For years, retailers have emphasized increasing delivery speed when it came to the last-mile delivery to differentiate with service. In 2005, Amazon revolutionized customer expectations when they launched their Amazon Prime service, which guaranteed two-day delivery to customers. They did so with the primary goal of increasing market share, while delivery costs and how they impacted margin were often not considered. Luckily, they had the financial backing and size to do so and quickly, second-day delivery was so successful that it soon became the industry standard.
Most retailers responded with competitive delivery options as they know that retaining and growing market share is critical for their survival. Some traditional brick-and-mortar retailers have been able to leverage their retail locations as the point of fulfillment for online purchases. These retailers understood the competitive value of having inventory that was pre-positioned within the last mile of the customer. They were able to further differentiate order fulfillment and offer same-day delivery or pickup options in markets where they had a customer-facing retail infrastructure.
Large retailers have further evolved the specificity of delivery by offering specific time slots, forcing competitors to rethink their delivery strategies. Many of those retailers have begun to implement new practices to design a more optimized approach. The organizations that have been successful are the ones that are repurposing their existing networks in innovative ways such as implementing “dark stores” that only hold stock for online orders, using stock rooms in retail stores as delivery points for online orders or picking stock ordered online from physical stores to ship to customers.
These approaches and adaptations of their omni-channel order fulfillment strategies permits retailers to break down bulk stock more easily, providing an optimized approach to shipping items to customers within their chosen time slots. However, the most reliable way to achieve precision in the last mile is yet to be seen. With the retail industry projected to reach $5.5 trillion by 2020, organizations must be prepared to take advantage of the growth by optimizing their supply chains.
The Principle of Accuracy
Although consumers today expect – and demand – quick delivery options, many retail companies don’t realize that speed alone is not the answer. Organizations that have adopted delivery strategies that emphasize accuracy over speed have gained a competitive edge, but face challenges when it comes to finding a feasible route to provide those precise deliveries that makes sense for the types of products they sell.
New technologies, such as drones, promise to offer silver-bullet solutions for retailers’ accuracy challenges. However, these emerging technologies are still too new and could serve as distractions from design solutions that will work in the short-term. They also have their limitations in harsher climates with wind, snow, ice, rain, fog and extreme temperatures, so they currently do not offer a broad-based solution. Though drone delivery or delivery by a self-driving fleet will impact the supply chain industry down the line, companies now should focus on how they can transform their supply chains by implementing more creative strategies to highlight their existing assets. By doing so, organizations can improve the accuracy of their delivery options to meet consumers’ growing expectations and demands.
Changing the Supply Chain
For organizations that are ready to optimize and test their fulfillment strategies, supply chain modeling is the key to unlocking value. End-to-end supply chain modeling technology allows retailers to leverage data from various points across the supply chain, such as physical stores, warehouses and distribution centers, to build digital twins of their end-to-end supply chains. Digital twins of the supply chain allow organizations to test fulfillment strategies and assess costs, capacities and changing order patterns before capital investments are in their supply chain or operating models are changed, so that they may increase accuracy in the last mile. Digital twins offer a safety factor to substantially mitigate risk and unforeseen implications of supply chain complexities.
Airlines successfully adopted this concept decades ago with flight simulators; building a digital twin of the supply chain a very similar and essential concept. One may argue that it is not necessary to go to this length, as the situations may not seem so dire. However, for companies who are fighting to survive in a tight market share, building a digital twin of the supply chain may be the difference between remaining profitable or shuttering operations.
Each retailer is unique and has its own network of suppliers and routes to market. As such, they will profit from adopting strategies that enable them to tailor their supply chain solutions to their individual needs. With the right supply chain management solution, retailers can weigh all options across the supply chain, from sourcing to shipment to last-mile delivery, even when service conditions begin to change.
In the past, supply chain design was a consultant-led process that took place yearly, or sometimes even less frequently than that. But as customer expectations surrounding the last mile continue to shift, so has the technology used to address supply chain design and simulations using a digital twin. In a matter of days, retailers are now able to model what took months, only seen in recent years. The charge for retailers is that they now must utilize design as a continuous business process to guarantee they can meet consumer demands and ensure continuing profitability.
Matt Tichon is the Vice President of industry Strategy at LLamasoft, where he helps customers and prospects overcome various supply chain strategy, planning and design challenges. Prior to working at LLamasoft, Matt held positions at Oracle, Clariant Corporation and Arby’s. He has more than 20 years of experience in manufacturing/retail, consulting and technology and demonstrates success in supply chain transformation. Matt holds a BSBA in Logistics Management Central Michigan University.