DC Velocity - December 2014

88 DC VELOCITY DECEMBER 2014 www.dcvelocity.com THERE ARE NUMEROUS EXAMPLES OF TRADITIONAL solutions being applied to nontraditional problems. The latest comes from the nascent but fast-growing world of home delivery services, a field the retailing ecosystem is still trying to come to grips with.

A survey by consultancy Retail Systems Research, prepared in cooperation with Descartes Systems Group and in partnership with DC VELOCITY and CSCMP’s Supply Chain Quarterly, is perhaps the most extensive analysis to date of two major challenges confronting everyone who makes, distributes, and moves goods: how to manage in a digital world where direct access to consumers is more common than ever before, and how to incorporate flexible omnichannel strategies into a rigid model built around distributing and delivering into one channel.

The survey, “The State of Home Delivery 2014,” queried roughly 100 companies engaged in home deliveries. The universe was divided into roughly three equal parts: retailers, third-party logistics service providers (3PLs), and manufacturers and distributors. All stakeholders, naturally, brought their own biases into the exercise based on their capabilities. Retailers, who outside of furniture and appliances never paid much attention to home delivery supply chains, were more interested in positioning the service as a competitive differentiator than a profit center. Their suppliers saw things differently.

Logistics service providers were more likely than retailers and manufacturers to pass on the costs of hitting narrow delivery windows. As for technology, retailers and manufacturers were more interested in simpler user interfaces and better training to improve their skills. 3PLs, by contrast, believe they already have a grasp on the technology and are more interested in advanced capabilities like route optimization.

The survey’s authors, noting that each participant starts “from
a different level of maturity,” offered up a unique set of recom-
mendations for each sector. The common thread among the rec-
ommendations, though, was that they smacked of good, old-fash-
ioned business principles. For instance, the authors advised
retailers to consider passing on costs to customers, noting that
consumer expectations for narrower delivery windows and high-
touch deliveries could make pass-throughs unavoidable. They also
urged retailers to look more closely at drop shipping despite their
traditional reluctance to do so. And they warned retailers against
investing in technology as a “proxy” for process, repeating the
time-honored maxim that the world’s best technology can’t over-
come a poorly designed process.

Manufacturers should get to know their customers better, the authors wrote, noting that these respondents seemed to downplay the importance of consumer expectations for shorter home delivery windows. Technology investments should be made with flexibility in mind, rather than efficiency. Boosting utilization of existing capacity will be difficult in a world of ever-increasing customer demands, the report said. By contrast, using technology to improve flexibility will add value to the customer relationship and generate more revenue opportunities.

3PLs must make an effort to
understand the needs of the ulti-
mate customer, the authors said,

noting that service providers don’t seem to grasp the influence today’s consumers wield over retailers. Although 3PLs are skilled at home deliveries, they have been providing this capability under an “old-world” retail model in which the only deliveries consumers are willing to pay for are those involving big-tick-et items, the authors said. That model has fading relevance in today’s digitized retail environment, yet many 3PLs still view the world that way, and their cultures may be resistant to change. If 3PLs focus their resources and expertise on meeting the dynamic needs of retailers and their customers, everyone will win. If they can’t break out of their cultural box, much money will be left on the table.

Another timeless principle came through in the report: Be patient and realistic. Folks in the supply chain may be overstating their ability to execute the direct-to-consumer model. If so, they risk the wrath of an increasingly unforgiving consumer. “We strongly advise all companies to do a sincere self-assessment of capabilities vs. their peers,” the authors said.