Holiday Shipping 2020: Will Your Parcels be Picked Up and Delivered on Time?

Days after “Black Friday” UPS put holiday shipping restrictions on Nike and Gap and directed drivers to stop Cyber Monday pick-ups at other large retailers that are already exceeding parcel volume forecasts through booming online sales.  

In a year marked by a pandemic-driven shift in consumer buying habits that has driven consecutive quarters of record e-commerce growth, parcel networks have been at or near capacity for months. An unprecedented holiday peak has been on the radar, but as expected, early promotions and efforts to bring parcel volume forward could never be enough.

And in the midst of a monumental peak period, the parcel carriers continue to adjust their strategy to not only drive revenue growth in high demand e-commerce service areas, but also protect volume and achieve competitive advantage as Amazon’s delivery networks continue to evolve. 

Let’s look at some of the latest developments in the parcel shipping environment. They may affect your ability to delight customers this holiday season – and continue serving them well through 2021 and beyond.

E-Commerce Bloats Parcel Volume Beyond Capacity

Demand for the 2020 holiday peak shipping season is forecast to exceed 86 million packages a day – about 7 million packages outside current parcel network capacity. These estimates are validated by the National Retail Federation’s estimate that online shopping increased 44 percent during a five-day stretch that included Black Friday and Cyber Monday. 

Both UPS and FedEx prepared retail shippers for tight holiday shipping capacity, issuing advice for holiday shippers and encouraging clients to “shop earlier than ever with special offers or other incentives.” Yet, before December even dawned, both carriers were enforcing volume agreements and applying peak season charges and accessorial fees that create additional order fulfillment cost for shippers. 

In this environment it is critical that you have real-time understanding of your parcel shipping activity. While volume outside agreed-upon levels or historical averages may result in added cost during other parts of the year (as it did with COVID peak surcharges), packages exceeding a shipper’s determined space simply will not be served – at least until additional capacity becomes available.

Shipping Delays: Expect, Forewarn and Facilitate

Based on the recent trends observed, the average package delay rate during the 2020 holiday season may range between 14 percent and 18 percent. Consumers in densely populated cities can expect delays as high as 25 percent to 30 percent. 

Unless you create an expectation of delayed delivery, this can be a real problem for customer experience. Proactive communication with your customers about anticipated delays is one of the most important steps in preserving holiday shipping experience.  Use your website and email communications to help set expectations. 

That said, as consumers’ expectations on speed evolve, we are seeing an increased willingness to wait for a delivery, especially if it means free shipping. According to BoxPoll, more than half of consumers opting for free shipping (57 percent) considered five-day delivery to be “fast” – that’s up 8 percentage points compared to last year. One-third of respondents in the weekly survey said that seven-day delivery is “acceptable” at minimum.

Retailers are positioned to capitalize when they maintain awareness of shipping characteristics, alternative service models and, of course, their customers’ expectations. A “no-rush” option is a familiar part of the Amazon order process, and now other brands are following suit, even offering incentives for delayed or “slow service.” If a consumer considers five-day service “fast,” are you driving up cost by offering more service then they need?

FedEx Counters Amazon’s E-Commerce and Logistics Buildout

The FedEx acquisition of ShopRunner complements the actions that we have seen FedEx taking to remain relevant in e-commerce as Amazon continues to strengthen its logistics and fulfillment capabilities.  

The move reinforces the FedEx position as the anti-Amazon solution for companies seeking an Amazon alternative. Some of the carrier’s other recent activity following the same strategy includes:

  • Acquisition of GENCO to form the basis of Fulfillment by FedEx
  • Moving to a seven-day-a-week delivery schedule
  • Severing ties with Amazon for delivery to focus on other e-commerce volume
  • Pulling SmartPost deliveries into the Home Delivery network to bolster density and profitability.

With the global parcel market positioned to more than double by 2026, fueled by e-commerce growth and further accelerated by COVID-19, both FedEx and UPS will need to continue adding value to retailers’ unichannel solutions to keep volume when Amazon opens their delivery network to third party shipments. Amazon suspended its delivery service earlier this year due to the pandemic, but it is expected to reopen in the near future.

Of course, the parcel carriers are among an ever-growing contingent of organizations devising new strategies to compete with Amazon. Just in time for the holidays, WalMart is dropping the $35 minimum on free shipping for e-commerce purchases of electronics, toys and clothing made for participants in its WalMart+ membership program. The move – and the program – are both designed to compete with Amazon Prime.

Are You Positioned to Compete?

Can you quickly determine how your parcel shipping volume falls within your capacity agreement with your carriers? Do you know how quickly your customers are getting their orders – and whether you are meeting your delivery commitments? Can you determine which SKUs are making money – and which are not?

Ongoing awareness of evolving trends in the parcel environment – from service disruptions to capacity shortages – is integral to your ability to pivot your small package shipping strategy. 

Understanding how those trends affect your transportation cost and service to end customers requires expert analysis and actionable intelligence. The latest enhancements to our technology platform puts the power of that information at your fingertips with best-in-class visualization of data gathered across your entire supply chain.

Schedule a demonstration today to see how our clients are able to identify business trends, understand the impact of cost and service on working capital, and recognize ongoing performance improvement opportunities.

Buy Online Pickup In Store: Retail in Evolution

Yet, the store remains a core focus of the buying experience. That’s how it should be. The in-store customer is typically more loyal and tends to buy more than the online shopper.

