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+++ S P E C I A L R E P O R T +++
"Online Logistics and Order Fulfillment Solutions for E-Tailers"
by George Matyjewicz
'Doc' Don Taylor
Art Avery 
Kris Campbell
Dave Campbell
October 29, 1999
 
Moderator's Comments


Hi All:

As promised we have a special report today. This is a very unusual report in that three things happened all at once which prompted an exciting report. See my preface below for more details. 

George Matyjewicz, C.M.O.
Moderator, E-Tailer's Digest

-------------

===============================================

+++++ [Moderator's Preface] +++++

Last week, list member and Y2K guru "Doc" Don Taylor sent me a press release from his local paper that discussed a "new" service for order fulfillment. The same day, I got a post from Kris Campbell who also mentioned the service, but from a different perspective -- as one of the principals. The next day, eLogistics guru Art Avery sent me a special on logistics and order fulfillment, where he defines the process and identifies two sources. So it was fate that this report would come together, with three sources of order fulfillment.

I didn't publish this last week, because I did some serious investigating of NetShip and interviewed Dave and Kris Campbell and their CTO Jim Lucas. I also arranged for a meeting in their office on November 8, 1999 to see the operation. I asked warehouse management system (WMS) guru Jerry Grooms to meet me in Annapolis to review NetShip. I think this is what we have all be waiting for -- order fulfillment service for the small to mid-sized e-tailer!

Let's start with Doc's news clip....

--------
Snipped from the news:

(Annapolis, MD) NetShip and Swiss-based Danzas Corp. announced an alliance to offer international online logistics solutions for e-retailers. NetShip is a network of 450 warehouse and shipping centers across the US managed by an E-commerce backbone that provides online retailers with a turn-key distribution network. NetShip promises seamless integration with each client's E-commerce engine, with shipping calculators that initiate the fulfillment process automatically as each order is placed. Retailers can track shipments, review logs, check inventory and arrange efficient break-bulk points through a secure client service area on the NetShip site. Danzas is the logistics unit of Deutsche Post with some 700 company-owned offices in more than 50 countries.

NetShip: http://www.netship.com/etailer/
Danzas: http://www.danzas.com

Doc


~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
| Continuum Foundation - USA |
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George here: I received the full press release (from NetShip) on that event, which is very interesting in that Danzas is one of the largest shipping companies in the world, with $9 billion in sales and 29,000 employees in 50 countries.

Then, eLogistics guru Art Avery sent this timely report...

ELogistics101.com - "Reinvent YOUR order fulfillment for the Internet."

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Choosing an Internet Order Fulfillment House - Two Examples
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There comes a time when every E-tailer who sells "physical product " (as contrasted with "virtual product" such as software, that can be downloaded over the Internet) must decide how to pick and ship product to customers. There are three main options:

1. Store product in your own garage or (on a larger scale) in an in-house fulfillment center. This option gives you full control over the process but requires know-how, labor, facilities and often, special equipment, all of which may well be outside the area of expertise of the average E-tailer.

2. Purchase product from a manufacturer or distributor that will "drop ship" products directly to your customers. This method has the advantage of delegating the entire process, from the order and stocking of product through the picking and shipping of your E-tail orders. There are, however, several serious limitations. 

You may have no control of when, and in how many packages, your orders are shipped. You may not know if product is out of stock. Your customers may not receive any tracking or shipping status information. Products may even be shipped with the wholesaler's own name on the labels and packing lists, causing customer confusion on package receipt. Finally, the gross margin you receive from the drop shipper may be 10 or 20% lower than the margin on goods you purchase and ship yourself, significantly reducing your profit potential.

3. The third option, which we will explore in this article, is to contract with a "fulfillment house" or a "3rd party logistics (3PL)" provider. Even the largest of companies (such as Nike and HP) now concentrate on their core strengths and contract with expert 3rd party providers. In this option, your 3PL will provide whatever services you need or wish at an up-front, agreed-upon price. The E-tailer can concentrate on selecting the products and selling the goods. The 3PL will receive the purchased goods, store them, pick them to fill customer orders, and finally pack and ship them by the method that you or your customers choose. The provider works for you - labels and packing lists carry your name and logo, so there is no doubt who sent the package. 

