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YOUROMNI-CHANNELCUSTOMEREXPERIENCE
Same-daydeliverywhitepaper
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Same-daydelivery:Thenextevolutionarystepinparcellogistics
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Same-daydeliveryhasthepotentialtofundamentallychangethewayweshop.Itintegratestheconvenienceofonlineretailwiththeimmediacyofbricks-and-mortarstores.
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Onlineretailersareexpectedtobenefitfromreduceddeliverytimeasalmostimmediateproductaccessimprovestheirpositionversusstationaryretailers,andmakesthegreaterchoice,higherconvenienceandoftenlowerpricesofonlineshoppingevenmoreappealing.Bricks-and-mortarretailersinturnhaveauniqueopportunitytocombinetheirexistinglocalinfrastructurewithane-commercechanneltooffersame-daydeliveryonabroadscale.Amultichannelapproachcouldenablethemtowinbackcustomerswhoarebecomingincreasinglyfocusedononlineshopping.
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Themajordriversatworkinthecurrentlandscape
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1. Same-daydeliverycombinestheconvenienceofonlineshoppingwiththeimmediateproductaccessofstationaryretail
Imagineorderinganewpairofshoesorgroceriesfordinnerinthemorningandreceivingthegoodswhenyoureturnhomefromwork.Theworld’slargestretailers,includingAmazonandWalmart,arenurturingthisvisionandexperimentingwithinnovativedeliveryconcepts.Butcansame-daydeliveryreallybecomeastandarddeliveryoptionforthemasses,orwillitmerelyremainanoptionforalimitednumberofimpatientconsumerswithdeeppockets?
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McKinsey & Company
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Same-daydeliveryasthenextevolutionarystepinparcellogistics
The“lastmile”—thefinaldeliverysteptotheconsumer—isgainingimportanceduetotherisingshareofonlineretail.ThelatterhasturnedintoamajordrivingforceofB2Cparcellogisticsandtriggeredintensiveevolutionoftheserviceofferingtowardsgreaterconvenience(Exhibit1).Alongsidealternativepickupanddeliveryoptions(e.g.,locker-boxesandparcelshops),speedisthemainpushinthisevolution.Next-dayortwo-daydeliveryiscurrentlytheindustrystandardinalldevelopedcountries,butthenextevolutionarystepisaffordablesame-daydelivery.
Withsame-daydelivery,ordersaredeliveredwithinafewhoursafterpurchasingthem,orinachosentimewindowonthesameday. “Same-daydeliveryisagamechangerbecauseitcombinestheimmediateproductavailabilityofretailwiththeconvenienceoforderingfromhome.”
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Strongfundamentaldriverssupportthegrowthofsame-daydelivery
Themarketforsame-daydeliveryisfueledbyunderlyingmacro-trends,includingincreasingworldwideGDPpercapita,rapide-commerceadoption,urbanisation,andchangingconsumerexpectations.
Same-daydeliveryrequiresacriticalmassofconsumerswithsufficientfinancialresourcestopayforsuchapremiumservice.RisingGDPpercapitabecomesevenmorecriticalwhenitappliestolargemetropolitanareas.Accordingly,therelevanteconomicunitsaremetropolitanareasratherthannations.Yettheexistenceofdenselypopulatedareaswithextensivebuyingpowerisnotenough.Ahighlevelofe-commerceadoptionisaprerequisiteforsame-daydeliverytoactuallytakeoff.
Thesedevelopmentsareaccompaniedbyrisingconsumerexpectations.Consumersaredemandingevermoreconveniencewhentheybuyonline,particularlywheredeliveryisconcerned.Theywanttohavemultipledeliveryoptionstochoosefrom,andtoreceivetheirproductsasfastaspossible.Onceconsumershaveexperiencedasuperiorservicelevel,theyareusuallyreluctanttoreturntothepreviousinferiorlevel.FewpeoplewouldbewillingtowaitfourdaysforadigitalcameratheyhaveorderedonlineiftheycangetAmazontodeliveritthenextday(assumingbothoptionsarefree).Judgingfromrecentsurveyresults1 ,youngergenerations(e.g.,millennials),peoplelivinginsmallhouseholds,thoseworkinglonghours,andconsumerswithhigherincomesareamongthoseparticularlywillingtopayformoreconvenience.
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McKinsey & Company
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1. S
2. ConsumerPerspective:Willingnesstopayforsame-daydelivery– attherightprice
Consumersseemtoperceivesame-daydeliveryasattractiveifitcostslessthan7to8percentofthebasketvalue.
