The order fulfillment industry has revenues of about $9 billion in 2014. There are over 1600 businesses, mostly small and mid-sized operations, with about 63,000 employees. These companies perform specific functions for other companies.
The Post Office Meets Parcel Post
In the last decades of the 19th century, package delivery was dominated by a handful of private companies. Their domination of the package market, and influence in Congress were so great that when asked what was stopping the Post Office Department from instituting a national parcel post service, Postmaster General John Wanamaker once replied that there were four reasons why they couldn’t have a parcel post service in this country—the Adams, the American, the United States, and the Wells-Fargo Express Companies. [Deeper Learning: Parcel Post]
The loudest advocates for the service were rural Americans. The National Grange, the nation’s oldest agricultural organization, forwarded thousands of signatures calling for parcel post to Congress. Grange officials argued that farmers would gain wider access to consumer goods as well as greater, and easier, access to markets for their products.
By 1911 the private express companies had lost their congressional allies and parcel post legislation finally had a chance to reach the floor. By 1912 Congress passed the legislation creating national parcel post service. After years of debate, Parcel Post finally arrived in the United States on January 1, 1913. The Post Office Department divided the nation into a series of eight zones. Packages weighing up to 11 pounds and a total measurement equal or less than 72 inches would now be permitted in the mail. Americans loved the service, mailing 300 million parcels in the first six months. As some had predicted, large mailing houses profited from this increase in reach, especially into the households of rural Americans. Sears, Roebuck and Company handled five times as many orders in 1913 as they had the year before. By 1918 they had doubled their revenues.
The size and weight of packages continued to grow, allowing people to send even more items through the system. Today’s parcels can weigh up to 70 pounds, with a combined length and girth of 130 inches, and Americans are sending many, many more of them. Even though the Postal Service doesn’t have a monopoly on parcels, post offices and mail centers across the country are kept busy with a steady stream of packages day and night. The Internet has proven to be a boon to the parcel industry as increasing numbers of people order goods through the mail.
An Industry Going Through Substantial Disruption
Most small companies fulfill their own orders. But as a company grows, they may reach the point where this function is taking time away from their main business of creating the product and building customer relationships, they may find it best to outsource this function. However, most large companies have found that fulfillment is a critical customer touch point and take it back in house. The needs are the same – accuracy in taking and fulfilling the order, and promptness in shipping the order. Additional needs are handling returns and providing customer service. There is considerable back and forth in the industry, as companies outsource or take operations back in house.
The industry has traditionally been split into two separate operations. One part takes the order, by mail or phone, and today mostly online. The other part runs a warehousing operation, making sure the facility is adequately stocked, pulling and packaging the items ordered, and shipping them to customers. Both functions are becoming much more dependent on sophisticated computer ordering and fulfilment software and automated systems.
The traditional model is being disrupted by firms like Amazon, which perform multiple operations with significant advantages because of their size, location close to the point of delivery, and operating efficiencies.
The Rise of E-Commerce
Customers shop in many ways. E-Commerce has dramatically expanded the number of available items, forcing fulfillment centers to carry and keep track of increasing numbers of items in stock. This requires much more investment and training in the use of information systems and order picking and packing technology than traditional warehousing. In addition, rising customer service expectations have made effective and efficient shipping more important, so most operations must partner with a third party logistics provider.
Visibility and Transparency
As recently as two years ago, only 66 percent of the stock that passed through a traditional warehouse was barcoded and tracked. It is expected that this number will rise to 80 percent over the next four years. The barcoding and tracking of stock as soon as possible is critical to reducing costs and increasing accuracy. More investments in barcode and barcode scanners, radio-frequency identification technology and other technology are necessary.
Picking and Packing
These activities are still largely manual in most operations, and contribute about 70 percent of the cost. As warehouse size increases and the number of items expands, these cost drivers will be reduced through investments in automation. Robotic carts in use to assist order pickers are becoming more sophisticated. Some are being equipped with scanners, intelligence, and arms to quickly locate and pull items. The packing process is also being automated.
Third Party Logistics and Freight Forwarders
Some companies deal directly with a shipper such as UPS, FedEx or the Postal Service. Some deal with more than one. For some companies, the choices are complex since each service may have advantages and disadvantages and different pricing policies. A third party logistics provider is a company that works as an intermediary with shippers to manage logistics operations for their clients. Logistics can include elements of warehousing stock, transportation management, freight rate negotiation, in-depth reporting, forecasting, freight bill auditing and much more. There are thousands of third party logistic companies (3PLs) in the market that have different models and perform different tasks. Some 3PLs specialize in specific industries, frozen food for example. Others might specialize in one specific area of logistics, such as auditing freight bills, warehousing or providing logistics-related software. In an increasingly global marketplace, companies may also need the assistance of freight forwarders, companies that specialize in the complicated world of importing and exporting goods.
Mail order customers have become accustomed to convenient, risk-free, and low cost or even free returns service. Management of the returns business is key to establishing loyalty and repeat sales. The process must be seamless for retailer and customer. Warehouse Management Systems is a software application that accounts for returns and almost instantly notifies the retailer so they can take immediate action – authorizing a refund or shipping a replacement, often the same day. At the same time, information is collected to help the retailer spot patterns, identify problems, and make necessary changes in their product. Since many customers also expect low-cost or even free shipping, everyone in the process has to focus on rigorous cost control. In a successful operation, customers will think they are dealing with a single organization. Retailers, suppliers, customer care centers, order fulfillment operations and transportation firms work in tandem to provide a simple satisfying experience to the customer.