• Ingram Micro Logistics is the 3PL for a variety of dot com clients. IML senior vice president for U.S. operations Terry Tysseland notes how "virtual companies" use his firm as their complete backroom. "What we do well," he says, "is take in full cases of product and ship out small orders to end users in our customers’ names."

• Similarly, Dart Warehouse provides distribution services for Sears.com and others in e-commerce. One reason behind the third-party choice, says Dave Shepherd, director of Sears catalog operations, is the 3PL’s "experience in direct fulfillment and high-quality customer care."

• Walmart.com CEO Jeanne Jackson told Red Herring late last year that she planned to use a mix of 3PL and proprietary (or private) fulfillment facilities. The mix tends to be weighted more toward 3PLs now, but is expected to shift over time to a greater focus on proprietary facilities. Where 3PLs offer the most efficient way to do fulfillment, that’s the way it will be done. "It is not cost effective to build numerous fulfillment facilities for 2 weeks’ worth of demand and then have them sit idle for 50 weeks," she said in the Red Herring interview (Dec. 15, 2000).

• Partnering with a 3PL at the outset, however, didn’t lead to a long-term distribution relationship for Cooking.com. Based in Santa Monica, Calif., this firm is an online retailer of cooking utensils, kitchen appliances, specialty foods, and related items. Formed three years ago, Cooking.com took the outsourcing approach to e-fulfillment at first like other startups. "It was a quick way for us to get into the marketplace," says Bryan Handlen, vice president, logistics.
  Later on, however, Cooking.com chose to bring e-fulfillment inside the company and build its own distribution operation. Outsourcing, says Handlen, "didn’t meet our needs for flexibility." Cost, location, and commitment of people were issues with its 3PL as well.
  Commitment was key. "No one cares for your business as much as you do," Handlen says. Dedication of the people at Cooking.com to making this new business succeed was and remains very important, he stresses.

-sizing the fulfillment operation
For startup dot coms that choose to build their own e-fulfillment centers, there’s been one tough problem: Right-sizing the warehouse and its handling systems to fit the business.

Frequently, this do-it-yourself approach involves guessing at what customer order volumes will be. And then it requires trying to find the best, most cost-effective order-filling strategies to satisfy whatever demand actually develops.

As it turns out, overbuilding and overcapacity have been among the results of such guesswork. From Amazon.com on through the "Zs" of dot coms, rationalization and far worse – closings and Chapter 11 – have resulted.

Amazon, for one, earlier this year had to deliver bad news to Wall Street and its employees: It had lost $1.4 billion in 2000. Restructuring was necessary. And so some 1,300 jobs are to be terminated. Among reductions are the planned closing of a distribution center in McDonough, Ga., which will result in the layoffs of 450 workers. And there’s a shutdown of a Seattle customer service center affecting 400 other employees. Moreover, Amazon says it will operate its Seattle DC only on a seasonal basis.

Far worse hit elsewhere, of course. Quite a large number of pure-play online retailers are history now. By one recent count, nearly 100 firms have turned into dot bombs.

Included in this casualty list are some firms from the Boston area that tried to be online grocery deliverers and errand runners for consumers. Streamline.com and Shoplink.com are but two examples of these kinds of dot bombs.

Online grocery retailing may yet become successful, however, in its own right. Materials handling consultant Robert Curtis, partner at Sigman/Kaiden, told MMH he has a pure-play retail client that is building its own distribution facility specifically designed for the online grocery business.

Elsewhere, for some of the remaining players in home delivery of groceries, partnerships with established, bricks-and-mortar supermarket chains are more common now (see also main story on partnerships). Dallas metro area firm GroceryWorks.com now has ties to Safeway, the third largest grocery chain in the United States, for example.

Southern California’s Statler Bros., a supermarket chain with 155 stores, has linked to WhyRunOut.com. Meantime, Peapod – one of the first online grocers – has given up a majority share in its operations to the Dutch firm Royal Ahold, whose U.S. units include Giant and Tops grocery stores.

By partnering, these online grocery businesses acquire one big advantage: The purchasing clout of large supermarket chains. Moreover, picking products for an online order can be as simple as sending an orderpicker out to "shop" up and down a supermarket’s aisles. Picker and cart fill an order much as the ordinary consumer shops at a supermarket.

But as an online grocery business grows, the e-fulfillment model of using a distribution operation specifically laid out for this purpose makes more sense, consultants suggest, from the perspective of good materials handling.

As Sigman/Kaiden’s Curtis argues, "You want to build productivity into the picker’s path to fill an order. You lay out the facility and fulfillment area based on mission requirements. You consider such issues as SKU hits and A-B-C velocities."

But conventional supermarkets aren’t laid out that way, another consultant suggests. They’re designed for consumer shopping, not picking efficiency. Congestion in store aisles becomes a problem on Saturdays, for instance, when consumers crowd into the supermarket. Consumer volume may double then compared to weekday traffic. And as the volume of online business grows, a dot com grocer may well wish to abandon a supermarket-based fulfillment operation for one more geared to its productivity needs.