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Fulfillment Update: Getting Geeky

1 Aug, 2017 By: Doug McPherson Response

Fulfillment providers are getting their geek on: tapping technology that’s keeping consumers happy, even amid their rising expectations.

A consumer products company had a good problem: It was using direct response to sell a cell phone accessory — make that a highly successful accessory.

USA Today dubbed it “the coolest tech you have to see,” and The Wall Street Journal said it was the best smartphone accessory it had ever seen.

“The company was literally exploding at the seams,” says Miguel Ruiloba, co-founder and vice president, sales and marketing at XB Logistics, a fulfillment company in Encino, Calif. “E-commerce sales were increasing exponentially and big box retailers couldn’t wait to merchandise the product on store shelves.”

So yes, it was a good problem — but still a problem. The issue: omnichannel fulfillment — a fast-growing issue in the industry.

Ruiloba says the client, which chose to remain nameless for this story, didn’t need a simple “pick-and-pack” operation. “Each product — which had almost 10,000 customizable configurations — required printing and assembly before packaging and fulfillment.”

Within 90 days of the first meeting, the first orders were shipping. Forty-five days later, a 24-7 operation was shipping tens of thousands of e-commerce orders daily, along with hundreds of thousands of boxes of product heading to more than 30 big-box retailers and hundreds of smaller retail shops.

By the second month, 60,000 e-commerce orders a month were being filled — all of which were shipping within the required agreement of 24 hours, including custom printing and assembly. Eventually the operation surpassed 250,000 orders per month.

How are fulfillment companies pulling these proverbial rabbits from their hats — performing the impossible? Many pros in the industry say it often boils down to one word: technology.

Tech to the Rescue

Sure, in this example, engineers, operations, and IT pros mapped processes, prepared time studies, determined staffing and equipment requirements, and developed a detailed schedule for a smooth transition to XB’s facilities.

But to do that, they relied on the technology behind an advanced warehouse management system that fully integrates each channel and thus, seamlessly, solves the omnichannel issue.

“[The technology] allows the marketer to distribute seamlessly with all distribution channels available to today’s direct-marketing-centric companies,” Ruiloba says.

Jessica Thill of Thill Inc., a fulfillment company in Neenah, Wis., says technology is still at the forefront of every fulfillment conversation and that multichannel commerce software and customized analytics are absolutely necessary.

“Marketers should look for a fulfiller that offers a software suite that gives them all the information they need in one solution,” Thill says. “You should be able to run your business from anywhere, and your fulfiller should be able to provide the information you need in the format you need it.”

Thill adds that because of a constantly changing digital landscape, consumers also want immediate access to updates about their purchases on their laptops, smartphones, and tablets. “Fulfillers need to be on the cutting edge of technology trends, providing interactive shipment information and software that rises above and beyond a simple shipment confirmation email,” she says.

Bryce McCuin, director of marketing with a2b Fulfillment in Greensboro, Ga., says online sales are indeed driving the need for better technology in fulfillment.

“The savvier customers become in their shopping, the more complex the order management,” McCuin says. “It’s no longer just web and call center any longer.”

He says a recent study found that online sales in the U.S. are expected to reach $523 billion in the next five years, much of which will be done via mobile devices.

“Be sure you partner with a company that embraces technology; specifically, the integrations that you need for your growing business,” McCuin says.

Andrea Stuhley, executive vice president at Motivational Fulfillment & Logistics Services in Chino, Calif., says technology is also helping fulfillers with the new trend of drop shipping.

“Whether it’s to a shopping network, a flash sales site, or a retailer’s e-commerce website, marketers can now keep their entire inventory in one place and ship only when a product is ordered,” Stuhley says. “Marketers used to have to ship thousands of products to a third-party distribution center and hope that all product sold out. If it didn’t, they were responsible for paying the freight back to their warehouse. With e-commerce drop ship, the product never leaves the warehouse floor until it’s a paid order.”

Patrick Moulton, vice president of corporate development at Moulton Logistics Management, a fulfillment company in Van Nuys, Calif., adds that with each new drop-shipper, the fulfillment provider must handle the additional complexity of information traded between those platforms, as well as the specific turnaround times and custom packing slips each drop-shipper requires.

“Marketers may or may not realize that most of these drop shippers are demanding close to same-day turnaround,” Moulton says. “And that’s possible — it just removes the economy of scale of shipping larger quantities over longer periods, and thus comes with a premium cost.”

Partnering Power

Fulfillers say marketers need to consider several issues when finding the right partner in today’s higher tech world of fulfillment. George Fanolis, vice president of new business development at Fosdick Fulfillment in Wallingford, Conn., says he believes there are three key issues facing performance-based marketers related to fulfillment partnerships: scalability, communications, and costs.

