Nowadays the competition for customers and market shares in the area of e-commerce goes far beyond mere price wars, because an ever increasing number of consumers not only value low prices, but also comprehensive service. The primary focus here is on shipping, because for a growing number of customers the speed at which goods ordered online arrive is a key criterion when deciding whether to make a purchase.
In the hard-fought and booming online market, suppliers have the opportunity to stand out against their competitors with fast service. What is more, this speed is not limited to swifter distribution or immediate processing of incoming orders, but also applies to the entire concept of process efficiency in the area of logistics: From storage to picking and packing, a significant amount of time can be saved. Above all else, it is now possible to reduce processing times by largely automating the entire process.
In the following we examine the various aspects associated with the subject of delivery speed, the costs involved for both manufacturers and customers, and the challenges which the intralogistics industry needs to confront here.
Faster and faster – keyword same-day delivery
Ordering meat online in the afternoon which can then be cooked on the barbecue the same evening? Or buying a pullover on the Internet at 11 a.m. which can be worn just 90 minutes later for lunch? This is by no means some kind of utopian vision with same-day delivery and that is why this service is already offered by many different retailers. For instance, the food delivery company Otto Gourmet can now guarantee that steak orders received before midday will be ready to grill within a specified time slot that evening in cooperation with the CEP and same-day delivery specialists time:matters in the cities of Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, and Munich. The German supplier Tiramizoo, which works with Media-Saturn and Lodenfrey among others, has chosen a similar way to time:matters. In the run-up to Christmas, the fashion company shipped its products using same-day delivery and charged 9.90 euros for local immediate delivery. For a similar test run conducted by the bookseller Thalia in Hamburg there was a charge of 4.90 euros for books, DVDs, etc.
The British company Shutl has even gone one step further by making it possible for its customers to hold their goods in their hands just 90 minutes after ordering them online, although ultrafast delivery times of 15 minutes have already been achieved. On average, customers have to pay around ten pounds extra for this. It goes without saying that it was necessary to develop a completely new CEP service for such swift delivery. In order to achieve this, Shutl brought together a number of courier services on a single platform and also agreed contracts with local delivery services, which even included cycle couriers. This has resulted in a tight-knit network of couriers which Shutl can call on at all times to guarantee its tight delivery deadlines. It is a concept which is being closely monitored by the major mail-order businesses. A subsidiary of the Otto Group initially invested in the company before it was ultimately the subject of a complete buyout by eBay.
Other countries are already further ahead. eBay, for instance, launched its similarly swift eBay Now service more than a year ago in some US cities. When customers there buy goods from retailers in the region, they can be delivered to their homes within an hour if required. Amazon offers a similar service throughout the highly populated areas on the East Coast (New York) and West Coast (Los Angeles and San Francisco). Google is also experimenting in this area with its pilot project Google Shopping Express. For a phase lasting six months, customers in the San Francisco Bay Area can order goods which are then delivered to the door within a day. The difference between this and other approaches is that – in keeping with the Google way of doing things – this service is initially being offered free of charge.
In Great Britain, the country which is currently leading the way in the area of e-commerce in Europe, Shutl has been delivering goods on the same day since 2010. The costs, which the customer pays, are around ten pounds for the delivery of a normal parcel (up to 3 kg). According to Shutl, there has already been a great deal of demand for the service, which means that buyers are prepared to pay a premium for ultrafast delivery.
Overall, customers in Germany, where free delivery is very highly valued, are exercising restraint when it comes to same-day delivery precisely due to the extra cost involved. The results of an ECC study supported by the logistics company Hermes entitled “Success factors in e-commerce” revealed that just 1.6 percent of the more than 10,000 people surveyed were in favor of same-day delivery. Furthermore, almost a third of those people were not prepared to pay extra for this service. It is an attitude which is diametrically opposed to the not inconsiderable extra expense associated with this type of delivery, because the logistics specialists are faced with significantly higher delivery costs which must be passed on to the customer.
Accordingly, logistics specialists are faced with the question of whether same-day delivery should remain a niche sector for a growing, but comparatively small target group. In any case, the highly dense network of warehouses and handling centers required for such an express service can only be created with considerable investment. It reaches a volume which not every mail-order business is able to handle, particularly since many of them have identified savings and logistical benefits in recent years primarily in the form of centralization and concentrating on fewer large warehouses. Therefore, not only for these companies, the question is whether alternatives to same-day delivery may be more advisable – at least in the short and medium term on the German market.
Speed and service have now become a critical competitive factor. And even if customers are not yet explicitly demanding same-day delivery, according to the Hermes study two thirds of end customers expect delivery within two to three days after ordering – a narrow time frame which already presents retailers and logistics experts with big challenges.
With the help of a high level of automation they have nonetheless managed to keep reducing the processing time to the extent that delivery to the customer has now become a critical success factor. Anyone who has ever waited desperately for a parcel is familiar with that irritating experience of coming home in the evening to find a note instead of the delivery, informing them of the failed attempt to deliver the parcel and asking them to pick it up from a warehouse or mail sorting center.
