The earliest experience with delivery services for folks of a certain generation was pizza delivery. What was more exciting than seeing your delivery person walk up to the door with your favorite pie, piping-hot from the insulated delivery bag and just in time for that play-off game or rental movie?
Unfortunately, the unintended consequences of “30 minutes or it’s free” – accidents and skyrocketing insurance rates – ended Domino’s most popular, and memorable, promotion.
Anticipation for most deliveries today does not hold quite the same novelty as pizza deliveries of yore since doorstep delivery has become ubiquitous across most shopping channels. So, as a retailer, your prime directive should be to build out a delivery network that offers fast, consistent experiences for customers to meet growing order demand.
Today, we outline three challenges we see that clients often face related to delivery, which is the second half of the fulfillment equation.
Challenge #1: Current delivery method inhibits faster service speeds for customers
One of the biggest challenges a retailer faces is understanding the current delivery method and how it relates to the customer’s changing expectations around delivery speed.
After looking at these two factors — speed vs. expectations — the retailer may opt for the status quo because either a) the current shipping speed will not deter customers in the future or b) the products offered are unique enough that customers will be ok with slower shipping speeds. These reasons are often valid though the analysis should be done with a clear-eyed assessment of the core offerings and changing macro environment.
Of course, delivery speed is not a problem until it threatens the business: either because the retailer has lost market share or their customers go elsewhere because delivery speed has become as important to the purchase consideration as the products themselves. In many cases, customers now view shipping speed as a top consideration in their purchasing decision.
We recently worked with a client that had been slowly losing sales to competitors over a handful of years because the company’s fulfillment operations had been built with cost-containment in mind. However, that operation was no longer competitive in the market to meet changing customer expectations of delivery speeds. The current delivery method made it impossible to meet the new expectations of delivery speed for customers using the same operations, and a multi-year fulfillment transformation began.
Most established retailers have some sort of ecommerce presence today and, as a result, have defined delivery speeds for customers with picking operations built to support this model. What happens when customer expectations start to change? And how do you get ahead of this?
Fulfillment is most often an internal operations function but consider the customer perspective on a regular basis to — as the adage goes — disrupt yourself before someone disrupts you:
- Where is the market going in relation to delivery speeds?
- What points of friction exist for our customers in our current delivery experience? (Example: Target’s recent announcement to add curbside returns and Starbucks pickup.)
- What do we need to test with consumers to see if faster delivery speeds make a difference to the business? What changes do we need to make to our fulfillment network in the long run to enable faster delivery speeds?
Challenge #2: Rising parcel costs make it difficult to increase ship speeds
Parcel shipping costs continue to rise amidst current inflationary pressures: rising costs of fuel due to geopolitical conflict, labor shortages creating higher wages for delivery drivers and, of course, greater demand (parcel volume) with more ecommerce orders.
This challenge is a common refrain for many clients. Standard shipping for many items can be between $8-$12 per order on top of the cost to pick the items in the order, which varies widely, depending on the number of items in the order (grocery vs. apparel) and the pick environment (store vs. warehouse)
All of this adds up to a very expensive cost for ecommerce orders.
While it is easy to look at the rising parcel costs and see red — at least on your P&L — it also presents an opportunity to re-think your delivery operations as costs continue to increase:
- How can we reduce our delivery costs? Do we offer a compelling BOPIS or curbside pickup offering to increase our speed and convenience for customers while reducing our delivery costs?
- What would it look like to run ecommerce fulfillment out of our stores at the same delivery cost on a same-day basis with a partner like Uber, DoorDash or Roadie?
What technology or provider could we test to reduce our delivery costs (e.g., Nuro or FlyTrex)?
Challenge #3: Owned delivery fleets — typically, in grocery — restrict the ability for faster delivery
Sometimes clients own a fleet of delivery vehicles — most often in the grocery sector because of the need for a temperature-controlled environment.
This may not be an issue for you if you do not work in grocery. However, the reason this type of owned delivery fleet is difficult to manage is the same reason you should consider partnering on any delivery initiatives if you operate nationwide.
If you add up the costs of managing a delivery fleet — fuel, vehicle maintenance, employees, route optimization software, etc.— the numbers show how difficult it is to operate in the black, like successful delivery alternatives Uber, DoorDash and Roadie. Moreover, this doesn’t even begin to take into account the ability to meet changing customer expectations around delivery.
A common risk in building a micro-fulfillment center (MFC) too early, without enough order volume, is that decisions are made to optimize utilization of the facility rather than what the customer wants. In much the same way, operating your own delivery fleet can lead to making decisions that are built around optimizing for your delivery fleet rather than allowing for flexibility to give customers what they want: convenience and speed. At this point, ask yourself:
- Do customers value a branded delivery experience at their front door more than one from a third party? How important is that consideration in relation to delivery speed?
- Can your owned delivery fleet offer delivery speeds as fast as third parties without any constraints (batch delivery, limited “express” orders, etc.)?
- How do you envision reducing your delivery fleet’s costs in the long-run to get to parity with third-party providers?
Here’s the bottom line: the flexibility that delivery partnerships offer most often outweighs the theoretical benefit that a first-party delivery fleet may provide.
