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Cliff Holste

Supply Chain Digest
Material Handling Editor

Logistics News - Sorting It Out

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

June 21, 2017

Sorting It Out : E-Commerce & Next Day Delivery Go Hand-in Hand


Free Next Day Delivery – What Does It Cost?

 

Some time ago I placed an internet order for a new office phone and a combo-pack set of ink cartridges for my printer from a well known office supply retailer. However, before deciding on the type of phone I wanted, I visited the store in my neighborhood to check out the various features and benefits available. I found a phone that satisfied my requirements, which was loaded with features I will probably never use but, just so happened to be on sale for 30% off.

 Later that same day I found that the phone I wanted was being offered on the stores ecommerce site for the same discounted price offered in the store. However, as I suspected, the cartridges were selling below the store price. In addition, I was able to redeem on-line shopping coupons for additional savings. I placed my order at about 2 PM. The package containing my complete order arrived just after 3 PM the next day. 

I did not request next day delivery nor did I need next day delivery. It was provided by default free of charge so long as the order exceeded $100.00 and was received prior to the cutoff time.


Holste Says...

No doubt companies will continue to offer free next day delivery, but at an ever increasing cost to themselves and the supply chain in general.

What do you say?

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It never ceases to amaze me that some companies can manage to deliver merchandise the day after being ordered, from a location 100’s of miles away, and do it for FREE!

Retailer’s who offer, and in some cases guarantee, next day deliveries have no way of knowing how many orders they will receive on any given day. It just brings a smile to my face to know that today’s modern DCs can process and deliver orders so quickly and efficiently. 

It appears that in today’s ecommerce world, next day delivery has become a normal expectation. 

That got me thinking – “What Does it Cost and Who’s Paying For It”? 

To get a clear vision of who’s paying for this “free” expedited service – look in the mirror! I’m guessing that we are all paying a little extra every time we make a purchase, even those among us who have been gifted with the ability to plan ahead and/or those who prefer to shop and buy from the store. It’s become a built-in cost of doing business in some ways similar to the cost associated with accepting credit cards. 

The office supply retailer I placed my on-line order with has several small ecommerce DCs strategically located throughout the country. This makes it possible to ship each customer’s order from a regional DC. Each of those DCs is equipped with the most up-to-date logistics systems and networking technologies. This provides them with the flexibility to ship from the available inventory of any in-network DC or store. 

Based on the amount of sales promotions and incentives we all receive encouraging us to purchase on-line, it probably cost less to process internet orders from a regional DCs than it does to sell direct to customers from neighborhood stores with all of their overhead expense. As mentioned above, I did visit my neighborhood store where a sales associate took time to explain the various phone features and options. In this case it was important to me to see the phone prior to making a purchase decision, however, not a factor in buying the ink cartridges that my printer requires. 

There are several indirect cost challenges associated with providing direct sales from the DC. At the DC, just like at the store, how many hours are lost waiting for the orders or customers to come in? How many times each day are DC managers forced to search for fill-in work to use up the work shift hours? How many employees leave because they cannot plan their lives around the erratic DC work schedules? 

Aside from absorbing the premium shipping cost, it could be that the real on-going cost of next day delivery is in not being able to: 

  • Schedule staffing to meet a work plan,
  • level activity over an 8-hour shift,
  • spread flow over multiple shifts to reduce capital investment,
  • create efficient order batches for picking,
  • and, not knowing when the workday will end.

Most retail employees are prepared to work unexpected overtime every once in a while. But, when the end of every day is not certain, it disrupts their lives, keeps them from being able to pick up their kids from school or childcare on time and their families from being able to plan on them. 

These are the on-going costs that are being absorbed in DCs and passed along through the supply chain because we've made next day delivery the norm.  

Final Thoughts 


No doubt companies will continue to offer free next day delivery, but at an ever increasing cost to themselves and the supply chain in general. As for putting the next day delivery “Genie” back in the bottle - as they say in New York City “Forget About It!”


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