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Not Outsourcing Commerce Yet Don't Get Left Behind


Drive out costs, focus on core business strategies, and increase sales and margins by outsourcing to a third-party provider.

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by Peter Emerson

Tuesday, March 01, 2005

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When manufacturers are looking to market and sell their products online to consumers and business customers, there are three approaches they can take: Build: Get the IT department to build a 24 x 7 commerce site that's integrated with distribution systems. Hire staff to do all the marketing and merchandising, and to manage orders, shipping, fraud, customer service, and returns.

Buy: Purchase and install an e-commerce software package, then customize it to provide the specific functionality needed to support specific business priorities. After spending as much as $2 million, the company will still need to hire people to drive sales and manage orders.

Outsource: Let e-commerce experts provide the entire front- and back-end e-commerce and fulfillment infrastructure and eliminate the hbuttles of building, buying, and installing a commerce site. Outsourcing can save manufacturers 90 percent on the cost of going live and 40 percent on operations, transforming the online channel from a cost center to a profit center.

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Any manufacturer launching e-commerce needs to keep a close eye on the hidden costs that can eat into margins on every sale. Managing fraud, unsold inventory, order errors, and returns can rapidly erode profits if not handled properly. Marketing and customer service investments often fail to pay off. Critical integrations to fulfillment partners, back-office systems, and transaction processing services are expensive to build and maintain.

These challenges illustrate the perfect scenario for companies to drive out costs, focus on core business strategies, and increase sales and margins by outsourcing to a third-party provider. Here are some considerations:

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Technology: An online store that can support fast-changing customer demands requires an advanced support structure of scalable servers, well-tuned databases, high-speed networks, security tools, application software, disaster recovery, and 99.99 percent uptime. Outsourcing allows businesses to scale by deploying the most up-to-date technology and save on efficiencies that are spread across multiple clients.

Marketing and merchandising: The greatest e-commerce technology will not make a single sale or drive long-term growth without the right marketing and merchandising to drive customers to the site and keep them coming back for more. Success requires professional, easy-to-navigate storefronts and integrated marketing campaigns to drive traffic and increase conversion rates.

Fulfillment and returns: Outsourcing inventory, shipping, and reverse logistics to experts can avoid headaches, improve order accuracy and efficiency, and provide customers and partners with real-time access to order status and availability. Being able to multisource orders means products are pulled from the warehouse that has them in stock and is closest to the end customer, resulting in less expensive shipping, shorter delivery times, and happier customers.

Shopping networks: Channel conflict, limited distribution, and a small product set can limit online sales. By plugging into major distribution networks and emerging channels where buyers are buying and top sellers are selling, including leading destination sites like ebay and Amazon.com, comparison sites like PriceGrabber and Shopping.com, and distributors like Ingram Micro and Tech Data, companies can increase inventory, speed up returns, and gain instant access to profitable new markets.

Even if the online channel represents only a small percentage of a company's sales, the cost of managing and maintaining that vital gateway to customers can far outweigh the gains if not handled properly. Because outsourcing e-commerce is a proven strategy for driving out costs and freeing up internal resources to focus on beating the compebreastion instead of worrying about the risks, it has become an increasingly popular way to increase profits on every transaction.

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