short takes

Jan 01, 2001 10:30 PM  By

Outsourcing takes off; systems integration lags; international expansion picks up the pace

Three’s Company What do you do when you have too much to do? Delegate, of course. The more selling channels you add, the greater the odds that you’ll need to hand off one or more order processing functions to an outsider. Anticipate healthy growth in the third-party fulfillment (3PF) business over the next few years, say experts at Winterberry Group, a New York-based direct marketing consulting firm. For pure-play e-merchants, high operating costs and lack of infrastructure will necessitate fulfillment outsourcing; for traditional catalogers, the technical problems of fulfilling online orders will be best solved with outside help.

Winterberry Group’s October 2000 Industry Map focuses on the fulfillment challenges of the $1.8 trillion Internet direct marketing industry, which encompasses catalogs, e-commerce, and other marketing channels such as direct mail and telephone. The report projects fulfillment expenses for online direct marketing to rise from $82 billion in 1999 to $157 billion in 2004, with e-fulfillment expenditures increasing from 22% of the total to 47%. The 3PF market, currently estimated at $8.1 billion, is forecast to grow an average of 17% over the next few years, reaching $15.3 billion – about 10% of total spending on fulfillment – by 2004.

The Industry Map researchers note that 3PFs have come a long way in a short time. Most offline fulfillment companies have rapidly added e-commerce capabilities and fully automated, real-time order processing systems. Several providers specialize in e-fulfillment functions, such as online returns processing, and many are full-service 3PFs that offer everything from warehouse management to goods transportation and delivery. Their performance is sometimes less than sterling, however. “Few 3PFs have successfully integrated software technology across all segments of fulfillment,” the Industry Map warns. In addition, customer service “may not match the best-of-class care offered directly by marketers,” and global distribution capabilities are often lacking. Although the 3PF industry has more than 150 companies, the researchers list only 17 of these as industry leaders.

Another Winterberry Group study, part of a series titled Leader Perspectives, published in September 2000, polled a panel of catalog industry leaders on their views about the role and effectiveness of third-party logistics providers. Although most catalogers prefer to handle logistics internally, many anticipate needing enhancements such as real-time shipment tracking, which may increase the demand for 3PFs. With an estimated 18% of sales transacted over the Internet, catalog companies are likely to want more technical and transportation expertise.

For more information, contact Winterberry Group, 40 Wall Street, 12th Floor, New York, NY 10005; phone: (212) 842-6000; fax: (212) 842-6010; Web site: www.winterberrygroup.com.