The Key to a Distributed Logistics Solution
By Lisa Kennedy
Project Manager, Tompkins International
As retailers and brands develop their unichannel solutions, there is a continuing focus on how to improve last mile delivery costs and the customer experience. Last mile delivery consumes a significant portion of the total delivered cost of a product. Retailers are experimenting with lockers, consumer pick-up, and optional delivery solutions aimed at reducing these costs. The real solution to reducing the cost of the last mile is distributed logistics and the distributed inventory flow forecasting that enables supply chains to work best.
The key to a distributed logistics solution is to have the last mile look more like 100 miles, and with multiple fulfillment centers (FCs) located closer to the consumers. Yet inventory planning and management for eCommerce is a major challenge for most companies. Supply chains need to be realigned to accommodate smaller, more frequent orders, and rapid turnaround.
Managing inventory is more complex because of issues related to unichannel fulfillment, seasonality, and in-stock availability required for dynamic buying behaviors. Leading retailers and brands will seek special software to plan and manage distributed inventories based on flow, rather than the traditional methods for EOQ, safety stock, and other policies.
Closer inventory proximity to consumers can increase sales at least 6-15% over a 3-year period. Tompkins provides this estimate based on surveys, analyses, judgment, and experience. The outcome for a fully efficient last mile delivery process produces:
- Increased revenue-while the importance of receiving product quickly and on-time differs by product and customer, studies show that if a product can be received in two days the cart is less likely to be abandoned.
- Decreased returns-data analysis shows that customers are less likely to return merchandise if it arrives within two days.
- Positive customer experience-if the customer receives the product in two days or less, they have a positive experience and are more likely to buy from that retailer again. According to a report from Dotcom Distribution, 87% of online shoppers say eCommerce delivery time influences their decision to buy again.
The average percentage increase in sales from a 10% improvement in these areas is shown below. The total benefit is estimated at 8.2%.
Source: FinListics Solutions
The retailers or brands primary concern with going to distributed logistics is that inventory levels will climb and return on invested capital will decline. Fortunately, new solutions exist that allow for distributed logistics and optimum inventory levels to meet service level requirements and increase returns on invested capital or return on assets.
A second objection is the belief that transportation costs will increase. An analysis of inbound and outbound costs with several FC networks will show inbound product costs may rise. Due to the fact the FCs are closer to the customer, outbound delivery costs will shrink significantly and will actually be an overall savings to the retailer or brand.
The inventory levels planned under the flow strategy should be lower as the days in outbound deliveries have been drastically reduced. An analysis on the overall days in transit (both inbound and outbound) on a weighted average will show the decrease as the network changes to a distributive model.
New special software solutions have reported to predict with 90% accuracy what will be sold within 30 days, assuming that promotional and other relevant events are factored. Replenishment advisories are sent to sellers when needed to balance the flow of goods. This method avoids stock-outs and reduces costs associated with human error. Retailers employing distributed logistics software have indicated that surplus stock required has declined by one fifth.
Tompkins International has been recognized as a top leader in the consulting industry by ALM Intelligence. Tompkins advises clients with thought leadership and provides solutions to exceed the competition. Our newest unichannel solution is our Distributed Inventory Flow Forecasting (DIFF) model. DIFF’s primary role is to generate sales forecasts for smart inventory policies by SKU for each fulfillment center and provide sellers replenishment advisories for each item, minimizing the stock needed to maximize sales and order flow. MonarchFx, a business unit of Tompkins International, has just released its newest video, Initial Results with MonarchFx. The video explains the sales performance benefits when using the MonarchFx distributed logistics ecosystem.