A guide to the maturity curve of EFulfilment. Email simon.dixon@hatmill.co.uk if you would like a pdf copy.

1. Ecommerce Fulfilment:
Bedroom to Boardroom
A guide to understanding where your
fulfilment operation is and what to do next

2. Fulfilling the customer promise in ecommerce supply
chains continues to be challenging
The continued growth in ecommerce has seen
increasing numbers of start up etailers entering the
market with a variety of product offerings. Typically
they will have developed an excellent website, be
focussed on their SEO and marketing and have an
excellent social media strategy. What is often seen as
an afterthought is the fulfilment of the products, or
more accurately, the fulfilment of their end-to-end
customer proposition.
So why is fulfilment so important in the battle for
online customers? Fundamentally, the customer
proposition doesn’t end at the checkout. The
fulfilment and delivery is the only time customers will
see and feel the process – so it’s vital that it is
executed perfectly. As the final component in the
relationship etailers have with their customers, the
faster and more efficient it is the better.
For example, research has shown that delivery factors
are responsible for two thirds of abandoned carts,
costing an estimated £1bn per year in lost sales (Royal
Mail Delivery Matters 2011). Getting delivery right is
therefore key to generating customer loyalty. The
same research suggests 90% of home shoppers will
buy from an etailer again if they are happy with the
delivery.
Leading online retailers offer convenience and choice
for their customers, including, same day, next day,
standard and click and collect options, as well as a
transparent and simple returns process. Indeed, 79%
of retailers offer a choice of delivery options, with 68%
also offering next day. (Micros Delivery Report 2013)
Therefore, offering a choice of delivery options and an
easy returns experience is a huge part of delivering the
customer proposition. By getting this right etailers can
significantly differentiate themselves from their
competitors.
Expediting these options and offering a seamless
fulfilment solution is therefore key to the customer’s
online experience. What ensures this happens can
vary significantly from etailer to etailer, depending on
their volumes, growth, business model and the sector
they operate in. There is, however, a typical journey
followed by most etailers, shown on the following
fulfilment maturity curve.
An understanding of where they are on the curve can
enable an etailer to better develop a strategy for
improving their operation resulting in reduced costs
and a broader customer proposition.

3. Heroics:
• Volume growing
• Expanded into small premises
• Staff performing heroics to fulfil orders in line with customer
proposition
• Some technology used to manage orders
• Inefficient, poorly designed processes
• Wasted time and cost
• Picking errors and late deliveries
• Carrier collections but at supplier discretion
• Carrier rates uncompetitive
Start-up:
 Small scale
 Utilising existing office space
/ kitchen table / spare
bedroom
 Manual order management
 Spreadsheets managing
data
 Daily trips to local carrier
depot for despatches
 Adhoc returns processing
Performance
Differentiated
Optimised
Managed
Heroics
Start up
Managed:
• Recognise need to invest in
dedicated fulfilment centre
or to outsource to experts
(failure to do so can result
in a significant downturn in
performance )
• Standard operating
processes utilised
• Systems implemented to
manage orders, inventory
and warehouse
• Consistent ways of working
are defined, deployed and
maintained
• Regular, but suboptimal
carrier collections
• Reduced carrier costs
Growth
Differentiated:
• Industry leading
productivities
• Significant automation of
processes
• Multiple sites
• Understood and
minimised cost to serve
• Full spectrum of delivery
options including same
day, click and collect and
timed windows
Optimised:
• Integrated web platform, ERP, WMS and order management
systems
• Elements of automation of processes implemented
• Benchmarked and highly efficient productivities
• Improved cost per unit
• Spectrum of carriers utilised
• Improved delivery options achievable
• Later carrier collection times
• Effective returns management strategy

4. Understanding where etailers are on the maturity
curve and how to progress to the next stage
The features of each stage of the maturity curve may
vary according to individual etailers. However, if the
majority of them are very apparent then a business
can quickly begin to understand what they need to do
to progress towards the next phase in their fulfilment
operations. The failure to do so can lead to a
significant reduction in the performance of the
fulfilment operation and ultimately seriously damage
the brand. Leading etailers understand this and are
continuously striving to marry their fulfilment
operations to ever increasing customer expectations.
Start up – The features apparent at this stage will be
familiar to most etailers who’ve started out by utilising
the likes of a spare bedroom. Initially this is a cost
effective way to start, you remain in control of the
process and volumes dictate that significant
investment in infrastructure won't provide a sensible
ROI.
If the business continues to grow, etailers will quickly
move up the curve towards the next stage where
additional resource is required. It is likely that this will
include recruiting some staff to pick and pack orders
and probably take on some additional space to house
and process stock. Typically businesses should seek as
much flexibility here in terms of employee T&C’s and
the lease. Volumes will fluctuate so minimising
unnecessary overheads is key. A location as near to
carrier hubs as possible without impacting your control
of the operation should also be considered.
Heroics - By this stage etailers will begin to develop an
understanding of the processes involved in fulfilment
and will begin to improve them. The opportunity to
improve buying terms with suppliers, particularly
carriers and packaging providers, will also occur as
order volumes grow.
The reality is that owners and staff are likely to be
working additional hours to fulfil orders and there will
be inefficiencies and waste causing a risk to the brand
and staff burnout. Focus can quickly move from core
activity such as sales and marketing to just “getting it
out of the door”.
This is where the real step change will occur and
etailers should be asking themselves questions such as:
• Do we have the knowledge and expertise to do this
ourselves?
• If not, how do we become experts?
• Can we afford to invest in the systems and
infrastructure required to maintain our customer
proposition?
This is the tipping point in fulfilment terms and at this
stage businesses without sufficient internal know-how
should be seeking advice as to how to move the
business forward to the next stage. To really gain an
insight into improving fulfilment operations, activities
at this point should include; developing an
understanding of what their competitors are doing;
utilising their network for recommendations and
advice; instructing specialist consultants; and visiting
similar operations.

