E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
Efficient shipping methods boost service, trim costs
Even with the rebound in online sales growth this year, retailers are still looking for ways to provide high levels of service to value-conscious consumers while keeping operating costs down. Nowhere is this more pressing than when it comes to delivering orders to customers.
Expediting deliveries of online orders is one of the strongest steps e-retailers can take to build lasting relationships with consumers, experts say. "Positively, this turns first-time buyers into loyal customers," Lauren Freedman, president of research and advisory firm The E-tailing Group Inc., says in her firm's "12th Annual Mystery Shopping Study."
The study of 100 large online retailers notes that merchants improved delivery performance in the fourth quarter of 2009 to an average of 4.05 days from 4.76 a year earlier. Such improvements make it more appealing for consumers to shop online, particularly when online merchants provide next-day delivery, Freedman says.
These improvements, however, raise consumers' expectations and put more pressure on merchants that don't offer expedited delivery.
The right mix of logistics technology and strategies can make all the difference in enabling retailers to compete on delivery, Terry Rowinski, vice president of operations at party supplies and costumes retailer BuySeasons Inc., said at the Internet Retailer Conference & Exhibition last month.
"Logistics systems need to facilitate least-cost routing to meet customers' expectations," he says.
As BuySeasons and other retailers have found, it pays to offer a range of delivery options, from expedited same-day or overnight shipping to standard shipping over multiple days—and with multiple pricing options. And with the right mix of strategy, shipping management technology and contracts with regional as well as national carriers, retailers can satisfy customers without busting their budgets. Carriers also are offering new services that let retailers burnish their eco-friendly credentials.
There are several parts of fulfillment and logistics systems for merchants to consider. An order management shipment should quickly process incoming orders and prioritize those slated for the fastest deliveries; warehouse management systems must ensure that inventory is arranged to facilitate fast storage of incoming goods and rapid retrieval of merchandise for efficient pick, pack and ship operations; labor management systems can support the right amount of workers on hand to process both incoming inventory and outgoing orders; and shipping management systems can help retailers choose the best carriers and routes for the optimal mix of delivery times and costs.
With the right mix of technology on hand to support a retailer's shipping needs and intended level of service, a retailer is in a better position to get the best available service from parcel carrier companies.
Effective systems for order management and overall warehouse management, for instance, can help a retailer maintain a flexible approach to dealing with carriers, experts say. Retailers that can organize their orders quickly each day by intended delivery schedules, for example, can ask a carrier to make multiple pickups from a retailer's distribution center. Overnight orders can be picked up early, while less time-sensitive deliveries are handled in later pickups, Rowinski says.
This can significantly improve a retailer's ability to offer same-day shipping and overnight or two-day delivery, he adds.
Ground versus air
To save costs while also offering expedited delivery services, retailers should check to see if available ground shipping can substitute for air shipments without going outside of targeted delivery times, Rowinski says. In many cases, he says, carriers offer one- or two-day ground shipping to particular destinations at a fraction of what air shipments would cost.
In addition to lower base rates for ground as compared to air, ground shipping also typically has lower fuel surcharges as well as lower supplemental charges for address corrections and residential deliveries outside of major metropolitan areas.
Rowinski gave the following figures for typical surcharges during his IRCE presentation:
- Deliveries to remote residential addresses: ground, $2.20; air, $2.50
- Address corrections: ground, $10; air, $11
- Fuel: ground, 5.5%; air, 8.5%
Another good way to minimize costs while maintaining expedited delivery services is by using regional carriers in addition to national ones, says Tim Sailor, principal of Navigo Consulting Group, which specializes in advising retailers on logistics technology and operations. Speaking along with Rowinski at IRCE, Sailor listed 13 major regional carriers that serve large sections of the U.S.
Considering their services in aggregate, the regionals provide deliveries from one to seven days from more than a dozen hubs to all parts of the 48 contiguous states.
"Regional carriers can provide next-day delivery, have later pickups and may be more cost-effective," Sailor says. In many cases they also provide relatively high levels of customer service, he adds.
An increasingly common option for retail shippers is to use carriers that integrate their delivery services with the U.S. Postal Service, which handles local small-parcel deliveries to consumers' addresses throughout the U.S. six days per week.
FedEx Corp., for example, now offers FedEx SmartPost, which forwards shipments of parcels of up to 70 pounds to the Postal Service for local delivery within two to eight days. The service, which also processes returns from consumers to retailers, is designed to cut overall shipping costs by bypassing bulk mail facilities operated by the Postal Service.
DHL Global Mail offers a similar service for packages up to 15 pounds, though it specializes in processing light-weight packages of up to five pounds. "We expedite mail to avoid most postal facilities between the shipper and the end customer," says Dave Loonam, vice president of domestic product management and marketing for DHL Global Mail.
At the same time, DHL also provides a web-based shipment-tracking tool that retailers as well as their customers can access for shipment status. The tool includes information on when each parcel shipped by DHL is scanned for receipt by the Postal Service, which enables retailers to run reports not only on the status of each shipment but on the percentage of shipments received by each postal facility in DHL's network.