The Early Bird Catches the Customer

Recently, I had the chance to catch up with three companies who are in the middle of logistics transformation initiatives. While they are in diverse industries such as food manufacturing and building material distribution, they all had one thing in common – the desire to deliver more to customers earlier in the day. Not only is this strategy making customers happier but, for two of them, it is directly related to increased sales. This approach drives home a point that I have been making for the last several years: B2B customers want delivery choices that benefit their business models, not just faster deliveries. Logistics operating strategies, technology and metrics need to change to reflect the value of early delivery choice.

The value propositions for early deliveries are easy to understand.

Retailers have been pressuring food manufacturers to not make deliveries to stores during peak customer times. They don’t want cases in their aisles, and they do want their store associates on the floor and not receiving goods in the back room. Early deliveries (e.g., before 8am) are favored to keep shelves from being restocked during peak shopping times and address out of stocks before consumers enter the store. Food manufacturers that can drive a higher percentage of their deliveries early in the day are in a better position to move more product.

In the construction industry, contractors like to ensure that their crews – one of their greatest expenses – are fully utilized. Since construction tends to have a fluid schedule most materials are ordered within 24 hours of use. If the materials aren’t there at the start of the day, crews sit, costing contractors time and money. Contractors favor the distributors who can deliver early and consistently.

Driving more early morning deliveries and measuring their value.

Rather than a monolithic daily delivery strategy, the strategy needs to evolve during the day. The early morning needs to emphasize a greater number (or $ volume) of deliveries. After the early morning period is maximized, the strategy needs to focus on more cost-effective delivery.  Static delivery routes and manual planning are no longer effective. To maximize early morning deliveries, a dynamic planning process that considers the order mix and customer locations is required. In addition, delivery routes might extend over early- and later-day deliveries and need to optimize route for volume early and cost later. For short order lead-time businesses, the ability to reliably promise an early delivery appointment during the buying process is important to capturing the order.

Measuring the value of early deliveries is also a challenge for most logistics organizations. Logistics organizations are measured primarily on delivery costs and simple customer service metrics like complete and on time. However, determining the value of early delivery points to two other metrics that are equally important: incremental revenue and customer satisfaction. Tracking incremental revenue for early deliveries is possible, but requires cooperation from the sales organization (e.g., how much more did we sell when we increased our early deliveries). Tracking the service level improvement of early deliveries can be as easy as “How much did we deliver before 8am?” That is still, however, an internally-focused metric. Instead, customer focused metrics (e.g., through delivery surveys) are more telling when you are trying to determine if you are making a difference.

Conclusion

From the examples above, there is clear value to customers for early delivery and it is one of the many ways logistics can make a material impact beyond traditional roles. However, this requires delivery operations to be more dynamic to maximize delivery volume while keeping costs down. Technology becomes increasingly important to supporting these more complex delivery requirements.

What is your organization doing to use concepts like early morning delivery to drive more business and delight customers? Let me know.

We Have to Get Smarter About Logistics for Cities

Cities are where the most opportunity and challenges will be for logistics for the next 10 years. They’re where the world’s population will concentrate and, consequently, where demand for logistics services will be the greatest. However, cities are trying to be more livable and green and, as a result, it will be harder for logistics organizations to operate efficiently. Instead of trying harder, logistics operations need to become smarter about how they serve cities.

Shifting Demographics

A combination of changes will drive more logistics activity into cities. According to a study by the McKinsey Global Institute, by 2020, cities will see 90% of the global consumption growth. Also by 2020, growth in younger and aging populations will account for 50% of the consumption growth. Mobile and intelligent-device-based ordering by over 900 million people will reach $1 trillion by 2020 with most of those mobile purchases requiring some kind of logistics support to get the goods to consumers.

 

Data Source: McKinsey Global Institute

Will Governments or Mass Transit Make an Impact?

The answer is yes but, unfortunately, not in a way that helps the movement of goods. City-based governments are actively shaping city logistics and moving much more rapidly than state and local organizations, but they’re focused on improving logistics conditions for people rather than freight. In fact, they’re making changes that actually adversely impacting freight, such as restricting delivery times, locations and vehicle size, charging for intercity access and imposing penalties for “non-green” behavior (e.g. idling). Intercity mass transit investment has also almost exclusively been targeted at better movement of people. While, private logistics organizations are trying to leverage the existing infrastructure (e.g. subways), it has been limited to “parcel-oriented” deliveries and in low resource cost countries such as China.

As a result, for the next 10 years, traditional over-the-road transit will still be the prime mover of urban goods, but it will have to get much smarter to do it efficiently, effectively and in compliance with regulations.

Three Ways to Address the Urban Logistics Dilemma

Intelligent Route Management

Delivery productivity will be key to servicing the increasing demand while maintaining compliance with a greater number of delivery restrictions. Logistics operations and drivers need to be better equipped to be more effective via smarter delivery route planning and execution. The route planning process now needs to understand a city’s operating hours and road restrictions, including construction, and the driver’s navigation system must support those commercial and physical restrictions. Because cities have such dynamic traffic conditions, the route plans must take into account time-based road speeds and when routes can be run, and real-time traffic feedback will be important to help keep deliveries in-process on track. Delivery density will also be an important factor, driving productivity. Logistics operations need to book delivery appointments that drive density and combine delivery modes to make routes more productive. For instance, routes should combine store, office, home delivery and locker deliveries.

Pool Distribution

Multi-party delivery collaboration drives delivery density and route efficiency beyond what any single logistics operation does. Pool distribution, a form of multi-party delivery collaboration, has been around since the 1980s and may be more relevant now than ever. Used heavily by specialty retailers to service malls, it uses its economy of scale and standardized processes with pool operators across North America to give participants the speed of parcel with the cost of LTL transportation. Cities are much like malls and intercity delivery could benefit from highly dense routes that reduce the truck traffic in the city. Clearly, this type of thinking needs to companies to be able to work together, even if they’re competitors. However, the pool model shows that it works and all participants benefit.

Controlled Inbound Flow

Another multi-party delivery collaboration opportunity to remove or reduce traffic congestion in cities is time-phasing the flow of goods into a given area. I had a chance to see it in Melbourne and Sydney, Australia this summer where in-town malls, multi-use developments and construction sites were using dock appointment technology to control the flow of deliveries. Much of the congestion in cities is due to the limited parking, especially for trucks. So, it doesn’t take more than a few trucks showing up at the same time and waiting in the same area to significantly affect traffic. By time phasing and load leveling available delivery locations (e.g. docks), a mall or facility operator like the Emporium in Melbourne can keep the streets clear and reduce excess driving and demurrage associated with truck waiting for openings. It also helps ensure timely delivery as the appointment times are guaranteed and stores can more effectively plan their resources. The city of Sydney is also experimenting with using parking lots and dock appointment scheduling to do localized consolidation to reduce the number of intercity trucks. This approach shows that it doesn’t take a massive infrastructure change to improve intercity delivery and there are opportunities for logistics services providers to offer new services to cities and city-based businesses.

Conclusion

Changing demographics say that cities will dominate the logistics agenda for the future as what has been a tough place already will become even more important and tougher to serve. However, there are a number of ways to better serve customers in cities and comply with increasingly stringent city commercial transportation requirements. There are clearly roles for retailers, distributors, logistics services providers and even facility operators and local governments to make goods move more freely though ever crowding cities. What is your organization doing to improve city logistics? Let me know.