A robust strategy for “Buy Online, Pick Up In Store,” or BOPIS, can offer the best of both worlds. BOPIS expands a retailer’s online exposure while preserving and deepening the in-store experience. In fact, retailers find that is common for shoppers to buy more product once they arrive at the store to retrieve their online orders. 

A well-designed BOPIS retail program also helps reduce delivery costs because the customer is going to the product, not vice-versa. Consumers prize the ease and convenience of the transaction, especially when the COVID-19 pandemic has made contactless interactions more of the rule than the exception.

Responding to a New Retail Landscape

For retailers with limited resources and insufficient time spent mastering alternate fulfillment methods, the real world suddenly became a very different place in 2020. Many have been challenged to adjust to an unfamiliar “fractured fulfillment” model where products are ordered, fulfilled, and distributed from anywhere to anywhere. It is difficult for retailers to strike the right balance of inventory levels that satisfy in-store shoppers and ensure product availability to support online channel growth.

Retailers often over-order store inventory to avoid the risk of stock-outs. This raises carrying costs, and shrinks inventory  available to allocate to online channels. 

Moving ahead with an ill-vetted BOPIS strategy can make things worse. Customers assured of a product’s in-stock status on a retailer’s website will be displeased if they take time to visit the store only to find the item isn’t available. This could damage a brand’s reputation, especially if word spreads quickly on social media.

Visibility is the pain point. Many retailers lack proper visibility into the inventory flow from their partners to effectively plan and execute an error-proof BOPIS strategy. Without visibility, retailers will continue to prioritize avoidance in-store stock-out scenarios, and will continue to absorb excess and costly inventory.

A strong 3PL provider arms retailers with superior, actionable data that improves inventory visibility without forcing them to increase levels of safety stock. The endgame is to manage appropriate safety stock thresholds for both in-store and BOPIS experiences so the customer is satisfied in either scenario. 

Personalized Solutions Require Visibility

Each retailer is unique, and each shipper-retailer partnership is unique. Working with good data, an experienced 3PL partner creates customized plans to achieve optimal results. Progress and outcomes are constantly measured and refined so fill rates achieve acceptable thresholds. Changes to the plan can be implemented quickly should circumstances change – and they often do. 

For example, a plan could require the partners to issue electronic order acknowledgements indicating changes to item quantities and arrival dates within a specified time of receiving an order. It could call for transmission of advance ship notices within two hours of a shipment’s departure so visibility is optimized. Fully leveraging distribution center connections to stores optimizes shipping flexibility to react quickly to customer behavior. 

It is still most profitable for stores when customers pick up their orders in-store, but the busy holiday season could make it difficult for consumers to get to the store. Data generated by zip codes can identify areas of strong online ordering and in-store activity. This offers retailers insight into how to best position inventory for timely and accurate distribution.

For example, a retailer wants to offer one- to two-day deliveries but its transportation providers are challenged to consistently hit those targets. It may be more feasible to ship that order out from a store versus a fulfillment center. This could require shippers to invest in a drop-shipping strategy to support an e-commerce strategy where goods are brought directly to the store level. All this strategy is grounded in visibility.

This holiday season will be like no other. In-store buying will still be prevalent. However, more consumers have adopted online ordering after being required to do so in the early days of the pandemic. BOPIS utilization will be strong this holiday, but it will continue long after peak season and even after the virus passes. Consumers want options. It is critical for retailers to comply, but to do so efficiently.

Master Your BOPIS Revolution

The last mile is the most complex part of e-commerce fulfillment. It is also the most important. The last mile makes or breaks everything that came before it. That final delivery is the moment your customer will remember your brand most. How well do you finish?

A BOPIS strategy is just one of several last-mile offerings that shippers and retailers are expected to deliver. Done right, it reaps brand loyalty, lower costs and profitable opportunities for new market share. However, it requires a specialized level of resources and knowledge. It also requires skills and vigilance to ensure flawless execution.

We created The BOPIS Revolution: Navigating the New Never Normal to highlight some of the things you need to keep in mind when approaching – or modifying – your BOPIS strategy. Watch our SME Roundtable for a deeper dive into the ways we drive top line revenue results through personalized solutions driven by technology and expertise.

To continue the conversation, reach out to one of our supply chain experts. Let’s talk about how we can help you evolve solutions that support final delivery strategies to control cost and consistently wow your customers.

Why Audit Parcel Service Now? Here’s 4 Reasons

If you don’t think the delivery experience is directly related to customer retention, think again. According to Dimensional Research, of customers who report a bad experience, almost all of them (97 percent) changed their future buying decisions. Further, 58 percent stopped buying from the company, more than half went to a different company for the product or service, and 52 percent told others not to buy the product or service. 

Maybe the shipment was late, perhaps it was damaged, maybe it was delivered to the wrong house, or perhaps the shipping label was wrong in the first place. In the small package shipping environment, it is hard to have awareness of the problem without parcel audit validating the service received.

Whatever caused the problem, the bottom line is that this and other issues could be making you lose customers right at a time when no company can afford to have this happen. Between the global pandemic, the economic recession, and the business volatility occurring in most industries, organizations need to be at the top of their games when it comes to customer service. 

$1.50 Per Package Adds Up Fast

No matter how much customers love your product, many won’t come back if the experience is not good. This should be reason enough to conduct frequent service audits. 

There are also other reasons, some of which do not relate to the customer experience. For example, Transportation Insight recently worked with a shipper that noticed a significant change in its per-package shipping costs. After a service audit, it realized that its cost-per-package had increased by about $1.50 due to a billing adjustment error made by the carrier (for early-morning deliveries). 

