The last mile: Congestion or collaboration?

The boom in e-commerce brings unprecedented opportunities for retailers; everyone with a smartphone, anywhere in the world, is a potential customer.  But as volumes rise so does the strain on supply chains. It was a paradox highlighted during the inaugural and interactive conference, e-Tail delivery, organised by WBR in London.

By Helen Armstrong

eCommerce sales in the European Union are set to rise to €477 billion in 2015, according to E-Commerce Europe. Year-on-year sales are rising by about 15%.

“E-commerce offers many opportunities but it is logistics that will be the key enabler in this fragile world,” said Peter Ward, CEO UK Warehousing Association and conference chairman.

The challenge for retailers is to deliver the expected level of customer service. More parcels leads to more vans in urban areas, leading to more congestion. “There just isn’t enough tarmac. It’s not sustainable,” said Ward.

Delegates agreed that the delivery solution for the last mile depends on the product and customer, yet still there is a tendency to over offer. “No one size fits all,” he said. It depends on the needs of the customer on that particular occasion. If asked, many customers will say they want next day delivery but in reality the majority will settle for a delivery two or three days later if it is free of charge and delivered on the day promised. Managing customer expectation is key and it doesn’t have to be more complicated than necessary. “It’s about giving customers information but making it understandable too,” added Karen Gibson, senior manager, of Asda.

In-house deliveries

However, as more and more retailers do feel the need to protect their brands, they are turning to in-house deliveries. Stephen Richards, Director of Business Expansion/Logistics of AO, Germany, explained that as an on-line retailer of white goods and more recently TVs, it was necessary to go the last mile but optimising that is a constant challenge. “We started our business 15 years ago. We wanted to push our retail offer but we couldn’t find a 3PL willing to provide the level of service that we offer. We are hyper about our brand so six years ago we brought the distribution in-house. The last mile is an integral part of our business and if we a launch a new product or initiative we engage logistics right from the start,” said Richards.

“We are creating delivery options but getting people to drive the trucks is difficult and this will only get worse as on-line sales increase. It is a problem that retailers are going to have to fix together.”

Collaboration

Ward predicted that collaboration to bring about shared use of vans will be the next evolution. “Although there is a trend towards in-house distribution we need dynamic collaboration between shippers and suppliers wanting to fulfil the same customer expectation,” he said.

Also, more trucks require more drivers but getting the right driver is top of agenda for many companies. “It’s not a case of replacing an older truck driver with a younger one. The new one also needs an entirely new set of skills but we won’t get the skills required at the current salary levels. Someone is going to have to pay more,” he said.

Calum Lewis, supply chain operations director UK & I, Lego, agreed that the industry needs to think about coordinating deliveries to get a sensible distribution. He also pointed out that collaboration sounds like a soft option but in reality those involved have to make hard choices. “It requires negotiation and bringing challenges to the table in order to find the right solutions. That is not always nice.”

The conference also heard that retailers who want to expand internationally are often deterred by cross border barriers; legal uncertainty, import taxes, customs duties and the cost of delivery and, if the product is returned, the same in reverse, all present hurdles.

Luis Teixeira, Global Director of Operations, FarFetch, a high tech company providing a marketplace for over 300 luxury fashion boutiques around the world, said that the choice of carrier had a huge impact on costs. “When we started our business we used the big carriers. Now we have a much bigger team working on this and we specialise distribution based on product and country.” He told delegates that the key was to be fast, agile and connected.

Art of omnichannelling

The conference was also a reminder that even in a digital market place it’s people who still make the difference.  David Crellin, Head of Online operations development, Sainsbury, said omnichannelling is about balancing online and in-store. You don’t want brilliant customer service online but have a poor offering in-store.

“There is a science and art to balancing capacity and efficiency and improving customer service. It’s about people. You need to have good relationships between on-line fulfilment centres and local stores. Integration at a human level is much more important than systems,” he said.

Getting employees to recognise the benefits of omnichannelling was also discussed.

In-store staff often perceive the ‘click and collect’ system whereby customers order online and collect in store as the competition. However, there are their various ways to allocate these sales, such as via postcodes, and several delegates pointed out that employees should see omnichannelling as an opportunity. As customers come into the store it offers the opportunity to sell more items and it is a strong incentive to make store stock management more accurate.

Online psychology

With a few tips on how to improve the customers online retail experience Lluis Martinez-Ribes, Associate Professor (Marketing & Retail innovation), ESADE Business School, outlined the phycology of shopping online. “98% of smart phone users have the phone one metre from their body, 24 hours per day! Therefore the marketing goal is to bond the consumer with phone!” he said.

And having established that more pleasure is gained by ‘seeking’ than by actually ‘liking’ the product once it arrives (based on the understanding that dopamine is released during a pleasurable experience), Lluis said, “It raises the question: Is my sales interface a dopamine provider? Is the digital confirmation that the product is on the way a moment of pleasure? Does opening the box provide a dopamine shot? It should do. Purchasing should be fun and require minimum effort. If that is the case, the consumer is more likely to want to do it again.”