CommerceHub is working a quiet revolution.

By Jack Gordon

Today’s so-called multi-channel retailer is most often a brick-and-mortar store that also offers some merchandise on a Website. The two operations likely function as separate entities, almost as if two different companies were to run them. And whether the merchandise is displayed on store shelves or on the Internet, the retailer usually sells only goods that it can stock in its own warehouses.

Frank Poore says that’s going to change, and fast. In the not-so-distant future, he predicts genuine, integrated multi-channel retailing will be the norm. When you walk into a store, “there will be Internet kiosks in the aisles. If you don’t see the blender you want on the shelves, you’ll just [use the kiosk to] order it from the store’s Website.” At the store’s service desk, you’ll be able to return items you bought online as easily as if you had bought them off the shelves.

And the variety of items the retailer offers will not be limited to the capacity of its own warehouses. Instead of just shipping pallets of goods to the retailer, the store’s suppliers will drop-ship goods directly to its customers from their warehouses-but in the store’s name.

All of that is starting to happen now, says Poore, president and CEO of CommerceHub of Albany, N.Y. “But Internet retailing is still in its infancy. People are only beginning to figure it out.”

CommerceHub, founded in 1997, aims to speed up the figuring-out process by eliminating the technological barriers that stand in the way of “seamless” multi-channel retailing. The company essentially acts as an electronic middleman that enables retailers’ and suppliers’ computer systems to communicate easily and efficiently. That may not sound earthshaking on its face, but Poore says it opens the door to a revolution in shopping.

A look at some of the major retailers on CommerceHub’s client list suggests that the revolution is off to a good start. Current customers include Target, Kmart, Costco, Staples, Circuit City, Macys and eToys, as well as television shopping networks QVC and ShopNBC.

Aside from the impressive client list, in 2003, AMR Research recognized CommerceHub as the leader in supply chain management for drop-ship commerce.

THE TOWER OF BABEL
Poore founded CommerceHub in answer to a problem that he describes like this: When the computer age arrived, retailers all built their own information systems to handle tasks like inventory management, purchasing, tracking shipments and so on. Then those retailers launched Web divisions, which often built separate and incompatible systems of their own. Suppliers and manufacturers, meanwhile, all have their own idiosyncratic information systems. Nobody’s system can speak to anybody else’s in the same language about the same things-at least, not without a lot of expensive integration work.

Poore, who had developed an intranet for Nike’s World Finance Division in the early ’90s, was working for a video game company a few years later when he was struck by a thought. “It dawned on me,” he says, “that if 100 retailers wanted to connect to 100 suppliers, that would mean 10,000 simultaneous IT projects.” He envisioned a “universal connection platform” that would serve as middleware, translating one computer dialect into another, as it were, so that the same scenario would require only 200 total connections, no matter how many different dialects were involved.

If these were human languages, it would be as if the connection platform took in Spanish from the retailer and translated it into English (or German, or Chinese) for the supplier, then translated the supplier’s English response back into Spanish for the retailer.

That’s what CommerceHub’s hosted application does. Regardless of any differences between their system formats (say, the retailer’s format is EDI and the supplier’s format is XML), partners can communicate clearly by passing their information through CommerceHub’s universal translator.

“Whether the supplier is a sock-puppet maker in a college dorm room or a major manufacturer, we can tie together and integrate their systems with any retailer’s,” Poore says.

Each partner pays a fee for every transaction. Last year, CommerceHub handled more than 7 million purchase orders representing about $750 million worth of goods sold by retailers. Poore says the eight-year-old company is now in its fourth consecutive year of profitability.
Virtual Warehouses

What does this communication actually enable? “Think about the traditional distribution model,” Poore says. Suppose that Kmart or Target runs a camping promotion. The store’s buyers want to carry a two-burner Coleman camping stove.

“They buy 5,000 units from Coleman. Coleman puts the pallets on a truck. The retailer unpacks the truck and puts the units on the shelves. And at the end of 30 days, the retailer has a payable due to Coleman, regardless of how many units are left on the shelves,” he says.

