Same Day and Next-Day Shipping: Could Urban Fulfillment Centers be the Solution?
When hunger strikes and I’m looking for a quick bite to eat for lunch, I turn to my phone and search for online ordering options. However, 3 minutes after I have customized the toppings in my calzone and head to checkout to pay, the website tells me it will take 30 minutes to prepare my order. Factoring in the 10-minute drive back after picking up my order, I’m going to be hungry for the next 40 minutes. Why wait 40 minutes when instead, I can order from another fast-casual restaurant that will have my order ready and me back at my desk no longer feeling hungry in less than 20 minutes? Defeatedly, I exit out of my carefully-curated calzone order and quickly order a sandwich and salad (which is honestly probably a healthier move anyway). Here, I abandoned my cart because my food wouldn’t be ready quick enough. Similarly, in e-commerce, customers abandon their cart at a rate of 55-85% for various reasons, including long shipping times.
In a day and age where major retailers are offering 2-day shipping on nearly any kind of item and even next-day and same-day delivery options, a week or even 3 days to receive an order can seem like a lifetime. It’s imperative that retailers with a significant e-commerce presence take steps to ensure that their distribution channels can support same-day and next-day delivery because this will, without a doubt, become the norm and expectation. We have seen omni-channel fulfillment strategies like BOPIS (buy online, pickup in store), BOSS (buy online, ship to store), and ship-from-store enable customers to receive their orders faster, but what happens when store associates are not equipped to handle daily store operations along with e-commerce fulfillment? When sharing inventory between store and e-commerce leads to a poorer experience for in-store and online customers, alike? A dedicated or shared urban fulfillment center (UFC), also known as a metro fulfillment center or in-market distribution center, could be the solution.
Why Urban Fulfillment Centers?
To cater to and prioritize the urban customer
- Roughly 80% of Americans live in urban areas, according to the US Census Bureau.
- The average urban customer spends the most money on e-commerce purchases, compared to suburban and rural customers.
- Moreover, 80% of internet users worldwide reported ordering items online for in-store pickup, with 40-50% of respondents doing so to avoid shipping charges, save time, and pick up the purchase on the same day.
Thus, there is an increasing need to prioritize and cater to the urban customer, the largest source of demand and revenue for most e-commerce retailers. Moreover, the possibilities and uses of UFCs stretch far beyond simply delivering product faster from a location in closer proximity to the customer. With shorter distances, there is the potential to make use of smaller vans or even a local transportation network to ship as opposed to large trucks, therefore reducing overall transportation costs. UFCs also lend to the prospect of shipping product to customer before the customer even orders it by using predictive analytics, or at the very least, positioning inventory in the right place, to capitalize on the urban customer’s spending habits.
To attain a higher quality of service
- Our research has found that 38% of customers won’t shop again after a negative delivery experience.
- 60% of customers will choose a competitor with more convenient delivery options.
- 45% of cart abandonment (i.e. adding items to a cart and leaving the website before completing the purchase) is due to unsatisfactory delivery options.
Through their actions, today’s customers are evidently indicating that shipping and delivery make up a large part of their online ordering experience. UFCs can mitigate these issues, both in the short-term and long-term. Locating closer to the customer enables the retailer to get product to the customer faster. Multiple shipments per day could also enable more flexibility for the customer to specify when they want to receive their order. This, in turn, creates a positive perspective on the ordering experience and even enables customers and retailers, alike, to minimize concerns over porch pirates nabbing packages. Shorter shipping times lead to reduced cart abandonment and an overall higher quality of service.
Implementing Urban Fulfillment Centers
Potential drawbacks of implementing an urban fulfillment center include the high up-front cost of building the UFCs and staffing them in an area with high land and labor costs. However, there are also several ways to implement the UFC model without starting from scratch.
Leverage your existing system/infrastructure
On one hand, retailers could make use of the existing store network and allocate a certain amount of space towards e-commerce fulfillments, but if sharing inventory and resources reduces the in-store and online customer experience, this may not be a viable option. Instead, making use of existing store distribution centers that are located closer to urban customers and allocating space for e-commerce fulfillment could be an option to consider.
Take advantage of shared services and spaces
Shared space providers have been called the “Airbnb of warehousing” by connecting partially or temporarily empty warehouse space with companies that need short-term inventory storage. These providers have created on-demand warehouse services to connect businesses in need of storage and distribution with independent warehouses that have excess capacity, enabling seamless inventory and order management. Take, for example, a real-estate firm in downtown Chicago converting the 3.8 million-square-foot parking garage under Millennium Park into a last-mile logistics facility for retailers. Ever thought of Uber for e-commerce i.e. making use of independent drivers to deliver to the customer using cars, motorcycles, bikes, even public transportation instead of trucks? The possibilities are endless.
At the end of the day, if, as a retailer, you can make the short-term infrastructure investment, even if the costs to fulfill e-commerce orders stay the same, the ability to meet the customer’s demand far outweigh the initial risks, and the short-term investment is indeed worth the long-term benefit. You will create the potential to impact service levels and create long-term efficiency, customer satisfaction, and greater profit. It is inevitable that urban distribution in the form of a hybrid model combining stores and urban fulfillment centers will soon become a ubiquitous reality. To learn about how your omni-channel retailer can benefit from and develop an allocation strategy for urban fulfillment, contact Bricz today!
Contributor: Mahati Vavilala, Supply Chain Consultant at Bricz