ranging from out-of-stock items to Web site performance problems. Yes, commercial Web sites have had some problems, but things are even worse in the much larger, faster-growing, and more fragmented business-to-business (B2B) market. The rapidly shifting nature of the Internet and the more complex requirements of e-business applications are making it difficult for companies to define and implement end-to-end e-business strategies. One source of confusion in both the business-to-consumer and B2B scenarios is the fulfillment process.

Setting up a Web site to display a catalog and accept incoming orders is relatively straightforward. The heavy lifting starts once the user clicks on the "Buy" button. Myriad business processes all have to work smoothly to ensure that the product is picked, assembled, packed, and shipped correctly, and that payment is received. Systems are also needed to handle returns, delivery glitches, billing errors, and other customer service issues. When implementing a B2B supply chain, the fulfillment issues become more complex. Where a retail transaction may involve shipping a package to a single address, a B2B transaction may require the system to assemble an array of complex subassemblies from multiple suppliers, verify that they are assembled and tested correctly, make certain they are packed using specialized materials, and ship them to multiple locations.

Making sure online order processing and offline fulfillment and logistics systems are smoothly integrated is crucial. Customers or business partners who have a negative experience with an online B2B site will not return to that site again. Given the cost of customer recruitment and retention, a serious customer defection rate can result in a company falling off its revenue goals.

There are three basic approaches to implementing a fulfillment system. You can develop a custom system, purchase a packaged application, or outsource the problem to an application service provider.

Building a custom application ensures that you have a system specifically designed to meet your company’s unique requirements. But there are several issues to consider. One is the ongoing cost of maintaining the system over its lifecycle. This cost can be considerable, especially as the system ages. New, unanticipated technology may arrive that must be integrated into it, which can be extremely difficult. The expertise required to design, build, and maintain the system may be difficult to acquire and retain. If a key developer leaves for another opportunity, a lot of embedded knowledge about your application may walk out the door with that individual.

A packaged solution can be more cost-effective than a custom solution because the application vendor can distribute the cost of developing the system across the entire set of customers. It can also be quicker to implement since much of the application functionality is already coded. Moreover, a viable vendor with a component-based architecture should be able to deploy a system that meets most of your requirements, with the assurance that new technologies will be incorporated by the vendor as the software evolves. Even though the total solution may cost less than developing a customized application, these packages can be expensive, ranging up to more than a million dollars. This is especially true if you bring in a consultant to integrate the system to your front and back-office applications.

Outsourcing is an increasingly attractive option, especially given the ubiquitous nature of the Internet. There are a wide range of pricing models, but many solutions targeted at small to midsized businesses have a per-user, per-month pricing fee. This approach means software costs can come out of an operational budget and don’t need to be capitalized.

And since the outsourcer takes on all the responsibility of implementing and managing the application, your organization doesn’t have to recruit and retain people with arcane and expensive skill sets.

Regardless of which approach you take, be wary of extravagant claims, and make sure that the vendor provides proof points that they will be able to integrate the application with your fulfillment process. Remember, your customer is watching! --Robert Craig is vice president of strategic marketing at Viador Inc. (Burlington, Mass.), and a former director at the Hurwitz Group Inc. Contact him at robert.craig@viador.com.