After the order is taken or the winners of the sales contest are announced, products, premiums, or prizes must find their way to the right people. This article describes the modern fulfillment process and why, with the rise of e-commerce, it could be more important than ever to the success of your company's incentive programs.

T A B L E     O F     C O N T E N T S
Overview Definition Handling Fulfillment In-House Outsourcing Questions to Ask Planning a Fulfillment Program Case Histories	Find a Supplier Associations Seminars Books Publications Related SMN Articles

OVERVIEW

To understand fulfillment, think lettuce. For the consumer, it doesn't matter where a head of lettuce was grown, what kind of soil it was planted in, or how it was picked and shipped. All that matters is that it materializes, crisp and cellophane-wrapped, on the grocer's shelf. Even for experienced sales and marketing executives, fulfillment retains an air or mystery because, like the logistics of lettuce, it takes place mainly behind the scenes.

Who cares how the prizes in a sales contest are selected and delivered? Not salespeople. Who cares what kind of computer is used to process transactions on an e-commerce Web site? Not customers. Fulfillment--the delivery of merchandise promptly, accurately, and in good condition--doesn't typically draw gasps of admiration from dazzled customers. But it is an essential part of any incentive, promotion, or e-commerce program. And it is a must for keeping employees, trade partners, and customers happy.

If the significance of fulfillment is lost on the casual observer, it isn't on top management, which recognizes that this mundane function touches on virtually every major corporate activity from manufacturing to marketing. And the emergence of the Internet and e-commerce makes it more important than ever for companies to fulfill the expectations of consumers accustomed to instant gratification and businesses attuned to just-in-time delivery. Doing the job right almost always entails major financial decisions, whether considering a new computer system, state-of-the-art warehouse technology, or simply putting more customer service personnel on the phones.

DEFINITION

Basic fullfillment activities typically involve:

1. Order forms and instructions. This includes selecting merchandise and filling out shipping information. For an online program, it will involve a customized Web page, an online catalog, and an online shopping cart. For an incentive program, it should also includes rules on qualifying for prizes.

2. Order receipt. By mail, telephone, or online, this includes initial clerical processing and data entry.

3. Credit approval. For consumer programs, in particular, this might involve credit card authorization or check clearance.

4. List maintenance. Accumulation of customer demographics for marketing.

5. Inventory control. Management of redemption trends so that merchandise is always available, yet inventory levels are not so high that costs are excessive.

6. Billing. In the case of some consumer incentives, this might involve production of initial bill (if customer hasn't prepaid) and follow-up reminders.

7. Reports. Production of marketing, merchandising, financial and operating control reports.

8. Order filling and shipping. Receiving, stocking, picking, packing, and shipping products.

9. Customer service. Handling inquiries, complaints, and merchandise returns.

 

HANDLING FULFILLMENT IN-HOUSE

Carrying out those steps looks like a lot of work, doesn't it? The decision whether to do it all yourself or farm it out hinges on several considerations. For example, with in-house fulfillment you'll have more control over customer service and faster turnaround for reports.

However, for consumer promotions, in particular, you might move thousands, if not millions, of pieces of merchandise. Do you have sufficient warehouse space and computer systems? Even if you do, your existing processes might not work when selling to a new channel. When Sears, Roebuck & Co., for instance, began selling online, it found that its existing distribution system, which focused on moving large quantities of merchandise to stores, didn't work well for shipping single items to consumers.

The same holds true for incentive programs. Granted, merchandise quantities will be smaller, but incentives still require resources and people for tabulating results, communicating with participants, and selecting and delivering prizes. And keep in mind: If you go out and buy ten Sony TVs as prizes, and you don't have people qualify for them, what do you do with those TVs?

You should also look at such factors as management time, the need for new computer systems, additions to staff, and possible upgrades for facilities and equipment. Do you have the budget to start a fulfillment program from scratch? Can you afford to divert resources from your core competencies to handle fulfillment yourself?

OUTSOURCING

Many companies prefer to outsource part, or all, of the fulfillment function. There are four basic alternatives available:

• Contract out the entire fulfillment task. This begins with receiving orders, whether online, by mail, or by phone and continues through warehousing and shipping the product, including responding to customer complaints.
  
