Stay-at-home, shelter-in-place, and safer-at-home orders, coupled with individual precautions mean that many people around the globe are spending most of their time at home. As a result, they’re also looking for ways to meet their essential (and not-so-essential!) needs without leaving the comfort of their couches.
It’s easy to see why online ordering is on the rise. The online grocery delivery service Peapod has seen 42% growth spikes this year, and, during peak months, U.S. online sales overall have risen as much as 75% year over year.
Of course, a large majority of these orders (although not all of them!) have to be delivered, which has resulted in a comparable rise in demand for last-mile delivery services. To illustrate this point, Whole Foods increased its home delivery capacity by 60% earlier in the year, but they still had to set up a waiting list for new customers.
In this article, we’ll examine the effects that the COVID-19 pandemic has created in the area of final mile delivery. As you manage your own supply chain through these changes, this update may offer you a few new ideas for controlling costs, increasing efficiency, and pursuing sustainable growth.
Online Sales Rise, Along with the Challenges
While growth in online sales may sound like good news for businesses, more sales don’t always translate to more profits. Even Internet giant Amazon.com has admitted that keeping up with increased volume year has eaten into their profitability. Although their first-quarter sales were up 26% year over year, their profit fell 29% in their efforts to meet customer demand.
Additionally, online orders can be a bit of a mixed bag for retail. After all, a retail operation’s most profitable sale can often happen when someone walks into a store, picks an item off a shelf themselves, and pays for it.
If instead, a customer buys online and picks the item up in-store, the store then has to account for the staff needed to prep these orders. That being said, many hope to offset this cost when customers purchase extra items once they’re in the retail environment.
However, if that same order has to be packed and shipped to a customer’s house, the additional costs can quickly add up for an operation whose pre-pandemic projections included more in-store purchases.
There’s also the issue of returns. Online orders, especially in the area of clothing, generate a larger number of returns, especially since some consumers may order multiple sizes of the same garment, with the intention of keeping the one that fits best. The costs of sending, receiving, and processing these returns can be significant, which can erode profit margins.
Online sales growth has been one of the most recognizable impacts of the COVID-19 pandemic, and the demand for last-mile delivery has grown right alongside it. Some fleet operations have added 10-40% more assets to meet demand. Additionally, UPS and FedEx have reported daily volumes that are exceeding what they usually see during the holiday season.
At the end of the day, final mile delivery can simply be a costly area for a business. UPS and FedEx have both hiked their rates this year in order to account for increased operating costs as they meet this higher demand. Material Handling & Logistics has projected that spending on logistics this year will rise to at least $10.6 trillion. 70% of that number represents transportation costs, of which 40% are devoted to final-mile distribution—not an insignificant number, by any means.
The bottom line? Increased sales have created an increased demand for last-mile delivery, and costs are on the rise. However, as a result, many retailers are looking to creative solutions to solve this challenge.
Uncovering Alternatives to At-Home Delivery
Since at-home delivery can be the most expensive option for businesses, many are exploring alternative options to unite online shoppers with their purchases.
Some are experimenting with incentives for BOPIS (buy online, pick up in-store) orders. The most obvious incentive is the ability to get their purchase in an hour or two, as opposed to a day or two (or more). However, retailers like PetSmart reward their BOPIS customers with a 5% discount. Walmart has also experimented with small discounts or perks like help loading groceries into customers’ cars. If BOPIS is an option that offers your operation a good profit margin, look into creating small incentives that encourage your customers to use this service (while, of course, maintaining healthy margins)!
Other operations are moving toward secure locker pickups. Amazon has been using this option for a number of years, and other brands like Stein Mart, Nike, Macy’s and Dick’s Sporting Goods have experimented with the idea. As the desire for contactless delivery grows in the face of the pandemic, this trend may continue to bloom.
Locker pickup, as opposed to picking up online orders at a customer service desk, for example, offers a few advantages:
- Although you need staff to pick the orders, you don’t need a staff member to complete the order.
- Additionally, customers may appreciate the increased convenience of not having to wait in line (or, in the case of this pandemic, interact with another person) to pick up their orders.
However, some larger orders may simply not be suitable for a locker solution, so retailers interested in implementing need to evaluate their inventory appropriately.
These changes in the way consumers receive goods are understandably having ripple effects down the supply chain, especially in the arena of warehousing and distribution.
Rethinking Warehousing and Distribution
As many retailers react to changes in customer delivery and pick-up preferences, they may also have to rethink their warehousing and distribution strategy:
- If more customers move toward BOPIS orders, they’ll have to ensure that their retail locations maintain sufficient stock level to meet demand.
- In contrast, if a retail operation forecasts that demand for home delivery will remain high into the future, they may look toward the model that Amazon favors: regional distribution centers that allow for faster delivery of customer orders.
- Alternatively, operations may favor a hybrid approach in which regional stores act as distribution centers that receive, store and ship out online orders in addition to fulfilling BOPIS orders and delivering and traditional in-store shopping.
If you find that your customer demands are shifting, talk to your 3PL or freight forwarder to re-evaluate this aspect of your supply chain. By making a few tweaks, you may be able to create a more efficient system that helps you both meet changing customer demand and maintain solid profit margins.
Finally, the pandemic has created significant operational changes that continue to affect last-mile delivery providers.
Adjusting Operations for Pandemic Times
As final-mile operators adjust to the realities of the COVID-19 virus and the ways it’s believed to spread, they’ve put in place a number of new procedures to protect their team members, as well as the people they’re delivering to. Disinfecting procedures have been put into place for trucks and equipment, and many companies are no longer requiring signatures. Contactless delivery is on the rise. Between smartphones and connected devices like Ring, customers have found it much easier to keep tabs on the exact location of their delivery, without even opening their front doors.
Finally, although consumers were initially patient with pandemic-related service interruptions, there’s evidence that this patience is waning. In a recent poll, some companies already reported that 21% of their customers were pushing back on longer delivery times related to the pandemic. Businesses that continue to tweak and improve their supply chain in order to meet consumer delivery expectations will be much more likely to win customer loyalty. Those who fall behind may find themselves left behind as customers look elsewhere for superior service. In other words, even with all the pressure that this pandemic has placed on supply chains, consumer expectations remain high.
The Lasting Effects of the COVID-19 Pandemic
Ultimately, one big question remains: How will this pandemic change long-term buying patterns? Once consumers feel safe shopping in person again, will they order less online, reverting to their old habits? Or will the convenience of these online ordering and delivery options mean that we’re in for a more permanent shift in how people shop? Although no one can answer these questions for sure, it will continue to be important to keep a pulse on your customers’ needs and preferences as the effects of the COVID-19 pandemic continue to play out.
Want to take a new look at your supply chain in light of your customers’ current buying patterns? Our experts would be happy to help. Reach out for a free consultation. Together, we’ll holistic look at your current operations to help you meet your customers’ expectations in a way that benefits your bottom line.
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