That’s classic bulk distribution, which CommerceHub will facilitate if the parties choose. But suppose instead that Kmart wants to carry not just the stove but every piece of camping equipment that Coleman makes. The store shelves wouldn’t accommodate it all, of course, but Kmart could offer the Coleman goods in catalogs as well as on Kmart’s Website, which could be accessible not just from any home computer but from kiosks in the stores. What’s more, Kmart might ask Coleman to drop ship the products from Coleman’s warehouses directly to the Kmart customers, with Kmart’s name on the packing slips.

In that retailing vision, Kmart has acquired a virtual warehouse, with virtual inventory that it doesn’t have to stock or ship. The store can expand its product offerings geometrically. Coleman, meanwhile, has gained the merchandising power of a major retailer, not just to sell 5,000 camping stoves but to sell its whole product line.

Why, you ask, hasn’t the whole retailing world been doing this for years?

UNRAVELING COMPLEXITY
Traditionally, Poore says, a retailer that wanted to enter such an arrangement with a supplier would run into a number of customer-service problems due to incompatible computer systems. For instance, two weeks after buying a product from the retailer’s Website, a customer calls the store and says, “Where’s my order?” The service rep can’t identify it and says, “I’ll have to call you back.” The rep calls the supplier. The supplier’s rep says they never received the order. Now what does the retailer do?

Another common problem when retailers sell someone else’s products from their Websites and allow the supplier to drop ship directly to their customers: “They can’t get timely inventory feeds, so they wind up selling things the supplier is out of,” Poore says. For example, take video games at Christmas. “The hot ones sell out in 15 minutes. If they were on the shelves, you’d know when they’re gone. If you’re going to drop ship, you need the same information.”

A third problem: The customer wants to return a Web-purchased item to the store. The packing slip says “Joe’s Shipping.” The clerk at the return desk has no idea what to do.

All of those problems arise, Poore says, due to the complexity inherent in drop shipping as opposed to bulk shipping. “It’s the difference between writing a single purchase order for 5,000 pieces to be sent to one [warehouse] and shipping 5,000 orders to 5,000 addresses. Integration between the retailer and the supplier becomes far more difficult.”

Retailers have tried to address customer-service snafus by working around some of that complexity on a policy level-for instance, by establishing single, one-size-fits-all standards for criteria such as how soon all items must ship. But if they’re dealing with a wide variety of products “those standards all fall apart,” Poore says. Furniture makers, cheesecake bakers, and video game producers have different processes and different time windows. They can’t all operate under the same rules.

Enter CommerceHub. No matter what software or systems a retailer and supplier use, they can integrate inventory data, shipping data, purchase orders, and other necessary management and tracking information by running it through the company’s translator service. Now the retailer’s service rep can track the customer’s order, the clerk at the returns counter can look at a familiar packing slip, and the retailer can get up-to-the-minute information about products in the supplier’s inventory.

“We provide all the tools necessary to monitor the process to achieve fulfillment and brand identity as if the retailer had shipped the goods internally,” Poore says.

Furthermore, he says, the retailer can easily establish individual rules for particular suppliers. To a supplier of ink cartridges for laser printers, the retailer might say: “You have to pick up the order within 12 hours so I know you received it, and provide me with a tracking order in 24 hours to prove you shipped it.” The time windows entered into the system for a furniture manufacturer could be different.

Whatever the windows might be, the whole process becomes visible for both parties. It doesn’t matter whether orders are generated from Websites, catalogs or phone calls in response to offers on QVC. “The retailer can monitor fulfillment,” Poore says, “and the supplier also can see what’s going on, so that if the retailer’s rules are being violated, the supplier can quickly find out why.”

When you remove the complexity from the backend electronics of electronic retailing, the ultimate virtue is that suppliers and retailers can work together with a system that allows “exception-based management,” Poore says. Make the whole process simple and visible, and you don’t have to monitor every item that goes through the ordering-and-shipping maze. You just need to pay attention to the exceptions-the trouble spots. When sellers and suppliers are able to look at the same picture, the glitches get much easier to spot and fix.

Jack Gordon is editor at large for Electronic Retailer magazine. We would appreciate your feedback. To submit comments, please point your browser to commercehubmay.marketing-era.com.