  
• Use a data processing contractor to receive orders, obtain credit approval, produce warehouse picking directives, maintain perpetual inventory records, and generate reports on inventory control, marketing, and financial results.
  
  
• Hire a physical fulfillment contractor. Here, the requirement to buy, build, or lease and then equip a distribution center is eliminated. The contractor will warehouse and ship the products.
  
  
• Use an online or telephone program contractor. An outside organization has experience handling sales peaks and valleys, time zone problems, investing in equipment, and managing a fluctuating crew of trained staffers to handle online orders and take calls.

QUESTIONS TO ASK

Before hiring any type of fulfillment contractor, ask these questions:

• How quickly can the contractor deliver merchandise, issue reports, resolve complaints? Ask for the company's closure rate in resolving problems in a single call.
  
  
• How long has the firm been in business? Are the kinks in its tracking systems ironed out?
  
  
• Has it handled a similar project before? If you're running a national rebate program, for example, an experienced firm will alert you quickly to the fact that consumers are sending in proofs-of-purchase for the wrong product. Experience in early problem detection allows time for corrections.
  
  
• What is the contractor's price structure? Fulfillment houses will often tack a profit margin onto the cost of merchandise and/or charge an administrative fee.

PLANNING A FULFILLMENT PROGRAM

If you decide to run your own fulfillment department, you'll need to establish policies and make decisions on many of the following:

1. Decide how you will receive orders. dWill you create an online redemption process or handle orders the old-fashioned way, by phone or  by mail? Whatever the case, you will have to provide the infrastructure -- the software and user interface, telephone backup, and a process for handling, recording, and processing orders as they come in.

2. Decide who will process orders and how they will be processed. Steps might include downloading orders from the Internet or extracting orders from envelopes, sorting and batching, processing checks and credit cards, and printing.

3. Establish customer service policies. Under what conditions will refunds or merchandise credits be offered? How will orders not containing sufficient payment be handled?

4. Choose a picking system. There are three major ways for warehouse workers to physically pick orders off the shelves:

• Single order picking. Each item on an order is picked from various locations by a single worker.
  
  
• Multiple picking. Several orders are picked at once, using a truck or cart.
  
  
• Sequential zone picking. The order moves by conveyer belt or cart from one zone to another and is assembled at a final packing point.

5. Choose packing materials. Carton sizes will depend on the product sizes and typical order size. Cushioning materials can include newspaper, tissue, Styrofoam pellets, or bubble wrap. Optimal choices depend on cost, weight, and the desired degree of protection against damage.

6. Establish a relationship with your shipper. Determine pickup schedules, and find out what the shipper's packaging requirements are.

7. Develop a way to capture customer order data. Data might include a source code for how the customer found you, customer telephone number, date of first order, total orders to date, total order value, and types of products ordered.

CASE HISTORIES

E-commerce fulfillment at Vitamins.com. A few years ago, Vitamins.com underwent a period of tremendous growth. It merged with Vitamin Superstore, another Web site selling vitamins and supplements, and later it acquired L&H Vitamins, a catalog company. Vitamins.com had previously done all of its own fulfillment from its Falls Church, VA, facility, but with the acquisition of L&H, it moved all fulfillment to a 65,000-square-foot warehouse in Long Island City, NY.

The fulfillment process works this way. When an order is received online, it is sent electronically to the warehouse, where it is sorted by computer according to where in the warehouse the products are. Once nine or ten orders for the same area are received, the products are picked off the shelves by a warehouse worker, placed on a conveyer belt, checked for accuracy, shrink-wrapped, and placed in a box with packing materials and inserts. Then, the box is taped up and weighed and measured for shipment. Vitamins.com uses two carriers, United Parcel Service and the U.S. Postal Service. By analyzing the customer's zip code and the weight of the package, a computer determines which carrier is more cost-effective for each order.

Payments are processed through an online clearinghouse for credit card authorization. Upon receipt of a customer's card number, the clearinghouse confirms that the customer has sufficient funds; this information is then transmitted to the warehouse. Once the order is shipped, the customer's credit card was charged.