Had the shipper not conducted that analysis, there’s no telling when it would have recognized that it was being overcharged by $1.50 per package. Multiply that number times thousands of shipments per year and the value of frequent service audits becomes crystal clear.  

Why Bother Auditing?

With service guarantees being waived right now, many companies are wondering if they still need to audit their invoices and charges. The answer is “yes,” and here’s why: even with these waivers, there are still a high number of errors and ways to ferret out savings on pretty much any transportation bill. 

For example, shippers are still being hit with duplicate charges and other billing errors on top of late, incorrect and damaged shipments — problems that can directly impact customer service and retention. With fewer drivers on the road and higher demand for parcel capacity — largely due to the massive uptick in e-commerce shopping — both loss and damage incidences have increased. 

By auditing every package to make sure it’s successfully delivered, companies can manage the loss and damage process from start to finish. Audits can also uncover data regarding insufficient packaging and ensure that payments are accurate and on time. In fact, auditing is a great risk management tool that companies can use during both peak and regular seasons.    

Here are four more reasons why you need to continue service audits:

  • Good visibility into what you’re actually paying. The audit platform you use should break down carrier invoice details to the charge level to analyze all peak season surcharges, rates, and discounts. This year, we’ve seen a number of rate errors and worked on our clients’ behalf to recover over $1.4 million in savings. We’re also identifying duplicate charges and billing errors at the charge level, which is impossible to do without an invoice audit in place.
  • Make sure it gets there on time and in one piece. Sure, some service guarantees are waived right now, but shippers should still want to audit every package to ensure it is delivered and not lost in transit or damaged. This year, we’ve seen the perfect storm of greater-than-usual demand, fewer drivers, and more retailers shipping items that normally would be purchased and picked up in store. Without a doubt, that’s caused an increase in lost and damaged packages. 
  • Tracking losses and damages. The best approach is to manage the entire loss and damage process from identification to resolution and recovery. So far this year, Transportation Insight has secured over $1.7 million in loss and damage savings, and all while providing data regarding insufficient packaging details down to the SKU level. This is particularly helpful for companies that are introducing new products and/or shipping with new vendors.  
  • Pay accurate bills on time. The data collected during a service audit provides insights into how new surcharges or new carrier rules will impact transportation and the related costs. For example, FedEx recently announced a new late-payment fee effective January 2021. Using a compliance audit, companies can keep close tabs on these types of fees and either avoid them completely (by paying on time) or correcting errors (by flagging erroneous late fees). With so many staffing changes and work-from-home scenarios taking place in 2020, shippers need to be especially careful about paying their carrier invoices correctly and on time.

Helping You Rest Easier

Transportation Insight is the only parcel audit and logistics solution provider that undergoes an annual SOC 1 Type II third-party compliance audit. We check every parcel package within your supply chain to make sure you’re getting the service you selected at your contracted price. For example, if your company is paying for guaranteed service, Saturday pickup or delivery, or other services, we’ll make sure you get them. We also check for invalid pickup, as well as identify and follow up on lost or damaged packages.

Possessing deep industry expertise, our parcel team also monitors ongoing changes in the small package environment to help keep shippers apprised of the emerging cost-drivers that affect their profitable performance. 

E-commerce Supply Chain 2020: Digital Deck the Halls

The challenges this year will be as long a family’s shopping list:

  • The traditional holiday peak converges with elevated online demand due to the COVID-19 pandemic. E-commerce sales will match or surpass brick-and-mortar. Consumers have multiple ordering channels to tap. E-commerce supply chain fulfillment and delivery operations need to respond to this decentralized − and unprecedented − demand-pull.
  • Many supply chains remain out of kilter, one of the pandemic’s many legacies. U.S. inventories are at their lowest levels in five years, according to several analysts. Stock-outs have been common throughout most of 2020. U.S. imports are spiking. However, those goods may not reach store shelves or distribution centers in time to satisfy peak consumption needs.

  • Parcel networks have been overwhelmed by demand since March. This has led to inconsistent delivery performance across the board. National and regional parcel carriers have maxed out their fulfillment and distribution infrastructures. Late deliveries mean that consumers will be forced to accept holiday service levels that are beneath their expectations. If there is good news, it’s that e-commerce consumers are aware of the problems and will be more tolerant of slower delivery. What they demand, and should expect, is access to real-time information about any service issues.
  • Consumers may order goods earlier than usual, allowing the supply chain to spread out delivery timetables to create a “load-leveling” effect. That would be positive news, but it should not automatically be counted upon. Amazon’s shift of its “Prime Day” program from July to mid-October could pull forward a fair amount of holiday activity.

  • Warehouse space is severely constrained. Amazon said several months ago it will need 50 percent more space to keep up with its projected holiday demand. Retailers with brick-and-mortar exposure need to position stores as “forward fulfillment” nodes. This allows orders to be pulled from store inventory and delivered over relatively short distances. Store networks will also support what is expected to be major demand spikes for in-store and curbside pickups of online orders. Pure-play e-tailers without store networks will need to get creative.
  • FedEx and UPS are levying meaningful peak surcharges on volumes from their largest customers. The U.S. Postal Service imposed the first peak surcharge in its history. Carriers say the fees are needed to offset their higher costs to serve. That is true, up to a point. Demands on delivery networks will be unprecedented, and carriers are pricing their services accordingly. Companies will have to consider this in their free shipping strategies to maintain profitability.

