The Straight Scoop on E-Holiday Fulfillment

Last year’s holiday season exposed some troubling weaknesses in e-commerce fulfillment infrastructure. Frustrated consumers levied blame on overwhelmed e-tailers who found much criticism in their outside vendors and distributors, as well as overworked carriers.

Yet despite the ado caused by U.S. Federal Trade Commission (FTC) fines, most reports indicated that about 90 percent of online shoppers were satisfied with their online e-commerce experiences. And with fewer than 100 days left until Christmas, there is growing evidence that this e-tail holiday season will be the smoothest yet.

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A parcel can take many paths between the time that an online shopper clicks an order through and when the carrier arrives at the customer’s home or office. That process commences with the e-businesses themselves, where the costs of fulfillment and the unenviable task of predicting holiday season volume make e-tailers vulnerable.

“The cost of fulfillment is extremely high for these companies — up to 25 cents on the revenue dollar — and it drove a lot of e-tailers bankrupt last year,” IDC analyst Jim Williamson told the E-Commerce Times.

The major obstacle last year, however, was getting the product to the carrier quickly enough to be delivered. IDC’s study of last year’s e-commerce business volume reveals that the number of e-tail orders spiked up around the second week of December, but were not ready for carriers until a week to ten days later.

Problems arise when e-tailers receive more orders than they are prepared to handle. Last year’s troubles multiplied when e-businesses, wary of turning away customers, continued to take orders beyond what their carriers or outside vendors could promise to deliver.

However, we are less likely to see the same difficulties this time around, according to Williamson. “There’s a lot fewer e-tailers this year, and there’s been a fair amount of money put into fulfillment this year,” Williamson said. “We’ll see spot problems on fulfillment — but the companies that survived last year will get progressively better at fulfilling orders on time.”

Blaming the Messenger

Some e-tailers and consumers would rather blame the courier companies that transfer their goods to their consumers. For Internet businesses, companies like UPS and FedEx can be the lifeline of their bottom line and, rightly or wrongly, the object of their dissatisfaction.

Yet there is a method to the madness. UPS has been working with its clients since January to link holiday forecasts to the availability of its drivers, pilots, trucks and planes, according to UPS spokesperson Angela McMahon.

“We base our run-up to peak season on those company forecasted volumes,” McMahon told the E-Commerce Times. While McMahon admits that forecasting projected product volume months in advance “is not an easy thing to do,” UPS can only commit to deliver the forecasted numbers.

Where’s the Beef?

While many people who have shipped or received goods through the major carriers can recall a delivery adventure episode, analysts insist that carriers hold up their end of the shipping agreement.

“You’re always going to have lost shipments — that’s inevitable,” explained John Fontanella of AMR Research, “but for the most part the carriers take the brunt of the blame for the inefficiencies of the shippers. Generally, quality measurements are in the high 90 percents.”

In planning for the holidays, carriers lease extra vehicles and warehouse space and hire contract labor to handle the seasonal demand for their services.

Also, major carriers operate advanced tracking systems to locate any package in their systems. While such technology does not always guarantee that the product is located where the e-tailers or customers want it, tracking systems do keep products from falling through the cracks.

Last winter, consumers utilized carrier tracking systems for those times when packages encountered the inevitable detour to their final destinations. “When e-tailers and customers are upset, we get increased tracking requests on our Web site,” McMahon said. “UPS had 3.3 million online tracking requests on a single day — December 18th — during the last holiday season.

No ‘Holy Grail’

Of course, a successful e-tailer cannot survive on a strong fulfillment history alone. Just look at Boo.com, which appeared to do everything right in the fulfillment department last winter. The company invested heavily in its infrastructure and experienced a smooth holiday season for product fulfillment and delivery.

By May, Boo.com held a fire sale and closed shop. The company name has recently been incorporated into the online apparel portal Fashionmall.com.

“E-tailers tend to look at fulfillment as some kind of Holy Grail,” said Ben Narisin, CEO of Fashionmall.com, who paid close attention to Boo.com’s experience. “Strong fulfillment is definitely critical, but it’s just part of the overall equation,” he added.

While a strong fulfillment record once represented a company’s competitive advantage, it is now just expected, Narisin said.

FTC Rules Apply

The FTC will expect e-tailers to comply with its Mail Order Rule again this year. Under the rule, e-tailers who are unable to deliver a shipment in the amount of time they promised must contact the customer before the delivery deadline. Consumers may either cancel their order or agree to a new delivery schedule with the retailer.

This year, the FTC hopes that e-tailers get the message that this rule applies to them before the fines come. “Two years ago, the FTC decided to conduct a business education campaign only,” said Heather Hippsley of the FTC’s Enforcement Division. But in the wake of violations last year, the FTC filed a lawsuit that resulted in $1.5 million in fines being levied on seven e-tailers.

The FTC promises to enforce the rule on a case-by-case basis again this year if violations occur, Hippsley added.