In Depth

Improve Logistics Now, Avoid Shipping Delays Later

The holiday shopping seasons of 2013 and 2014 were marred by delivery snafus that left millions of customers hoping their orders would arrive before it was time to open everything else under the tree. Instead of pulling back on delivery guarantees, though, some retailers are doubling down on what they see as a consumer preference for express delivery options.

The Associated Press explained how several big-box merchants are pulling all the logistical stops to avoid fulfillment delays this holiday shopping season. In particular, Greg Foran, CEO of Walmart’s U.S. operations, explained that his company is looking at its retail locations as opportunities to facilitate a more interconnected shipping process. Of Walmart’s more than 4,500 U.S. locations, 83 of them will be used as nodes on the retailer’s logistical network.

Foran also noted that Walmart has opened five new warehouses in Pennsylvania, Texas, Indiana, Georgia and Atlanta, with two more opening in Florida in 2016. These shipment hubs will process four to five times the volume or Walmart’s existing warehouses, enabling the retailer to group shipments more effectively.

“This is going to allow us to be more efficient, to do it faster, to do it cheaper and be more accurate with the orders, which is important with the customers,” Foran told the AP.

Walmart is far from the only retailer to leverage existing locations for improved logistics. Home Depot, Macy’s, Target and Nordstrom have all opened at least one warehouse in locations ranging from just outside urban areas to rural Tulsa, Oklahoma.

Under normal circumstances, a wider and more communicative shipping network might be enough to cover a slight boost in express deliveries. However, according to a study from consultancy firm Kurt Salmon, the pressure is mounting on retailers to offer two-, one- or even same-day delivery for orders placed up until just dozens of hours before Christmas.

In 2013, 37 percent of retailers offered guaranteed delivery by Christmas Eve for orders placed by Dec. 20. In 2014, that number jumped to just under 50 percent. However, these guarantees are not always set in stone – nearly 13 percent of orders in 2014 arrived late, and 60 percent of consumers expressed little confidence in their last-minute orders arriving by the promised delivery windows.

With such little consumer confidence in retailers’ ability to make good on their delivery promises, it might make sense why merchants are seemingly hellbent on delivery guarantees. However, if they actually commit to the resources required to fulfill every order on time, Steve Osburn, director of supply chain for Kurt Salmon, told Reuters that it could cost them big.

“For most companies, it is a very expensive proposition to try to offer fast and free,” Osburn said. “It’s really eating away at the margin dollars at some of these retailers.”

The rush to fill orders according to customers’ expectations can also cause other time- and resource-consuming errors. In fact, the Kurt Salmon study found that of the 13 percent of packages that didn’t arrive in time last year, 9 percent of those delays were caused by poor communication between retailers and carriers. A further 25 percent were caused by inventory management issues, which only become compounded as the remaining holiday shopping hours dwindle.

As October turns into November and Black Friday edges ever closer, the retailers who’ve laid the ground work for success – extended warehouse networks, hybrid retail storefront-delivery node policies and realistic delivery guarantees – are likely to avoid the shipping follies of past holiday shopping seasons. And as certain retailers find the magic formula and hit their delivery targets more often, those that can’t will be left with a horde of angry holiday shoppers making different plans for next year.

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