Since this third option, the fulfillment house, has many advantages, there has been a rush to start new Internet order fulfillment companies. Some of these companies have previously served as providers for the Internet sales' close cousin, the catalog sellers, while others have been started specifically to serve the Internet E-tail community. We will examine two of the latter.

1) shipper.com* - Targeted at companies with $10 to $50 million a year in sales volume with their own web-based shopping cart and credit card processing. 

Shipper.com is a large, well-financed operation designed to serve serious E-tail web sites. They have two large fulfillment centers now and should have several more in large, key cities nationwide by the end of next year. Their operations are controlled by some of the best distribution and supply chain software on the market. They will interface directly with your web server to pick up orders and drop off ship confirmations. They should be capable of doing almost everything needed to facilitate product movement, including forecasting and placing EDI purchase orders with your selected suppliers. 

The services of this 3PL provider are complex and comprehensive, and their pricing must necessarily be custom tailored to your exact requirements. As their nationwide distribution network is built, they will be able to offer one and 2 day delivery service for your key, high-moving items for ground UPS rates (what I call "next day for ground" pricing). This is done by holding duplicate inventory at each site, and shipping from sites located within one and two day UPS delivery zones of the customer. ( See my article on JIT Shipping - http://www.elogistics101.com/News/JIT%20Shipping.htm for more information on this cost slashing concept).

Finally, shipper.com is also gearing up to provide SAME DAY delivery for orders that are placed by noon in their key market cities. If you have a product line that would benefit from same day delivery, shipper.com is the only company I know that is planning to provide this service, and at a reasonable $10.00 to $15.00 per delivery. If you are a larger Internet E-tailer that is looking for the most advanced cost cutting and service enhancing delivery options, then I suggest you add shipper.com to your "must see" list.

2) ifulfill.com - Targeted at companies with under 50 items, selling 1 to 50 orders a month, without credit card facilities on their web sites.

As you can see from their target market, ifulfill.com aims squarely at the small seller with few items and no credit card processing. Everything about their system is designed to make life easier for the unskilled or small vendor. Signup is done on line with a "code snippet" generated for each item; this is cut and pasted directly into the E-tailer's web site. When a customer clicks on a product description, the selection is sent to the ifulfill.com shopping cart. When all selections are made, the shopper enters name, address and credit card information , and is informed that the purchase will appear as an ifulfill.com charge on his credit card. 

The E-tailer is charged a 7% credit card fee plus a sliding per order fee from $4.00 for the first 10 orders per month, to $1.00 for anything over 50 orders per month. An additional $0.30 is charged for each extra item on an order. There is a minimum monthly charge of $4.00 times the number of items listed. This is spelled out in complete detail on their web site. With this pricing model, an author selling 5 of his books would have a $20.00 minimum monthly charge, which would be covered by the first 5 orders placed each month.

While the $4.00 per order fee is expensive, all the work is done by ifulfill.com. As sales per month increase, the cost per order quickly drops. When inventory is projected to run low, the E-tailer is automatically notified to reorder. Other than selling and depositing checks, this is all the E-tailer must do to run his business. This is a good solution for part-time web entrepreneurs, and a great example of a business model custom-tailored for the web.

*Note: the author is contracted to consult with shipper.com on fulfillment issues, and while he doesn't believe it has affected his editorial judgement, the reader should be aware of the connection.

Art Avery <Art(at)elogistics101.com>

-------
George again. Art identified the processes available and two companies who may be worth considering. 

Kris Campbell sent me a little note saying how she enjoyed E-Tailer's Digest and gave me three sentences about NetShip. When I asked her to clarify that they were a fulfillment house, she responded yes, and sent me more information. I then had a telephone conversation with Kris and Dave Campbell, CEO and founder of NetShip and subsequent correspondence with CTO Jim Lucas. I received an executive summary, press releases and answers to specific questions. Here is what I got:

NetShip CEO Discusses Solutions To Logistics Nightmare

In 1986, Dave Campbell founded Parcel Plus, Inc. and grew the company to 120 franchises with annual revenue of about $25 million. Parcel Plus, Inc. provides a packing and shipping business for the small to mid-sized retailer.

