Changing consumer lifestyles and buying habits are forcing retailers and manufacturers to re-think how they deliver goods in urban areas, both to stores and to e-commerce customers. Cities are more congested and densely populated than ever before, and customer-service expectations have never been higher. We examine how innovative companies are maximizing the efficiency and cost effectiveness of their urban delivery options both to stores and end-customers ,in response to changing purchase habits.
“Increased traffic and congestion is having a huge negative impact on the efficiency of deliveries in urban areas,” says Prithu Srivastava, Strategy Director, South and South-East Asia at DHL Supply Chain. “Add to this the fact that people are often only at home for limited periods ,usually before 9am and after 6pm ,and this creates significant pressures on our city delivery network.”
“We measure delivery efficiency in terms of how much volume is carried each kilometer,” says Srivastava. “For every shipment that’s dropped off to a customer, the efficiency decreases. Retailers are also seeking to satisfy online orders more quickly, as customers demand near-instant gratification. All this– congestion, deliveries outside of normal working hours, customer demands and decreasing load volumes – makes the last mile of delivery increasingly expensive.”
The last mile can in fact account for up to 30 percent of delivery costs, because the service is so personalized. “Delivering goods to a warehouse or store means the cost of the service is shared between hundreds or thousands of items,” explains Srivastava. “For e-commerce home delivery, usually only one shipment is delivered to one location, whether that’s the customer’s home or office.”
Failed deliveries are an added expense. “Every time a product is sent out for a delivery and the customer isn’t available to receive it, the product is returned to the warehouse and re-processed,” explains Srivastava. “This creates costs that are sometimes built into delivery charges and passed on to customers.”
Visibility aids efficiency
Geo-fencing technology ,which uses Global Positioning Systems (GPS) ,helps to improve home-delivery efficiency. These systems automatically send alerts to customers when delivery vehicles are close to their locations, providing real-time visibility of their packages’ progress from the warehouse to their homes or offices.
Visibility and planning tools also bring an opportunity to maximize truckload volumes and reduce costs. Ocado, a British online-only grocer, prompts customers to choose an ‘eco’ delivery slot – one when a truck is already planned to be in the area ,which helps to cut lead times and vehicle emissions. DHL Supply Chain uses its own transport management system to set rules for load efficiency (with minimum dispatch volumes) and define optimized routes. Tracking where vans are ,and what they contain .opens up the opportunity to re-route vans to pick up additional items while out on the road.
Sharing the last mile to stores
While route optimization and data feeds aid home deliveries, improving services to stores depends on companies’ willingness to cooperate and collaborate with other companies, and consolidate their deliveries.
“Consolidation really is ‘the name of the game’ for urban deliveries”, argues Srivastava. “The more you consolidate, the higher your efficiencies are.” One of the best ways to do this is through urban consolidation centers (UCCs). Situated in out-of-town locations, UCCs receive deliveries from multiple companies and amalgamate goods onto a few vehicles that make regular journeys into cities. This service helps to cut delivery times, vehicle emissions, and congestion on busy roads.
UCCs are well established in Europe. In the Netherlands, the Binnestadservice network, which works with local transport companies and independent retailers, operates in 14 cities. In 2013 DHL Supply Chain Spain embarked on a pilot programme, backed by the EU-funded Straightsol project, to establish a UCC to serve the shopping area in L’Hospitalet de Llobegat near Barcelona. The initiative aims to reduce delivery costs by 20 percent and CO2 emissions by 50 percent.
While the concept has spread to Asia , a UCC was established in Yokohama, Japan, in 2004 to serve the Motomachi retail area ,no such centers have yet been established in the USA.
Maintaining the connection between customers and brands
Consolidating and sharing deliveries with other retailers also works on a smaller-scale in the home-delivery sector. But this option does come at the expense of having a branded-vehicle, with a branded member of staff, delivering goods. “Retailers have typically had to decide what is most important to them,” says Srivastava. “The brand connection with the end-customer or cost efficiency.”
Home delivery is increasingly becoming the only physical touch-point a consumer has with a brand, with the Foresee Experience Index (FXI): 2013 US Retail Edition reporting that satisfied customers are 64 percent more likely to make a repeat purchase.
“The consumer experience is no longer only about what happens in a bricks-and-mortar store,” says Srivastava. “Consumers seek an integrated experience, so a home-delivery agent must represent not just the logistics company but also the brand whose parcel is being delivered”.
DHL Supply Chain has therefore introduced new training courses that focus on enhancing staff ‘performance at doorstep’, focusing on traditional skills ,such as driving and process knowledge ,as well as appearance, attitude and personal awareness.
“Because delivery agents are increasingly regarded as brand sales agents, the DHL Supply Chain team in India is inviting retailers to train delivery staff in their internal customer-service processes, so they can handle customers’ queries,” explains Srivastava. “Simple ideas ,such as giving staff different hats to wear, depending on the product they are delivering ,help brands’ messages to reach customers while retailers benefit from the cost savings realized through shared, full-capacity trucks.”
Offering customers the option to pick up in-store items they have ordered online ,colloquially known as ‘click and collect’ ,adds to the benefits of load consolidation. Customers appreciate the service because it is usually free of charge and gives them the flexibility to pick up their orders at a convenient time, rather than having to wait at home. Retailers also benefit from reduced supply chain costs and the opportunity to upsell goods when customers visit stores to pick up their orders. Networks of parcel-delivery lockers are also being introduced to major cities worldwide, enabling customers to pick up items ordered online outside of normal shopping hours.
“Introducing a local collection option gives retailers flexibility to optimize their distribution networks,” says Srivastava. Trucks that replenish in-store inventory during the day can drop off online purchases to stores overnight, maximizing the vehicles’ use and avoiding peak traffic times.
Add to this new technology and data-collection methods, and collect from store becomes a powerful marketing tool. “Stores are becoming increasingly digitalized,” explains Srivastava. “When a customer enters a store to pick up his delivery, systems could recognize his profile and tailor advertising displays to products we think he might be interested in.”
Urban supply chains of the future
Retailers and manufacturers are only just beginning to explore and understand the potential of technology to fundamentally re-shape retail supply chains. Evian’s Smart Drop project provides Parisian customers with a Wi-Fi enabled gadget to attach to their fridges that enables them to replenish their stocks of bottled water at a touch of a button.
“The next step would be fridges that could automatically order more water when you use the last bottle,” says Srivastava. “This would have an important effect on supply chains: these discrete ordering patterns cut down order sizes. People will no longer drive to out-of-town supermarkets to buy in bulk; instead, they will rely on small, replenishment orders. This creates a challenge for supply chains: how to maintain efficiency as order sizes diminish.”
Another challenge to the existing supply chain model, says Srivastava, is 3D printing. “People increasingly want customized products,” he explains. “Imagine a scenario where you can order a mobile phone online and visit a store close to your home or office where the mobile has been 3D-printed to your exact specifications. This effectively takes the ‘chain’ out of the supply chain.”
Where once supply chains could focus on getting customers’ goods from warehouse A to store B, shifts in urban residents’ purchase patterns means the last mile of delivery has become increasingly personalized. Truly efficient deliveries in built-up, busy cities can now only be achieved by using a mix of solutions, ranging from customer collection points to collaboration with competitor businesses. But these changes are just the start: in the future, retailers will need to consider fundamentally reshaping supply chains around the customers’ purchasing habits and delivery preferences. www.dhlsupplychainmatters.com