THE CLOCK IS TICKING

Is it too late for shippers and retailers to get their holiday house in order?

Not necessarily, but it will take fast action and deep planning. The challenges, as we’ve laid out, are immense. One key is to get ahead of the “demand curve.” When shippers gain visibility into end demand, they can prepare and execute a plan that enhances customer satisfaction and does so profitably. After all, meeting customer demands while losing money in the process is the hollowest of victories.

Managing the upstream channel is just as critical. Calibrating inventory flows with replenishment needs is a year-round challenge, and especially so during peak. The challenge is magnified this year with the headwind of COVID-19. Retailers need a clear line of sight into supplier production so they can forecast their inventory replenishment. In normal times, lack of visibility can lead to costly over-ordering to ensure adequate buffer stock. This season, however, over-ordering may be an adequate response, given how and where the inventory is positioned. 

During CSCMP’s EDGE 2020 Virtual Conference, Target Executive Vice President and Chief Supply Chain and Logistics Officer Arthur Valdez advised to “not be afraid to overreact.” That may sound counter-intuitive, but it can be an appropriate step during this peak. Target will be investing heavily in transportation services with a focus on improving delivery timing, Valdez said. Again, that appears to run against the grain as transport is considered a cost center. Yet it will be less costly than failing to execute deliveries because capacity is not available. A seasoned logistics partner can map out a strategy to leverage a customer’s existing assets, as well as to bring in outside capabilities that profitably meets customer demands.

This is especially important as shippers encounter an increasingly complex surcharge environment constructed by FedEx, UPS and, to a smaller degree, USPS and regional carriers.  High-volume FedEx and UPS customers could be looking at surcharges as high as $4 to $5 per piece. These are by far the most expensive surcharges we have ever seen. They can spell the difference between peak season success and failure, even if everything else breaks right. Any shipper expecting to tender significant traffic to either or both must be able to navigate those surcharges all within the framework of their logistics execution.

Amid the coming storm, it may be hard for folks to get a good fix on demand profiles beyond the holidays. But it pays to do so. For example, we may see another e-commerce surge early next year as fears of a combined COVID-seasonal flu cycle keep more consumers homebound. Already, we are seeing 2021 budget plans being adjusted to account for the lingering effect of COVID-19. We also expect similar peak season patterns for the next 3-5 years even after a coronavirus vaccine is approved and distributed. A strong logistics partner not only can help you get through 2020. It can prepare you for 2021, 2022, and beyond.

BOPIS: What Does It Mean for Shippers?

Linearity is on the way out. So is the shipper’s control of the supply chain. E-commerce has spawned the “omni-channel fulfillment” model where orders, distribution and deliveries occur from anywhere, anyone, and at any time. The traditional supply-push scenario with shippers calling the shots is giving way to a demand-pull approach with consumers in control of the transaction.

The “Buy Online, Pick Up In Store” (BOPIS) concept has become a key part of the asymmetrical, demand-pull world we live and work in. Who ever imagined a consumer ordering an item on an electronic device, having a retailer immediately pick and pack the product at one of multiple locations, and having it ready for the consumer’s arrival at a pre-arranged time, typically within a few hours and sometimes under an hour? 

Experience Depends on BOPIS Excellence

The COVID-19 pandemic is driving BOPIS toward mainstream adoption. Contactless interactions remain the order of the day – especially during the holiday season as health-conscious consumers continue to minimize time spent shopping in confined spaces. But BOPIS and other alternate fulfillment practices will outlast the pandemic. They will become permanent additions to the logistics landscape.

To execute an effective BOPIS strategy, shippers must understand retailers’ two overarching objectives: 

  • Ensure a seamless customer experience regardless of the order touchpoint.
  • Maintain adequate in-store inventory while expanding digital buying opportunities.

It is essential for retailers to have the right goods always available, and at the right place at the right time for the consumer. The “right time” could involve shipping to a residence or to another physical location. It could mean an in-person brick-and-mortar sale. It could mean BOPIS, or its first cousin, “Buy Online Pick Up at Curbside” (BOPAC). It could be a drop-shipping model where the shipper delivers directly to the store, thus minimizing the need to hold inventory in a space-constrained facility.

Striking the correct balance between in-store and digital inventory is just as critical. In-store customers are typically more loyal and buy more per visit than online customers. Retailers are loath to broaden their digital channels if doing so threatens to siphon off in-store activity.

Allowing both scenarios to thrive requires elevating visibility and analytics tools to new heights. A clear line of sight across the ecosystem allows shippers to align production with the retailer’s current replenishment needs. Analytics like Machine Learning and Artificial Intelligence also provide shippers with vital clues about consumers’ future buying habits so they and their retailer partners can stay a step ahead.

Technology is only as productive as the knowledge of the people managing it. Seasoned third-party logistics specialists understand how to design and implement a consistently successful BOPIS program that leverages cost-effective automation. They have worked extensively with all stakeholders, and can quickly adjust the go-to-market processes to optimize outcomes and avoid costly missteps.

Final Delivery Drives Loyalty or Brand Damage

Online fulfillment is a fast-paced, often-unforgiving business. You are only as good as your last delivery. The margin for error narrows still further in a BOPIS transaction. Failing to execute an order after the consumer was assured the product was in stock and went out of their way to retrieve it is a breach of the “trust covenant” between the stakeholders. A BOPIS-related stock-out can seriously damage both brands, especially if a negative review spreads on social media.