Three years ago, Campbell first decided to create a service for small to medium online merchants that not only would pack and ship their products -- but also store their inventories in virtual warehouses.

Campbell, along with other Internet visionaries, realized that while e-commerce would surely experience skyrocketing growth, there was no infrastructure in place to assure e-marketers would be able to deliver their products in a timely fashion all over the world, or have the space to store them.

Natural Evolution

For the last three years, Campbell has been recruiting members of this chain of virtual warehouses. Beginning with Parcel Plus franchises and branching out, he has put in place an infrastructure of 450 strategically located "NetShip centers" throughout the country.

The benefit to e-tailers is that as they expand with their e-commerce, NetShip can take care of their shipping, handling and inventory headaches.

"You don't have to invest in a building or a lease," Mr. Campbell explains. "You avoid fixed costs."

Typical Client. 

The typical NetShip client is a small to medium e-comerce company with 30 to 40 sales per month, with items valued at $75. In addition, the products can usually fit in a package no larger than 12 inches x 12 inches x 12 inches -- weighing 5 U.S. pounds or under.

Import Or Export?

"The problems of exporting products outside of the United States has killed many e-commerce ventures before they even start, " Campbell said. " Which is why NetShip worked for more than a year to develop an alliance with Swiss postal service Danzas."

But the bottom-line to NetShip clients is that they can ship their products throughout the world -- hassle-free. In addition, through NetShip alliance with Danzas, smaller e-tailers can also import products.

This is significant, Campbell said, because through importing e-marketers may be able to find less costly providers of the products they sell -- without having to learn the thousands of duties and regulations governing such shipments. "We have definitely put some middlemen out of business," Campbell said.

NetShip's Web site even has an information library where its clients can learn how to "import intelligently" by simply pointing and clicking their mouses, Campbell added.

Big Happenings In The Works

While Campbell has 450 NetShip locations lined up, just seven of them are fully operational, but he expects to have 30 rolled out within 60 days.

"Quality control at the end of the day is going to make the difference," he said.

Because of this, NetShip plans bring each of it center's operators to one of the 30 up-and-running locations for intense training. The plan is to make sure that NetShip locations become standardized, not unlike McDonalds, Campbell added.

The major advantage NetShip has over it's competition is that it has it's infrastructure in place. A second major advantage is, as Dave states: "The key is our locations are owner operated. If they suddenly have a surge of business at 7 P.M., they're not going to go home until it's taken care of."

THE COMPANY

NetShip efficiently and expertly provides exactly the back room operations that the majority of small and many medium-sized firms need to succeed. Relieved of expensive and time consuming back room operational burdens NetShip’s Clients are free to concentrate on their best competitive abilities and expertise. NetShip’s existing nationwide network of more than 400 virtual warehouses (termed Affiliates) is already trained and functioning. The Giga Information Group projects that just the domestic portion of NetShip’s market will be more than two million firms doing in excess of $100 billion in annual sales by 2002. 

NetShip is first to market in this portion of the logistics industry and will remain the leader for five key reasons:
Our history of Internet marketing success;
An existing network of Affiliate locations;
Our proprietary, web-based products and systems;
An inherent low cost structure; and
The commitments of our strategic partners.

The Concept

NetShip is a complete, integrated inventory management and fulfillment service that targets small and medium-sized wholesalers and retailers (termed Clients). The service utilizes an existing, trained and functioning nationwide network of more than 400 retail pack and ship centers (Affiliates). With its strategic partners the Company offers a comprehensive list of integrated inventory management and fulfillment services. The inherently low space and labor charges of our Affiliates, plus the cost savings provided by our strategic shipping partner alliances, minimizes costs. Also, the many distributed locations of NetShip’s Affiliates facilitate inventory placement as close as possible to end-customer clusters to further minimize shipping costs. NetShip utilizes the Internet to provide efficient and very cost-effective communications within its supply chain. 

