The Fast Track to Same-Day Delivery
2 months ago
Around the world, every morning, we take for granted that the newspapers we read will be delivered to our homes within hours of their being printed at printing presses not too far away.
Periodic delivery was the standard for the delivery of perishables such as milk, eggs and ice in the first half of the 20th century from nearby farms until technology disrupted those practices. Refrigeration in the supply chain and in homes meant that these products could join the same chain of distribution as that for non-perishables. Coal and wood were delivered till other energy sources such as oil, gas and electricity started to be used to power heating. Laundry was picked up and delivered back to middle-class homes till the advent of washing machines and dryers.
In its heyday, people waited between three and five days for the products they ordered from mail-order catalogues to arrive by post from a manufacturers’ warehouse far removed from the customer. In the US, while home delivery for fast food and pizza has been around for a while, available to customers who paid a surcharge, till very recently, even next-day delivery was usually the standard only for priority or express parcels.
Around the world too, same-day delivery has precedents. In Japan, the legendary delivery men who deliver luggage to the airport, clubs to the golf course and gifts to people reliably and efficiently the same day for a reasonable fee has been part of the culture for a long time. Home deliveries from the neighbourhood grocery store in India are usually just a call away. Leading logistics companies have observed the 6 Sigma practices of Mumbai’s dabbawallas, who ensure that thousands of cooked lunches are delivered from homes to offices every working day just in time for lunch. The dabbawallas’ practices even merited a Harvard Business school case study.
Consumer demand for same-day delivery
Same-day delivery for eCommerce websites came into the public consciousness in the US when startups such as Kozmo, Urbanfetch and WebVan (which bought out HomeGrocers.com, then one of the first and certainly the biggest online supermarket of its time) offered free delivery within 30 minutes to an hour from purchase during the dotcom boom. All of them, however, went bust for lack of a sustainable business model. Kozmo.com – which is now considering a return – wanted to start charging for delivery and customers fled. Some of WebVan’s executives went to work for eCommerce giant Amazon, resurrecting the idea of same-day delivery there in 2009. Around the same time, Walmart and other retailers started experimenting with same-day delivery too for a cost of US$6 for Prime members and $10 for non-members. By 2014, customers were ordering ten times as many items using the service compared to the previous year. In December 2014, Amazon started to offer one or two-hour deliveries for fresh groceries and more than 20,000 items in New York City for a fee of US$7.99 for a one-hour delivery or free for two-hour delivery and now offers it cities around the world.
That’s not far removed from what respondents in a recent survey conducted by McKinsey in Germany, France, Sweden, and the UK said they were willing to pay – 50 percent indicated that they would be fine with a surcharge of EUR 6 – 7 for same-day delivery charges on a EUR 59 purchase. Courier aggregator Shutl found in a survey found an actual conversion rate of more than 30 percent once delivery cost falls below 7 percent of the value of the entire purchase or basket of purchases. Shutl is now owned by eBay and is behind eBay’s same-day delivery efforts. The McKinsey report adds that according to Shutl and Amazon, the availability of enhanced delivery options has positive effects on customer loyalty and reduces the goods return rate.
Online grocery retailer Ocado in the UK – its forerunner was ironically called Last Mile Solutions – started out in 2000 to great success. Now owned partially by retailer Marks & Spencer’s, it shares logistics with its rival Morrison’s, and partners with Koger’s among a range of other supermarket partners in other countries who are reacting to the trend towards quick delivery of groceries via their own fleets, following procedures and equipment designed to keep goods fresh. These however come at a higher cost.
Grubhub in the US and Deliveroo in the UK – Amazon has a stake in the latter – were set up to link restaurants with customers’ insatiable demand for takeout. Even Uber, the transportation app, has gotten into the ring in 2014 with UberEATS.
Bigger hubs to smaller fulfilment centres
Same-day delivery marks a move away from massive fulfilment hubs of the past to smaller centres spread out through the cities as companies try to conquer the last mile. As of March 3, 2020, Amazon has sped up same-day delivery in Dallas, Orlando, Philadelphia, and Phoenix to start delivering goods in a matter of hours and not by the end of the day. It does this by relying on mini-fulfilment centres.
Retailers planning on same-day delivery have to make sure that they stock their products locally at distribution centres near the area they serve and that they have real time overview of their inventories. These reasons are why same-day delivery is mainly still an urban phenomenon and something only the biggest players with the deepest pockets can afford. Online-only players might be well suited to this challenge but traditional retailers chains can also use their infrastructure to entice customers back from online shopping with a multichannel approach if they can successfully work out the very short lead time in fulfilment. Last but not least, flexibility in last mile delivery is necessary to handle multiple times of delivery or adhoc deliveries.
In logistics, people and time are key.
Same day delivery requires complex processes and investment – the usual parcel logistics providers or courier networks can’t either meet the time pressure or volumes that this method throws up. Many sellers either develop their own logistics services or contract it to third parties. Even the incumbent parcel logistics providers are tweaking their systems to pilot same-day delivery. Crises, downturns or not, the trend of increased numbers of people going online to order groceries and other items is not going away. No wonder the logistics business is one of the few that is hiring even amidst economic downturns and the Covid-19 crisis. All those orders need delivery people.
You don’t want to overwork your delivery people either. Some logistics providers try not to schedule deliveries for its drivers between 12 and 2pm so they can take a break. When Amazon started offering same-day delivery in Japan, logistics companies such as Yamato Transport Corp, the leading deliverer for Amazon, went as far as pulling their drivers out of same-day delivery to alleviate drivers’ already challenging work overloads.
Same-day delivery set to become the norm
On the one hand, click-and-collect, where customers can pick up their online purchases at an offline location, still exists. On the other hand, when a lot of cities went into lockdown in China at the peak of the Covid-19 crisis, the residents there relied on home delivery for their groceries, which arrived in as little as 20 minutes. Clothes and electronics arrived in mere hours. Amazon rival JD.com claims about 90% of its orders are delivered within 24 hours. Its competitor Alibaba has a stake in a logistics provider. Dafiti and Submarino provide same-day delivery in Brazil. It’s safe to say that same-day delivery is now becoming a standard in many developing countries.
There are new trends such as crowd delivery, where an individual not contracted by the vendor, makes the delivery. Amazon’s Prime Air service, where the fulfilment is carried out by drones, has been announced but hasn’t started yet as of March 2020.
Faster delivery is becoming a differentiating factor for retailers, while customers love it for combining the convenience of shopping online with the immediacy of retail stores. What is certain for sure is that we’re all definitely on track for faster deliveries.