Evaluating Different Delivery Channels: When Are They the Right Fit for Your Operation?

By Lisa Kennedy
Project Manager, Tompkins International

Think ouside the box

The rapid growth of technology and the number of innovative service providers is advancing the variety of options available for retailers and direct-to-consumer brands to deliver products ordered online to customers. As a result, shippers must constantly evaluate their last-mile delivery options to ensure they are providing the best possible service using the most cost-effective process. There are several strategic questions that should be considered before evaluating the different options shippers have for products that end up on a consumer’s doorstep.

Retailers want to save customers time by leveraging new technology and connecting all the parts of their business into a single, seamless shopping experience: great stores, easy pickup, fast delivery, and apps and websites that are simple to use. Leveraging size and scale for national retailers is the current strategy, and last-mile delivery is an essential component of this strategy. Key criteria include a shipper’s current network, customer service expectations, and ancillary services required by the retailer.

Looking back five years ago, several services used today (such as parcel delivery lockers, crowdsourcing, and service providers such as Deliv) were available, although they were not utilized as extensively as they are currently. Looking forward five years, retailers will look to take out labor as they process online orders. This will be done by automating fulfillment warehouses; incorporating delivery options using mobile lockers and driverless vehicles/mobile units; and pushing collection of the order to the customer, which will allow flexibility regarding when and where products are picked up.

First and foremost to consider are shippers’ current networks for identification of the optimum last-mile delivery solutions available to customers. How can the current network be leveraged to lower shipping costs? Are there regionally located warehouses and/or brick-and-mortar stores for which product can be inventoried and/or shipped to for customer pick up or arrange final delivery?

Customer service expectations rank high on the type of service that will need to be provided. Do customers expect same-day or next-day delivery, or will they accept delivery of products without a committed timeframe?

Shipper/ Product Location Delivery Range Service Requirements Shopping Required Products Service Provider Solutions Other Solutions
B&M store/ most service providers are in metropolitan areas Local >30 miles Same-day delivery (tends to be groceries/ consumer products) Yes Consumer
Office Supplies
  •  Shipt
  •  Instacart
  •  Other regional service providers
  •  BOPIS
  • Customer pickup at store without leaving vehicle
B&M store/ most service providers are in metropolitan areas Local>30 miles Same-day delivery No Consumer
Office Supplies/
Food delivery
  •  Deliv
  •  Regional last-mile service providers
  •  Other crowdsourced delivery options
  •  BOPIS
  •  Customer pickup at store without leaving vehicle
Regional B&M stores and/or regional warehouses Within 100 miles Next-day delivery No All products except prepared food delivery
  •  UPS, FedEx, USPS
  •  Regional last-mile service providers
  •  BOPIS
Regional B&M stores and/or regional warehouses Regional >500 miles Two-day delivery   All products except prepared food delivery
  •  UPS, FedEx, USPS
  •  Regional last mile service providers
  •  BOPIS
Regional B&M stores and/or regional warehouses National/ International Two-day delivery   All products except prepared food and grocery
  •  UPS, FedEx, USPS
  •  Regional last mile service providers
  •  BOPIS

Retailers’ solutions to parcel deliveries are varied and many are testing multiple solutions. The leading parcel service providers such as UPS, FedEx, and USPS still deliver over 80% of e-commerce parcel orders. The issue becomes apparent as e-commerce orders rise, labor to perform final deliveries is becoming constrained and costs are rising. To address these issues, multiple options are being explored by retailers.

The most popular solution is buy online and pickup in store (BOPIS). Home Depot, Walmart, Amazon, Whole Foods, and others have established lockers in their brick and mortar stores to facilitate order pickup and avoid having to perform the actual final delivery to a customer’s home. Walmart is testing warehouses adjacent to brick and mortar stores with robotics that automate the picking and packing for online orders, and consumers go through a drive-through at the warehouse to pick up their order.

Currently many same-day parcel service solution providers are targeting food and drink delivery for customers. Companies are working with grocers or restaurants. Tompkins believes these same-day delivery services will expand to include more consumer products and other frequently consumed items.

For delivery to a consumer’s home, the solutions vary. National retailers are investing in captive service options. Target acquired Shipt, a leading online same-day delivery platform. Target will leverage its network of stores, Shipt’s technology platform, and their community of shoppers to offer same-day delivery to customers.

Walmart launched Spark Delivery for same-day delivery of grocery orders using crowdsourcing. The drivers are recruited and managed by Delivery Drivers Inc.Walmart also works with outside service providers like Postmates, Doordash, and Deliv for grocery delivery. In early 2018, Walmart ended delivery partnerships with Uber and Lyft, also abandoning a test in which Walmart employees delivered groceries to customers after their regular shifts.

Kroger has teamed up with Waymo to test an online grocery service in which driverless vehicles pickup customers at their homes and take them to the store to collect their orders. The service is being piloted in Chandler, Arizona.

Instacart is being tapped to provide home delivery for companies such as Costco, BJ’s Wholesale, Publix, CVS, Whole Foods, and Aldi. Instacart offers same-day to one-hour deliveries in major cities such Los Angeles,Miami,New York City,Chicago,Austin,Washington D.C.,Houston, and Atlanta. Instacart handles the entire pick, pack, and ship process for retailers by cruising the store aisles for items, checking out, and delivering to a customer’s home.

To cut delivery costs, online retailers are looking to destination delivery unit (DDU) shipping to get the product as far into the USPS system as possible, so USPS performs the final delivery. The process may include sending a full or partial truckload of product to a metropolitan destination, where a local service provider will sort the packages and bag, then deliver to specific postal destinations. About 50% of all Amazon’s parcel orders are delivered by USPS. Other services retailers are looking to provide customers include delivery to alternate locations during transit. In the event the customer wants the product delivered to their office versus to their home, this an option. This allows flexibility for when and where the customer will receive the package.

The future of parcel delivery is hinged upon future technology and regulatory issues. Postmates, Doordash, and GrubHub have all raised hundreds of millions of dollars and are actively exploring robotics, which could cut delivery costs by as much as 40%. Uber is interested utilizing drone delivery. They are a part of a Federal Aviation Administration trial program to determine how drone deliveries should be regulated. Uber wants to deliver drone operations sometime in 2019, with the goal of delivering Eats orders by 2021.

Mobile lockers are on the radar for companies like Amazon. This would assign the times a locker is in a specific location to be available for a customer to pick up. This solution could work well in urban areas where there is a high density of deliveries.

Other newer technologies include allowing a mobile robot into a consumer’s home for product delivery. In this scenario, the customer would not have to be present to receive the order, giving complete flexibility to the retailer. This would have limitations depending on the set up of the delivery destination, but these are options being explored. It is certainly an interesting time for the parcel industry, and we can’t wait to see what the future holds.

Lisa Kennedy is Project Manager, Tompkins International. She is a business strategy consultant with 20 years of experience in growth and strategic planning across industries. She has overseen management of consulting projects from business development to final presentation, and she has developed analytical, conceptual, and communications skills that support effectiveness across multiple industries.

This article originally appeared in the January/February issue of PARCEL.