The good news for shippers is that mastering this intense pivot point should result in enduring brand loyalty from consumer and retailer alike. Consumers prize convenience, and will favor retailers who make the BOPIS experience as easy as “pulling up and popping the trunk.” This goodwill extends to the products they pick up and take home.

Retailers, meanwhile, know how complicated it is to make life easy for today’s consumer.  Shippers who consistently execute will become sticky to the retailer. Product quality is obviously important. However, consumers often cannot discern between the nuances of multiple products of similar craftsmanship. What they do know, and will remember, is how, when and where they received their product. Or why they didn’t. That is how your brand will be remembered. In today’s world, logistics, more than any part of a shipper’s business, is becoming the competitive differentiator.

Navigate the New “Never Normal”

Planned properly, the BOPIS fulfillment model is a valuable tool in the highly competitive e-commerce space. 

The devil is in the execution.

Transportation Insight specializes in designing and executing supply chain strategy adjustments that empower you to provide the final mile delivery options required to wow end customers.

We created “The BOPIS Revolution: Navigating the New Never Normal” to offer insight into the many variables involved in meeting consumers’ evolving demands for service. Read it today to understand the strategies that we can help you leverage to enhance customer service, grow market share and increase competitive advantage.

6 Qualities to Look for in an E-Commerce Logistics Partner

With changing customer demands, new carrier surcharges, COVID, and other challenges taking a bite out of shippers’ bottom lines right now, those companies are best served by logistics partners that bring a high level of value to the table. Even better, they do this while helping shippers overcome their key pain points and achieve their organizational goals.

If your e-commerce logistics provider isn’t living up to expectations in these six areas, it may be time to find one that will.

  1. Technology Systems that Mirror the Carriers’ Own Systems
    This allows the provider to estimate cost impact and predictive modeling to the penny. Every time the carriers make a change, that change should also be made in your provider’s system.
  2. A Strong Team of Subject Matter Experts
    That team should include engineers and analysts that know how to leverage the carriers’ profitability areas to gain better advantages for you (versus what a traditional account rep can manage). Our experts regularly share their insight with the marketplace.

  1. Ongoing Analysis and Strategic “Thinkery”
    Look for a partner that thinks well beyond the “one and done” approach. Today’s business environment requires a partner that focuses on continued delivery optimization and cost mitigation.
  2. A Proactive Auditing Function
    Rather than relying on a reactive mindset (e.g., asking for the same refunds over and over again), your provider should be working with an “identify and repair” mindset to eliminate these potential issues and mitigate ongoing costs.
  3. Advanced Analytics and KPI Tracking
    As e-commerce continues to grow, you need a partner that is constantly innovating and adding functionalities like margin management, SKU-level profitability, KPI tracking, order performance management and high levels of supply chain visibility.   
  4. A Problem-solving Mindset
    When new accessorials or surcharges are released, your logistics provider should be measuring the impacts of those changes on your budget and helping you mitigate those impacts.

Master Your E-Commerce Supply Chain

Possessing these key qualities, we bring our client partners ongoing value as they race to meet demands for delivery speed, service and choice. Supporting your efforts to enhance customer experience, we also implement strategies to control costs so that you can maintain awareness of how each and every product and customer is performing. 

Our Parcel Experts created “You Shipped It, but … Did it Make Money?” to identify some of the emerging challenges that jeopardize your profit. It highlights our approach in the marketplace and gives you a glimpse into the level of analysis that we bring our customers. 

Let’s take a deeper look at the supply chain challenges you are experiencing. Reach out to our supply chain masters today to begin a conversation about your personalized solution.

Post-Pandemic Tactics for E-Commerce Logistics Advantage

Before COVID-19, businesses looking to build an e-commerce presence were hamstrung by the lack of speed in developing their current labor pool with the skills required for e-commerce, as well as fulfillment automation capability. Others dabbled in a web storefront strategy. These companies typically lacked the sophisticated technology, generally a good Warehouse Management System (WMS), needed to pick multiple orders to a cart and then have them quickly and accurately auto-sorted through a RF or mobile device. The result was unsustainable inefficiencies. We saw that e-fulfillment costs in some cases exceeded 25 percent of sales.

In the meantime, Amazon.com, which controlled about half of all U.S. e-commerce going into the crisis, kicked into high gear during it. At one point during the crisis Amazon customers spent as much as $11,000 a second on its products and services. By contrast, nearly 1 million traditional retail workers were furloughed in one week, and more than 250,000 stores had shut down. Many stores may never reopen, or may look very different going forward. The same goes for fulfillment centers. Many have and will continue to be physically modified to ensure worker safety. The flow of operations may need to be modified as well.

For many e-tailers, the “new normal” of e-commerce will be challenging and may seem insurmountable, but getting to the other side is doable. 

E-Commerce Logistics Strategy for the New Normal

Understand what current state looks like in the new normal − starting with your cost per-order. 

Are your costs segmented by freight, management and supervision, labor, facilities and shipping supplies?

Then understand what and how these costs can be managed, optimized and reduced. Typically, freight costs exceed the sum of the other components. Reducing freight dollars spent per revenue dollars created should be an immediate focus. 

The questions to ask from this point are critical to the next step. 

  • Is your network aligned to best serve the customer? 
  • Are your shipping lanes optimized? 
  • Are you using the best shipping partners to meet your strategic goals? 

Stay on top of your rates. Evaluate them frequently, and renegotiate them when appropriate. 

