Shipping Insanity: All Products, All Deliveries are Not Created Equal

A recent Wall Street Journal article (here) discussed the impact of the emerging cyber-retail, converged commerce, omni-channel, or whatever-you-want-to-call-it economy.  Emerging?  How can something that’s been around this long still be emerging?  Well, these things take time.  I believe that retail in the year 2026 will look more different from 2016 than retail in 2016 looks from 2006.

Why?  Because it is hard to be in the middle.  Change takes time.  It takes time for the future to come into focus.  It takes time to adjust processes.  It takes time to re-configure, re-constitute and/or replace systems.  It takes time for solution providers to re-write, re-structure and re-implement software actually designed for the new reality.

When you’re in the middle, straddling awkwardly between the way things were and the way things are / will be, then you wind up with wacky situations like the ones discussed in the Wall Street Journal article.  Does it really make sense to ship a single bottle of bleach to a customer?  Probably not.  Is there a better way?  Surely.  And, I’m confident we’ll get there – in time.  Imagine what life will be like whenever the systems, processes and people you have in place are all built, designed and trained for the current reality!

I am a firm believer that tried & true concepts like demand forecasting and auto replenishment will move into the home arena.  Why?  Because it just makes sense.  To whatever extent consumers are rational actors in the market place, why wouldn’t their behavior model a retailer’s?  After all, retailers have a fiduciary responsibility to their stakeholders to optimize their costs, not unlike an individual has for their own economic well-being.  Everyone is an inventory control manager, making tradeoffs between investments, physical capacity and generalized need.

Market movement in this regard can be seen in such ways as Amazon Subscribe & Save, Amazon Dash, The Art of Shaving Replenishment Service and others.  Assuming that the concept of home-based auto replenishment takes hold for certain household items, then surely we will also see the concepts of economic order quantity, minimum order and replenishment cycles also take hold.

Would a consumer be willing to let orders, for certain items anyway, accumulate until either 1) it becomes economically optimal to ship them or 2) until some regular cycle time is reached?  I would.  I order a lot of things online that arrive in 1 or 2 days that I could easily have waited on a little longer.  If there’s some kind of economic trade-off, a win-win, then I could easily see placing orders at will during the week for, say, a regular Thursday afternoon delivery.  What business process doesn’t like predictability?  Getting to a win-win though will require greater transparency on actual shipping costs, which currently remain shadowy.

Of course, multiple factors come into play here.  Chiefly, how different things are on every side of the issue.  First, suppliers/retailers are different.  What relative strengths, efficiencies and/or optimizations do they have?  What products?  Could we see complimentary players consolidate shipping operations?

Second, products are different.  Many products I don’t need tomorrow.  Some I do.  At present, we seem to be treating all products the same, hence a single bottle of bleach in a delivery.  What about product packaging?  Are products currently optimally packaged for individual shipping or rather for optimal delivery to a store?  Will that change over time?

Third, customers aren’t the same.  Some are impatient and demanding and fickle.  Others are . . .  OK, maybe everyone acts like that but mostly because they’ve been trained to behave thusly.

Retailers often decry customers as expecting “constant sales prices” or “faster delivery.”  Guess what?  It’s a basic economic rule that paying less for something is preferable to paying more and getting something faster is better than getting it slower, all other things being equal.  And, there’s the problem:  not all other things are equal.  Retailers aren’t equal.  Products aren’t equal.  Customers aren’t equal.

The economic reality of shipping products to customers isn’t equal.  Weight, cube, distance and suitability of inherent packaging, all play a role as does the location of the delivery address.  Shipping to Mangum, OK has a different cost in terms of availability, time, fuel, carbon footprint, etc. than, say, shipping to an urban area.  (Economies of scale is a real thing.)

Concepts at play in many retailers, such as pricing differently by location or finely monitoring product cost by location, certainly acknowledge this reality.  Eventually, surely, the economics will correct themselves in our new paradigm.

I’m not sure how the correction happens.  We often don’t know how the future will unfold.  But, immutable laws of economics exist and they are, well, immutable.  If it doesn’t make economic sense to ship a single bottle of bleach to my house, then that will eventually stop.  And it will be OK.

No Comments