While it has been a long established practice for some distributors, same-day delivery has recently emerged as a hot topic for a much wider audience. As large online retailers continue to push expedited delivery service, rapid delivery is now being used as a competitive tool.
Brick-and-mortar retailers have responded to this pressure by shipping online orders out of their physical stores. Because today’s stores are much closer to customers than traditional fulfillment centers, these retailers can offer same-day delivery in major metropolitan areas.
Not long ago, two-day delivery was viewed as true expedited service, yet many of today’s customers now consider it a standard service. Both carriers and courier services have taken note of this expectation and are either testing or offering same-day delivery service for e-commerce orders.
In major metropolitan areas, same-day delivery is poised to become the new expedited service of choice. This expectation cuts across B2C and B2B worlds, and is fed by mobile appliances and online ordering. Consumers expect to get their orders quicker today than in the past, and that demand will only increase.
Same-day delivery has been a standard service for some distributor segments, especially within the B2B world. Industry segments who currently offer same-day delivery include:
• auto parts from an auto retailer to garage,
• industrial distributor critical parts to a manufacturing or industrial site,
• medical products.
And remember, newspaper publishers have to get their product out on a 24-hour cycle.
Why is this so successful in these particular segments?
First, they have established “fulfillment centers” near the user. Consider W.W. Grainger, which boasts 369 branches in the U.S. that stock product (each an average of 13,000 square feet). These segments also have the ability to leverage dedicated private or contract fleets like Advanced Auto Parts, HD Supply and Fastenal. They have high delivery density and volume that covers costs. In addition, the “lost time” of not having products is higher than delivery costs, according to customer requirements.
In the B2C world, its appeal has generally been restricted to specialty segments like florists and grocery. But major retailers have started to stir up considerable interest by offering or testing same-day service in major metro areas.
Fit and Appeal
The need to support same-day delivery, as well as its practicality, varies by shipper. Key factors that shape its appeal include:
Geography: Same-day delivery is generally more feasible in densely populated areas than sparser regions. Given its compressed timeline, same-day delivery shipments typically cannot go through the same elongated hub-and-spoke delivery network model as other services. This is why shippers who provide same-day delivery service tend to first focus on larger metro areas. People living in a top 40 metropolitan statistical area (MSA) tend to be more likely to expect faster delivery service than those residing in more rural areas.
Product Type: Some products are just too large or have lead-times that are too long to be delivered on a same-day basis. Customers’ expectations of speed of delivery for direct-to-consumer shipments also vary by product category. Food and grocery generate the highest expectation of rapid delivery, followed by luxury goods, apparel and electronics. Appliance and home furnishing shoppers generally don’t have the same quick delivery expectations. Price point also impacts same-day delivery availability, as low margin B2B suppliers and B2C retailers cannot absorb or pass along its costs to consumers.
Customer Type: Younger, more affluent customers tend to have higher expectations for rapid delivery and increased interest in same-day delivery. This is fueled by mobile applications that allow users to order anywhere at any time.
Same-day delivery can present significant challenges to any distributor or retailers seeking to provide the service. It affects processes, systems and costs differently from traditional shipping services. Any shipper moving toward offering same-day delivery needs to consider the following factors:
Cost: Same-day delivery is generally more expensive than traditional services. Customers are usually unwilling to pay full price for the service, which is why many retailers who offer the service will subsidize it. They rely on sales margin and customer loyalty to make up the difference between actual costs. As service volumes increase, this cost curve may bend more toward the shipper’s favor. But for many, it is likely to remain a loss leader.
Service Area Supported: Feasibility and costs are directly related to the size and density of the geographic areas that will be supported. This is why retailers offering same-day delivery from their brick-and-mortar stores tend to do initial launches in highly populated metro areas. Not every zip code, town, or neighborhood can be effectively covered.
Network Impact: Same-day delivery is very much a local oriented service. It works when customers are near to fulfillment centers. A fulfillment network aligned to provide standard ground service is ill-equipped to support same-day delivery. Brick-and-mortar retailers can circumvent this challenge by shipping direct-to-consumer orders from their stores. This practice has a distinct impact on how stores are replenished from central or regional distribution centers.
Carrier and Courier Partners: Choosing the right carrier or courier partner is a critical step. Cost, reliability, customer experience, scalability and IT services must be balanced when selecting service providers. Despite the desire to standardize on a single national provider, the local nature of same-day delivery may require multiple partners to be managed.
Processes and Technology Impact: Providing same-day delivery can have a significant effect on IT systems. Its availability to web store customers should account for customer location and product type. It may need to deal with specific delivery windows and can involve new carrier integrations. Carriers may require pre-manifesting or notification so they can plan delivery routes before pickup.
Types of Final Delivery
Same-day delivery service is not a uniform concept. How it works and what it entails can vary. It is important to consider the different ways final delivery is performed:
Door-to-Door: This is the traditional courier approach when a package is picked up from point A and delivered to point B.
Pooled Delivery: Multiple shipments are picked up from one or more shipping points and delivered to multiple destinations in best route sequence. This is the approach typically employed by private or captive fleets.
Pick-up, Sort and Deliver: This mirrors traditional carrier services where the carrier or others transport shipments to the sort facility, where they are then sorted to the final delivery route. However, the distance between shipper and sort facility, as well as the delivery area served, is much more compressed than traditional services.
The carrier landscape for same-day delivery service is diverse, with numerous providers addressing specific needs, geographic areas and pricing models. Same-day delivery providers and approaches can be segmented into the following categories:
Private or Contract Fleet: Providing same-day delivery using dedicated vehicles is a long established practice. It is generally employed in specialty segments like florists, MRO supplies and medical products, and it works best when asset utilization and corresponding shipment volume are high.
National Carriers: FedEx and UPS offer door-to-door, same-day service across the country. These courier-like services are oriented toward truly urgent business shipments where cost is a secondary factor. FedEx offers a separate same-day city service for select metro areas that are more practical from an e-commerce perspective. The U.S. Postal Service has been piloting a similar concept called Metro Post in San Francisco and New York. The service targets same-day deliveries from participating retailers, but has been suspended in San Francisco due to poor demand.
Regional Carriers and Courier Services: These are service providers that employ independent contractors or have their own fleet and offer a range of door-to-door or routed deliveries. Many of these providers are members of the Customized Logistics and Delivery Association (www.theclda.com). While same-day, door-to-door delivery has been an established service for many providers, some have begun to specifically target retailers with same-day service geared toward their needs.
Virtual Service Providers: These are technology-centric operations that connect shopper to independent contractor or courier services. Several startups have recently emerged that specifically target omnichannel retailers in major metro areas. For instance, eBay Now is a local shopping service where the courier actually buys the desired items from a physical store and completes the delivery within a specified time window. Shutl, which was recently acquired by eBay Enterprise, offers a service that effectively brokers same-day delivery between shopper, merchant and independent courier. Deliv is another startup firm that employs a retail mall-based model, contracting with the mall operator to provide same-day delivery for mall-based stores in addition to supporting online retailers.
Same-Day Moving Forward
While same-day delivery may not be on your current radar screen, many shippers will find themselves pulled into providing this service as a result of competition and customer demand. Even those who fall outside this category will benefit from understanding the drivers and impact behind same-day delivery.
Jim Tompkins is CEO, Tom Singer is principal and Lisa Kennedy is project manager at Tompkins International, a professional services firm specializing in supply chain improvement. Jim is also on MH&L’s Editorial Advisory Board.