“With scalability, a fulfillment company must have the ability to grow and shrink as demand fluctuates,” Fanolis says. “While in growth mode, it is extremely important for fulfillment to maintain service levels such as accuracy, turnaround time, and accurate updated reporting.”

On communications, he says fulfillment partners must communicate and provide expertise in packaging, postage recommendations, customer care approach, possible pitfalls, and inventory alerts and updates.

And with costs, he says fulfillment companies must have favorable negotiated carrier rates to ensure low-cost postage options. “Purchasing packaging and other related materials is paramount to cost savings. This is often achieved through high volume discounts. Strategic geographic locations often dictate labor and storage savings,” he adds.

Fanolis also says marketers should seek a partner that can “integrate across all channels of distribution: e-commerce, subscription, retail/wholesale, DRTV, and online marketplace direct shipping. Availability of same day shipping and choosing the right size fulfillment vendor to manage their business needs today and tomorrow are also key.”

Craig Lennon, director of business development at Ship-Right Solutions, a fulfillment company in South Portland, Maine, says support, data, and quality are all vital. 

“Support today means [fulfillers] need to be available, responsive, nimble, and able to make changes based on the marketplace,” Lennon says. “With data, in many cases, a fulfillment provider is managing some or all of the customer or campaign data that the marketer will make decisions on, so it must be reliable and accessible.”

And on quality, the marketer “only gets one chance for the customer’s first impression of the product they purchased, so the accuracy of the items placed in a customer’s package is critical,” Lennon adds.

Ruiloba says marketers need to keep the “ever-growing” direct-to-consumer segment in mind when choosing a fulfiller. “To the marketer, being able to cost effectively manage inventory, kitting, and order processing for this segment is key,” he says. “Direct-to-consumer shipments require more handling, customer service, and attention to detail. As the marketer evaluates their fulfillment partners, they should consider how the fulfillment industry is adapting their cost structure to better support this segment.”

He adds that fulfillment companies, especially in major markets like California, Connecticut, New Jersey, and New York are under pressure with managing increased health care costs and rising minimum wages.

“Since the direct-to-consumer segment typically requires more labor than traditional retail distribution, fulfillment companies need to adjust pricing to manage costs,” Ruiloba says. “For many companies with third-party logistics in California, hourly labor rates will be rising significantly and should cause higher fulfillment costs for marketers. Hourly labor is expected to increase to $11 in 2018 and $12 by the beginning of 2019, and California also has the highest workman’s compensation rate. Marketers should consider alternative ways to deal with these increased costs, which third-party logistics providers will have to pass through.”

Trends for the Future

Fulfillment pros say there are a few trends afoot besides increased technology that marketers need to keep their eyes on. One, according to Thill, is increasing consumer expectations.

“Because e-commerce and social media are changing the way people shop, consumers are no longer just purchasing a product — they’re looking for a comprehensive shopping experience,” Thill says. “That means they’re focused on packaging, kit curation, and how they receive shipments. Fulfillment is critical to a customer’s experience. It’s imperative that marketers and fulfillers adopt a forward-thinking strategy about technology and develop a flexible comprehensive solution that drives sales and reduces churn.”

Another trend: warehouse labor. Moulton says he’s concerned about a warehouse labor shortage amid increased competition from e-commerce distribution centers.

“It used to be that this was a seasonal issue where warehouses competed for staff during the holidays. Now it’s become the new normal, and it’s only going to get worse as more retail distribution centers come online as the big brand retailers try to compete with Amazon’s fulfillment network,” Moulton says. “This is an increased expense of order fulfillment that markers can plan on — regardless of whether order fulfillment is performed in-house or by their fulfillment providers.”

And Ruiloba says marketers’ dependency on multiple distribution channels and ordering formats will continue to become the norm rather than the exception. In fact, he sees it increasing in the next 12 to 18 months.

“Currently, very few marketers make money on their initial DRTV sales,” Ruiloba says. “They count on upsells, continuity programs, third-party programs, brick-and-mortar retail, TV home shopping, e-retailing, and international distribution to generate sales and profitability. Third-party logistics providers must be adept at fulfilling all orders, whether it’s individual shipments off a sale, recurring shipments, bulk shipments to direct to consumers, or international distribution support.”

Ruiloba adds the current political environment may cause companies to face increased duties on products being imported from the Far East and other countries where products are traditionally sourced.

“Marketers will be looking at more domestic product sourcing in the coming years, and must consider the impact on where from and how they distribute their products — and how their third-party logistics providers will assist them,” he says. ■


About the Author: Doug McPherson

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