The Challenges of Same Day Delivery Routing

JUST LIKE NEXT DAY SERVICE WITH THE PROCESS SPEEDED UP? THINK AGAIN!

The demand for fast response in urban deliveries has never been higher. Under the restrictions of Covid-19 lockdown, consumers have had to find new ways to access products they need fast.

Retailers are keen to meet this latent demand – to maintain sales, show their agility and to retain and acquire customers and advocates. But there are significant barriers to entry for retailers and distributors keen to seize the immediate and longer-term market opportunities.

Amazon’s consumer and business shoppers may have the impression that same day doorstep delivery is old hat – it has been available on selected Amazon products in densely populated UK areas since 2015.

CAN ANYONE KEEP UP WITH AMAZON?

With Amazon’s vast network of distribution centres, blanket national coverage and sheer number of delivery journeys, coupled with a huge volume of data and processing power, the firm is uniquely equipped for same day fulfilment.

Most retailers and distributors – even major multiples – have nothing approaching these resources or scale.

Courier and haulage firms can provide same day delivery because they have flexible capacity to make vehicles or bikes available. They can meet demand profitably by charging a premium rate. Other UK retailers have recognised growing customer demand for same day delivery and launched limited services. For example, Ocado, Sainsbury’s and Tesco can deliver same-day within certain urban catchments.

THE PROBLEM OF COST AND ROI FOR SAME-DAY DELIVERY

If national same day delivery was easy to provide profitably, many more retailers would be offering it to consumers. But a big investment in technology, warehousing and stockholding is needed to operate a same day delivery process economically. This currently makes the cost prohibitive in most cases, particularly with a relatively high risk inherent in launching a complex process with many unpredictable variables.

Here’s why. Let’s say a company has a warehouse and drivers and vehicles ready, and a website to take orders. They receive a steady flow of online orders throughout the day. The service manager need to make a judgement about when to send the order to be picked – do they collate them every half hour? Or send each one immediately? They must maintain the warehouse picking team’s efficiency to keep costs down and prevent adverse impact on the fulfilment of other less urgent orders.

Having picked a number of orders, at what point does the company collate and load them onto a delivery vehicles? If most of the orders can be delivered using a relatively efficient route, how long can the service manager hold back an outlying order that would require a long detour, in anticipation of other local orders coming in that would create a viable delivery route?

IT’S HARD TO BE EFFICIENT WHEN YOU’RE MAKING COMPLEX DECISIONS AGAINST THE CLOCK. NEXT DAY DELIVERY IS FAR EASIER TO OPTIMISE

It’s hard to assess with any degree of certainty when you have met the economic criteria, working in real-time. You don’t know the route beforehand – you are creating routes on the fly. You have to decide how full each vehicle should be before it sets out. The clock is ticking from the moment the order was received: you may have to break protocols to meet a one, two or four hour window. It’s an extremely dynamic and sensitive process.

This is completely different from operating a next day delivery service, where you can cut off orders at a certain time then work with a complete picture of the day’s orders to allocate orders and plan efficient delivery routes throughout the following day. When you are planning to meet a four hour (or less) delivery window, all you ever have to work with is a rolling snapshot of orders. You can only optimise within this, so there’s far less scope for efficiency.

IS THE INVESTMENT IN SAME-DAY DELIVERY EVER WORTH IT?

For some retailers, same day delivery may be a competitive differentiator that makes it worth running at a loss or compromising efficiency. But how much can you afford to compromise? How do you measure the overall business gain? Efficiency may be less important than meeting customer requirements in some cases, but companies need to have enough orders coming in to make the operation worthwhile.

Based on experience to date, it’s our view that to make same-day delivery economically viable, firms need high and consistent volumes of daily orders in the catchment of their distribution hub. This could mean hundreds or thousands – there are many variables in terms of the type of goods, the value of orders and the ease of delivery.

THERE IS HOPE: NEW TECHNOLOGIES AND APPROACHES ARE ON THEIR WAY

The type of delivery vehicles available will also influence the efficiency and viability of same day deliveries. Cargobikes and short range electric vehicles could improve efficiency and lower costs. Local hub consolidation could also help, using a last mile delivery service to optimise efficiency. But for most retailers, all these are untried or experimental approaches: few have the confidence to invest heavily without better evidence of value and profitability.

There’s no getting away from the fact that customer expectations continue to mount in the area of same day deliveries. At the moment, to meet the need and desire for rapid fulfilment, many consumers and businesses turn to Amazon. Other retailers and distributors are hungry for solutions that will enable them to reclaim market share profitably.

The good news is that solutions are beginning to emerge. We are currently evaluating a promising same day delivery scheduling and routing tool that could be a game-changer for retailers seeking a competitive edge. Watch this space for more news.

If you’d like to be notified when we have more information about viable same-day routing technologies, please get in touch with one of our logistics consultants.