The fundamental NetShip strategy is to dominate the market by:
1. Providing convenient, cost-effective and comprehensive inventory management and fulfillment functions to targeted small and medium-sized businesses;
2. Maintaining competitive pricing;
3. Controlling the flow of funds in the sales transactions;
4. Maximizing margins and minimizing capital requirements by:
a. Harnessing the low-cost floor space and labor base of the existing network of highly trained pack-and-ship centers;
b. Forming strategic partnerships in the logistics and systems industries to acquire support, minimize legacy database systems issues and receive discounted hardware and services;
c. Forming alliances with selected industry groups and non-competing firms to provide alternate sales channels;
d. Using the Internet for marketing and communications; and
e. Employing automated systems.

The Process

The nationwide network of already established inventory locations (Affiliates) holds Clients’ inventories. A NetShip strategic shipping partner picks up and ships stock and re-stock from Clients’ suppliers to the selected Affiliates. Then:
1. Clients pass orders from their customers to NetShip;
2. NetShip processes the credit card transactions;
3. NetShip notifies the appropriate Affiliates;
4. The Affiliates pick, pack, ship and acknowledge orders;
5. The NetShip system maintains a centralized inventory management system, creates and retains all necessary transaction records and provides appropriate information to Clients and Affiliates through password-protected portions of the NetShip website; and
6. Client’s customers track shipments from the public portion of the same website.

The Advantages

The NetShip system provides both Clients and their customers with the most convenient and cost-effective fulfillment solution:
o The NetShip network of Affiliates is already established, experienced and expanding. Additional locations are being recruited from qualified Parcel Plus franchisees and other existing pack-and-ship operators with suitable inventory storage and pick and pack capabilities;
o NetShip’s strategic partners provide highly competitive services at discounted prices;
o Inventory can be conveniently placed close to groups of customers; and
o The Affiliates are typically owner-operator businesses with inherently low overhead rates and operating costs. Because of their strong owner-operator nature and individual small size they are not and will not become unionization targets.

These factors ensure that NetShip will remain the low-cost solution for inventorying, picking, packing and shipping. The NetShip system also guarantees that valuable, accurate and timely data tailored to both Clients’ and Affiliates’ needs are always available. This enhances Clients’ profits and reduces their management tasks in the areas where most small and many medium-sized businesses are least experienced and most deficient ­ fulfillment and inventory management.

Operation

The program operates through the Company’s website, which contains several proprietary products and expert systems. Both the program and systems concepts are simple. They are based on sound and proven principles and components that have been under development and field use since 1995.

NetShip employs market leading, but proven and dependable Internet-based tools and techniques for data management and communications. The Company has developed a low fixed overhead cost structure with controllable variable operating costs. Upgrade of the website material is driven by customer request. Site and system development costs are, therefore, much less than those for entertainment, information and brochure-style sites. The Company does not and will not seek to define leading-edge software design. This strategy controls development and operating costs and provides excellent profit leverage.

NetShip believes it is very well positioned, both in terms of product features and timing, to take advantage of the rapidly emerging trends in e-commerce. Because of the easy availability of product pricing, margins for Web-sellers are quickly pushed to minimums. Companies are seeking techniques and tools to control and minimize inventory and fulfillment costs. NetShip’s program provides the focused, effective and measurable solution.

No company to date has a dedicated operation that picks up containerized and palletized consolidations worldwide, brings them to the U. S. expressly for the purpose of breaking these consolidations into small package shipments, then fulfilling orders on buyer demand for commercial and residential deliveries. Only NetShip, with our Danzas and USPS alliances, can perform these unique distribution functions as the world’s low cost producer of these services with a totally visible supply chain from manufacturer to consignee.

In short, NetShip coordinates the product storage, packaging and shipping services needed by Internet sellers to complete and confirm order requests they receive. NetShip does this by combining its Web-based communication technology and logistics expertise with the existing pack and ship industry. Multiple national and international sites can now function as a virtual, Web-linked distribution center.

Visit them at http://www.netship.com/etailer/ 
or for more information send an e-mail to mailto:e-tailer(at)netship.com 

+++++ [Moderator's Epilogue]+++++

That's it folks. Now there is no need to wonder how you are going to handle that large influx of orders for Christmas. I will report more on NetShip after our visit. Please feel free to comment on any of these alternatives.

George

###


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