E-commerce is growing, more than 15 percent last year alone, but the delivery infrastructure is struggling to get the nearly $395 billion in orders to customers on their terms. The strong economy means shoppers want more of everything, and thanks to Amazon, 70 percent of them want it delivered fast, even during the holidays when capacity is already tight. To compete, both manufacturers and retailers must streamline fulfillment processes and find cost effective ways to deliver products to customers under tight deadlines.

Retailer Trends

Large retailers are already redefining fulfillment and distribution in e-commerce through acquisitions and partnerships. Noteworthy examples include:

  • Amazon. Acquiring Whole Foods instantly gave Amazon a network of hyperlocal distribution hubs for Amazon Fresh groceries, and potentially any product Amazon sells. The e-commerce giant has also partnered with Kohl’s department stores to offer customers a place to return products ordered online, solving a customer pain point in the process. Amazon is also piloting a new delivery service called Amazon Flex. Somewhat like Uber, Amazon Flex will pay locals an hourly wage to deliver Prime Now packages in less than an hour.
  • Target. Target bought Grand Junction transportation company earlier this year to launch a pilot program for same-day delivery for in-store shoppers. And just last week, Target announced the acquisition of Shipt to further boost its same-day delivery service for groceries, electronics, and home goods.
  • Walmart. After acquiring Jet.com to grow its e-commerce presence, Walmart began experimenting with large kiosks that allow customers to buy online and pick up products themselves. Walmart employees also deliver products to local customers, earning extra income after store shifts.

Both Walmart and Kroger are also launching on-demand grocery delivery services, where delivery speed is a priority due to freshness concerns. To cut waste and cost from the system, while keeping store shelves full, many retailers are imposing stricter delivery windows on shippers, and leveraging stiff fines as motivation.

The changes are sure to continue as all members of the supply chain adjust to the new e-commerce reality. To stay relevant, shippers must invest in their own supply chains, even if it means reducing profit margins in the short term.

Managing the Last Mile

Delivery delays, stolen packages, customers who aren’t home to sign for shipments, and other issues add up to make last-mile deliveries expensive. Regional and local last-mile delivery organizations have stepped up to solve the problem in urban locations with Uber-esque offerings, but their limited geographic reach leaves many areas unserved.

Technology shortcomings exacerbate the last-mile problem. Unlike legacy carriers who have sophisticated tracking and tracing capabilities, including proof of delivery, regional and local last-mile delivery firms often lack the technology to provide that data. Some experts see this as an opportunity for disruption. Combining essential assets, such as warehouses and trucks, with information-based technology could solve the problem and change the direction of last-mile deliveries altogether (Supply Chain Dive).

Revamping the Distribution Network

Part of what holds back progress in fulfillment is the existing distribution network. Developed to serve brick-and-mortar channels, distribution centers are poorly situated to serve e-commerce and hybrid shippers. To compete, fulfillment and distribution centers are either decentralizing or expanding to put inventory closer to their customers. As a result, warehouse space in once undesirable locations is now in high demand.

In some cases, manufacturers are even closing distributions centers—shifting from their own networks to their retailers’ networks as a way to reduce complexity and cost.  Kellogg’s recently announced that they are exiting the Direct Store Delivery network next year.  John Bryant, Kellogg Co. chairman and CEO said this in a company press release:

“Because our customers’ and our own warehouse distribution systems have become more efficient and effective, we can now redeploy resources previously tied to DSD and direct them to the kinds of brand investments that drive greater demand with today’s consumers — ultimately growing our business and our retailers’ businesses.”

As shippers shift their distribution networks, they must simultaneously build out reliable carrier networks to handle new shipping patterns. On traditional full truckload lanes, there is a bigger push for efficiency, with large shippers favoring continuous movements or looping to increase truck utilization and decrease empty miles. Establishing an optimal mix of large carriers, mid-sized brokers, and niche transportation providers to handle these shifts can take a considerable amount of time and effort.

3PLs Offer Major Advantages

How can a 3PL help? To start, a 3PL has an established carrier network, so it takes less time to find vetted carriers with proven experience in a particular region. Shippers can immediately leverage a 3PL’s relationships and buying power to select the most cost-effective mode and service level for each order.  A 3PL can also assist with pooling shipments and coordinating drop trailers to help control costs.