Anactualconversionrateofmorethan30percentoncedeliverycostfallsbelow7percentofthebasketvalueorthevalueoftheentirepurchasemade.Theconversionrateappearstobethesameforallproductcategories.Thosewithhighaveragebasketsizes,e.g.,consumerelectronicsareeasiertopenetratesincethedeliverycostsasapercentageofthebasketvaluearenotassignificantasthoseforclothingorder.
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McKinsey & Company
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1. S2. e3. RetailerPerspective:Same-daydeliveryasacatalystforonline
sales
Same-daydeliveryisabigopportunityforallretailerstoimprovetheirservicelevel,butrequiresahighdegreeofsophistication.Majorchallenges,suchasreal-timeproductvisibilityacrosswarehouses,veryshortfulfillmentlead-timesandflexiblelast-miledelivery,havetobeovercomewhilebringingcostdowntoalevelthatconsumersarewillingtopayfor.LargeretailersgeneratingmostoftheB2Cshipmentscouldtheninstitutionalizesame-daydeliveryasafast,localised networkdistributionmodeindenselypopulatedareaswithacriticalmassofonlineshoppers—butwouldthenalsoneedtohaveanextensive,accessible,andstandardizeddistributionnetworkthatoperatesatanacceptablecost.
Retailersareexpectedtoreapadditionalbenefitsfromofferingsame-daydelivery.ExperienceatAmazonshowsthattheoptionofsame-daydeliveryaloneactuallyincreasespurchaseconversionduringthecheckoutprocessby20to30percent,althoughnoteverycustomeractuallyoptsforsame-daydelivery.Thesurveyresultssupportthisclaim:morethanhalfofrespondentswouldbuyonlinemorefrequentlyiftheywereofferedasame-daydeliveryoption. “Agooddeliveryexperienceisakeypartofkeepingourcustomershappyandencouragingrepeatpurchasesaswellashelpingtobuildbrandwarmth.”(NickRobertson,CEO,asos.com) Theavailabilityofenhanceddeliveryoptionshaspositiveeffectsoncustomerloyaltyandreducesthegoodsreturnrate,accordingtoAmazon.Areductioninthereturnrateisveryappealingtoonlineretailerssincethecurrentshareandattributedcostofreturnsisasignificantburdenontheiroperationsandfinancialresults.
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1. S2. e3. RetailerPerspective:Same-daydeliveryasacatalystforonline
sales- CONTINUED
Tocapturethebenefits,retailerswillhavetosubsidizesame-dayservicesfortheforeseeablefuture.Same-daydeliverycostschargedtoconsumerscurrentlyrangefromaboutAUD$15uptoAUD$50pershipment,butthewillingnesstopaysuchhighpricesislimitedaccordingtothesurvey.Consumersareusedtosubsidizedshipping,andarereluctanttopayextraforit.CompaniessuchasAmazonshapedthee-commercemarketbyeducatingcustomersthattheydon’thavetopayforshippingatall.
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1. S2. s3. 44. LogisticsPerspective:Incumbentlogisticsproviders,new
entrants,andretailersthemselvesaredevelopingsame-daydeliverysolutions
Same-daydeliveryisaconsolidationplay.Alargenetworkwithsufficientvolumewillbenefitfromsignificanteconomiesofscaleandoutperformsmallernetworks.
Thecomplexchallengeofprocessing,fulfilling,anddeliveringanorderwithinafewhoursrequiresnewtypesofnetworks.Thecurrentprocessesusedbyparcellogisticsprovidersarenotsuitedtosame-daydeliveryatscale.Moreflexiblecitycouriers,ontheotherhand,aretoosmalltodealwithlargeretailervolumes.
Thecreationofasame-daydeliverynetworkcomesatahighcost.Largevolumesineachdeliverydistrictneedtobeachieved,whichisdifficultinthebeginningand—dependingontheoperatingmodel—mayrequireextensiveupfrontinvestment.Inaddition,thespeedatwhichthedeliveriesaremadenecessitatesamoresophisticatedassetandcapabilitybasethatinevitablyresultsinahigherpricepointforthelogisticsservice.
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Parcellogisticsprovidersarerethinkingtheirtraditionaloperationalmodelstoenablesame-daydelivery
IncateringtotheneedsofthegrowingB2Csegment,parcellogisticscompaniesareincreasinglyfocusingonconveniencefeaturessuchasalternativepickupanddeliveryoptions(e.g.,parcellocker-boxes),flexibledeliverytiming(i.e.,scheduleddelivery),anddeliveryspeed(i.e.,same-daydelivery).ThesecompaniesarethenaturalsuppliersofB2Cparceldeliveryservices.Theyderivetheirstrengthfromlast-miledeliveryviaahub-and-spokesystemwithovernightsortingandfixeddeliveryroutes.Theirinfrastructureandprocessesareoptimizedfornext-daydelivery,sooneofthekeychallengeswillbetoenhanceexistingassetsandcapabilities.Parcellogisticsprovidersstruggletooffersame-daydeliveryasitrequiresflexibleintradaypickupanddeliverywithamaximumofonetransitionpoint.
