|Increasing consumer expectations push shippers to deliver faster
More and more, shippers in both the business-to-business and business-to-consumer sectors are coming under pressure to make sure that their consumer goods — or industrial components — arrive where they need to be when their buyers expect them to be there.
Mission-critical transportation and logistics have been around for decades, long before the advent of e-commerce. There’s always been a need to move high-value things quickly for projects such as clinical trials, fashion shows, private ters, or even just hopping onto a plane and hand-carrying something, noted Evan Armstrong, president of Armstrong & Associates, a logistics industry consultancy.
But in a world where standard Amazon service is two-day, and more and more low-value shipments are moving “next day,” “that’s just tightening up the need for speed,” Armstrong said. The pressures are felt not only in the air cargo sector, but also on the surface side, with limited US truck and intermodal capacity adding a premium on expedited services, particularly during peak season.
Despite all the headlines devoted to faster freight services, speed is not the only important variable for buyers in both the B-to-B and B-to-C segments. Although the word “fast” gets all the headlines, “consumers overwhelmingly prefer free rather than fast,” noted Ryan Kelly, vice president of e-commerce at FedEx.Nevertheless, every year, the expectation about “free” is that “free” gets faster and faster. Thus, two-to-three-day click-to-delivery expectations are now the norm.
A pick of products
Nick Basford, vice president of global retail and e-commerce strategy at UPS, said the major impact of e-commerce has been to change buyers’ expectations in a broader spectrum of ways. First, e-commerce expands the availability of the assortment of products we can buy — whether through a marketplace or from a manufacturer or a distributor.
For the first time in history, if the product you want — or need to make a profit — is only available, say, in Dubai, you can now get it. “This is also increasingly the case with business, which used to be constrained by their contract suppliers. Now people in business want the same freedom to be able to from a much more diverse array of merchandise and suppliers.”
Basford views “speed” as only one factor in the overall value proposition of a retailer or a manufacturer. In that respect, buyers want to know whether they can safely expect that a desirable product is available within 24 hours. Or, if it is available only in 48 or 72 hours but at a lower price, the buyer needs to be able to make a decision.
In the B-to-B sector, the same trade-offs exist, Basford said. When a manufacturer needs a spare circuit board because its machinery is broken, it will want to get it as fast as possible. But if the same manufacturer wants to buy 1,500 circuit boards to keep them in stock for future needs, that manufacturer “may actually look at the best price” before choosing among suppliers.
For many logistics providers, the impact of e-commerce has been two-fold, Armstrong said. On the one hand, there is an operational impact because logistics providers who handle goods ordered online are being held to the higher standards of service that have become the new norm.
Amazon’s competitive steps
In addition, e-commerce is impacting logistics providers from a cost standpoint, Armstrong added, because “they are having to fight for the same labor pool and same carrier capacity that Amazon is soaking up.” Amazon is talking about offering fulfillment center workers a minimum wage of $15 hour at a time when a lot of those fulfillment centers pay the average worker closer to $13 hour.
Armstrong added that the “Amazon effect” has also raised operational expectations on the transportation side for shipments that do not originate on the internet, although “once you get off to modes like LTL (less-than-truckload) and truckload, there is not quite as much expectation” about speedy service.
E-commerce represented 13 percent of total US retail sales in 2017 and boasted a 49 percent growth rate, according to the US Department of Commerce. Consumers spent $453.46 billion on the web for retail purchases in 2017, a 16 percent increase, compared with nearly $391 billion in 2016.
When it comes to maritime shipping, the tightening of liner capacity has focused more attention on guaranteed services provided for time-critical shipments that do not merit the higher costs of air cargo. APL’s recent launch of a weekly expedited service from China to Southern California, for example, reflects how carriers are looking to differentiate themselves by delivering faster and more reliable speed-to-market service.
APL’s Eagle Express X service is “a new native to Matson’s 10-day service,” said Bocheng Shen, director of North America Ocean Products for APL Logistics Americas. She added that APL and Matson “have put so much marketing everywhere, that everyone thinks there is something new in the market. It’s new but it’s port to port” — not door to door. That leaves room for companies like APL Logistics to provide “last-mile/last-touch” delivery service, which brings those products to the front door of businesses and consumers.
Managing inventory takes on new dimensions in a world where important business components or consumer products are guaranteed to be available by the precise date where buyers need to purchase them. “When you start to think about next-day, same-day, or other fast services, inventory is an area where things kind of come to a screeching halt,” Kelly said.
The issue is not as simple as minimizing the size of warehouse inventories. In a world where everyone expects to have fast access to any product in your catalogue, the issue is “how much inventory replication are you going to have in order to enable” deliveries that are both “fast” and “free,” Kelly said.
That replication process can take place at any number of places. Deping on the design and goals of the supply chain, inventory might best be located across one fulfillment center or across two, 10, or 60 centers; or it could be located across a mix of domestic centers and foreign distribution centers. It could mean replicating an entire catalogue in multiple places, or only those best-selling SKUs in some specific locations.
Overall, Kelly said, “there remains a massive opportunity to really think about [the process of] inventory order-optimization.” Instead of a buyer saying that it wants something within two hours, he might be willing to accept three-day delivery if those orders are better packaged together.
For example, all the orders from one supplier could come all in a single box, which is a much “more cost-effective” approach to e-commerce. Kelly said, “Retailers need to consider why their buyers want to have fast” and what the product categories are in which they truly need to have their products delivered “now.”
He cited two major misconceptions about the current passion for “speed.” First, there is so much hype about where people think the market is going. Actually, “there is a difference between what consumers want and what they are actually willing to pay for.” Second, he said there is a general misconception about the cost of delivery. Anything you can do to increase the number of orders, units, and products — and simplify your structure — the better.
Although a lot of people think that free delivery is free, it is not free. “Many people believe that the cost of transportation is somehow bundled into price — or a subscription — but “there is a cost to it.”
Unfortunately, many merchants’ supply chains are getting so much more complex “earlier in their e-commerce maturity.” A customer may have 20 orders a day, but those 20 orders might be in seven different markets. That reality is driving a complexity that did not occur years ago when e-commerce was “just one guy selling in one market.”
Handling such complexity requires the application of data analytics, using high-quality data about the merchant’s supply chain. One of the biggest challenges to achieving that goal, whether for a big retailer or other e-commerce shipper, is to leverage high-quality data from supply chains where such data is lacking, and different data-collecting departments use disparate IT tems.
“There are so many challenges to having high-quality data, and that limits your ability to structure supply chains to meet challenges of the future,” Kelly said.