IDC: E-boom fuels demand for fulfilment providers




IDC: E-boom fuels demand for fulfilment providers

Key points

  • Companies offering a broad array of customer services will be category leaders.
  • Poor delivery can be devastating.
  • Outsourcing can be an important element of success.
  • Customer satisfaction is central.

According to a new report from IDC, online sales are supposed to increase by a factor of ten over the next three years, reports Traffic World, a publication of the Journal of Commerce. (3 November 2000)

PARIS: Online purchases in Europe are expected to increase tenfold to about $125bn by 2003, creating explosive demand for third-party e-fulfilment providers, according to a new study by IDC, a division of the IT media, research and exposition company, IDG.

The market for third-party fulfilment actually will grow faster than online sales. By 2003, the report says, the European outsourced fulfilment market will be worth $3.7bn, compared with $244m at present. Fully a third of all European e-fulfilment activities will be outsourced at that time, compared with less than 20% today.

The report, 'The growing role for e-fulfilment specialists: Delivering in a wired marketplace', is the first attempt yet to quantify the size and potential of the European e-fulfilment industry. IDC conducted the research for iForce, a European e-fulfilment service provider.

According to IDC, e-retailers are beginning to recognise 'the increasingly critical role third-party specialists' can play not only in ensuring on-time delivery, but also in providing other back-end services that are key factors in building and keeping a customer base.

'IDC believes that if anything inhibits growth in Internet commerce, it will not be the front end, ie product mix, pricing, customer access to websites, etc, but the failure to generate customer satisfaction as a result of flawed fulfilment solutions,' the report says.

IDC details the case for third-party e-fulfilment. First, as e-retailers learned last year, particularly during the Christmas buying season, poor delivery can have a devastating effect on their business. In addition, e- fulfilment is a much more expensive and complex undertaking than creating a state-of-the-art website, requiring capital expenditures many start-ups simply can't afford.

'Outsourcing logistics and customer service to external specialists is now a logical option for e-commerce businesses that want to move quickly,' the report says. 'Specialists offering a broad array of fulfilment and customer services are best positioned to dominate the e-fulfilment marketplace as it is the seamless integration of activities such as order processing and management, transaction processing, stock management, picking and packing, delivery, returns management and customer service that will enable the fastest and most customer-oriented fulfilment process.'

Consistent customer satisfaction is particularly important in business-to-consumer e-commerce 'because customers who receive poor service from e-tailers don't come back,' says Mathew Peacock, group chief executive of iForce. 'If there is one thing that the first generation of e-tailers has learned, it is the criticality of customer satisfaction in the early take-up of their business.'

The increasing use of third-party e-fulfilment providers will cause e-fulfilment costs to fall in coming years, according to the IDC study. Today fulfilment accounts for 24.6% of Internet commerce costs, but will fall to 22.3% by 2003, IDC predicts.

While e-retailers such as Amazon.com have been able to manage fulfilment successfully in-house, most B2C e-commerce companies do not have the skills, time or money to do so. 'IDC predicts that in-house operators will have to generate considerable sales volume in order to achieve economies of scale with their logistics operations. Increasing numbers, therefore, will outsource their e-fulfilment requirements,' the report says.

IDC also predicts a new breed of logistics provider, the 'value chain integrator', which will play a bigger role in e-fulfilment in the future. These so-called VCIs are either IT specialists who partner with more traditional fulfilment providers or specialists who offer a broad array of fulfilment and customer services, including all the back-end functions needed for quick transactions and good customer relations.

'Meeting and exceeding customer expectations from click to drop is the key success factor for e-tailers,' IDC says.

Source: Traffic World


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