eStar Senior Project Manager Patrick Gaskin reveals how faster delivery can be cheaper.
A lot has been written recently about faster delivery methods. From Uber’s partnership with Shippit to deliver fashion within one hour, big fundraising rounds for services like Milkrun and the expansions of Google’s drone delivery service, Wing.
One strange anomaly that has appeared in the US and seems, at first, counter intuitive, is that brands like Levis and Abercrombie & Fitch are offering same-day delivery for less than slower delivery methods.
How is that possible? Faster delivery has always been more expensive.
The secret is that these retailers are embracing storebased fulfilment and using these locations for same-day delivery. The relative proximity to the end customer means that despite being faster, the delivery costs are cheaper because the goods aren’t being shipped from across the country from a central distribution centre (DC). In a model where all orders are fulfilled from a central hub, faster delivery will always be more expensive as the distance is the same and it is simply a different delivery service level. In contrast, when the stores are part of the fulfilment network the relative distance can be reduced, and costs can be lower.
It follows that stores already have relatively fixed costs. There are the real estate costs, inventory costs and the store staff costs. Those resources are needed to the support the store, but there is often unused capacity. The far more efficient approach would be to have those locations do more with those fixed resources.
Target in the US identified the opportunity for store-based fulfilment in 2017 and shifted their fulfilment to be 75% from stores. The benefits of this model were extolled by Target CEO Brian Cornell in a 2019 earnings call: “As we move digital fulfilment from upstream DCs to stores, we see a significant reduction in expense, and we talked about a 40% reduction. When we go from an upstream DC to some of our sameday fulfilment offerings, like order pickup and drive up, we see a 90% reduction in costs,” he said.
So how can you start fulfilling from store and do so efficiently?
Critically there are three things that make efficient fulfilment from stores possible: real time routing, dispatch prioritisation and super-efficient picking.
Distributed Order Management or routing is the first critical element as it ensures that the right store or location is doing the fulfilment. Key to this is an accurate view of inventory and making routing decisions as near to real time as possible. Delays between the routing decision and a store being able to fulfil are a significant point of potential failure as the store environment (and stock on hand) is fluid and forever changing. To get this as near to real time, the routing should be delayed for as long as possible and ideally the decision as to what orders a store can pick being made when the location is ready to pick. This real time decision is based on the inventory at that time and improves accuracy significantly.
The second critical consideration is priority. Not all orders are equal. Orders that are older may need to be dealt with before a same-day order or clickand- collect order. It therefore follows that the system should be making those priority decisions and ensuring that the right order is being dealt with first.
Finally, the actual picking needs to be very efficient, especially if you are using store staff that have other things to do. It therefore makes sense to do two things: pick multiple orders at once and use smart technology to do so. Having the ability to pick all orders in one pick saves time and allows the same items to be picked for multiple orders. Using digital picking with a handheld device speeds up the process whilst also improving accuracy. It’s never been a better time to deliver.
