Eyes on the prize

Technology is all well and good but what really counts is what you do with it.

MetaPack carrier services director Simon Croft says technology can be a game-changer. He says in-flight delivery gets great feedback from consumers because it gives them visibility of order progress and provides them with control.

"For retailers increasingly the aim is to use despatch scans to trigger messaging to the consumer. This creates visibility, connects the consumer with the delivery at the start and keeps them in the loop. The technology has been designed not only to enhance operational efficiency, but to extend that to improve the experience of the customer.”

What works for delivery applies equally to returns. Whether the retailer gets returns back as single items direct from the consumer or in bulk via consolidation, traditionally they don't know what they will get until it lands in the DC.

"In contrast, reverse logistics focuses on granular information about where the items are at any given point," explains Simon. "The advantage to the retailer is they can act quickly. They can refund immediately, keeping the customer engaged and amenable to a further sale. They will also determine what should happen to the returned goods, whether that’s sending them to the nearest store, adding them back into warehouse stock, or being incorporated into a specific promotional campaign, for example."

Click & Collect has been heralded as the saviour of the online retail model, as it takes some home deliveries out of the equation and makes it more like the traditional bricks and mortar shop. But you can have too much of a good thing. House of Fraser saw Click & Collect account for 40% of business over the 2015 Christmas peak but this huge volume caused customer satisfaction to dip, especially as people collecting parcels tended to cluster in lunchtime slots.

Again, superior visibility in the supply chain can help spot issues such as this before they arise, allowing retailers to encourage people to collect at different times.

Mikko Kärkkäinen, Group CEO, Relex Solutions sees technology helping to manage the click and collect from store model in advanced ways, for example, adding collection information to each store’s sales figures to support the supply chain by giving a better idea of which stores are the most popular collection points. 

"This data could be linked to assortment management," says Mikko. "If a certain item is ordered for collection from a particular store with a certain degree of regularity, that item could then be automatically added to the store’s assortment, saving on future delivery costs and ultimately protecting the businesses’ margins."

Logistics software provider Kewill says supply chain organisations that are unable to match the trend of greater visibility and tracking are in danger of alienating customers and losing revenue. Yet Sian Hopwood, senior vice president B2B operations says companies are not taking advantage. 

"There is still a lot of work to be done if industry is to take full advantage of this strategy. A recent survey of 537 companies worldwide found that 72 per cent do not have full visibility of their supply chain, demonstrating a key weakness in customer service postures."

Asked if cost was a factor in this low uptake, Sian replied: "It's more about perception than actual cost. For a long time, powerful supply chain solutions were pricey and only available to the largest enterprises. But cloud computing has changed that, eliminating the high upfront costs that used to come with on-premise logistics solutions. The cloud delivers affordable, subscription-based solutions, plug-and-play deployment and a fast ROI."

Perhaps take-up can be boosted with broader acceptance of standards? To create a modern and successful supply chain there are some areas that the industry needs to work together on – logistics, fulfilment and returns etc. By using industry standards and improving the physical fulfilment processes, retailers can make supply chain processes much more efficient. 

GS1 UK is a body that helps create and maintain standards around barcode and RFID technology, for example. Its supply chain solutions manager Andy Robson explains: "Knowing exactly where products and goods are at any time, where they have come from, and when and where they are due to arrive is key for a smooth and successful logistics process – this is facilitated by the use of GS1 standards.

"RFID is a great example of how standards evolve. In some ways, it’s just a more powerful barcode, but RFID technology is a key enabler of ‘single view of stock’, and it can store more data and multiple tags can be read in seconds while eliminating the need for ‘line of sight’."

For more on RFID see our interview with one of the market leaders SML Group.

Of course, the online retail market's problems cannot be solved solely by technology. The economics of the online retail market are often unbalanced.

LCP Consulting partner Emile Naus says: "The home delivery industry is under significant cost pressure from its customers – retailers. Cost to the retailer for a standard delivery is typically between £3.50 and £4.50 per parcel. So, while the consumer is being charged £2-3, the retailer is losing money on the transaction and therefore this puts pressure on carriers to reduce cost.  Against this backdrop, we expect the parcel to be picked up from a retailer’s distribution centre, transported to a hub, sorted, transported to a branch, put on a delivery vehicle and delivered to the consumer’s door; and often more than that. But, the consumer is only paying a fraction of this cost.

"As a consequence, home delivery businesses have been ruthless about cutting costs. But it is time to deal with the root cause: if we don’t pay for service, we should not be surprised we don’t get it."

Emile was speaking about the Dispatches programme that investigated a Yodel sorting hub a few months ago, but to be frank, while of us find the behaviour of some staff in the hub distasteful and inappropriate (kicking boxes etc), a speed-focused, low cost business model (which all parcel delivery is) will always cut some corners on quality and delicate handling.

Elephant in the room

While online retail's rise has cannibalised the traditional model, leading to untold disruption – not least in warehousing and logistics, the slightly frightening thing is that we may at a fairly early stage of a profound shift.

The online grocery delivery market is still relatively small but if it grows at the rate shown by non-food over the last five years, it will make the Harrods Hamper size disruption already seen seem like a Tesco meal deal.

LCP Consulting chairman Alan Braithwaite has been working on the issue with the logistics academic team from Cranfield School of Management as part of the U-Turn project is funded under the EU Horizon 2020 programme. The concern of the EU is to minimise the societal impact of food logistics in our increasingly congested cities through the identification and promotion of new operating models.

There were around 75 million retail e-commerce grocery orders placed in 2014; by 2019 that is forecast to grow to 170 million.

Alan says "Part of the project's work has been in-depth research into the grocery e-commerce market and the relative offers of the UK retailers. Along with some cost analysis, it has turned up insights which point to current methods being financially unsustainable in the face of growth to 170 million deliveries."

It costs around £20 to pick and deliver a grocery order. With the average minimum order standing at £40 including delivery charges, there is no way that minimum orders can be profitable. The basket size to cover the direct costs of fulfilment needs to be in the range £60 to £70 and the average basket size needs to be £80-112. Even then, after all the other costs are added in, net margins are very slender.

Alan continues: "Our previous modelling experience points to very limited cost reduction potential from increasing drop density – in simple terms the volume growth is unlikely to fix the challenging economics. Indeed the probability is that competition will make the commercial picture worse."

In the non-food sector, click and collect has taken between 30% and 60% of e-commerce volume, relieving the pressure, but is this feasible for food? Food orders are bulkier, they often require temperature control, it doesn't stack up as convenient option for consumers in most cases.

Alan concludes: "Emerging technologies, including fully automated systems, and new business models, including tighter collaboration with local authorities in major cities, will play a role in the future of grocery e-commerce. The alternative is long term financial disappointment and the potential for unwelcome regulation."