DC Velocity - January 2019

Str at e g y OMN I CHANN E L CO MM E R C E

Cost of final-mile delivery
Fulfillment & delivery labor availability
Managing order volume growth
Delivery speed required by customers
Availability of local inventory
Major Challenge Moderate Challenge Minimal Challenge

0%

39 48 13

33 52 15

28 50 22

22 46 33

21 36 43

20% 40% 60% 80% 100%

(Some numbers add up to more than 100 percent due to rounding.)

RESPONDENTS FROM 61 RETAILERS WERE ASKED TO RANK THE DIFFICULTY LEVEL OF A VARIETY OF POTENTIAL URBAN FULFILLMENT CHALLENGES.

HERE ARE THE TOP FIVE.

on the SRSC Report, see the sidebar on page 43.)

URBAN FULFILLMENT CHALLENGES

Urban fulfillment is not simple. Retailers in the SRSC survey identified five primary urban fulfillment challenges. (See Exhibit 1.) While final-mile cost, labor availability, and volume growth are universal omnichannel challenges for all locations, the challenges associated with delivery speed and inventory placement are different for urban fulfillment than they are for suburban or rural areas. That’s because these challenges are shaped by the area’s infrastructure. In urban areas, smaller store footprints with limited storage space make inventory availability more challenging, while minimal parking, heavy traffic congestion, and growing restriction of delivery vehicle size, stop times, and schedules make it hard to ensure fast delivery. These infrastructure concerns are less of a factor for suburban and rural areas.

Delivery speed. Although two-day delivery has become the de facto standard for e-commerce, customers have increased pressure on retailers to provide next-day and even same-day delivery for omnichannel orders. One SRSC interviewee stated: “We have next-day shipping in play, and we are working toward same-day delivery capability.” This pressure is especially intense from urban customers because they tend to hold less “inventory” in their smaller living spaces.

The good news: Faster delivery can be more achievable in urban markets. Thanks to greater population density, urban customers are generally closer to store inventory than suburban and rural customers are to a centralized distribution center (DC) or suburban store location.

High customer density in the urban setting also allows retailers to consolidate customer orders to achieve delivery economies of scale and some relief from prohibitive last-mile delivery costs.

The not-so-good news: There are potential problems associated with every possible fulfillment method for omnichannel orders in an urban setting. If customers choose to pick up at the store, customer parking may be extremely limited. If retailers are responsible for final-mile delivery, customers may all want their deliveries during the same time window and traffic congestion may impede timely delivery. Additionally, big orders and bulky products that require larger delivery vehicles can be especially troublesome in an urban setting where parking is limited.

Inventory availability. The growing expectation for rapid delivery of omnichannel orders makes inventory proximity to the consumer a critical success factor. A supply chain executive explained: “Having inventory close to your customers is very critical for a short delivery time.” Unlike rural and suburban areas, which can rely on regional fulfillment centers and large stores, urban omnichannel fulfillment runs up against capacity constraints at every turn. There is limited storage capacity for inventory in urban areas. Full-scale distribution centers simply do not exist. To ensure availability and a broad selection, retailers may fill orders from large distribution centers outside of the urban area. This, however, can increase delivery times.

In response, many retailers have chosen to fill orders from their urban stores. This allows for rapid delivery but creates a new set of challenges to conquer. Forecasting