E-Commerce Faces Logistics Nightmare

As online orders from consumers and businesses soar past the 2 billion per year mark, Internet sellers will be faced with logistics chaos, according to a report by Forrester Research.

Forrester’s report “Mastering Commerce Logistics” predicts that demand for order fulfillment solutions will reshape the existing landscape as logistics suppliers evolve to serve the small-package, individual-oriented needs of commerce site operators.

To date, order fulfillment has not been a serious e-commerce issue because most Internet sellers have limited the number products offered on their sites and executed fulfillment in-house. But as online sales move past the experimental phase, three factors — an expanded selection of products sold online, the need to move a large volume of small parcels, and rising customer expectations — will combine to put new pressures on order fulfillment systems.

“No one is prepared for the exponential growth in parcel deliveries that online sales will generate,” said Stacie McCullough, Business Applications Research analyst at Forrester. “Firms that fail to attack order fulfillment with the same vigor as online selling will experience customer defection, funding attrition, and distribution nightmares.”

According to Forrester, companies can meet the demands of online selling by developing a fulfillment system that delivers end-to-end logistics, which Forrester defines as package visibility and service continuity from buy bottom to final destination. End-to-end logistics follows three clear imperatives — empower customers, focus on parcels, and deliver to the customer’s doorstep. Firms need to keep customers informed with up-to-date information about order arrival and empower them through self-service solutions that address common fulfillment problems.

Meanwhile, Forrester says, manufacturers and distributors need to shift their focus from shipping pallets to stores to delivering packages to individual consumers. Finally, rising global demand requires that merchants and shippers alike prepare to handle any type of delivery in any geographic region.

Although a few fulfillment vendors like Fingerhut and Valley Media are geared up to service the largest e-commerce sites, most online sellers ship less than 400 orders day — too small to get any help. Over the next two years, however, Forrester predicts that new outsourced services will evolve to deliver end-to-end solutions to smaller online players. These companies will offer improved drop-ship services and provide a range of residential delivery options.

“With residential deliveries expected to exceed 2.1 billion by 2003, a strategic battle over the consumer doorstep is under way,” McCullough said. “Shippers have figured out that whichever vendor establishes an ongoing relationship with the consumer becomes the online retail gateway.”

Forrester interviewed 40 vice presidents of operations from retail, Internet, and manufacturing companies that have an online presence. The respondents indicated that their companies are easing into online selling, shipping a median of 400 online orders per day. However, less than half make a profit on each shipped package and most fail to accurately measure the total cost of fulfillment. Forrester also found that 85 percent of the respondents still cannot fill international orders because of the complexities of shipping across borders. Of the globally incapacitated, 75 percent cite their systems’ inability to register international addresses accurately or price total delivery cost.

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