Exactly half of the merchants in the Internet Retailer 2015 Top 500 Guide report using homegrown order management systems, down 9% from 275 the previous year. Among the retailers bucking that trend is FragranceNet.com Inc., the web-only seller of scents and related cosmetic and health products.
In fact, as explored in depth in the upcoming June issue of Internet Retailer magazine, the 18-year-old retailer, No. 167 in the Top 500, provides a case study about why some retailers prefer to build their own e-commerce technology instead of buying it from vendors.
The off-the-shelf software the retailer used to run its order management system couldn’t keep up, says FragranceNet.com president Jason Apfel. “As our sales volume grew, performance of all aspects of our off-the-shelf system became sluggish,” he says. “Orders would take minutes to come up on the screen and that caused frustrations with our customer service representatives. Printing orders began to take hours and that caused warehouse delays.”
So in 2010, faced with the decision whether to invest more money into more vendor order management software, or to build what it knew it needed, FragranceNet.com decided to construct its own order management and fulfillment technology systems.
FragranceNet.com devoted about 16 months to writing its own software, hiring five developers for that task and related work. The “FragranceNet.com order activity manager,” or FOAM, began service in 2011.
But the order management software program wasn’t the only fulfillment-improvement project the retailer embarked upon. After that task FrangranceNet.com built its warehouse order-picking system, which guides workers via digital scanners. “Our warehouse personnel utilize wireless hand-held scanners for all activities,” Apfel says. That includes “picking and checking of outbound orders, stock replenishment and receiving of new merchandise.”
The homegrown fulfillment system has given FragranceNet.com the ability to ship up to 50,000 orders in a 24-hour period, a vital improvement for the holiday shopping season, which accounts for about 40% of the retailer’s yearly sales.
“Orders are imported into our system, processed and picked and packed approximately 10 times as fast as our old system,” Apfel says. “We are able to prioritize orders in the warehouse. We are able to zone and batch-pick, which saves labor. We are able to automatically sort outbound boxes, which saves labor. We are able to monitor all warehouse employee productivity, speed and accuracy throughout the work day.”
Building and maintaining the proprietary technology isn’t cheap. “Information technology and shipping are our biggest expenses investments, running at millions per year each,” he says without being more specific, though he does offer that “under 2% of our revenue goes into IT spending.” That would translate into no more than $3.8 million in 2014, based on the retailer’s 2014 web sales of $190 million, as shown by data available at Internet Retailer’s Top500Guide.com.
The retailer reports having in-house e-commerce technology and systems for 18 separate e-retail functions, including comparison engine feed management, personalization and site search, out of the 30 categories measured by the Internet Retailer 2015 Top 500 Guide.
FragranceNet.com’s decision to build rather than buy bucks the general trend e-retailers are following, one expert says.
“The vast majority of retailers opt for either an enterprise or open source (such as Magento) off-the-shelf solution for both e-commerce and order management,” says Forrester Research Inc. analyst Peter Sheldon. “Only a few brave retailers are building today.” Among them, he adds, are such giants as Wal-Mart Stores Inc. and Staples Inc., which have “huge research-and-development budgets, huge development teams, an appetite for risk and a need to innovate faster than the vendor community can do for them. However, even these firms commonly use a combination of commercial technology with open source frameworks and custom ‘build’ code. Their architectures are essentially a hybrid of build and buy.”
For much more about how experts view the build versus buy decision that every e-retailer faces, and how the path chosen by FragranceNet.com has impacted its operations, subscribe for free to Internet Retailer magazine.