The growth in Internet e-commerce over the past few years has been staggering, but most research firms predict the next three years will make previous growth pale in comparison.
GartnerGroup’s Dataquest estimates that the worldwide business-to-consumer e-commerce market will reach more than $380 billion by 2003 (over the approximate $31.2 billion in 1999). And the International Data Corporation predicts that the current Internet population of 200 million will reach an incredible 1 billion by 2005.
These figures promise a rich market for e-commerce companies, but a deadly rust may grind many e-commerce engines to a screeching halt. Companies that have up to now concentrated on selling and delivering a Web site must now tackle the deceptively simple problem of handing the package over to the customer.
Logistics and fulfillment problems
This past holiday shopping season, many Amazon.com customers were met with a warning that goods purchased after a specific date wouldn’t reach their destination before Dec. 25. The problem was that Amazon’s infrastructure, along with that of parcel carriers, was simply too overloaded.
Seasonal shipping is only one of the many factors involved in end-to-end logistics, but it quickly demonstrates the types of problems that e-commerce companies face. Online sales aren’t made when the customer clicks on the buy button, but when he receives and accepts his package. Between the buy button and the delivery is the essential infrastructure called fulfillment logistics—a barrier which most e-commerce companies haven’t even thought of, much less conquered. The problems of logistics are often heaped together into a dozen or more little problems, any one of which can turn a profitable sale into a debt. Let’s look at one of the most notorious examples.
Figuring shipping cost
Developing a pricing strategy for international shipping is a nightmare that most e-commerce companies don’t deal with. Simply accounting for the size and weight of the package isn’t enough.
An international order also needs to account for international shipping charges, duties, shipping insurance, tax, value-added tax, exchange rates, and even the possibilities of return postage. If these factors weren’t enough, sales etiquette requires that e-commerce companies inform the customer of such charges at the time of sale, implying the need for an integrated SAP system that can make all the necessary calculations. Currently, most e-commerce companies just don’t bother.
According to “Mastering Commerce Logistics,” a study by Forrester Research Inc. , more than half of e-commerce companies lose money on each order because they charge a flat rate for shipping (no matter the size, weight, or destination of the package), or because they simply don’t charge for shipping. The hope of many such companies is to build a customer base and then make changes over the next few years in order to start showing profits.
Where’s my package?
Another logistics problem in international package shipping is tracking. Many third-party logistics companies, distributors, and parcel carriers do provide package tracking, but handling this information might prove difficult for small e-commerce companies to juggle. Additional factors can include delays in customs and accuracy with international addresses. In the Forrester study, the companies surveyed envisioned fulfillment problems for 2001 as follows:
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There are a series of steps e-commerce companies can take to make end-to-end logistics work. The first is simply to wake up to the problem of logistics fulfillment. The growth of e-commerce over the next three years will force both e-commerce companies and shipping services to develop strategies and infrastructures for handling the demand, but companies that turn a blind eye to the problem will be left behind. In addition, e-commerce companies need to:
- Focus on customer centric models that provide information during the order process, as well as package-tracking information and related services.
- Create a fulfillment infrastructure that focuses on efficiently handling individual orders and packages.
- Make sure the logistics can convey the package to the customer under difficult conditions.
- Investigate alternative delivery services and resources such as drop shipping and landed-cost software engines.
- Look carefully at the alternatives of in-house fulfillment, outsourcing services (like ShopNow.com ), warehousing, and Web services (such as E-Transport). Each strategy has its advantages, but only for a company of the proper size, resources, and sales volume.
The Internet has a history of quickly weeding out those who don’t understand or can’t keep pace with the technology. E-commerce is destined to grow at amazing rates over the next three years, and fulfillment logistics will be part of that growth. For those companies that embrace logistics, the odds of a loyal, expanding customer base are greatly increased.
Drop Shipping Resource
Global Contact Inc. (Import / export legal information)
The WIRE (a directory of Warehousing, Distribution & Logistics companies)
Bruce Spencer is a freelance technical writer who has been working in the information industry since 1983 and writing about the Internet since 1995.
- Most e-commerce companies foresee more than 750 percent growth in online business over the next 18 months.
- Only 10 percent of participants in a recent Forrester Research study shipped to all foreign destinations.
- Sixty-five percent of e-commerce companies ship only within the U.S.
- Forty-three percent of the e-commerce companies surveyed in a Forrester Research study can’t properly calculate online sales because they don’t factor in returns to traditional storefronts.
—“Mastering Commerce Logistics,” a study by Forrester Research Inc.