The traditional challenges inherent in managing a multi-customer warehouse - balancing space requirements, juggling labor to accommodate seasonal demands, having in place the proper systems and equipment to meet varied customer requirements - only intensify with the flood of e-commerce initiatives.
"Two guys in a basement can set up an online storefront to sell product in a matter of hours. It's easy to overlook what it takes to ship all those orders out." - John Clark of Provia Software
As 3PL service providers bring e-fulfillment programs into their facilities alongside more traditional warehouse activities, they face a new set of challenges. In general, these newcomers require far greater system visibility and faster turns of shipments that are increasing in number and decreasing in size.
From the "big picture" perspective, the biggest challenge for operators of multi-customer warehouses is the ability to capitalize on the opportunities that technology and the internet offer to them, says Rich Sherman, senior vice president and director of "visioneering" for EXE Technologies.
EXE recently completed for internal purposes a survey of 900 dotcom companies, from which it received approximately 250 responses. Of those, says Sherman, less than 20 percent were operating with a fulfillment facility larger than 20,000 square feet. Virtually all respondents indicated significant problems with issues critical to customer service and fulfillment, such as the ability to maintain appropriate stock, to fill orders profitably and to track customer orders.
"There's a tremendous demand for fulfillment management, or e-fulfillment," Sherman points out. "While there are a small number of highly visible dotcoms currently building and operating warehouses, a very high percentage of these companies are looking to someone else - the 3PL service providers - to manage their fulfillment operations."
Sherman sees it as a huge opportunity for the 3PL industry. "Most of these dotcoms are both funded and focused on branding and building market share," he says. "Only a few of them have the capital to actually build e-fulfillment centers." The 3PL market always has been competitive, adds Sherman, "but never has been as hot as it is right now."
The emergence of e-fulfillment needs and the much quicker speed to market being demanded by all these new dotcoms is spawning a hybrid species of 3PL, the e-3PLs, says John Clark, manager of corporate communications for Provia Software. "Two guys in a basement can set up an online storefront to sell product in a matter of hours. It's easy to overlook what it takes to ship all those orders out."
The e-3PLs are more savvy as to the requirements for dotcom success and offer the value-added services that these start-ups need, including the automated small-parcel shipping inherent in online selling, he says.
They also understand that dotcom companies need a quick implementation time - faster than anything in the traditional warehousing world, Clark adds. "A company contracting with an experienced e-3PL should be up and running and able to ship product out in a matter of weeks."
There really are two models for e-commerce fulfillment, says Dan Trew, vice president of product strategy for Catalyst. One is a brick-and-mortar model, where the distribution warehouse is like an extension of the e-commerce company's internet site, fulfilling its own orders and managing its own stock levels.
The other model is for pure internet plays. "These companies have the storefront on their web site, but they may not be responsible for any order fulfillment and instead look to a 3PL service provider to be responsible for that function," says Trew.
Clock Is Ticking
That puts the pressure on the 3PL's warehouse manager, who then is responsible for a very short turnaround on a lot of orders for a specific owner. "After all, people who order on the internet want their stuff tomorrow," Trew adds.
The explosion of e-commerce places extreme requirements for system visibility on the fulfillment side of the equation. "One thing that both traditional 3PL and now e3PL end clients are beginning to demand is visibility - not just for them, but for their end customers as well," says Clark. "When someone places a web order, they want to know the real-time status of that order, so 3PLs and e3PLs will need to offer this functionality in order to succeed."
"When a company goes online, their inefficiencies are more visible," says Henry Bruce, CEO of Optum. "They really have to have it together on the fulfillment operation. You have to be able not only to execute within a delivery time window and meet expectations, but you also have to provide visibility."
It's not enough just to take the order and have the goods show up; once you arm the buyer with a browser, the scenario changes drastically. "The need to make information available to the end user during the fulfillment process has skyrocketed," says Bruce. For companies that were in the traditional mode - whether they received orders by EDI, FAX or on paper - the only lifeline to the customer was the telephone. "Now, when you put a browser in the hands of the buyer, they fully expect to be able to use that same browser as a vehicle to keep tabs on where their order is."
Bruce points to a Forrester study completed early last year that focused in part on the changed buying habits of a group of frequent travelers who had stopped using travel agents to arrange trips, opting instead to make their own arrangements on the internet. "They found that when a person booked flights through a travel agent, the tendency was to do a status check one or two times before the tickets arrived," he says. "Forrester found that the same traveler using the internet tends to check the status of that booking 10 or 11 times before the departure date."
That kind of scrutiny or need-to-know puts an enormous strain on the service environment and underscores the fact that the rules have changed, says Bruce
"In a traditional fulfillment operation, what happened between the time an order was placed and when it showed up was a big void," Bruce explains. Even customers placing orders via EDI received only skeletal responses such as order confirmations and advanced shipping notice.
Even Those Without Warehouses Need OMS Software
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