The rise of the omni-consumer has changed virtually every aspect of the way retailers and manufacturers conduct their businesses. Brick-and-mortar retailers are forced to compete with alternative channels on the basis of price while also keeping their service quality high. Manufacturers are challenged to operate with razor-thin margins while still offering the innovative products and continuous updates dictated by today’s shorter lifecycles.
While the omni-consumer has created new challenges in every part of the supply chain, a special impact is felt in the area of transportation, as consumers have quickly grown accustomed to the “fast and free” home delivery offered by Amazon and other online retailers. Many companies are finding that their traditional transportation networks are simply not built to serve the demands of the new omni-consumer.
In the past decade, a large percentage of retail sales have been transformed — shifting from a model where truckload quantities are delivered to stores on a regular schedule to a model where small packages are delivered to individual homes on a more frequent, less predictable basis. According to a recent article in Financial Times, U.S. home deliveries by UPS — which the publication calls “a rough proxy for e-commerce sales” — doubled between 2000 and 2011. The article predicts that this growth will only accelerate, with the U.S. business-to-consumer package industry growing from $150 billion in 2009 to $250 billion by 2014.
This ongoing transformation requires both brick-and-mortar retailers and their manufacturer partners to rethink their traditional transportation strategies. However, any new approaches to delivering products to consumers must combine high service levels with the low prices that enable competition with online giants like Amazon. Only this combination of price and service will allow retailers and their manufacturer partners to win both the short-term sale and longer-term customer loyalty.
Taking a Partnership Approach
Moving forward, one of the key strategies for retailers and manufacturers will be increasing their level of collaboration and information sharing. While demand from online channels might seem volatile and unpredictable, in fact advanced technology solutions can help analyze this demand at a high level — and identify patterns that retailers and their suppliers can respond to more proactively. Based on the specific demand trends that are identified, retailers and manufacturers can partner to devise new ways of delivering products to the ultimate consumer.
For example, it might make strategic sense for manufacturers to take a larger role in shipping their products directly to consumers in small packages instead of sending truckloads to a regional retail distribution center — and then placing the onus on retailers to deliver products across all their channels, including in-store and at-home deliveries. Working in partnership with retailers, manufacturers can also study demand trends at a granular level to ensure that their in-stock levels at every store and distribution center match local demand trends, minimizing the need for expedited deliveries that erode profitability.
Increasing Speed and Agility
Both manufacturers and retailers also need to increase their overall supply chain flexibility and responsiveness to meet the increasingly impatient and fickle demands of consumers. In terms of transportation, this means relying on more flexible schemes and multiple modes that might include private fleets, third-party truckload carriers and parcel carriers.
By allowing retailers and manufacturers to combine a broad perspective on their transportation options with a granular view of true demand, advanced technology solutions can significantly increase delivery flexibility.
A holistic transportation management system allows retailers and manufacturers to gather facts about current and future orders, and then make the best possible judgment that combines low price with high service. As business conditions change, this process is iterated to ensure that shippers are always making the right choice for the current environment.
At one time, retailers and manufacturers could rely on simple, unchanging business rules — such as always shipping in truckload quantities to a centralized distribution center. But the rise of the demanding omni-consumer has changed all that. Today, transportation strategies need to be flexible and continuously updated to reflect demand fluctuations, changing shipping rates, growing fuel costs and other factors.
Perhaps the most critical imperative for both retailers and manufacturers is to focus on true innovation as they rethink the most basic tenets of how they deliver their products to consumers around the world. Financial Times reports that, in today’s economy, the “last mile” in the supply chain can account for up to 75 percent of overall costs — so this seems a natural area for focus and reinvention.
With today’s delivery addresses spread over a large geographical area, the advent of many small and low-cost packages, and the frequent need to repeat deliveries when consumers are not home, it’s clear that direct-to-home delivery will not remain a profitable option if online shopping continues to grow at its current pace. Manufacturers and retailers simply will not be able to absorb the associated parcel shipping costs, even as their leverage with carriers grows.
For traditional brick-and-mortar retailers with e-commerce websites, minimizing last-mile costs might mean creating temporary local “pop-up” stores where products can be picked up by online shoppers during periods of high seasonal demand. Similarly, these retailers could aggregate online orders at a local store that is selected by consumers as the most convenient location, replacing five or ten home deliveries with a single shipment to a store.
Any strategies aimed at driving innovation over that crucial last mile must combine increased transportation density, and the related cost savings, with the high level of service and convenience that omni-consumers have come to expect. By studying consumers’ real-world needs and behaviors, retailers and manufacturers should be able to arrive at some game-changing delivery innovations over the next several years, perhaps working with parcel carriers like UPS, USPS, DHL and FedEx to collaboratively arrive at the right balance of cost and service.
Seizing Transportation Leadership
While the ongoing growth of the omni-consumer has created a number of significant challenges for both retailers and manufacturers, this trend also presents a promising opportunity for those companies that can quickly seize leadership.
Retailers and manufacturers that can creatively solve today’s complex delivery puzzle will win the mind and heart of the omni-consumer, achieving a significant advantage over those businesses mired in their old ways of managing transportation. As the rate of ordering via alternative channels accelerates, it’s imperative that all of us work to find transportation alternatives that anticipate and answer these next-generation consumer needs.
Fabrizio Brasca is vice president, global logistics, JDA Software. He is responsible for developing innovative transportation and logistics strategies across all industry verticals.