CEP services can help here with the following solutions:
Delivery with time slots
Ever more frequently, CEP service providers are offering their customers fixed time slots which allow the buyers to take delivery of their parcel at a more convenient time. This service also includes options to deliver parcels to alternative addresses provided by the customer in advance for a limited specified time and redirect parcels at short notice. With the help of Web-based tracking solutions, people placing orders also have the option to track the status of their delivery live. In a similar model the person placing the order can find out by text message or e-mail the time slot in which the parcel will arrive. They then have the option to postpone the delivery time.
Particularly for working people who are not at home during the day and have no alternative delivery options, precise time slots represent a much higher service level than, for instance, same-day delivery. In Great Britain the service provider DPD already offers a service with a one-hour delivery time slot, which has gone down very well with recipients.
Alternative delivery points represent a further option used by a growing number of consumers. These are generally kiosks, beverage stores, or other businesses which stay open longer and from where customers can easily pick up their parcels on the way home from work.
A pioneer in this area is the logistics company Hermes Fulfilment, which now has a nationwide parcel shop system consisting of 14,000 stations throughout Germany. However, its competitors are also stepping up their game. In recent years, for instance, DPD has doubled its number of cooperation partners to 8,000.
According to DPD, one in three recipients now has their parcel dropped off at a nearby ParcelShop of their choice. A further study conducted by Comscore reveals that 61 percent of customers would rather have their goods sent to a nearby ParcelShop than to their own front door, which may not be as secure.
Associated with the increasing acceptance of the ParcelShop system is, of course, the intensifying competition between the CEP service providers for the shrinking number of partners in attractive locations where parcels can be dropped off and stored until customers pick them up. But the service by no means ends in shops and stores. Some companies are already testing the concept of leaving the parcel in the customer’s vehicle. This involves a transmitter fitted in the car revealing to the courier where it is parked. The courier is then able to open the trunk with a key or special chip card and leave the goods there.
Each of the outlined alternatives has the potential to increase the service level and customer satisfaction immensely. At the same time, they can be implemented more quickly and cost effectively than a comprehensive same-day delivery network.
Yet even though most European e-commerce businesses are still balking at the idea of same-day delivery, the concept is clearly already rooted in the minds of their customers. As such, the big players at least cannot do otherwise but concentrate on implementing this service for their customers.
Impact on intralogistics
However cautious the start of same-day delivery in Germany may be, according to an industry study conducted by McKinsey & Company it will grow to be worth around three billion euros in Europe by 2010 and thus grow more quickly than online business overall. By 2020 ultrafast delivery is set to account for 15 percent of total turnover with standard parcels.
Accordingly, service providers from all areas of intralogistics cannot simply turn a blind eye to this trend. But how do manufacturers in the storage industry deal with their customers’ demands for ever faster speeds when storing, retrieving, and picking goods?
What does the market want?
While the major suppliers are shouldering the cost of investing in state-of-the-art storage and order picking technology in line with their financial means, the many small and medium-sized online businesses have the opportunity to acquire the corresponding expertise in storage logistics from external fulfillment service providers or arrange for their flow of goods to be managed by these companies.
But regardless whether it involves fulfillment service providers or companies in charge of their own investments, both demand that manufacturers in the intralogistics industry take account of their need for ever shorter storage cycles and faster order picking performance.
The manufacturers’ answer
It goes without saying that intralogistics suppliers are increasingly gearing themselves towards the growing need for solutions which meet the demands of the e-commerce sector. For instance, the manufacturer Kardex Remstar supplies a single item picking solution in the form of the Parts4You system. This warehouse management software is primarily aimed at companies which have to pick small orders with fewer items from a large product range.
It is therefore ideal for e-commerce companies. The system can handle around 350 picks an hour from a product range of up to 10,000 items. Storage and retrieval processes can also be handled simultaneously, which saves additional time when order picking. The system works in line with the goods-to-person principle and thus reduces the time spent by employees and machines moving around. In addition, a considerable amount of space can be saved. For instance, on a footprint measuring 84 square meters the storage lift system of paternoster units has more than 1,000 square meters of storage space.
Furthermore, with its Sort2Ship software solution the company also has an answer to the growing need of e-commerce service providers for flexible solutions for buffering and sequencing shipping orders. With Sort2Ship the customer can combine order lines from different storage systems – such as storage lifts, vertical carousels, or even static shelving – into one order in a time-saving and cost-efficient manner. The boxes containing the order lines are transported to the buffer storage system via automated conveying technology, where they are stored on a temporary basis and occupy a minimal amount of space. When requested, the boxes can then be sorted and made available for packing or sent directly for loading. With several thousand order lines per day, distribution centers and e-commerce companies in particular can use the software to increase their order picking performance by up to 35 percent and thus ensure fast delivery times.
Another option for increasing order picking rates and thus speeding up processes in the warehouse is to use horizontal carousel storage systems which transport the required items directly to the order picking area. The automatically managed process of conveying products to the workstation means that employees can concentrate on order picking and packing tasks, which leads to higher speeds and improved accuracy. In addition, warehouse employees no longer have to embark on lengthy walks to retrieve goods located all over the warehouse, which significantly reduces the distances they have to cover while also improving ergonomics in the workplace.