This is where collaborating with a seasoned logistics expert adds enormous value to you e-commerce platform. Our long and deep relationships with carriers, our data analytics and information mining expertise and our proprietary audit technology platform give you end-to-end visibility to answer those key questions.

Align Your Operations and Your Network

Once your network is optimized, it is time to consider how your operations play into that. What questions can quickly be addressed?

By asking these questions and making some quick, deployable solutions, you can improve your profitability profile in short order.  

Benchmark your service-level performance with best-in-class metrics. How does your fulfillment center operation compare with leaders in the field? 

Focus strongly on the efficiency of your picking and packing operations, which can account for more than half the cost of your order outside of outbound shipping. A thorough analysis of your fulfillment center process will yield changes to improve operations and reduce costs.

Apply technologies where it makes financial sense and where it fits your growth plans. Many legacy WMS applications were designed to manage fulfillment orders in pre-determined waves. They were not optimized to manage the unpredictable flows of e-commerce traffic. Today’s technology is built to allow orders to be picked for store and e-commerce simultaneously. This enables businesses to leverage inventory buys to achieve economies of scale.

Also, consider a multi-fulfillment center strategy, including BOPIS strategies. These can expedite orders to consumers quicker and reduce shipping costs. Facilities expansion can carry with it significant operating expense. An expert partner with a robust portfolio of data, expertise and carrier relationships can support your decision-making on this critical issue. 

Improvement Focus Drives Customer Experience

Above all, be consistent with ongoing process improvements. Don’t consider e-commerce logistics just a project, it is a process that has to be constantly improving. Companies that dedicate full-time employees to process improvements are those that make the biggest strides. 

Analyze your facility space requirements, and how labor is being utilized. Be open to suggestions on how to improve productivity and boost customer satisfaction. Make it a part of your corporate culture.

According to a recent study, millennial consumers who account for about $1.2 trillion in U.S. retail sales say they value the “experience” that accompanies an online order as much as the product itself. The “Generation Z” group coming up behind the Millennials shares those sentiments. 

At the core of that experience is fast, timely delivery supported by in-transit visibility across multiple digital platforms. Succeed in executing on that final step, and you will achieve favorable word of mouth that can help build a brand. Fail, and that brand may not get a second bite.

Those attitudes were in place well before Covid-19. And they are unlikely to diminish. It is both an enormous opportunity, and daunting challenge. Is your e-commerce strategy ready?

Master Logistics, Power Competitive Advantage

You invest a lot of money in your logistics network. But are you maximizing its value? Do you feel like your logistics operation is more of a cost center than a tool of competitive advantage?

It doesn’t have to be. In fact, with the right strategy and execution, logistics can drive the success of your enterprise. Companies like Amazon, Walmart, Target and Dell made logistics a priority, with spectacular results. There is no reason you can’t do the same!

To master your logistics strategy, read “Moving to the Front of the Line: Making Logistics a Competitive Advantage.”

Serve Customers With a Personalized Supply Chain

Society’s sudden move to a shelter-in-place and work-from-home environment dramatically affected buying behaviors, and, in the process, expectations increased on companies responding to demand.

Organizations equipped with an agile, customer-centric supply chain network are capitalizing by evolving their service to the current environment. Distributors are re-locating inventory to meet emergent demand for products needed to support COVID-19 response in specific geographies. Retailers have kept Americans fed and working by adjusting online fulfillment strategies to utilize brick-and-mortar curbside pick-up or alternate home delivery methods. Manufacturers are drop-shipping products directly to homes to meet newfound interests in exercise.

As customer preferences carry even greater weight in modern supply network planning, the organizations with a holistic network view will deliver the most cost-effective shipping strategies that empower choice-conscious clients.

Customers Take Control

In 2016, parcel and express delivery volume bypassed railroads to become the second-largest transportation sector behind motor freight, according to the Council of Supply Chain Management Professionals’ 28th Annual State of Logistics Report. With that leap, consumers seized control of logistics spending and “supply chain as we’ve known it” changed forever.

In the past, traditional retail strategies put the brand in control, using a push-based system with consumers at the end of the supply chain. Throughout the rest of the supply network, past experience drove inventory decisions, and product was pushed to stores based on what consumers “should” like and purchase.

Ongoing expansion of e-commerce has increasingly shifted decision-making for many organizations toward the customer experience. With the outbreak of COVID-19, historical buying behaviors are no longer valid and the consumer is in charge now more than ever. Companies that didn’t have a consumer-centric approach are adapting to survive.

Adopting a consumer-centric approach isn’t automatic, however. It requires thorough understanding of your customers’ preferences from point of purchase to final delivery.

Consumer Behaviors Changing Forever

While society has steadily shifted more buying to online platforms, COVID-19 sent more people online to buy a broader array of products than ever before.

In March, online grocery sales hit an all-time high. And in April, online grocery retailers topped that record by about 37%, according to survey data from grocery consultant Brick Meets Click (BMC) and research firm Symphony RetailAI.

Driving the sales growth was a 33.3% increase in the total number of orders: 62.5 million in April vs. 46.9 million in March. Spending per order grew more modestly, as did the number of online grocery shoppers.

Retailers like Wal-Mart and Target are reporting record online sales growth as well, giving further evidence that more buyers are turning to e-commerce sales channels for everyday needs. As the convenience of online buying appeals to a broader population, the need for diverse delivery options will increase, just as it has since parcel transportation took the No. 2 spot in logistics spend in 2016.

