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Mon Aug 16 2010 23:33:37

Would Fulfillment Service Make Sense for eBay?

By: Ina Steiner

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After hearing that eBay surveyed sellers about their interest in using a fulfillment service, I reached out to eFulfillment Service, which was reportedly linked to by the eBay survey (we're waiting for confirmation from eBay). President John Lindberg said he knew nothing of eBay's interest in his company, but would be delighted if the marketplace expressed an interest in working with him.

Lindberg has 400 ecommerce clients who process less than 2,000 orders/month, a few of whom sell on eBay. He does $8 - 8.5 million in billing from a 2,000 square foot warehouse, half of which is leased to other companies on a short term basis to allow for growth of his business. The following is a summary of my interview with him about fulfillment services for online sellers (it is not a verbatim transcript).

Does it makes sense for eBay to offer a fulfillment service to its sellers?

It depends on the scope and scale of the business - Amazon.com's FBA fulfillment service is insignificant relative to their core business. Amazon is not building 13 new distribution centers for FBA, but for their own core business.

We'd be delighted to partner with eBay in a referral arrangement as we do with shopping cart systems. If eBay did own an in-house fulfillment service, it would be a competitor of ours, which would not be such great news.

However, it takes operating efficiency and cost control - margins are paper thin in the fulfillment business, and it may not be a great exercise for a big corporation to get into. Amazon had spent millions of dollars trying to break even.

Are there certain products and categories that are ideal for fulfillment outsourcing, and are there others that are not suited for outsourcing?

We call it the Diamond versus Coal problem. You have to look at the retail value per pound, or the profit margin per pound.

High shipping and handling cost is the number one reason shoppers abandon purchasing a product online. Shoppers compare the S&H cost to the retail price. Most will be comfortable if S&H is within 10 - 15% of the retail price, and most shoppers will be uncomfortable if it's above 10 - 15%.

All postal systems basically use a "pound per mile" system. So the starting point for merchants is to consider the value of the product divided by the pound. If you're selling diamonds, you will have no problem with cart abandonment, so you can outsource fulfillment. If you sell coal, and you take the retail price divided by the pounds, it would be impractical to outsource fulfillment.

Does your company offer integration into merchants' order systems?

We use a term "push-pull." It's easy to push the orders to a fulfillment system through a CSV or XML file, or to do it manually - once a day, pull orders out of the auction management service or shopping cart system and upload it to the fulfillment service.

Pull means pulling the data back from the fulfillment service into the merchant's system with data such as tracking information. eFulfillment Service does both push and pull, but not all services are able to pull the data back. It's not the end of the world in that case, since eFulfillment Service will ship confirmation emails to customers.



John said he gets frequent overtures from venture capital and equity firms interested in acquiring his business, but he expressed satisfaction with the business - it's his third company in a 40-year career. ("Weekends are long for me," he said.) About $14-15 million in gross billing will be about the right size for eFulfillment Service, he said, and while the recession slowed growth, he doesn't care how long it takes to get there. And what about eBay sellers? He said hewould have to carefully study the unmet needs of the eBay seller.




Comments (9) | Permalink

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Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: Digby
Web Site

Tue Aug 17 01:50:20 2010

Fullfillment companies are a good idea.
But you need to have good regular sales to be able to justify their cost structure.
They usually have a monthly charge to store you items.

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: TekGems

Tue Aug 17 02:28:34 2010

In a word, No. eBay margins are so thin that to involve, yet another middle person, is ecommerce suicide. I don't what eBay is thinking. eBay is having an identity crisis trying to copy everything Amazon. There are some things you can copy from Amazon. Simplifying shipping method names, customer service standards, etc. Fulfillment is not one of them. You don't own inventory and if you get involved in inventory, you'll screw it up very nicely eBay. So, eBay, don't do it. You don't know what you're getting yourself into. My first advice is for John Donahue to work in a warehouse and ship some stuff himself. Then maybe he'll have some clue as to what it takes to run a warehouse and operations involved to run it efficiently.

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: Joey

Tue Aug 17 03:14:36 2010

eBay can't even implement a shopping cart on its site. I really don't think they'll pull off fulfillment service -- unless of course they give yet another sweetheart deal to Diamond power sellers.

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: Jim S. This user has validated their user name.

Tue Aug 17 07:47:48 2010

2,000 square foot warehouse, half of which is leased to other companies? Sounds kinda small for $8 million annual (unless it's diamonds), or for eBay interest.

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: On Lies and Secrets This user has validated their user name.

Tue Aug 17 10:37:10 2010

Ina asks: Does it makes sense for eBay to offer a fulfillment service to its sellers?

