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Same day delivery: Ignoring the elephant in the room

Whether we like it or not, people in the logistics world are facing two major trends: the increase of e-commerce and the desire to immediately receive online orders in their hands. Companies like Amazon are partnering with the United States Postal Service (USPS) for Sunday Deliveries and testing same-day delivery in major cities. Meanwhile, companies like FedEx and UPS already market same-day delivery capabilities. The obvious challenge for companies that lack critical volume is that same day delivery is far more expensive than customers are willing to pay. Therefore, the critical point is how to meet customer expectations when they seem so unrealistic.

Some of the suggestions being discussed require a commitment from the supply chain and the company culture as a whole.  This would include inventory management, network infrastructure and labor deployment, which are critical components necessary to meet customer demand.

Inventory Management Strategy: In order to move the inventory into consumer hands on the same day they place the order, the inventory has to be available and less than 8 hours away. This will require either pushing the current boundaries of inventory management practices or keep lots of inventories network-wide.  The latter will require a large amount of money as well as the risk of obsolescence or shrinkage. This leaves only one option: pushing the boundaries of current inventory practices.

Some companies are having respectable success by using 3V analysis, which are stock keeping units (SKU’s) or stratification of stock based on value, velocity, and volume. For example, an SKU that is high in value, velocity and volume should have a premium location in the inventory system. Yet it might not need as much space or capital as an SKU that is lower in velocity. SKU’s that are low in volume and velocity, yet high in value,  must be stored in a single location and rely on more expensive transportation than SKU’s with lower values and greater movement patterns.

Network Infrastructure:  In today’s fast-paced, data driven world of e-commerce, technological infrastructure is critical. Companies need inventory systems that allow for pipe line visibility and real time information for both on hand inventory and inventory in transit. As we get closer to same day delivery, one of two things must occur; more warehouses and higher transportation costs. However, the key is finding the appropriate balance between the two. These infrastructures rely not only on the price and margins of the product, but also on customer demographics. The closer to our customers, the less we spend in transportation, yet the more we spend on facilities and resources. Reducing the number of facilities will drive up transportation cost, but will help in reducing stocking locations, redundant positions, and equipment in the facilities. Ultimately, this will minimize overhead and optimize pick routes. Even though modeling software can provide some support in providing the balance point, we must not forget it has limitations in the ability to model reality so handholding will still be necessary.

Labor Deployment: Once we have stratified, slotted, and stored inventory in the correct number of locations, the main question quickly surfaces; How do we move it quick and efficiently? Companies must increase the frequency of release schedules and move to real-time dropping of orders where it is possible. While this is a scare concept for many warehouses, some companies who are doing it have found out that a level flow of orders to the floor and holding pickers accountable to quick pick cycles often results in higher productivity. We may even need to re-think the picking strategies, utilize more zone picking, and rely heavier on slotting strategies or investigate warehouse automation technologies. 

The Reality: Managing the SKU’S,  transitioning a network to the right amount of stocking locations, and increasing the velocity of distribution networks are all major tasks that will require effort and often investment in reducing lead-time of distribution. However, one thing is for certain, ignoring the elephant in the room will not make the problem go away.  Thus, make sure you have clear goals and a clear strategy that capitalizes your resources, infrastructure, and technology to get your organization where you want to be and to ensure the customer service you are aiming for.

 

Let Allyn be your logistics arm, contact us at: AllynLogisticsConsulting@allynintl.com   

 

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