Although Vitamins.com gathers customer data, including e-mail addresses, through a registration process on its Web site, it tries to be careful how it markets to customers. It will send messages only on products that pertain to them; if they've ordered vitamin C in the past, it will alert them about special sales on it.

The company monitors its performance through computer-generated reports. Orders are tracked by date and time to help project staffing needs in the warehouse and at the customer service center. Product sales are followed closely. What are the top items? Which products aren't moving at all? Traffic on the Web site is also monitored.

How HP's online shopping site handles high-volume e-commerce fulfillment. The online Home & Home Office Store, operated by office equipment maker Hewlett Packard, markets primarily to home computer users and must gear its fulfillment strategies to the seasonal patterns of any consumer product. For example, during the site's two major shopping seasons (back-to-school and the December holidays), sales may be four times the rate at other times of the year. To handle the surge, HP implemented the following precautions, which help ensure that 98 percent of orders are filled and shipped within 48 hours of receipt:

1. Increase inventory levels. Digital cameras and flat-screen monitors are always in high demand.

2. Staff up at the warehouse. The company made sure it had enough trained workers at its warehouse to pick and pack orders the same day they were received. It also shored up staffing for its customer service phone lines.

3. Add more computer capacity to handle the additional traffic on the site.

4. Extend the returns policy. To accommodate gift-buyers, it allowed any order placed after Nov. 1 and Dec. 24 to be returned by Jan. 15.

 

PacifiCare's fulfillment approach for employee incentives. At PacifiCare of Utah, a healthcare company, significant organizational changes sapped employee morale. People in different departments weren't working together, and supervisors weren't even bothering to participate in the current incentive program.

Hinda Incentives created a program in which employees earned points for activities in various categories, including wellness (attending lunch seminars on health issues or participating in a walking program) and work improvement and career development (attending workshops or courses to improve skills).

The centerpiece of the program was a Web site with an online catalog and a shopping cart for orders. Prizes included Coach leather goods, travel, and a 16-foot kayak. Hinda purchased and warehoused the merchandise, fulfilled individual online orders, and shipped 90 percent of orders within two days.

The results: Participation in the program doubled over the previous program. It helped boost morale, and there was a marked increase of cooperation among departments.

Fulfillment for a consumer loyalty promotion. With the number of choices in long-distance service proliferating, a major phone company wanted to reward loyal customers, especially residential high-volume callers. A major incentive house designed a program in which customers earned points for every dollar spent on long-distance calls. During the year-and-a-half-long program, the incentive contractor purchased and warehoused merchandise, fulfilled orders, shipped the goods, and handled inquiries. More than 250,000 orders were fulfilled with a less than 3 percent return rate, and over $12.5 million in merchandise was purchased, warehoused, and distributed. As a result of the campaign, the long-distance company's call volume increased and it established stronger ties with an important segment of its customer base.

FIND A SUPPLIER

To find a supplier, go to #9520, Supplier Finder.

ASSOCIATIONS

For related associations, go to the Industry Association Listings page.

SEMINARS

For a list of Industry Events, go to article 9510, Calendar of Industry Events.

BOOKS

To order any of the highlighted books through Amazon.com, click directly on the book title.

Customer Service Over the Phone: Front Line Strategies for Handling Irate Customers, by Stephen Coscia, deals with an important portion of the fulfillment process: what to do when things go awry. Short, breezy, readable. 144 pp. 1999. Telecom Books/Miller Freeman.

Direct Marketing Management, by Mary Lou Roberts and Paul D. Berger, is a standard textbook with an excellent chapter on fulfillment. Don't miss the Customer Service Checklist. 447 pp. 1999. Prentice-Hall.

Business to Business Direct Marketing Handbook, by Roy G. Ljungren, has a good chapter on determining whether to outsource response-handling systems.

PUBLICATIONS

For a list of relevant publications, go to the Industry Publications page.

RELATED SMN ARTICLES

For information related to fulfillment strategies, see #7510, Customer Service.