Effectively fulfilling those customer delivery demands requires a transportation strategy supported by multi-modal expertise and technology. Transportation management systems that integrate vital transportation information from freight and parcel service providers, along with historical shipping data, can offer a strong basis for decisions that improve customer service and protect bottom line profitability.

A Case for a Personalized Supply Chain

Organizations that can create a supply chain personalized to the expectations and behaviors of their customers can achieve greater brand loyalty. By allowing customers more control over their delivery experience, brands can create greater loyalty and improve customer retention.

At the same time, the shippers that establish a nimble network can rapidly respond to fluctuations in supply and demand and capitalize on opportunities for growth.

To learn more about creating a truly personalized supply chain that serves your customers’ needs, read Transportation Insight’s Guide to Mastering Your Supply Chain.

In it, we share more data about emerging customer trends as well as strategies and tactics to create a stronger supply chain that ultimately drives growth. Read it today to evolve your supply chain to meet your customers changing fulfillment and delivery needs.

Service Merchandise omnichannel fulfillment

Master Omnichannel Fulfillment, Enhance Experience

Retail has changed a lot in nearly four decades since Service Merchandise – and its catalog – was familiar in households across North America. Still, many of the retailers’ leading-edge concepts are just as applicable in an e-commerce age that requires customer service capabilities across multiple channels.

Let’s look at some supply chain practices that can support an omnichannel service that enhances the experience of your customers – whether they are shopping in-store, online at their desktop on their smartphone or by telephone.

Can You Compete with Amazon? Should you Try?

Most retailers are still trying to figure out the right recipe for omnichannel. Revisiting the strategies that anchored the success of Service Merchandise, alongside modern supply chain best practices can help retailers focused on managing fulfillment costs and expanding growth across all sales venues.

Companies have to decide where they want to play. With more service comes more cost. You have to understand your customer base and understand who you want to compete against. Can you compete against Amazon at a national level? Maybe not, and if you try you may bankrupt yourself.

With customers’ rising expectations for free shipping and 2- or 3-day delivery, retailers need to be able to design a distribution network where every customer in the U.S. can be reached within two days.

For companies that have brick and mortar locations, the question becomes: How do you leverage all inventory assets to decrease customer lead time – and do it cost effectively?

That requires analysis, good data, good tools and people who know how to interpret that information.

A 21st Century Hurdle

One obstacle facing today’s retailers that Service Merchandise didn’t have to deal with: massive SKU proliferation. While the retailer probably carried a significant number of SKUs in its backroom, it also knew that most of its customers were not walking in the door with the goal of buying 10+ items.

This didn’t pose a problem until the definition of “convenience” changed. The world’s super centers caught onto the shift and started carrying dozens of different “similar” items – all on the sales floor.

At that point, all that a shopper had to do was walk in, fill a cart, and walk out the door.

In today’s landscape, if you are competing against retail and e-tail giants, it is critical to understand the profit performance of each product you offer, particularly in light of any associated fulfillment and delivery costs.

Model Networks to Manage Mistakes

Modelling exercises help retailers determine cost trade-offs versus service before you start an initiative. This can allow you to determine where to guarantee 2-day delivery in certain areas, while offering longer service time and lower cost in other areas.

One of the core benefits of network modelling: you can do all the what-if scenarios so you know how the network reacts before you invest dollars and make a mistake.

Data-driven network modelling is also an asset when disruption threatens the order-to-cash cycle. This type of proactive modelling allows a shipper to identify response options before disaster occurs and jeopardizes successful final delivery.

Leverage the Right Resources

Most retailers may not have resources to manage massive amounts of data and then turn around to review and reproduce network designs every six months or faster – all while managing a separate returns network and a separate dot-com network.

Many organizations cannot afford to obtain the people, obtain the tools and manage to keep them. If you do have a staff on site, those people may not always be needed for network design or analysis. You end up re-tasking them with other things so they are not staying fresh on their modelling skills, and when it is time to update the model – what if they are working on other critical projects? That work falls by the wayside.

Another downside of an internal modelling team: They get to know your business, and how it works. There’s a tendency to get into a modelling rut, modelling within your constraints rather than challenging “sacred cows”.

Someone outside your organization knows what other companies have done, what works and what doesn’t, – and they’re not limited by your constraints. That’s why consulting companies exist. They can think outside the box and apply your constraints rather than operating under assumptions.

Master Your Domain

Retail companies in particular should focus on their strengths.

Buying the best products and marketing to customers is the core competency of most retailers – not transportation and logistics. In that case, an outside expert can offer an unbiased, view informed by supply chain best practices effective in varied industries and many different retail organizations.

Hire an outside expert that can leverage fulfillment expertise, data and supply chain planning to help take care of customer delivery demands, so you can focus on the retail areas where you excel.

Manage Fulfillment Cost, Support Prime Performance

We are in an era where higher fulfillment costs continue to erode retail margins. It’s time for stores to think harder about how to fulfill orders across all channels, while also factoring in parcel transportation costs and how to package in a way that minimizes dimensional charges.

The complexities of omnichannel fulfillment and all the requirements that come along with it drives many retailers to rethink store layout plans, network design and support partners. Applying the Service Merchandise approach to customer experience in the 1980s could give today’s retailers a competitive advantage in the marketplace.

To help retailers understand how Service Merchandise delivered experience and omnichannel excellence we created “Prime Before Its Time: The Service Merchandise Experience.”

Download the guide to learn how the retail innovations of yesterday can help you deliver a prime performance today.

