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Outlook Bright for Fulfillment Networks

More and more e-commerce companies are expected to begin using Internet fulfillment networks that connect them with manufacturing and distribution partners in an effort to resolve their shipping woes, says a new industry report.

Indeed, an estimated 33 percent of online retailers will outsource shipping to drop shippers in the next year as they attempt to profitability, says the report from New York City-based Jupiter Media Metrix .

The company predicted that spending for private trading network infrastructure will hit about $37 billion by 2005.

The report found that a whopping 44 percent of online retailers currently lose money on shipping and handling. And 37 percent of online retailers cite the cost of shipping as a major fulfillment headache.

But Jupiter analysts said that merchants can drastically reduce labor costs and processing times by using Internet fulfillment networks.

The private trading networks can automate the drop shipping process -- including order routing, performance monitoring and real-time inventory checks. Jupiter analysts said they believe merchants can save up to 25 percent in labor costs by using the fulfillment net approach.

"Retailers, online and off, are realizing that the Internet not only affords new ways of interacting with consumers, but more efficient ways of interacting with suppliers," said David Schatsky, research director and senior analyst at Jupiter.

"Merchants that deal with numerous drop-shipping suppliers are finding that fulfillment nets offer huge advantages over the traditional and widespread use of telephone and the fax," he said. "With setup costs typically in the low five figures, and transaction fees typically in the $1 range, Internet fulfillment networks offer a clear economic advantage."

Jupiter said that retailers who are selecting a fulfillment net provider should:

  • Evaluate prospective service providers on the ease of integration and the amount of work that would have to be redone if a switch to another provider was necessary.
  • Look for vendors that have signed large clients that provide good base revenue streams and (have) a vested interest in the survival of the provider.
  • Choose the connection type that makes the most sense based on the merchant's volume. Browser-based applications are best for low-to-medium volume vendors and XML-based interfaces for high volume merchants.

Among the players in the fulfillment net space are OrderTrust, Commerce Technologies Inc., CommercialWare, Managize and RedKnife.