With e-commerce booming and more consumers shopping online, the push towards speedier fulfillment approaches and efficient last-mile logistics is strong. In the race to implement new technologies, experiment with new transportation approaches and utilize efficient packaging techniques, shippers must be able to entice customers and keep them coming back for more.
Getting this right isn’t easy in a world where the nearest competitor is literally one mouse click away.
The good news is that by expanding omni-channel inventory selection, adopting diverse last-mile service offerings and assessing the cost of goods sold (COGS), a company can effectively leverage a dynamic, last-mile delivery strategy that meets their customers’ needs while helping them maintain and grow their own bottom lines.
In this Insider Q&A, ProShip’s Global Project Management Director and Co-Founder, Justin Cramer, explains the challenges shippers are grappling with, discusses changing customer expectations and shows how the right blend of technology is helping companies of all sizes conquer their biggest last-mile delivery obstacles.
Justin Cramer — Global Project Management Director and Co-Founder, ProShip
Q: What key e-fulfillment and last-mile challenges are shippers dealing with right now?
A: Customer expectations are changing, and companies have to be able to keep up with these demands. It’s about providing an “intended experience” to those customers, which means meeting the transit time for their shipments. Doing this in a cost-effective way and still turning a profit has gotten difficult.
Q: Why can’t companies afford to ignore this any longer?
A: Because the mammoths of the industry are competing with one another on same-day delivery and free shortened-duration deliveries. Amazon, Target and Walmart are setting the bar in which that all small- to mid-sized retailers are now pushed to find a way to equal or exceed.
Q: What’s the root of the problem?
A: Companies that have a small amount of inventory origins are really limited in terms of the last-mile solutions that they can use. This prohibits them from providing an excellent customer experience in a cost-effective way—at least on a transaction basis.
Q: How can companies conquer this?
A: Shippers have to be able to maximize their number of inventory sources by using an omni-channel inventory approach. That’s the key to opening up the use of last-mile services that fit within the customer experience. It all starts with internal inventory locations, which retailers have two of—distribution center inventory and store inventory. So, even if that company has a handful of stores, the odds are that an order’s origin is now significantly closer to a larger set of customers.
We see this with a lot of the larger stores, many of which are shipping 50% or more of their orders directly from their stores. This allows them to be closer to their customer. Now, retailers also have to consider their external sources of supply (i.e., their vendors) because they can often execute shipping from their manufacturing facilities or third-party logistics (3PL) providers. It’s not uncommon to see large retailers securing 3PLs to help them through peak, for example.
Q: Is this helping companies manage their final-mile deliveries?
A: Yes, because it opens up options for them. If we look at a retailer that has an inventory location within a few hundred miles of every customer, it can now use postal last-mile solutions to deliver two-day services. Using these extra available inventory origins lowers the cost of shipping and ensures that delivery promises are met.
Q: What steps should companies be taking now to improve their final-mile strategies and better meet their customers’ demands?
A: The first step is to implement and use a good order management system (OMS). This one step will help companies ensure that the inventory is where it needs to be at the right time. OMS software includes specific functionalities that can give shippers a high level of confidence that the inventory will be there when they need it. This is critical because it eliminates the possibility of selling an item and then finding out that the last one on the store shelf sold an hour ago (but wasn’t entered into the system yet because the retailer’s point of sale [POS] system isn’t integrated with its OMS).
Now, the second step is to use shipping software that can take an expectation and find the lowest cost service to realize it from that location. In other words, if a company gets an order in by 1 p.m.—a typical cutoff for same-day shipments—and if it’s a busy day in the store, then that order may get pushed back resulting in an unmet shipping deadline. If, however, that company has an OMS with boomerang capabilities built into it and that order hasn’t been fulfilled within a certain timeframe (a certain number of minutes, hours, etc.), then the order “boomerangs” back and gets reallocated to another inventory source. This allows shippers to effectively react to get their orders to their customers on time.
Q: What else needs to be done?