Omnichannel: 3 Ways Service Merchandise Got it Right

In its heyday, Service Merchandise was a retail force. With 413 stores and $4 billion in revenues at its peak, the company singlehandedly turned the “catalog showroom” shopping experience into one that consumers flocked to for fine jewelry, electronics, toys, and other merchandise. 

Hindsight being 20/20, modern-day concerns like high inventory carrying costs, the escalating cost of expansive retail space, and the labor-intensive nature of its decidedly non-DIY showroom should have all been red flags for Service Merchandise. Despite these oversights, the company definitely had a few things nailed when it comes to omnichannel. Let’s look at three areas where Service Merchandise excelled.

Lesson 1: Sales in the Front, Fulfillment in the Back

Service Merchandise stored inventory in the backroom versus in the front of the house and basically understood the value of the omnichannel model as far back as the 1980s.

Stores aren’t meant to be fulfillment centers. Employees don’t know how to pack boxes efficiently. They rely on their own judgment about how much packing material and product to load into a box for a ship-to-home customer. That can get expensive when dimensional minimums come into play. For example: If a box is too large relative to the weight going into the box, the shipper is going to overpay. 

Service Merchandise escaped these challenges.

  • All inventory was maintained at the store level, in the back of the house, where customers couldn’t touch it until they ordered it, initially using a clipboard and written order and later using the “Silent Sam” ordering system.
  • Employees were trained on efficient fulfillment techniques: The goods were either sent by conveyor to the customers or shipped to their homes. 

“The average price of an item sold in the store was $30. The average transaction was $55, so we were selling less than two items per transaction,” says Service Merchandise CEO Ray Zimmerman. “Because they were $30 items, it was less expensive for us to handle it on a pick and conveyor basis than it was to stack it out and let the customer pick it up.”

Obstacles emerge when fulfillment creeps into a retailer’s sales floor customer-facing roles:

  • Store employees picking orders instead of taking care of customers. 
  • Aisles congested with big carts and harried fulfillment individuals trying to fill orders quickly. 
  • Online shipments packed inefficiently by store employees untrained in the fine points of fulfillment. 
  • Unnecessary touches: product is received, unpacked, put on store shelves, retrieved, repacked and shipped back out. 
  • Multiple touches create a high volume of dunnage and corrugate waste.

Just think about how far a store employee has to walk to collect all of the items from an online order, versus someone who was working in a warehouse with very high pick densities. Warehouses also incorporate technology (i.e., pick-to-light and voice options) that makes picking and packing more efficient.

Lesson 2: Technology is Integral to Omni-Channel Success.

Retail has come a long way since the 1980s, but it’s clear that Service Merchandise’s leaders had a knack for understanding their customer base and serving it well. They also weren’t afraid to invest in technology long before terms like omnichannel, automation, robotics, and Amazon were common vernacular for retailers. 

“We had a great group of IT people – and that was unique for most companies at the time,” Zimmerman says. “At the time, there was no point-of-sale system that had an alpha numeric. They were programming in BASIC language, it was very simple, but that’s how we developed all these systems.”

Those systems monitored inventory, too.

“We had to keep inventory tight and we spent a lot of time monitoring to make sure that stores were making inventory adjustments,” Zimmerman says. “If they didn’t have any adjustments, the store wasn’t doing its job verifying inventory count; if there were too many, the store was having a shrinkage problem.”

If afforded today’s technology advances, omnichannel data management and its innovative mindset, here’s what a profitable “Service Merchandise 2020” might look like.

  • An early adopter of warehouse automation, it deploys advanced technologies like robotics.
  • Warehouse pickers are equipped with wearable technology that enables them to do their jobs faster in a hands-free environment. 
  • Integrating automated co-bots, conveyors and cranes into its stockrooms, it effectively leverages technology to shorten fulfillment times and hit two-day and one-day shipping windows.
  • Leverage artificial intelligence (AI) and machine learning to optimally determine placement and levels inventory based on predicted customer demand. 

Lesson 3: Give Customers an Experience

Customers like going into stores to look at and touch products. 

Service Merchandise knew that its customers really wanted to experience a product before buying it, which meant stores didn’t really need to have all of their inventory visible and stacked to the ceiling when those customers walked in the door. 

With its part-catalog/part-showroom approach, Service Merchandise was meeting customers where they were in the ‘80s.

“The catalog was not for people to order from. It was an advertising tool – people could pick what they want and come into the store,” Zimmerman says. “If that customer drove 3 blocks to come into our store, they expected to get it. We had to be in stock every day, on every item.”

Many people still remember fondly a key aspect of the Service Merchandise experience, even if the retailer’s dominant presence has faded.

“When the company liquidated, I bought the name to keep it in the family. I put up a website – it didn’t sell much merchandise, but it got a tremendous amount of comments,” Zimmerman says. “Many wanted to tell me how much they loved watching the merchandise coming down the conveyor belt.”

Putting it all Together

Retailers are still trying to figure out the right recipe for omnichannel success. A multichannel approach to sales focused on providing customers with a seamless shopping experience — be it online, on a desktop, via a mobile device, by telephone, or in a brick-and-mortar store — omnichannel is pushing companies into new terrain when it comes to fulfillment, transportation, and delivery.

To help retailers understand how to improve omnichannel performance, we created “Prime Before Its Time: The Service Merchandise Experience.”

Download the guide to learn how the retail innovations of yesterday can help you deliver a prime performance today.