Overstock.com 2003 Annual Report Download - page 9

Fulfillment Operations
General. When customers place orders on our Websites, orders are fulfilled either by a third party "fulfillment partner" or directly from our Salt Lake
City, Utah warehouse. We monitor both sources for accurate order fulfillment and timely shipment. We currently charge $2.95 for basic ground shipping, but
customers can choose from various expedited shipping services at their expense.
Payment Terms. As a general policy, we require verification of receipt of payment or credit card authorization before we ship products to consumers or
B2B purchasers. From time to time we grant credit to our B2B purchasers with normal credit terms.
Direct Fulfillment. During 2003, we fulfilled approximately 41% of all orders through our leased Salt Lake City, Utah warehouse where we store
approximately 6,000 non-BMV products offered on our Websites. We operate the warehouse with an automated warehouse management system that tracks
the receipt of the inventory items, distributes order-fulfillment assignments to warehouse workers and obtains rates for various shipping options to ensure low-
cost outbound shipping. Our Websites relay orders to the warehouse management system throughout each day, and the warehouse management system in turn
confirms to our Websites shipment of each order. Customers track the shipping status of their packages through links we provide on our Websites. We
advertise a standard of shipping within two business days of order placement, but most orders ship within one business day. The warehouse team generally
ships between 4,000 and 5,000 orders per day, and up to approximately 10,000 orders per day during peak periods, using two overlapping daily shifts. We
also process returns of direct and fulfillment partner merchandise in the Salt Lake City, Utah warehouse.
Fulfillment Partner Business. During 2003, approximately 59% of our orders were for inventory owned and shipped by third party fulfillment partners.
We currently manage approximately 250 entities that collect their orders through our Websites. These third parties perform essentially the same operations as
our warehouse: order picking and shipping; however, beginning July 1, 2003, we began handling returns for these sales. These third parties relay shipment
confirmations to our Websites, where customers can review shipping and tracking information. From a customer's point of view, shipping from our warehouse
or from the warehouse of one of these third parties is indistinguishable.
Customer Service
We are committed to superior customer service. We staff our customer service department with dedicated professionals who respond to phone and e-mail
inquiries on products, ordering, shipping status, and returns. Our customer service representatives include Overstock employees, temporary employees and
outsourced staff. Our customer service staff processes approximately 20,000 to 25,000 calls per week. The same staff processes approximately 20,000 to
40,000 e-mail messages each week, with less than a 24-hour turnaround time. We use automated e-mail and phone systems to route traffic to appropriate
customer service representatives.
Technology
We use our internally developed Websites and a combination of proprietary technologies and commercially available licensed technologies and solutions
to support our operations. We use the services of XO Communications, Inc., Qwest Communications International, Inc. and MCI, Inc. to obtain connectivity
to the Internet over two OC3s and one DS3. We currently store our data on an Oracle 9i database cluster using Dell computer hardware, which is backed up
by a high-speed redundant Network Appliance storage system. Currently, we use thirty-one Dell PowerEdge servers for our Websites, which are connected to
the Oracle database and operate in a multi-processing Linux environment designed to accommodate large volumes of Internet traffic. During the 2003 holiday
shopping season, our Internet systems operated at 30% of their capacity. We have added internal
9
"relief valve" technology and improved existing "relief valve" functionality with technology provided by Akamai Technologies, Inc. and Speedera, Inc. to
provide a redundant solution to off-load transactions during extreme loads.
We are constantly working to enhance the reporting capabilities of our Websites to improve our understanding of our customers' needs and the operation
of our Websites. Our Internet systems include redundant hardware on mission critical components and are located in our Salt Lake City, Utah facility.
Competition
The online liquidation services market is new, rapidly evolving, intensely competitive and has relatively low barriers to entry, as new competitors can
launch new Websites at relatively low cost. We believe that competition in the online liquidation market is based predominantly on:
price;
product quality and selection;
shopping convenience;
customer service; and
brand recognition.
Our liquidation services compete with other online retailers and traditional liquidation "brokers," some of which may specifically adopt our methods and
target our customers. We currently or potentially compete with a variety of companies that can be divided into several broad categories:
liquidation e-tailers such as SmartBargains;
•
•
•
•
•
•