What’s Next For e-Fulfillment?

“The report of my death was an exaggeration.”

Mark Twain wrote that famous line following the publication of his obituary in 1897. The same might be said of brick and mortar retailers, if they play their cards right in the ongoing war for online customers, according to Rob Howard, CEO of Grand Junction.

“For the last few years, pure play ecommerce has been sexy with the investment community,” Howard says. “Everyone is down on brick and mortar. But with services like same day delivery coming to the forefront, brick and mortar has some real advantages over pure play ecommerce if they can leverage their stores to improve customer service levels.”

Howard has more than a passing interest in the evolution of e-fulfillment. His company offers a software platform for managing couriers and rolling out local delivery programs – think of it as a TMS with a community of shippers focused on the very, very last mile. At the same time, he has taken a hard look at some of the offerings, such as eBay’s recent roll out. You can read some of his thoughts on the myths of same day service on Talkinglogistics.com.

In fact, our conversation started with a discussion about eBay’s same day delivery service, eBay Now. But we quickly switched gears to how quickly the sands are shifting when it comes to online order fulfillment and what the future is likely to look like. A hint: it’s not about the distribution center. Instead, it could center on how well brick-and-mortar retail executes on in-store fulfillment and local delivery - services that pure e-commerce retailers will find difficult to match.  Here’s Howard’s take.

One or two hour delivery is neither sustainable nor scalable: In Howard’s view, one-to-two hour delivery is a competitive differentiator because, at the moment, it’s not a service that Amazon can offer. However, it’s a premium service that ultimately will need to be priced as a premium service, and is not one that many people crave.

Same-day delivery is here to stay: That’s because Amazon is driving the same-day delivery bus, just as Amazon led the way on free shipping with Amazon Prime. By building a distribution infrastructure near major metropolitan areas, Amazon can provide same-day service at a cost that is competitive with UPS ground delivery, according to Howard’s analysis. “I believe Amazon will roll out same-day delivery as a standard offering for Prime customers,” he speculates. “They’ve put so much inventory so close to so many metropolitan areas that it will be hard for everyone else to match them.”

The brick-and-mortar advantage: Same-day delivery could be the service offering that levels the playing field for brick-and-mortar retailers versus their pure play e-commerce competitors. Why? Because most Internet-only retailers have just one or two distribution centers to service the country. They can’t provide same-day delivery from a limited number of locations. Brick-and-mortar retailers, on the other hand, can leverage their local stores as micro-distribution centers. “If you have local inventory,” Howard believes, “you can leverage local parcel delivery services to do same-day delivery, even if you don’t have your own fleet.” The challenge is for retailers to develop inventory visibility systems across their network that will allow them to commit to an order, and order fulfillment systems for their stores that are as efficient as filling orders from their distribution centers. “The good news is that retailers have made a lot of progress in those areas,” Howard says.

What’s next: Howard envisions a Chinese menu of offerings that includes:

• Two-day delivery outside major metropolitan areas, utilizing UPS, FedEx and USPS.
• AM/PM deliveries as a standard offering in major metropolitan areas – a customer orders in the morning and gets a delivery in the afternoon or orders in the afternoon and gets a delivery the next morning. “Retailers will never match Amazon’s costs because Amazon has so much volume,” Howard says. “But companies such as Grainger have demonstrated that AM/PM is relatively inexpensive. The end game is service with a lower cost model.”
• Scheduled delivery, which would allow consumers to schedule delivery within a one- or two-hour time window. Done right, retailers would be able to build route stops that make economic sense based on delivery times. Howard believes this is the next offering from Amazon. “They are getting so far ahead of the competition in logistics that it’s going to be a long-term advantage for them that will be hard for others to match,” he says.
• One-hour delivery may be tough to sustain the way eBay is doing it Now, by sending messengers to stores to buy merchandise they then deliver. But Howard believes it has a limited future as a premium offering with a premium price.

It really is a different look at customer service. What will be most interesting is how the role played by materials handling systems evolves in this new environment.

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