We expect a huge amount from delivery today. Consumers want to be able to order a product online and have it in their hands as quickly as possible. But last-mile delivery is difficult to get right. Perhaps it is not surprising therefore that our recent research – The last-mile delivery challenge: Giving retail and consumer product customers a superior delivery experience without impacting profitability – found that retailers’ delivery efforts receive a Net Promoter Score (NPS) of minus 9 on average:
- 59% of the consumers we surveyed said that they would not recommend the delivery services of retailers because the “price for delivery is too high”
- 47% pointed to the fact that they “can’t get same-day delivery of products”
- 45% said that there were too many occasions when the delivery was late.
Why are retailers struggling with delivery services?
Last-mile delivery is one of the most complex areas of retailers’ supply chains. Our research found that 99% of retail executives say online delivery orders are less profitable than in store. As online orders grow exponentially, this will have a significant impact on profitability. Last-mile delivery services account for 41% of supply chain costs, and retailers tend to only charge around 80% of delivery costs to customers. This creates a dilemma: provide a service that delights customers and achieves a positive NPS, but do so at optimal cost. Fortunately, there is an answer to this puzzle: automation. It offers the chance to achieve last-mile delivery efficiently and effectively while meeting customers’ need for speed.
Efficient and effective. Warehousing and sorting consume one-third of supply chain costs:
Therefore, warehouse and retail store automation offers a significant cost-cutting opportunity, delivered through lower fulfillment costs and high throughput of customer orders.
By reducing fulfillment errors, automation can also lead to fewer returns, thereby lowering delivery costs. For instance, when items are left out of an order by mistake, multiple packages must be sent out to remedy the error. This pushes up costs while at the same time depressing customer satisfaction. The automated warehouse at Ocado, a UK-based online supermarket, can fulfill a 50-item delivery in five minutes. Without automation, this same task would take two hours on average.
To seize this opportunity, companies are considering a number of options for warehouse automation, such as:
- Fully automatic, with a warehouse rail system where automated carts move and pick items
- Semi-automatic, where robots lift the rack with the products and take it to be selected and parceled
- Human-assisted, where the delivery carts provide human personnel with directions to the rack where the item is stored, accompany them, and help in item identification.
The need for speed. Capgemini’s research, which canvassed the views of close to 3,000 consumers, found that 55% will switch to a competitor in return for a faster delivery service. This means retailers need to think hard about their delivery models. According to the senior retail executives we also surveyed, the most popular option for two-hour deliveries is the storefront (chosen by 57% as the preferred fulfillment location). For same-day, the most popular option is the backroom of the store (preferred by 43%).
This implies that retail stores must also play the role of delivery center. The Alibaba store, “Hema,” is a hybrid design: store and distribution center. It uses overhead conveyor belts so that employees can send online customer orders to the delivery center. This is a great example of how automation can be leveraged to speed up delivery. Consumers within three kilometers receive grocery orders in just 30 minutes. Walmart is also experimenting with automated order fulfillment in a 20,000-square foot extension to a store in Salem, using robotics system “Alphabot.”
The prize on offer for superior delivery services
Great delivery services translate into higher customer loyalty. We found that those consumers who are satisfied with a delivery services are willing to pay for delivery membership while also increasing their spend:
It’s going to be a tough road to meet consumer expectations for delivery. But with automation, retailers can find a competitive advantage, and turn that minus 9 score into a plus 10.
Retailers need a holistic strategy with the right smart technologies and operating model to realize significant benefits through automation. To find out how automation augments delivery profitably, download our recently published report, The Last-Mile Delivery Challenge.