The Need for Speed: Overcoming the Final Hurdles to Faster E-commerce Deliveries

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By Kraig Foreman, Vice President, Operations, DHL Supply Chain - 02/17/2020

Retailers, in general, can feel good about the 2019 holiday shopping season. According to MasterCard, holiday e-commerce sales in the U.S. rose 18.8% in 2019 compared to 2018, despite a shorter shopping season caused by Thanksgiving falling a week later.

Leveraging prior years’ learnings and newer last-mile delivery methods such as click-and-pick, the industry squeezed more sales into a shorter season with few notable hiccups. 

But while retailers can rightly congratulate themselves on a successful season, they can’t afford to rest on their laurels. As e-commerce volumes continue to grow and the prospect of supporting next-day and same-day delivery becomes more necessary, there are new challenges that must be addressed if retailers are to continue to expand their e-commerce operations.
 
Expanding the Network
While much attention is given to evolving last-mile delivery methods, those methods ultimately depend on the architecture of the distribution network for their success. The only way next-day delivery becomes cost-effective and same-day delivery becomes feasible is if the product being ordered is already close to the customer at the time of the order. 

That is driving the need for retailers to re-think their network architecture. It won’t be possible to support continued e-commerce growth with networks that rely solely on centralized or regionalized distribution centers. The first step in this evolution is the addition of new distribution nodes in large metropolitan areas.

These new facilities need to be purposefully located and designed to serve their specific role in the distribution network: moving products close to a dense population of e-commerce customers. In most cases, they will carry only fast-moving inventory—the 20% of SKUs that make up 80% of sales. 

The largest e-commerce operators with the scale to support dedicated e-commerce distribution networks are already moving in this direction. It will be necessary for midsize operators, who typically have e-commerce fulfillment integrated with wholesale distribution and store replenishment, to follow suit. 

While an integrated distribution network is something of an economic necessity for midsize retailers, it does add a layer of complexity to distribution and fulfillment operations. Where operators with dedicated facilities can tailor processes, tools and equipment to e-commerce fulfillment, an integrated facility does not provide this degree of focus. Unless the operator has experience optimizing processes in this environment, the speed and efficiency of all operations is typically compromised.

As a result, more midsize Retailers are taking a page from the playbook of larger Retailers and turning to third-party logistics (3PL) companies that have the necessary experience to manage an integrated warehouse environment. As an added benefit, the 3PL is likely to be moving forward aggressively with establishing distribution nodes in key markets, providing the retailer with an established network to plug into.

More Sophisticated Deployment Strategies
While the challenge of expanding the distribution network is significant on its own, it also introduces another layer of complexity to inventory deployment. As consumer demand and the network evolve, getting the in-store and online inventory mix right is increasingly difficult, as is determining the inventory needed to avoid out-of-stock situations and control inbound freight costs.

Effective inventory deployment strategies—ensuring the right product is in the right location at the right time—enables inventory to be tailored to specific markets and creates benefits that extend from more effective marketing to faster deliveries. Again, 3PLs such as DHL Supply Chain, through their scale, breadth of experience and resources, are leading the industry in developing the tools to support more effective deployment and positioning. 

This is also true for carrier routing and selection. Retailers need to have multiple carrier options depending on consumer preferences and this requires complex and dynamic routing and carrier selection processes that enable decisions to be deferred until it is time to load. Often, this proves to be just one more example of how the evolution of retail has outpaced the technology infrastructure on which retail is built. 

The Next Step is a Big One
It would be nice if retailers could sit back and enjoy the fruits of the e-commerce investments they have made, but the market is too dynamic for that. Continued evolution is necessary to support growth and meet rising customer expectations. 

Unfortunately, those evolutions don’t involve simple process tweaks or new last-mile delivery methods. They require specialized network engineering expertise and the ability to integrate systems and establish an end-to-end approach to e-commerce management that extends from inventory deployment through carrier selection. It’s also necessary to not only continue to invest in emerging technologies but to build the expertise required to leverage the full capabilities of those technologies.

Few retailers will have the time, resources or expertise to tackle this challenge on their own. That’s why a 3PL with the experience and resources of DHL Supply Chain will become even more important in the coming years. We are making the investments in e-commerce infrastructure and technology to enable a future in which next-day and same-day delivery become standard for retailers of every size.

For more information on DHL e-commerce fulfillment services, visit http://app.supplychain.dhl.com/e/er?s=1897772577&lid=5059