Last mile home delivery is a key driver shaping the growth and trajectory of the US online sales for large format category products. While efficient and innovative delivery models abound for small format and parcel products, large format product categories such as white goods, furniture and large electronics remain stuck in an ineffective and inefficient supply chain model, preventing their full potential growth.
Despite the need for change, progress has been slow for retailers and manufacturers to transform today’s large format product home delivery model for breakthrough performance (see figure below):
In the following article, we examine the historical context of today’s delivery model and the structural barriers impeding transformation. We then offer a perspective on how the different actors in the industry can act to catalyze the formation of a new win-win home delivery supply chain integrator model (see figure below):
Rather than being dedicated to a specific retailer or product category, an integrator serves a pool of clients. This emerging player could unlock value—building scale advantage and reducing coordination complexity—by performing a crucial set of integration activities that are thus far absent or underdeveloped.
Integration will encompass a variety of actions:
– Coordinate pooling across retailers to increase scale and density in last-mile delivery, thus reducing cost per delivery and increasing flexibility. Although the trucks and delivery uniforms would not be dedicated to one retailer, differentiation could occur at the point of delivery, for example by providing retailer-branded invoices and information packets and using wireless tablets to access retailer-specific product information.
– Configure last-mile delivery to commingle orders across categories.
– Develop integrated system platforms for end-to-end order management and tracking visibility, enabling a seamless customer service experience from order to post-delivery.
– Develop software tools to improve productivity, such as route optimization and delivery management, and provide incentives for continuous improvement across downstream local delivery networks.
– Establish a national training program to ensure consistent delivery quality.
For retailers, an integrated HDS network provides strategic flexibility for large-format home deliveries, allowing them to meet their evolving business needs. Opting into the network will be smart for those seeking to capitalize on the breakthrough value of cross-firm scale and density, such as boutique online retailers or regional dealers. Large retailers with significant volume may also opt in if they choose to focus on scale-based cost and service efficiency rather than develop in-house home delivery as a competitive differentiator. This provides an ideal outsourcing option with a small commitment of internal capital.
An integrator network unlocks and passes on significant cost savings to retailers. By doubling its scale with a cross-retailer, cross-category network, a midsized retailer could save about 7 percent in last-mile delivery costs. And the savings increase as the network grows—up to about a 20 percent cost savings at volumes nine to 10 times that of today’s average retailer.
Related content: National Home Delivery Association Keynote, 2015