direct-to-consumer Archives

Home Delivery Benchmark – A Detailed View

Guest Commentary | By Chris Jones • 04/19/2016

The strategies, tactics and technology of home delivery are evolving quickly and constantly. It’s tough to keep up with the innovation that is happening in home delivery and also sort out the reality from the hype in the press. As Chris Cunnane described in his report Descartes Evolution – Logistics in Motion, we conducted a survey of a number of our customers to get a broader sense of what was actually happening and how retailers are thinking. Besides some of the salient points Chris made, I thought I would share more of the findings to help retailers and logistics services providers better gauge how they should move forward with home delivery.

To give a little context, let me describe the participants. They come from all over the world, would mostly be considered to be nation-wide, leaders in the markets they serve and deliver a wide array of products – food, alcoholic beverages, home furnishings, DIY and electronics. They execute 100,000s to 1,000,000s of home deliveries every year and use a combination of private and dedicated fleets to do it by sourcing deliveries from DCs and stores. We did not cover parcel-based home deliveries as part of this benchmark.

Below are some of the key findings:

Home Delivery is part of the retailer’s omni-channel strategy. All of the survey respondents cited that they were using advanced home-delivery technology as part of the online, in store, mobile, etc. selling strategy. Rather than thinking that home delivery is confined to non-store sales, retailers are trying to use it as broadly as possible to better serve consumers.
Delivery speed was more driven by business model, strategy and competition as opposed to product sold. There was an even split between those retailers offering next-day and same-day service. This split did not change among retailers, even where they were selling similar products that were competitively varied and different product sizes. Instead, many respondents are focused on consumer choice as opposed to immediacy. Clearly, there are products like a dishwasher that you want now when the one you have is broken. However, you don’t want that dishwasher now when it is part of an overall remodeling of your kitchen to have it take up a lot of space in your garage for weeks.
Consumer and supply chain metrics are used to measure delivery performance. It was good to see that retailers were combining “complete and on-time” with “experience-oriented” metrics like “Net Promoter Score”. Some retailers even tracked revenue performance (e.g. average order size and sell through) to more accurately represent the value of home delivery. These retailers have definitely moved past “get it done”.
Tighter time windows did not necessarily mean a significant drop in home delivery performance for best-in-class retailers. “All day” delivery window performance for top performers was 99%+. However, top performing retailers offering 2 and 4 hour windows were only 1 – 2 percentage points behind. To get this kind of performance these retailers were using a combination of windows (e.g. 2 hour, 4 hour and all day) and using the all day window to help minimize the impact of the tighter windows.
Time window options provide an opportunity for premium pricing. Approximately 1/4 of the respondents offer premium pricing and use the multiple time window strategy mentioned in #4 as part of that strategy. Almost 20% of the consumers selected premium windows for those retailers. Given the home delivery volume of the retailers that participated in the study, it is fair to say that they are generating millions in incremental revenue.
There is still opportunity to do more. There are still areas where retailers have not yet embarked to offer more value and get more revenue. The first is customer stratification. Not all customers or orders are created equal so why not offer home delivery options that way too? For instance, your “type A” customers get more delivery options than your “type C” customer. The second is the use of dynamic pricing. Some times of the day or days are more valuable than others. In addition, the cost to deliver can vary greatly based upon the customer’s location, order and all of the other deliveries that need to be made. Uber with its surge pricing has already done some of this, why not retailers?

As Chris mentioned in his report, the benchmark study showed that more advanced retailers are not just focused on doing a good job at home delivery, they are using it to transform their consumer’s experience and make more money. The findings above point to the home delivery opportunities that exist and potential value to be gained for retailers. To get there, retailers need to make sure they have an expanded view of home delivery and the right technology to enable that vision.

As Executive Vice President, Marketing and Services, Chris Jones is primarily responsible for Descartes marketing activities and implementation of Descartes’ solutions. Chris has over 30 years of experience in the supply chain market, including the last 10 years as a part of the Descartes leadership team. Prior to Descartes, he has held a variety of senior management positions in other organizations including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director Operations & Technology for Kraft Foods.

Why the Retail Buying Experience Demands a TMS

Guest Commentary | By Brent Nagy • 06/23/2015

It used to be that clothes shopping for me was an in-store experience, browsing the aisles and casually perusing around to find the perfect item. These days, life is filled with work, play dates, and kids sporting activities leaving little time for enjoyable store visits. Online shopping from my computer or my phone has become my go-to. Items can be shipped to the house or a local store for pick up and, if returns are needed, I can send them back in the mail or drop them off at the store. These touch points make it easy for me as a shopper, but make the multichannel supply chain of products, deliveries, and returns challenging for the retailer—especially when the touch points are both global and country specific.

