Over the last five years, retail has seen more transformation. During the COVID-19 pandemic, the velocity of change intensified as retailers adjusted to shifting consumer habits, channel adjustments, and rising customer demands for speed and convenience. The race to reduce the time it takes from click to the consumer is likely the most critical factor influencing the shape of future omnichannel supply chains. The standard for retail and direct-to-consumer firms continues to rise.
Over half of omnichannel customers will shop elsewhere if delivery times are too long. In terms of how long is too long, over 90% of online customers in the United States expect free two- to three-day shipping. Consumers in the United States are largely unwilling to pay for speed, even as retail supply chains accelerate. About one in every five US consumers is willing to pay a little higher shipping charge for speedier shipment than typical free delivery choices. Given the high and rising costs of Omni channel order fulfilment, which accounts for around 15% to 25% of multichannel retail sales, merchants are faced with difficult decisions as they strive to increase delivery speeds while remaining profitable.
The Challenges of Accelerated Delivery
Retailers understand the importance of speed: Amazon’s free delivery service has improved by more than 72%, going from eight days to two days by 2015, with select markets delivering one-day delivery by 2019. Amazon continues to be a driving force in the retail industry, setting the standard for direct-to-consumer delivery. Other retailers have closely followed this course. In 2020, 75% of apparel, hard goods, and specialty retailers wanted to build network capabilities that allow for two-day or faster delivery, and 42% wanted to achieve one-day click-to-customer lead times.
The supply chain’s detailed mechanics become increasingly critical as delivery times shorten. The picking and packing delivery process takes an average of four to eight hours for most fulfilment operations; however, best-in-class Omni channel operations can fulfil orders within two hours of client purchase. After parcel carriers have been chosen, they must pick up shipments from the distribution center, affecting order cut-off times, which is the latest time a merchant can accept an order to meet the claimed delivery time. Traveling the last mile to the consumer after a shipment has entered the parcel network can take an additional day or more. One- or even two-day shipping necessitates tight cycle times and excellent execution across numerous stakeholders in the supply chain.
Most omnichannel retailers already use their locations for fulfilment or pickup to address these issues, at least in part. There are numerous advantages to employing storefronts, including increased total inventory productivity, faster customer service, and the avoidance of markdowns. While these advantages can be significant, there are still obstacles to overcome:
Inventory accuracy: – Stores have lower inventory accuracy rates (70-90%) than distribution hubs (more than 99.5 percent).
SKU complexity: – When the online assortment comprises channel exclusives, limitless aisles, and even third-party products, it’s difficult to avoid margin-eroding split shipments across the network.
Demand forecasting: – Largest retailers still struggle with inventory positioning across distribution centres, different store types, and market fulfilment centres; in fact, outside of network modifications, accurate demand forecasting and distributed-inventory placement may have the most impact.
Picking costs: – While there are exceptions, the cost of in-store picking is typically 1.8 to 2.4 times greater on a cost-per-pick basis than picking in distribution and fulfilment centres for the vast majority of merchants.
Execution quality: – Stores weren’t built with fulfilment in mind, and they aren’t always manned or equipped with the equipment needed to do it on a large scale. Managing exceptions, ensuring precise picks, and carefully controlling cycle times to customers, all of which are vital to a successful customer-delivery experience is difficult for most retailers, especially during peak periods.
How operations can support a customer value proposition beyond speed
Creating a quicker fulfilment network is rightfully at the top of most retail supply-chain leaders’ minds. According to Consumer, logistics is one of the top nine drivers increasing customer value in omnichannel shopping. However, it’s vital to note that improving a retailer’s fulfilment network is just one of several capabilities needed to compete in omnichannel retail. Indeed, removing friction from the portions of the fulfilment process that matter most to customers is the North Star of a solid omnichannel strategy.
Scheduled Delivery and Consistency
Some categories are more suited for scheduled delivery than others. Customers, for example, may choose to get bulky things such as furniture, appliances, huge electronics, and certain home improvement products at a certain time rather than as soon as possible. These characteristics may also apply to high-value products and fresh supermarket items that aren’t necessarily bulky. To get this correctly, retailers need clear communication, predictability, and short delivery windows.
Retailers may also consider devoting themselves to ensuring that deliveries are made within the agreed time frame, regardless of delivery speed. While some retailers are beginning to test and correlate the impact of a delivery-consistency promise on conversion and the impact of a missed delivery window on net promoter scores and repeat purchases, some retailers are beginning to test and correlate the impact of a delivery-consistency promise on conversion and the impact of a missed delivery window on net promoter scores and repeat purchases.
Lockers and Pickup and Drop-Off Points
Lockers and pickup and drop-off locations have a low penetration rate of less than 5%, but thanks to merchants like Amazon and Walmart, as well as package carriers like FedEx and UPS, momentum is building. This is a convenience that will most likely be centred in the food and grocery industries, as well as in urban locations where individuals lack a convenient or secure location to drop a package. Lockers also lower redelivery rates, which frees up capacity in parcel delivery networks that are already overburdened.
While these skills are not yet widely used in the United States, retailers can benefit from more developed markets such as Europe, where they are used by a range of no grocers. For example, a farm supply store uses lockers to ensure that crucial parts are available outside of the store 24 hours a day, seven days a week.