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Traditional Distribution vs. E-commerce Distribution

Both share the same goal and real estate, but that's where the similarity ends!

What are the differences between traditional distribution facilities and those that serve online shoppers? Both of these types of facilities have the same objective: to get the right product to the right customer at the right time. And both operate out of the same kind of real estate: warehouses typically located near major transportation arteries. But they aren't as similar as they appear - or as some online marketers might assume. In fact, one can safely say they're as different as night and day.

Knowing the key differences between the two facilities could save some headaches for manufacturers purchasing or establishing an online fulfillment effort. More important, it could prevent the loss of thousands of customers.

Difference No. 1: Higher order volume, lower order quantity.

Many traditional distribution facilities are designed to fill orders in large volume configurations such as cases or pallets. They may handle hundreds or even thousands of orders per day. But these orders are typically quite large, and most move via full truckload (FTL) or less-than-truckload (LTL).

By contrast, as e-commerce fulfillment center may process tens or thousands of orders a day - orders that may be only a hundredth the size of their traditional counterparts. Instead of shipping 100 turtlenecks to a single Gap store in Atlanta, the facility may send turtlenecks to 100 different customers throughout the country, all via small package delivery.

As a result, manufacturers must lay out and equip e-commerce fulfillment centers differently, with more pick-to-light systems. Automation like this doesn't come cheap, which is why companies can expect to pay three to five times as much per square foot for an e-commerce fulfillment center.

Difference No. 2: More products.

A virtual store can do many things a real store can't - including carrying a larger array of products. Delta Air Lines' Skymall, for example, offers 10,000 items on its Web site versus 2,000 items in its in-flight catalogues.

This type of inventory presents an incredible challenge for online fulfillment centers. Among other things, they must have more storage areas, pick lines, and people to manage this variety - not to mention more space. They also must be more systems intensive, because the more individual products you have, the more difficult it is to maintain accurate inventory data - and to avoid the most dreaded of e-commerce blunders, the back order.

Difference No. 3: More people.

Traditional distribution facilities that muse pick lines to fill orders typically assign approximately one-quarter to one-third of their labor force to this activity. By contrast, 75 percent to 90 percent of employees may man the pick and customization lines at e-commerce fulfillment centers.

The human resources function at an e-commerce fulfillment center is especially critical. Not only will such a center probably have to hire and maintain more employees, it will need to manage them more efficiently to inspire order-perfect performance. Accommodating this additional staff becomes a critical design issue because the facility will need larger break rooms, more restrooms, and additional parking spaces than normally found in a traditional distribution center.

Difference No. 4: Sending product packaging

When the term "wrap" is used at a traditional distribution center, it typically refers to encasing a pallet in plastic wrapping for protective purposes. Say that word at an e-commerce fulfillment center and it more likely means the kind of activity that results in a package you'd find under a Christmas tree.

E-commerce fulfillment centers must be small-package experts, which means they need areas dedicated to boxing materials and providing extra touches such as gift-wrapping. They must also be more adept at dealing with small package carriers, whether they use an expedited company or a parcel consolidator.

Difference No. 5: Fulfillment centers may make the sale.

Perhaps the most important difference of all is the critical role e-commerce fulfillment centers play in making a sale. Online customer satisfaction levels are declining, and customers' biggest complaint is product fulfillment, according to a recent Jupiter Communications, Inc. research study. The study also finds that customers eventually cancelled more than 50 percent of orders for back-ordered items.

For an online sales effort to be a success, companies must pay as much attention to their e-commerce fulfillment design as their Web site design. Not only will their fulfillment deliver the goods; it could deliver a future sale.


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