5. Managed– Having invested in an in-house solution or
outsourced to a third party, at this stage businesses
will have defined and consistent ways of working
deployed and maintained. Efficiency benefits will be
realised and better commercial and operating terms
will be agreed with suppliers.
Now is the time to optimise fulfilment operations to
realise the benefit on the cost per order and ultimately
the bottom line. The etailer will need to understand
who the industry leaders are and benchmark
themselves against this (a good 3PL should be able to
provide this data if outsourced).
A clear growth strategy and understanding of the
growth plans are essential to developing the optimised
fulfilment solution for the business that provides scope
for expansion. Process improvement projects will
need to be applied in line with this end state vision to
drive process efficiencies and realise significant
savings. An investment in elements of automation to
eliminate wasted hours and resource may also be
required.
The increased volume coupled with reduced cost per
order will also facilitate the broadening of the
customer proposition. Wider and cheaper delivery
options can be achieved with a variety of carriers (free
standard delivery is fast becoming the norm as
demonstrated by the likes of Amazon and ASOS) to
improve conversion rates and average order values.
Optimised – Once an etailer has reached an optimised
stage in their fulfilment operations they will have fit
for purpose, integrated systems with highly efficient
processes driven by a good understanding of their cost
to serve and benchmarked productivities. The focus
will then move to leveraging this position to
differentiate them from their competitors. Where
range and price are key battle grounds online, a
differentiated fulfilment proposition can be key to
growing sales and improving margins.
It is likely that significant investment in the automation
of processes and additional fulfilment centres will be
required. This will speed up fulfilment times and
facilitate the likes of cheaper and easier same day
deliveries and a broader range of convenient collection
points for customers.
A detailed evaluation of their end to end supply chain
to understand their cost to serve will be required to
ensure the right supplier base and product mix to
maximise margin.
Differentiated – Having established industry leading
fulfilment operations, designed to ensure the
customer proposition is met and exceeded at minimal
cost to the business, it is vital that etailers don’t sit
still. The speed at which the industry is changing
means continuous improvement and innovation are
vital to ensuring the position on the maturity curve is
maintained.

6. Managing the fulfilment centre in-house or
outsourcing to a third party provider
Third party logistics providers (3PLs) provide fulfilment
services to their clients. Typically, the clients own the
stock and the 3PL provides the infrastructure, systems
and equipment to manage the fulfilment of the stock.
A number of fulfilment providers are increasingly
offering one stop shop propositions, including
customer service, photography and web platform
build, although this provision can vary from contract to
contract.
Typically clients will use 3PLs as they do not possess
the skills or expertise to manage their own fulfilment
operations and see them as ‘non-core’ to their
business, particularly when volumes reach a tipping
point necessitating this move.
Benefits of using 3PLs
• They can operate shared user facilities so fixed costs
can be divided between two or more clients
• They can provide the flexibility and scale for
fluctuating seasonal and annual growth
• As fulfilment specialists hey have significant
knowledge and efficient practices to deliver their
clients’ business requirements
• There may be pre-existing capacity in a 3PL’s
network that would match the businesses
requirements, avoiding the need for the retailer to
find premises
• It can pass some risk from the business to the 3PL
• Access to lower cost services, such as carriers and
packaging suppliers
• Allows the business to focus the majority of
resources on their core competencies
However, there are also a number of factors to
consider regarding the use of 3PLs before deciding on
a course of action.
• Would the cost of a 3PL management fee represent
good value relative to the benefit derived?
• Can the business operate to a set criteria of service
provision (e.g. providing data and accurate
forecasts) to the 3PL to allow them to operate
efficiently?
• Can the 3PL operate at a lower cost than could be
achieved in-house?
• Does the business want to stay in control of their
brand, particularly if their product requires high
levels of customer interaction, by keeping logistics
responsibility and accountability in house ?
Summary
The growth in ecommerce does not show any signs of
slowing so etailers must be able to deliver excellent
fulfilment solutions to ensure they stay ahead of the
competition. What this looks like will vary depending
upon the size and scale of their business. What is
required is a clear understanding of their fulfilment
maturity and what they need to do to improve their
fulfilment performance.
To arrive at a clear understanding it is good practice to
assess the costs, benefits and risks of realising this step
change. This will typically take the form of evaluating
the savings to be made through improved
productivities; the sales benefits from a broader choice
and more convenient customer proposition; the costs
of investment in infrastructure and systems and the
ability of the organisation to manage the change and
subsequent operation.

7. About the authors
Simon Dixon is the Managing Director of Hatmill, a
management consultancy advising clients on all
aspects of Supply Chain and Logistics. He is the former
leader of PwC’s logistics consulting team and gained
his industry experience with Asda.
Simon Dixon
simon.dixon@hatmill.co.uk
+44 7885 688 287
John Hayward is a Logistics and Supply Chain
consultant with Hatmill, with a focus on ecommerce
fulfilment. He gained his industry experience in 3PLs
with Wincanton and Amethyst Group.
John Hayward
john.hayward@hatmill.co.uk
+44 7734 414 953
Hatmill is a Supply Chain and Logistics management
consultancy. We work with clients in a range of
sectors to improve their end to end supply chain costs,
efficiency and service.
www.hatmill.co.uk
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