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 / Winter 2013 / Issue 73(originally published by Booz & Company)


Same-Day Delivery? Not So Fast

The Storefront Advantage

The trick for traditional retailers is to understand their positional advantage with regard to density (the number of packages being handled in a given geographic area). Free delivery depends on low delivery costs, and low delivery costs depend on density. This is because greater density in a single, planned dispatch minimizes the fuel, capital, and labor costs involved in a delivery. Traditional low-cost delivery models achieve density in two ways: long line-haul moves (typically by tractor-trailer) that allow companies to use large depots to aggregate supply, and overnight sorting at local delivery stations where incoming supply can gradually amass from multiple sources to fill delivery trucks. But both of these models tend to slow down delivery times.

E-tailers continue to wrestle with this density problem, but traditional retailers—particularly national and regional retailers—have a secret weapon that’s hiding in plain sight: their retail storefronts, which they can use as mini distribution centers and sources of fulfillment for local online demand (see Exhibit).

For example, a national retailer with several outlets in the Chicago area might receive hundreds of online orders from local customers after its warehouses are closed. But with the right systems in place, the company could identify which local retail stores that have those items in stock are still open. The company could then direct sales staff to select and package those items, and arrange for a local carrier to pick them up from the store before the doors close. The packages would go from the store to the local delivery station that evening, and the next morning be loaded onto trucks in time for the carrier’s normal local ground-delivery route. Even a smaller retailer without the necessary sales volume to justify a late-night, in-store carrier pickup could make the same overnight guarantee if, for instance, an employee dropped off the packages at a local delivery station on his or her way home from work.

A Rapid Delivery Strategy

Admittedly, this distribution strategy will not be easy for any retailer, and each needs to consider a range of questions: Which product categories are most sensitive to delivery speed? How do our customers’ needs change during the peak holiday season? Are time-definite delivery windows more valuable to our customers than overall speed?

Execution of this strategy, which would likely take several months to implement, will require retailers to take a cross-functional approach that involves thoughtful planning, IT investments, and close ties with transportation partners. Most important, it must treat stores and their inventory differently—not as a burden but as a source of competitive advantage. The following steps can help retailers get started.

Coordinate across channels. Senior leaders must commit to tearing down the last remnants of silos between offline and online domains. Full cooperation across traditional and digital offerings is required to make a nationwide plan for low-cost overnight delivery feasible and capable of reaching its full potential.

Enhance real-time inventory management. Inventory systems must provide transparency into where every SKU is located. This detail must go beyond knowing in which store an item can be found, to knowing in which department, down which aisle, and on which particular shelf.

Optimize fulfillment systems. Fulfillment systems are needed that can immediately determine which particular retail store can satisfy an order. This decision requires balancing factors such as proximity to the customer, current (and predicted) inventory levels, and staff capacity for selecting the ordered items and packing them for pickup.

Create a flexible workforce. Sales staff may be asked to fulfill online orders during what would otherwise be idle time. They need training to use the retailer’s order-taking technology and must learn how to locate, pack, and label items for shipment. New approaches to sales personnel compensation (especially at commission-heavy retailers) may also be required.

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