There’s an old saying that goes: “always keep your promises if you want to keep your customers.” Okay, maybe we’ve paraphrased just a bit — but if you take the adage about keeping your promises to keep your friends, the same applies in retail to meeting your promise times with customers.
The pandemic boosted sales for many retailers and redefined the notion of convenience for consumers. As a sign of the times, Target stores have reallocated their parking spaces, doubling curbside pickup spots in many cases. So, how do retailers, like Target, deliver on their same-day promise?
It’s a question many brands and retailers are seeking to answer as ship speeds begin to play a role in the customer’s decision-making process. A helpful way to think about the elements of same-day fulfillment services is to remember the three “S” rule: Stores, Staff and SKUs.
The first element — and most foundational to same-day service — is a Store or physical space (a dark store counts here as well) to run fulfillment operations. The key is to have the inventory as close to customers as possible, effectively reducing the last-mile distance and, therefore, the delivery time or time the customer drives to the store.
Our work with clients shows that about 50% of the last-mile delivery cost is driven by distance to customers. So, proximity to the customer makes a big difference in terms of delivery costs, as well as coverage/radius from the store, with a roughly 20-minute drive time being the maximum time that any delivery should take before becoming infeasible.
The second pillar of same-day delivery is Staff, which needs to be considered for both in-store order pickup and last-mile delivery. For pickup, this entails appropriate scheduling of workers to meet order volumes then developing or providing tools for employees to scan and process items.
In many cases, the most efficient manual picking operations can achieve 100-120 picks per hour, meaning an employee can pick 100-120 items per hour to pack for customers. Of course, this would rely on optimal layout of the space, minimal stockouts and item substitutions, etc.
Beyond order picking, Staff is also critical to last-mile delivery today (though it’s worth noting that there are tests for autonomous last-mile delivery services, like Nuro, or drones in the works that could fundamentally change delivery altogether).
While there are a few retailers that own their last-mile delivery — notably, Amazon and Target, with Walmart not far behind in testing its own delivery fleet — most retailers partner with third-party services, such as DoorDash, Uber or Roadie, to supplement their Staff for the last-mile component.
The rationale is fairly simple: the cost of maintaining a fleet and delivery drivers, along with continuous optimization of routes and other software, exceeds the marginal value for most retailers, and there are already world-class providers that can white-label a delivery service.
The final component of the framework — SKUs — deals less with the products being provided and more with the infrastructure that ensures items (SKUs) are available to customers for same-day services, particularly as inventory turnover at the stores increases. These technologies include real-time inventory (RFID being a notable technology), forecasting and replenishment systems.
Companies focused on better serving customers, such as Nike, are forming partnerships with real-time inventory providers to provide products to customers throughout the network. This reduces order cancellations from “out-of-stock” items while giving customers visibility to product availability in their local stores before heading there.
For retailers, this has the additional potential benefit for improved gross margins by fulfilling orders from locations that have excess inventory to areas in the country with limited product for non-same-day orders. Imagine being able to fulfill an order placed for a winter coat in the Northeast from a warmer weather location, such as the Southeast, rather than having to mark down that same product.
Lastly, as retailers depend on store inventory, it is crucial that goods are forecasted and replenished in a timely manner. There is a fine balance to serving multiple types of customers. Customers that walk in to a store should see well-stocked shelves, and that can only be possible if items are forecasted accurately and replenished regularly.
With customer demand for convenience via same-day fulfillment services, retailers will continue to optimize operations to meet that demand. The three “S” rule — Stores, Staff and SKUs — is an easy place to begin evaluating what elements you need to deliver on your same-day promise.
Which element have you seen most critical when it comes to faster delivery speeds for customers?