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Fulfillment: Rage Against the Machine

Many CFOs barely look at E-fulfillment; most delegate the task entirely to executives in customer service or logistics. The result is not just angry customers, but a slower cash conversion cycle that eats away at working capital and profit margins.

That lack of real-time data has led countless E-tailers to book orders for products that are out of stock — or worse, discontinued. Such miscues can permanently tarnish an E-tailer’s reputation, sending irate customers to competitors. “Fulfillment is the name of the game,” Swan says flatly. “It will make us or break us.”

Attention Shippers

You don’t have to sell eToys’ Augustine on the merits of fulfillment management. As chief logistics officer at the online toy seller, Augustine is fully aware of the importance of shipping merchandise in a timely fashion. “This isn’t a business in which you want to deliver a product three days after someone’s birthday,” he says.

Since there is little existing fulfillment data — or time to benchmark other E-tailers’ shipping performance — eToys relies on veteran logistics managers to set targets and gauge performance. “Our people have a broad range of experience, from steel to fast food to computer products and components,” says Augustine, who is the former head of logistics at Gateway Inc. The logistics department at eToys has set high standards, too. The company endeavors to ship most products within 24 hours of receipt of the order.

To make sure the online toy seller meets that goal, management employs a team of industrial engineers to oversee the E-tailer’s distribution centers in Ontario, California, and Danville, Virginia. The logistics department also conducts time-use studies, which Augustine believes are more valuable than benchmarking the fulfillment performance of other companies. Webvan also relies on internal benchmarking of its inventory and distribution systems. “We follow the best practices of our people,” says Swan, “many of whom have been in pick environments before.”

Moreover, managers at E-tailers like eToys and Webvan have learned hard lessons in the dotcom wars, which may be why they’re more adept at managing ecommerce fulfillment than many click-and-mortar operators. Interviewed for an article in an earlier issue of eCFO, eToys CFO Steve Schoch argued that pure-play E- tailers are further along the fulfillment learning curve than old-economy managers: “We are in a unit-based business,” Schoch noted. “But [traditional retailers] are used to moving pallets. None of the assets of land-based companies are appropriate for running an Internet operation.”

A number of old-economy retailers have been slow off the ecommerce mark, that’s for sure. Retailing giant Kmart Corp. is one. The Troy, Michigan-based company’s Web site, BlueLight.com (www.bluelight.com), ran into some operational snags early on and didn’t relaunch until June 2000 — well after most E-tailers and even some traditional businesses had put up virtual stores. Playing catch-up meant BlueLight.com didn’t have time to develop its own fulfillment operation before going live. So managers at the San Francisco-based online retailer outsourced the company’s order fulfillment to SubmitOrder.com (www.submitorder.com).

That adds yet another layer of complexity in fulfillment management. So, too, does a whopping increase in business. According to Chris Lien, BlueLight’s chief financial officer, the company is forecasting more than half a million SKUs by Christmas — somewhat more than the 80,000 the cyber-store has now. And as some E-tailers discovered in the 1999 holiday season, such an explosion in volume can overwhelm a fulfillment system.

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