Fulfilment problems fall into three categories: a poor fulfilment proposition to the customer, poor execution and excessive costs for the retailer.
Combined, these factors will quickly devastate an online retail business, but if solved they can drive success, as a recent survey into online retailing worldwide by PA Consulting Group reveals.
The survey shows that unsatisfactory delivery schedules were the most significant cause of customer dissatisfaction online. However, it also suggests that if delivery problems were overcome, online shopping would take off. For example, nearly half of online shoppers questioned said they would be encouraged to spend more on the Web if a collection point was available.
So how do fulfilment execution problems lead to higher and hidden costs?
There is a risk that retailers underestimate the costs surrounding fulfilment - selecting, packing and dispatching orders, as well as the costs charged by a delivery company. There are also other significant costs, including returns, multiple deliveries and cancellations.
The level of returns is frequently under-estimated, both in terms of the overall proportion of goods returned and the costs of repackaging and reselling product or disposing of it.
There have been reports of customers ordering the same product from several Web sites during the last Christmas period to ensure they received at least one item, and then returning any additional orders. This was one factor behind returns rates of up to 30 per cent, according to a report published last month by US research firm Yankee Group.
When a product is not in stock and is part of a larger order, the retailer can hold back the entire order until it can be delivered together. However, this risks the customer losing patience and cancelling the order. Alternatively, the retailer can deliver products as and when they are available, but this incurs multiple delivery charges. Some retailers offer customers the choice of waiting for their entire order to be ready, or to pay additional charges if the order is delivered in several parts - a questionable proposition where the customer effectively pays for the retailer's mistakes.
Finally, one of the biggest costs relating to fulfilment performance is the cancellation of late deliveries.
The revenue lost in these cases is rarely charged directly to fulfilment budgets, but if just a small proportion of orders are cancelled owing to fulfilment problems, the cost can be as great as those which are directly measured.
Controlling fulfilment costs is important for online retailers because ultimately they have to be met by sales. Consequently, if costs remain high, the retailer will either run out of cash or need to increase product prices or delivery charges. This in turn can reduce sales and lead to business failure.
The retailers that ensure multiple channels complement each other will be set for greatest success. To do this, they must design a customer-driven fulfilment proposition, manage fulfilment performance and above all understand and control fulfilment costs.
Global online retailing trends
PA Consulting Group's second survey into global online retailing drew more than 1,000 responses from urban professionals.
One of the key overall findings is that people's online shopping habits are becoming more sophisticated. This year's survey revealed that the most important reasons people bought online were that they could shop from home or work, to have products delivered direct to the home, and to be able to shop at any time. Last year the primary reasons were the greater choice of products and services, the ability to compare prices and access to more stores.
Similarly, there is increasing realism about what the Web offers. Last year, 53 per cent of people said it was quick and easy to use, while this year only 31 per cent of people agreed. Conversely, 33 per cent said they were dissatisfied with online shopping because it took too long to access Web sites, compared with only 12 per cent last year.
Also worth noting in this year's survey:
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Easier delivery/collection options for receiving orders were cited as something that would encourage greater spending online
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49 per cent of online shoppers said that the option of using a collection point would encourage them to shop online more
- The most significant cause of dissatisfaction with online retailing was delivery schedules.
Alastair Charatan is a retail and e-business specialist at IT and technology consultancy PA Consulting.
Source: PA Consulting Group Global e-Retail Survey, February 2001.
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