Successful online selling depends on logistics

By Staff -- Logistics Management, 10/1/1999

A recent survey of companies engaged in online selling cited global distribution and lowering fulfillment costs as the major challenges ahead for electronic commerce.

The firm, Forrester Research Inc. of Cambridge, Mass., canvassed some 40 companies for its report, Mastering Commerce Logistics. The survey found that most respondents were handling a median of 400 orders per day from online sales. Even though online sales accounted for a small part of their overall business, companies said that handling merchandise returns following those sales was proving to be a problem.

In addition, the survey found that less than half of the respondents made money on each shipped package. Many of those losing money on shipping blamed their company's pricing strategy--either charging the same fees for all packages regardless of size or imposing no shipping charge at all. "For simplicity's sake, they charge standard rates," says Stacie S. McCullough, a senior analyst at Forrester and author of the report. "[W]e saw many companies that charged no [fees] for shipping."

Some 85 percent of those surveyed said they couldn't fill overseas orders because of the complexities of cross-border shipping. The 15 percent of the respondents who were involved in global shipping of online orders were exporting to only a few countries in Asia or Europe. "We're finding a lot of people [using] Band-Aids as a solution, putting up warehouses in a country to have inventory there," says McCullough.

Given that e-commerce sales are expected to reach $3.2 trillion by 2003, the report concluded that online sellers will face "logistics chaos" as they scramble to scale their logistics infrastructure to handle delivery of products sold online to the customer's door. As a solution, the report advocates end-to-end logistics, in which distribution operations focus on the movement of parcels rather than pallets. Until so-called end-to-end logistics options become available, the report suggests that general merchants build that infrastructure in-house and that mid-sized sites outsource the fulfillment part of distribution.

"Now that everyone has Web sites that are personalized, companies are starting to say 'We have to go to the next level,'" notes McCullough. "The larger retailers feel that their competitive weapon will come from the customer-service side."

McCullough believes that this Christmas will prove to be a telling time for Web-based retailers, who will face pressure from consumers to meet order commitments and deliver products for the holidays quickly. "People are starting to be focused on convenience and a lot of companies will lose business [if they can't meet their commitments]," she explains. "It may be the make-or-break season for Web merchants."

The biggest fulfillment challenges in 2001

(% of respondents)

Distributing globally 38

Lowering fulfillment costs 35

Managing volumes 30

Accepting online returns 30

Decreasing order-to-receipt cycle 25

Increasing visibility of orders 25

Projecting demand forecasts 15

Other 28

(Survey allowed multiple responses)

Source: Forrester Research Inc.