Consumers, like me, demand the same experience, whether shopping at a store or online, whether product is delivered to the store or home. Retailers and manufacturers are under increased pressure to support that level of consistency to avoid losing a consumer to another provider who can meet their needs. And, consider those demands as retail volumes continue to increase around the world, particularly in regions like China where more and more consumers living in Tier 3 and 4 cities are turning to the internet to make purchases.

According to a recent analyst report, The Evolution of Supply Chains in a Direct-to-Consumer World, manufacturers and retailers are increasingly looking to global transportation management systems (TMS) to support a seamless multichannel experience. They are upgrading physical assets and IT assets, using more technology to provide comprehensive status information and better manage transportation and warehousing. Warehouse management system (WMS) and TMS technologies are essential to developing a cohesive approach capable of combining network design, inventory management, delivery priority, and lane choice in a dynamic way to offer best-in-class fulfillment.

Companies that plan to purchase or upgrade their TMS systems should be looking for particular capabilities that support this complexity. Companies should choose the best mix of options, depending on what they consider most important to gaining a competitive advantage: agility and speed, supply chain visibility, event management and on time delivery, freight flow density, inventory management, and continuous improvement. In a supporting role, a TMS solution can be tailored to each network, and it can provide essential features that are shared by different multichannel operations so the company can continue to meet consumers’ rising expectations, even as shipment volumes increase.

Brent Nagy is Director of Customer Strategy for C.H. Robinson. Brent has been with C.H. Robinson for over 10 years and has spent the majority of that time consulting, engineering and implementing onsite at client locations. His experience spans multiple sectors with a focus on heavy manufacturing and automotive supply chains. In his current role, Brent oversees strategic customer engagements whereby leveraging account management talent and C.H. Robinson’s broad menu of services to deliver on client expectations.

Retailer Takes New Approach to Optimizing Direct-to-Consumer Warehouse Operations

Material Handling | By Steve Banker • 05/06/2013

A few months ago, I talked to a specialty retailer that operates both stores and a direct-to-consumer channel. Five years ago the company decided to bring its direct-to-consumer operation in-house and it built a 500,000 square foot distribution center (DC).

The retailer implemented VARGO’s COFE warehouse control system (WCS) to increase warehouse efficiencies at this DC and to help decrease its overall cost of the project. COFE (Continuous Order Fulfillment Enterprise) was designed with an e-fulfillment focus. It is quite different than traditional WCS solutions. Most WCS solutions work to improve the efficiency of one or more material handling systems, such as the conveyance and sortation systems in this DC. However, the COFE solution also seeks to optimize human efficiencies. When it comes to improving human efficiencies, part of what differentiates the COFE solution is a very different way of looking at waves.

In traditional warehouse management systems with waving functionality, a large batch of work orders is dropped to the floor simultaneously. For example, a warehouse planner may know that a UPS truck is scheduled to arrive at dock #4 at 3:30 PM. In this instance, the wave of orders that is released is focused on all the outbound orders that need to be loaded on that truck.

The Vice President for Distribution explained to me that there are inefficiencies associated with the WMS waving process. First of all, several floor-level workers may have a period of time where they have no work to do as one wave nears completion but a new wave has not been released to the floor. Secondly, the creation of waves also requires spending money on planning labor; at least one planner’s efforts are required, and in large distribution centers, more than one planner is sometimes necessary. In contrast, COFE releases orders nearly autonomously; very little human intervention is required.

At the retailer’s e-fulfillment DC, floor personnel pick distinct order lines into totes; workers do not pick complete orders. Once a tote is full, or if COFE recognizes that the last order line to complete an order has been picked, the tote is placed on a conveyor. The tote then moves to a pack station where the completed order is packed and moved to shipping.

Typically, about 15,000 orders per day are shipped. The COFE work queue contains about 1,000 active orders, orders available to be worked on, at any one time. Orders move up or down this queue based on ever-changing operational realities and consumer demand. As one order is completed, another order is added to the queue. Workers are directed to pick certain items based on the priority of an order, the proximity of the last item picked to another line item in the queue, and in a manner that ensures efficient walk paths. Once a tote is on the conveyor, logic in the WCS ensures that the totes with SKUs most immediately needed to complete an order are efficiently moved by the cross belt sorter to a pack station. Other totes on the conveyor, not so immediately needed, are buffered. The “pull” process helps to minimize the possibility of totes getting out of sequence. This results in less of a need for conveyor buffering.

The VP of Distribution is very happy with the solution. This retailer has benchmarked its performance against a select sample of other e-commerce warehouse operations (using the customer orders picked per hour metric) and it was at the top of the pack.

More importantly, the VP believes the system paid for itself the day the DC opened! How could this be? It is because the VARGO solution allowed the retailer to open both a smaller warehouse and a warehouse with a significantly smaller conveyor and sortation footprint than would have been the case without the WCS.

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