Fromatheoreticalstandpoint,themostpromisingapproachistheintroductionofaneveningdeliverywave.However,anytimewindowneedstobelargeenoughtoensurethatsufficientparcelvolumeiseconomicallyviable.ProviderscanbuildontheirexistinginfrastructureandfeedinshipmentsfromMultipleretailerslocatedtogetherclosetocustomershomestoincreasethecapacityutilizationoftheadditionaldeliverywave.
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McKinsey & Company
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Brokersofcouriercapacityareenteringthemarkettodevelopplatformstoorchestrateexistinglogisticscapacity
ConventionalB2B-orientedcitycourierscandeliversame-day,buttherearethousandsofthemandtheyaretoosmalltobeanadequatepartnerforretailers.Anewtypeofplayerisenteringthemarkettomakeexistingcouriercapacityaccessibleforretailersinascalablemanner.Technologystart-upssuchasShipit,aggregatelocalcouriercapacityonabrokerplatformtoformflexiblecouriernetworks.Retailersthatareintegratedwiththisplatformcanoffersame-daydeliveryasanadditionaloptioninthecheckoutprocessoftheironlineshops.Singleordersaredynamicallyassignedtoacourierwithfreecapacityfromthenetwork,whichpicksupanddeliverstheorderwithinacoupleofhours.Theirareclaimsthatpoint-to-pointdeliveryusingaflexiblecouriernetworkislesscostlythanhub-and-spokesystemsfordistancesoflessthan15km.Themaincostdriversfordeliveryviasuchanetworkarevariablecostperhourandthedistancebetweenstops.Withsufficientliquidityinthesystemandanincreasingpickupfactor,deliverycostsdecreasetoalevelbelowthatofjustusingthecheapestsubcontractors.
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2. C3. C4. c5. Economics:Same-daydeliveryisascalegame
Largeshipmentvolumesarecrucialforallformsofdelviery providersbecausetheycanreducecostssignificantly.Whilecouriernetworkscanonlyreachhigherconsolidationonavehiclelevel,parcellogisticsproviderscanalsoreducecostsviaprocessautomation.However,last-mileproviderscanonlyscaletheiroperationsiftheretailerhasadequateinterfaces.
Onlytechnologicallyadvancedretailersandlogisticsproviderswillbeabletooffersame-daydelivery
Inthecurrentmarketenvironment,fourprerequisitesneedtobefulfilledtoenablesame-daydelivery:productavailability,real-timeproductvisibility,fulfillmentcapacity,andflexiblelast-milecapability.
First, productsneedtobelocallyavailable. Dependingupontheoperationalmodel,regionalproductavailabilitycouldbesufficient,especiallywhentherespectiveretailergeneratesenoughvolumetojustifyfrequentpickup/deliveryroutestothemainurbancenters.Thatsaid,same-daydeliverystillremainsaservicelimitedtourbanizedareas,andisrarelyavailabletotheentirepopulationofacountry.Multichannelretailersalreadyhavelocalproductavailabilitybecausetheymaintainanetworkofstores.Onlineretailers,ontheotherhand,willfirstneedtoinvestinbuildingupanetworkoflocalurbanwarehouses.Second, retailersneedtohaveareal-timeoverviewoftheirinventories acrosstheirwarehousesandoutlets,otherwiseitwillnotbepossibletodeterminewhetherthegoodsareavailableforsame-daydeliveryduringthecheckoutprocess.Manyretailersstillstrugglewiththishurdle,whichrequiresthattheyinvestmoreintheirITinfrastructures.Thelogisticsproviderneedstobeinformedofwhereandwhentopickuptheshipmentviaareal-timeinterface,withtheinformationpreferablybeingfeddirectlyintotherespectivetransportationmanagementsystem.
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Third, thepickingandpackingprocessesneedtobefast, andfast-trackedoverregularorderswherevernecessary.ExperienceatAmazonhasshownthatsignificantinvestmentinthelogisticsinfrastructureisnecessarytoreduceleadtime.Retailersplanningtoshipfromtheirstoresfirstneedtodevelopthecapabilitytoefficientlyfulfilltheordersin-store.Theintroductionofclickandcollectservesasaprestagetotheintroductionofsame-daydelivery.Fourth andfinally,last-miledeliveryneedstobeflexibleenoughtopickupanddeliverordersadhoc ormultipletimesthroughouttheday. Dynamicreroutingusinggeo-fencingallowslogisticsproviderstoinstantlyrespondtonewshipments.Forlogisticsprovidersusingatransitionpoint,theabilitytofast-tracksame-daydeliveryshipmentsinsortingstationsiscrucial.
