E-Commerce Distribution

E-commerce has changed the way businesses sell, package and ship consumer goods, and as a result, it has put pressure on information technology staffs to help online retailers fulfill customer orders.

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Think E-Comm

E-commerce has changed the way IT people working the field must think of themselves, says Alex Zelikovsky, chief logistics officer at Reflect.com in San Francisco.

"In the e-commerce world, service is more important than it is in the bricks-and-mortar world. Because when people order on a Web site, they are putting a lot of trust in the company they are ordering from," Zelikovsky says. "You must have outstanding service every step of the way, and IT professionals and logistics professionals must view it that way."

The demands of e-commerce mean several things for IT people. It's essential that they understand how to modify warehouse management software to fit the business, how to integrate the warehouse with an e-commerce Web site and how to link the warehouse to suppliers' shipping systems, Zelikovsky says.

"You must think of the supplier, the customer, the warehouse management, the shipping carrier and the Web front end as one company," Zelikovsky says. "The common denominator among IT people who work in e-commerce is that they should understand logistics from beginning to end and understand the value of e-commerce distribution. They need to be businesspeople first and IT people second."

Unfortunately, not all IT people in e-commerce companies think that way, says Greg Runyan, a senior analyst at The Yankee Group in Boston. Many Web sites that purport to tell their customers whether items are in stock really don't have a clue if the item is available, he says. "Only a small percentage of e-tailers have real-time integration capabilities. They make their best guess about whether something is in stock or not, but it's often not real-time data."

That kind of IT performance won't cut it these days, Runyan says. "You have to provide more real-time inventory information to customers. That's what they expect now."

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"Until recently, order fulfillment hasn't been an overriding concern of 'e-tailers,' but it's starting to be viewed as a significant differentiator among their customers," says Greg Runyan, a senior analyst at The Yankee Group in Boston. "Now that everybody has sophisticated and intelligent Web tools that help customers have a personalized and unique shopping experience, the question is, 'How effectively can you fulfill your promises?' "

IT people are key players in e-commerce fulfillment because they handle the vital inventory-control and warehouse-management software that allows e-commerce operations to sell and distribute items one or two at a time. In traditional retail, IT's role is less critical because most companies ship consumer goods in bulk to retail stores.

Much of the change in approach involves split-case distribution -- a logistics term that means cases of goods are split open on the receiving dock and the individual items from the cases are stored on shelves or in bins in the warehouse, according to Alex Zelikovsky, chief logistics officer at San Francisco-based Reflect.com LLC, which sells customized beauty products for women at its Web site.

Changing Centers to Stores

"In the past, the classic distribution systems sent cases to a store. The store opened the cases, took the units out and put the units on the shelf. Then customers walked through the aisles with shopping baskets and picked up what they needed," says Zelikovsky, a former director of logistics at Seattle-based Amazon.com Inc.

Zelikovsky, who designed Amazon.com's worldwide distribution network and claims it can handle 1 million shipments per day, says, "In e-commerce, there's a different value proposition. Your distribution center becomes your store."

As a result, IT must handle warehouse management differently, Zelikovsky says. "You need an intelligent warehouse management system that handles what we call 'slotting.' It must receive products against purchase orders and direct that those products be put away in logical locations."

Profiling and Reprofiling

Other warehouse management processes assisted by IT are "profiling" and "reprofiling." Profiling an item involves identifying how popular it is in order to determine where in the warehouse it should be located; if it's a top-selling product, it may go in the best location in your warehouse or distribution center.

Conducting a periodic re-evaluation, or reprofiling, designates when a product is no longer as popular, so it can be moved to a different warehouse location, and another product can be moved into the prime spot, Zelikovsky says.

The biggest change facing e-commerce companies is moving from systems that match pallets of goods with orders and then ship the pallets, to systems that can track and ship individual items, according to David Schatsky, director of commerce infrastructure strategies at Jupiter Communications Inc. in New York.

That puts IT in the position of being the guardian of a customer's buying experience. "The consumer doesn't want to know if the pallet is in the warehouse, but (he) does want to know where his package is and whether the product he wants is in stock or not," Schatsky says.

The IT demands of e-commerce fulfillment are so great that many online vendors may outsource the function, analysts say.

"Most companies don't build warehouses or come up with proprietary inventory and warehouse-management software," Runyan says. "So what we're seeing is outsourced order fulfillment. It's what we're beginning to call the e-commerce execution backbone or layer. It represents a job opportunity for IT people."

Alexander is a freelance writer in Edina, Minn.

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