Is the Cost-to-Deliver too high?

0

With the annual Delivery Conference kicking off this week at Park Plaza, Westminster Bridge, London, this made me think that this is the first post peak reunion of the industry and that we can be sure there will be plenty of analysis of peak and how this all went.  Likewise, as the industry gathers together there will also be a look ahead at the year and what we can expect in 2018.

Of course there are big issues like GDPR and Brexit on the horizon and more change anticipated as a result.  Where eCommerce is concerned, there is no doubt that increasing consumer expectation is driving increasing need for rapid evolution within eCommerce. We can say hello to the ‘anything, anytime, anywhere’ customer who expects personalisation and convenience from their eCommerce delivery interactions. With 2018 expected to be another year of rapid change for eCommerce, every business must look to evolve in order to turn change into new opportunities or risk getting left behind.

But when we talk about evolution, what does that mean in terms of delivery? And in our haste to get ahead are we neglecting to analyse what this might cost to the business?

There is no doubt that the burgeoning growth in omnichannel supply is great news for consumers and even enterprise buyers, but it also continues to add considerable complexity for supply chain organisations. In many cases, what I have witnessed first-hand is that many supplying companies have taken an “Implement first. Ask questions later” approach to multichannel and omnichannel strategies in their haste to avoid losing sales to ecommerce giants like Amazon. One of the key risks involved in such an approach is that certain sales will undoubtedly be unprofitable, and that’s an untenable situation for any company to remain in long term.

As businesses start to count the cost of omnichannel initiatives, it will be important to look closely at ways to streamline operations and improve profitability. In 2018 it will be more important than ever to perform detailed cost-to-serve analyses, not just to understand customer and product profitability, but also to determine the economics of the various order-to-cash pathways that make up the omnichannel supply chain. Of course this also means that cost-to-serve (CTS) analysis becomes more complex in an omnichannel environment, but that shouldn’t stop companies from homing in on CTS and other detailed cost evaluations.

Looking at the cost-to-serve not just in the supply chain but also in delivery is going to be critical in 2018, especially for some of the smaller organisations. Now with the peak selling season behind us, this is a good time of year to review arrangements with carriers and consider if your delivery cost could be reduced by making alternative arrangements, either with renegotiation of your rates or by switching carrier.  Likewise, looking at the whole process and determining whether there are more parts of this that could be automated would be a good way to ensure that the cost-to-deliver is not becoming too onerous.

A recent study by Royal Mail revealed that the biggest costs that SME retailers expect in 2018 are purchasing (34%), logistics/delivery (32%) and advertising (27%). Reducing the cost of stock is probably more difficult as you need to have products to sell and most advertising rates are set rates, but there may be an opportunity to look at how you take costs out of the delivery process.

Switching carrier is often the simplest way to reduce your carriage rates. Your existing carrier already has your business and winning a new account is always a more attractive proposition than giving away margin to an existing customer. Plus, of course, your volumes since Christmas have probably dropped, giving your incumbent supplier even less incentive to lower your rate.

But another way to reduce your delivery costs is to consider the services that you use and offer your customers. Many retailers have in recent years lowered their standard service to an economy offering. Whilst there is often little difference in cost between a 24 and 48 hour service, if you’re shipping thousands of parcels per year this soon adds up. If you add on a day or so in handling time you may even be able to mitigate the slower courier delivery that comes with a 48 hour courier by speeding up despatch time in your warehouse.

Likewise, research that we have done in the past shows that consumers don’t always expect parcels to be delivered same day, or even the next day.  Indeed, our research showed that in some cases if the goods they have ordered are a ‘nice to have’, rather than a ‘must have’, some respondents were happy to wait anywhere between 5 and 7 days for their parcel.

So, my advice is that now is the time to review and undertake a proper analysis of the cost-to-serve or the cost-to-deliver to customers and ask whether the service level you are delivering is truly necessary? Are there alternative delivery services that are less costly that you could be providing? Can you speed up your despatch time by automating your warehouse, pick and delivery processes? It is certainly worth exploring!

Share.

About Author

andrew@c8consulting.co.uk'

Leave A Reply


5 + 2 =