Oncethesefourprerequisiteshavebeenfulfilled,same-daydeliveryturnsintoapuregameofscale.
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2. C3. C4. c5. E6. Parcelnetworkscanbeatcouriernetworksonvariablecostper
shipmentoncetheyreachedsignificantscale
Theeconomicsofsame-daydeliveryaremainlydrivenbythedegreeofshipmentconsolidation.Variablecostsperunitdecreaseasthenumberofshipmentsperdayandcitygrow.Aretailerfleetoperatingseveraltimewindowsduringnormalbusinesshourshasconsistentlyhighervariablecostspershipmentthanmulti-userplatforms.
Inaddition,itismuchmoredifficultforasingleretailertoreachsuchscaleinasinglecity.Aparcelnetworkofferingsame-daydeliveryusinganeveningwavecanconsolidateshipmentsfrommultipleretailersandismuchmorelikelytoachieveprofitability,assumingthatretailerspayanaveragepriceperdelivery.
Variablecostsdeclinemuchmorequicklybecausedeliveryroutescanbeoptimizedandcapacityutilizationisexpectedtobehigherthanwithretailerfleets.Acouriernetworkoperatingtheentiredaystartswithsignificantlylowervariablecostsatlowervolumes.Increasingshipmentvolumeshaveamuchweakereffectonvariablecostssincethecourierscanmainlyachieveconsolidationonavehiclelevel.
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2. C3. C4. c5. E6. P7. Outlook2020:Same-daydeliverycouldbeagamechangerin
retaillogistics
Thedevelopmentofsame-daydeliveryisdrivenbythetrendsoutlinedinthisreportaswellasthesophisticationofretailersandlogisticsproviders.Asthesefactorsdiffergreatlydependingoncity,same-daydeliveryisboundtodevelopatvaryingspeeds.
Marketdevelopmentdependsone-commerceadoptionandgeographicalpopulationdistribution
Same-daydeliveryislikelytobecomeavailableatmostretailerswithanonlinechannelonabroadscaleinurbanised areas.Itisfullysubsidised onceacertainbasketvaluehasbeenreached.
Economiesofscaledrivedownthecostofsame-daydeliveriessignificantly,reachingalevelstillhigherthanregulardomesticshipmentsbutmuchlowerthantoday.Multi-usersame-daydeliverynetworksrunbyparcellogisticsprovidersreachenoughscaletoincreasetheconsolidationfactortoabout10to12dropsperhourandoperatemultiplepickupanddeliverywavesperday.Standardnext-daydeliveryispartiallycannibalized,butthebroadavailabilityofsame-daydeliveryfurtherpropelstheadoptionofe-commerceasnewusecaseslikespontaneousonlinepurchasesemerge,andthusincreasestotalmarketsize.
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Same-daydeliveryofferslargeupsidepotentialforretailersandlogisticsprovidersalike
Theintroductionofsame-daydeliverywilltaketheonlineshoppingexperienceofcustomersinthemetropolitancitiestoanewlevelofconvenience.Theproductvarietyavailableonlinefromspecializede-tailers combinedwiththepricetransparencythate-commerceoffers(e.g.,viaproductsearchmachines)andsame-dayproductavailabilityisapowerfulcustomervalueproposition.However,giventheincreasedcomplexityofsame-daydeliveryacrosslogisticsoperations,pricesforsame-daydeliveryarelikelytoremainatalevelwellabovethecurrentpricelevelforstandardnext-daydelivery.
Retailershaveasame-daydelivery“sweetspot”withtheirexistinglocalinfrastructure,particularlyshopsandwarehousesinorclosetometropolitanareas.Theproximitytotheendcustomerenablesthemtoprovidecustomerswithdeliveryonthedayofthepurchase,ideallycombinedwithanoptionforatimewindow.Mostretailershavealreadyaddedane-commercechanneltotheirtraditionalbricks-and-mortarsalesapproach.Thecombinationwithsame-daydeliverycouldhelptowinbacksomeofthecustomersthathavebeenlosttoonlineshoppingoverthelastdecade.
Theunderlyingtrendsofincreasinge-commerceadoptionandurbanizationwillcreateastrongurgeforevolutionfromthecurrentnext-daystandardinB2Cparceltosame-day.
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Stateofplay– Australia2018
ü 48%ofonlineconsumerswantSame-daydelivery
ü 22%want3hourdelivery
ü 60%wantweekenddelivery
ü 52%wantafterhoursdelivery
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Game
Changer
GarryYovichNationalSalesDirectorDirectCouriersP:028437777M:0419228021E:[email protected]
Choice Matters
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