Order Fulfillment - How Companies Manage Fulfillment

The generalized fulfillment process outlined above reveals the many steps and technical systems involved in delivering a positive customer experience. Often, this is too difficult or costly for companies to handle independently. In order to focus on what they do best—developing and marketing new products, for example—retailers often turn to third parties to handle the fulfillment process on their behalf. Because they focus exclusively on fulfillment, third parties often are able to perform this function more effectively and efficiently. According to Logistics & Distribution Report, a large number of Fortune 500 companies had outsourced transportation, inventory and warehouse management by the late 1990s. In 1999, third-party logistics contracts grew by 16.5 percent, with total revenues of $46 billion. Growth rates of 15 to 20 percent were expected through 2003.

When a third-party fulfillment provider is used, a company usually continues to manage its own Web site, but everything that happens after an online order is submitted is handled by the third party. Third-party fulfillment companies come in all shapes and sizes and vary in the services they offer. Most offer the ability to process orders, manage inventories in a warehouse and ship products, but some provide customer service via phone or e-mail, printing, e-commerce services, assembly, promotional fulfillment, and more. All are invisible to consumers, meaning that when they ship goods on behalf of a retail client, packages normally carry the client's logo.

Transportation & Distribution divided third-party fulfillment companies into three categories—physical infrastructure providers; technology providers; and integrators, which offer the services of both physical infrastructure and technology providers.

Physical infrastructure providers store and manage inventories for their clients, distribute products for them and provide value-added services, including customer support and the handling of returned merchandise. Technology providers, unlike physical infrastructure providers, don't warehouse products or handle shipments on behalf of clients. Instead, they provide the technical systems that are used to link trading partners together, including the processing of credit card information.