On April 26, Amazon once again ignited a global conversation when it announced its strategic decision to offer free next-day shipping for Prime members. The announcement left many shippers in the e-commerce space with a challenging question, “How should my organization respond?” Several shippers, such as Walmart and Target, responded immediately with similar announcements of their own. Still, many leaders across the globe continue to grapple with identifying an appropriate, cost-effective response.
Finding the correct answer often depends on honest self-assessment and the careful consideration of two questions:
- Is the achievement of one or two-day delivery times worth the investment?
- What other options are available for my distribution network?
Consumer experience is undeniably critical, especially when related to time-in-transit expectations. Amazon has offered Prime members free two-day shipping since 2005, and the subsequent popularity of the service quickly made two-day shipping an industry-wide benchmark. The potential popularity of one-day shipping therefore merits the close attention of both shippers and consumers alike. It is a milestone Amazon and other shippers will continue to push and improve on. However, it also represents an associated cost that demands additional mindfulness.
Amazon finance chief Brian Olsavsky announced the one-day, enterprise upgrade will include $800 million in infrastructure investments in the first quarter. Achieving one-day shipping will likely require additional expenditures from the organization. Similarly, when Walmart announced its decision to rollout a competitive one-day shipping program, analysts from the UBS investment bank estimated $215 million in incremental investment. Though Walmart disputes the assessment, both figures indicate one-day shipping will require some degree of capital investment to fully reap the potential benefits.
For certain shippers, particularly organizations with well-established distribution networks and balanced inventory levels, investing in one-day shipping might prove valuable. The opportunity associated with one-day shipping certainly exists, notably, with improved customer satisfaction. However, few enterprises command the financial and operational resources of an Amazon, Walmart, or Target. Many will find the necessary investment either cost or operationally prohibitive. For leaders in this position, it is important to consider the available alternatives that enable e-commerce competition without breaking the bank.
Consider the Value of On-Time Delivery
Is it worth striving for a one- or two-day commitment without consistency? The answer depends on understanding the targeted market. For some industries, focusing efforts on meeting on-time delivery promises can yield a greater net value than occasionally hitting a one- or two-day target. This strategy directly relates to a full understanding of benefits associated with one-day shipping, and what consumers value.
Look Beyond USPS, UPS, and FedEx
Leveraging regional carriers can effectively reduce time in transit to certain markets and also cut overall transportation costs. Many of these carriers operate within specific markets across North America that often correspond to specific population densities. Due to their geographic limitations, however, shippers ought to carefully assess how well a regional shipper fits within a national distribution network. Adding the wrong carrier can impact revenue-based discounts from carriers such as FedEx and UPS. To mitigate this risk, it’s crucial to analyze the sensitivity of revenue discount tiers if any apply, and monitoring attainment over time.
Utilize Existing Supply Chain Networks
One of the more popular strategies adopted by organizations such as Walmart, Target, and Best Buy involves using brick and mortar facilities as mini-warehouses. Under these schemes, customers are able to order online and pick up the order the same day from a local store. While this strategy reduces order satisfaction time, it also requires higher inventory levels across the supply chain and customer buy-in. One strategy is to assess the potential cost of additional volumes and research customer market trends before committing to implementation.
While next-day delivery represents a quickly approaching reality, competing with Amazon or other early adopters is far from impossible. Options exist for shippers of all sizes and are not limited to those described here. The key is understanding the market space and improving customer experiences.
Jack McCrum is a Sr. Analyst, Transportation Solutions Consulting at enVista. Contact him at firstname.lastname@example.org.
This article originally appeared in the July/August, 2019 issue of PARCEL.