A: Number one, the retailer needs to know when the pickup is going to be for a particular carrier. So, if the pickup is at 5 p.m. and it’s already 6:30 p.m., then that changes the services a shipper can use because the amount of time it takes for a given carrier to transit those services does not change. So, a 2-day delivery is going to stay a 2-day delivery, and a 3-day ground time in transit is exactly that; the transit time doesn’t start until that package is in the carrier’s custody. These are all important considerations from our perspective because applying the shipping label, determining when the carrier will actually take custody of the shipment and meeting the customer’s expectations all go into deciding which last-mile service to use.
Q: What about same-day deliveries? How are they best handled?
A: Companies like Deliv, Postmates, DHL and FedEx are all doing same-day delivery services now. So, let’s say a couture brand that’s selling highly-desirable goods offers same-day delivery to those customers who are willing to pay for it. Even with expanded inventory sources, the ideal OMS must be able to accurately inform the company’s e-commerce suite of exactly what can be delivered same-day for that customer.
If the couture brand has a warehouse or a retail location near the customer, it can pick that item and turn it over to Deliv, Postmates, or another carrier—but only if that item is in the customer’s region and appearing on the website with a same-delivery option. Now, in bigger cities like New York, Chicago or Los Angeles, where the brand has multiple stores, that exercise is fairly easy to accomplish.
But what about the rest of the country, where there’s just one store, DC, or even none at all? That’s where the real challenge comes in. That retailer needs to make it clear that the item is not available for a same-day delivery. Getting that message out clearly requires a 3-pronged integration that includes the e-commerce suite, the OMS, and the shipping software.
Q: How many carriers should shippers be working with and why?
A: Customers expect to have multiple shipping options at their disposal, which requires multiple carriers. Including multiple carriers supports the decision-making process with more choices and more opportunities to find the lowest-cost solution that will meet or exceed that customer’s expectation. At this point, companies should be set up to switch between carriers and take advantage of modern last-mile services like Deliv and Postmates.
And while no one knows where delivery trends are heading—10 years from now, drones may be handling most deliveries—the shippers that use multi-carrier shipping software and a multi-carrier strategy today will be best equipped to take advantage of these options. Wherever the industry is headed, it will be a lot easier to adapt to—and much less risky—for the company that’s not single-carrier/single-source.
Q: How does the cost of goods sold (COGS) come into the picture here?
A: A lot of companies today are still using classic COGS to do the math, when in reality they should be using cost-per-transaction. For example, a retailer’s labor and holding costs may be most affordable at a particular DC, but the shipping costs from that location may amount to more than sending the order out from another inventory source (i.e., a retail store). If that company can achieve a particular commitment to a customer while cutting its shipping costs by 25% or 50%, that may offset the increased holding and labor costs of going to an external source or to a store. Figuring this out takes shipping systems that do the math within milliseconds so that no one has to think about it.
Q: What systems does a shipper need to be able to use cost-per-transaction?
A: It takes an integrated enterprise software stack that can move the data around between the e-commerce components, POS, OMS, enterprise resource planning (ERP) solution, warehouse management system (WMS) and shipping software. Having great data flow among all of those platforms probably isn’t something that operations thinks about, but it’s definitely something that IT thinks about. If the data flows and is congruent across all systems and pulled into them in real-time, then shippers have the power and freedom to make changes and decisions that ensure the customers get exactly what they want, when they want it.
Q: What else should shippers be thinking about at this moment?
A: Everyone is focused on customer attraction and retention, and on living up to the experience that customers expect. Otherwise, they’ll go elsewhere to get the experience that they want. The mega-brands out there—Amazon, Walmart, and Target—are setting these expectations. By assembling a software stack that can manage the end-to-end supply chain, companies of all sizes can meet, and possibly even exceed, industry standards that customers are looking for. This is critical in a world where each new generation of consumers brings with it a new set of expectations, and where vendor loyalty is getting harder and harder to retain.
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