I realize that Ina originally asked this of the company eFulfillment, but I will offer my thoughts on it.  The first point is that the ebay corporation seldom ''offers'' anything anymore - they have a tendency to coerce sellers into buying extra services whether the service really meets a seller's needs or not (e.g. services such as paypal or stores or even the recently suggested seller protection insurance against fraud).   All too often, there is very little real choice for sellers given how ebay management runs the site, so I would not be in favor of ebay ''offering'' any other add-on services because they would ultimately end up costing sellers more money and make the cost of goods go up.  

Second, I don't think ebay should offer a fulfillment service because of the thin margins and necessary precision that it takes in order to make a profit for this line of business.  There are far too many products that can't be shipped profitably by a large fulfillment organization.  I don't think the ebay corporation has the managerial expertise to successfully integrate such an enterprise into their company.  They couldn't figure out how integrate Meg Whitman's folly (Skype) into their company and Skype as a company seems to have a more attractive value proposition than a fulfillment service.  I don't think ebay management understands their business or is smart enough to integrate or even successfully outsource a fulfillment service.  

Finally, I would caution fulfillment companies to do due diligence about ebay's corporate practices before ever entering a contract with the ebay corporation to serve as their fulfillment vendor.  Read the auctionbytes blog and see how the ebay corporation treats sellers most of whom are small to medium businesses.  Notice the Auctionbytes blog post of 8/10/10 where apparently the ebay corporation is suing three of their (former ?) affiliate partners. Even Meg Whitman, when she was CEO of ebay was sued by ebay shareholders.  I would advise a fulfillment company considering working with the ebay corporation to do due diligence in understanding how the ebay corporation works with its business partners and to get lawyered up before making any deals.

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: Tom

Tue Aug 17 12:43:56 2010

Quote:

''Lindberg has 400 ecommerce clients who process less than 2,000 orders/month, a few of whom sell on eBay. He does $8 - 8.5 million in billing from a 2,000 square foot warehouse,  half of which is leased to other companies ''

Are you kidding me? $8 mill from 1000 sq ft? What is he selling? Diamonds? C'mon, its either a typo or he is wishful thinking....

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: John Lindberg
Web Site

Wed Aug 18 09:12:22 2010

FOLLOW UP FROM EFULFILLMENT SERVICE

That 2,000 square foot figure must have been a typo.  We have two facilities that total 125,000 square feet of warehouse and office space.  

We serve about 400 clients, manage 49,000 SKUs and ship from 10,000 to 15,000 orders per week. Most of our clients are webstore merchants, but we do serve some eBay clients as well.

Most eBay merchants can not afford to outsource fulfillment, but there are some exceptions:

1. Foreign eBay sellers often consolidate their US inventory to one location within the US to avoid the excessive cost of shipping individual packages internationally. This concept of ''zone skipping'' can even apply inside the US as a west coast eBay merchant will sometimes have us ship their east coast orders from our Michigan warehouse.

2. Sellers of products with high retail or profit margin per pound (diamonds, not coal) can easily afford the fees involved and can thus eliminate the hassles of order fulfillment with little impact on their bottom line.

3. Sellers who work alone can free up their limited work time to concentrate on selling, which has higher value per hour than picking and packing orders.  There is also the issue of outsourcing to enhance lifestyle as discussed in the recent book ''The 4-Hour Workweek'' by Timothy Ferriss.  

4. Likewise, since fulfillment companies normally provide discounted UPS, FedEx and postal rates plus free packaging supplies, it is sometimes the case that these savings cover most of the outsourced labor and storage fees.

As for eBay getting into the fulfillment business, this would be a bad idea for all concerned.  The majority of eBay merchants should keep doing their own order fulfillment and nobody could do it better.  

There are exceptions to this, but EFulfillment Service, ShipWire and Amazon (who are the main service providers in the efulfillment market) have plenty of capacity to handle any additional workload.

I hope these comments prove helpful in this ongoing discussion within the eBay community as to the merits of fulfillment outsourcing.

John Lindberg - President
EFULFILLMENT SERVICE INC

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: Ed

Wed Aug 18 12:43:12 2010

It sounds like ebay wants to be like Walmart. Every thing made in China. They would be the only ones that would need a Fulfillment Service in the USA. This way they have a customer service department that speaks English and no one could compete.
No worry about that some how eBay would screw that up unless they said DON'T TOUCH CHINA SUPPLIERS
Sellers Beware!  

Would Fulfillment Service Make Sense for eBay?   Would Fulfillment Service Make Sense for eBay?

by: colorful one
Web Site

Fri Aug 20 04:12:15 2010

ebay thinks if it can be another amazon that they can last forever. Ebay has their brain screwed on backwards. What works for one company will NOT work for another.



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