Managing Your (Virtual) Inventory

It has often been said that many hands make light work--not so shabby an adage, even for today's e-business supply chain. Distributors are coming to the table with some pretty sophisticated strategies for sharing the workload. The virtual business model allows e-retailers to provide their customers with a broad selection of products, great prices and fast delivery, all without owning one square inch of warehouse real estate.

Decision-makers at Menlo Park, Calif.-based Egghead.com felt early on that their time would best be spent on marketing, customer acquisition and Web site design.

"We wanted to find a partner who could do everything else for us--anything to do with back office," says Merle McIntosh, senior vice president for product and site management. After much analysis, Egghead.com concluded the best overall solution for services, including distribution, warehousing, pricing and returns was a partnership with Tech Data, Clearwater, Fla.

Internet superstore Buy.com has chosen to work with multiple distributors.

"They provide consumer direct-fulfillment services for us," says Tom Forrester, director of operations for the Aliso Viejo, Calif.-based company. "Our virtual model is such that we don't build distribution centers or warehouses, or purchase large quantities of inventory. We access the merchandise through our distributor partners. Ingram and Tech Data are our sources."

The partnerships have enabled Buy.com to ship items one at a time, focused on a specific customer, rather than in bulk, Forrester says.

"Basically, we have the ability to move that incremental demand around our fulfillment network to tap into capacity that is idle," he says.

Over at Tech Data, the partnerships are important enough to customize.

"Each one [of our customers] has something they need based on what they have offered to their customers," says Terry Bazzone, vice president of strategic business for Tech Data. "We have virtually customized offerings for each of them."

The notable reputation that Tech Data has garnered during its 27 years in business as a distributor should provide a certain confidence level to potential partners, Bazzone says, while stressing that retailers need to know and understand the financial position of a distributor.

"It has to do with a distributor's capability and funding to inventory all the product the retailer will need instantly. Timely fulfillment is very important," she says. "Availability of product is key to a satisfied end customer."

While the emphasis seems to be on logistics, Forrester suggests the importance of looking at a potential partner's IT abilities. Where are they in the scheme of things? "Information is the lifeblood of our model," Forrester says. "It is important for us to provide the capability for our customers to quickly see the status of an order and to provide up-to-date availability information on the site. It really ties back to IT. It's the IT that allows us to be virtual in the first place."

Bazzone agrees. "[Retailers] need to partner with someone who is sophisticated in IT offerings and has the infrastructure to keep the service level up around the clock for them," she says.

Not that folks with some facet of their business in brick and mortar don't want in as well. About a year ago, the Chicago-based Internet auction site uBid.com operated a 200,000-square-foot warehouse in Memphis, Tenn., and was running out of space.

"It was good timing to partner with a third party," says Jason MacLean, uBid's vice president of operations. uBid chose to team up with sister company SalesLink--both of them are owned by Internet incubator CMGI--for several reasons.

"They have eight warehouses worldwide and are experts in logistics and fulfillment," MacLean says. The partnership has paved the way for a new warehouse in Memphis--twice the size of the old one--due to be open for business by midsummer.

In an effort to augment their existing model of buying product in bulk and selling it out of its warehouse, uBid recently added a "drop-ship" component. This operation targets vendors who don't feel that distribution or inventory space are their core problems. They may just want more eyes on their product. uBid puts the product up on the Web site; the vendor ships it. "Having a network of drop-ship vendors allows us to create more of a virtual world," MacLean says. "It's certainly not our predominant model, [but] it provides flexibility."

As the e-commerce model continues to evolve--its major players doing likewise--a fourth party has emerged on the scene. Companies like FedEx and UPS are throwing their hats into the logistics ring and taking moving from the physical into the virtual environment.

Buy.com considers UPS a major logistics partner. "They serve a very important role in this virtual model," Forrester says. "Because we are virtual, our relationship with them will be more information-based." Forrester cites tracking and returns as examples of technology offered by UPS that's now integrated into the retailer's business.

What do retailers bring to a partnership? McIntosh says Egghead.com brings "the ability to reach a marketplace that heretofore has been very expensive to reach: the small to midsize marketplace."

Forrester says of Buy.com, "We have created a strong customer base of 3.5 million customers, and we understand them very well. In doing so, we have the ability to share with our distributor partners a good bit of information about demand."

"The sign of a good partner," MacLean says, "is that they work [with us] in an almost seamless fashion. They integrate themselves into our day-to-day operations, and vice versa. That comfort level is a good sign."

Martie Callaghan is a freelance writer based in Stevensville, Md. You may reach her at writestuf@prodigy.net.