Let’s face it, consumers expectations have changed. Millennials place a higher premium then ever before on quality service, and what was a great consumer buying experience in the early 2000s is now considered the norm.
Amazon changed the game in 2005 when they offered standard two-day shipping options for a flat fee. And now they’re changing it once more by offering one-day shipping options, causing every retailer to play catch up – again!
These changes aren’t just affecting retailers. Consumers now expect a free shipping option and a premium “two-day” or “one-day” shipping option to be available on any brand’s website. And these high expectations are continuing to rise.
To retailers, high shopper expectations mean lower margins. Shipping costs aren’t cheap, especially when customers are anticipating a brand to eat that cost by offering them free shipping. Companies are forced to get creative in order to satisfy these expectations while keeping costs down.
Before we look at how the technological advancements in commerce and logistics have allowed companies to satisfy these expectations, let’s look at the history of order fulfillment and what most brands use to accomplish order fulfillment: a third party logistics provider.
History of Third Party Logistics
It’s difficult to imagine a time when efficient shipping was a luxury reserved only for enterprise companies who could afford it for their wealthiest customers. Over the past 40 years, the logistics industry has changed dramatically to allow any company to ship goods to their customers in a timely and affordable fashion.
As a result, a large majority of retailers have chosen to outsource their logistics processes to companies who specialize in fulfillment services. In fact, over 90% of the Fortune 500 companies use a third-party logistics service.
Comparatively, less than four decades ago, companies that shipped goods managed their entire supply chain internally. In order to become what it is today, there were a few key events that shaped the logistics industry.
The 1980s: The Beginning of Third Party Logistics
The Motor Carrier Act of 1980 deregulated the trucking industry. This brought about an increase in the number of trucking carriers in the United States. As such, companies providing warehousing services saw a natural pathway to expand their service footprint to offer both storage and transportation services.
The rise in storage and transportation companies alongside the introduction of advanced information technology, created an operative space for third party logistics organizations.
The increased usage of third-party logistics providers directly correlates with the number of trucking carriers. In the 80’s there were only 20,000 trucking carriers. Now this number has skyrocketed to 1.2 million providers.
The 1990s: Global Expansion Impacts Order Fulfillment
When countries like India and China opened up their economies for global business, the retail industry as a whole changed due to the cheap labor and local resources. This opened up a large demand for companies that could streamline intricate supply chain processes.
Many logistics companies began specializing in specific industries – like food products and supplements. These specialized third party logistics providers allowed businesses to delve into markets they couldn’t have gone into otherwise due to financial viability.
The 2000s: Technological Advancements in Commerce & Logistics
In the 2000s, growth exploded in the logistics industry with such innovations as the internet and mobile devices. Logistical business problems became more complex with retailers needing large-scale inventory management and needing efficient and on-time shipments to their customers. The solution: advanced software and machinery to deliver cost savings and supply chain visibility to customers.
Rise in eCommerce Industry
The advent of the internet in the 2000s didn’t just affect Third Party Logistics Providers, but also their client counterparts – retailers. The commerce industry used to only consist of brick-and-mortar stores. As a consumer, whatever stores were closest to you were what you were stuck with! In the 2000s, technological innovations launched the idea of eCommerce, also known as electronic commerce. eCommerce is the buying and selling of goods or services on the internet. This innovation quickly became the new standard in shopping.
Amazon, E-Retailers, and Online Shopping
Electronic retailing, or “e-tailing” gave shoppers the ability to choose between multiple brands. Customers valued the ability to shop anywhere, the convenience of shopping on their time, and the ability to have a purchase hand-delivered to their house. Quality product pictures and good reviews were enough for a shopper to push the “buy” button.
In 2005, Amazon introduced Amazon Prime memberships. Customers got free two-day shipping for a flat annual fee. This strategic move increased customer loyalty and repeat purchases. Today, free shipping and fast delivery are the most common requests from online shoppers.
Longer Holiday Season & New Holidays
Each year, holiday deals start earlier and last longer. Since physical stores no longer have to be open for companies to acquire sales, retailers have been offering Black Friday deals as early as Thanksgiving Day and taking holiday orders as late as the day before Christmas.
Not to mention the appearances of new, unofficial holidays Cyber Monday and Prime Day, which were created due to the advances in eCommerce and shipping.
The Shift from Multiple Product Orders to Single Product Orders
With free shipping and two day shipping options becoming the norm, shoppers no longer feel enticed to bundle product purchases together to meet a free shipping price threshold (i.e. free shipping on purchases over $50). Shoppers are now buying less per order.
To retailers, a decrease in items per order is not a decrease in the quantity of items sold. More and more products are now split into individual orders.This causes a subsequent increase in the cost of fulfillment as brands are using two small boxes instead of one big box, paying labor to box more packages, and paying to ship multiple boxes instead of a single box.
Innovations Necessary to Meet Customer Demands
With shoppers shipping expectations rising and retailer’s fulfillment costs increasing, fulfillment warehouses are forced to become more efficient than ever. Innovations like dynamic slotting have helped reduce labor costs, and the rise in drone shipping usage has decreased time in transit.
“Slotting” is the process in which a warehousing facility chooses to position and arrange their products. Slotting is divided into static slotting and dynamic slotting. In static slotting, a product has a permanent assigned location in the warehouse. Warehouse pickers move around the different locations and pick various products as specified by the order. With dynamic slotting, product locations in the warehouse are allowed to change. Typically a product’s location is based on its turnover rate. The facility’s Warehouse Management System monitors the consumption rates of each product. When a product bin empties, the WMS reassigns slots with easily accessible locations in the front of the warehouse to more popular products and puts slower moving products in bins farther from the dock. This process also factors in seasonality, promotions, items typically bought together, and other trends. This reduces the amount of steps a picker will take in order to fulfill all the orders in a day.
Amazon uses dynamic slotting in a different way. When a product bin empties, it is replaced by any random product that can fit in it. This method is called chaotic storage. Since Amazon has millions of different products with new ones being introduced every day, it is impractical to use static slotting. Their software keeps track of every product’s location and directs pickers via an optimized picking route.
Drone Usage in Fulfillment
Delivery drones are unmanned aerial vehicles (UAVs) able to deliver lightweight packages. Delivery drone operators control drones remotely or autonomously and can potentially supervise the usage of multiple drones at one time. Currently across the world, delivery drones are used to deliver time-sensitive items like medicine or deliveries that would be difficult for a vehicle-based service to accomplish.
Up until 2016, commercial use of drones was banned in the US by the Federal Aviation Administration (FAA). However, three years ago, the FAA issued regulations that allowed limited use of commercial drones for deliveries. These regulations require a licensed pilot to keep the drone in sight, prevent the flight from being conducted in a moving vehicle, and limit drones from carrying packages over 55 pounds.
Amazon, with 86% of their packages weighing less than 5 pounds, is testing drones in their Prime Air program. UPS is working on an initiative where drones launch from a delivery vehicle. This saves UPS on fuel costs and lets drivers deliver more packages. DHL has seen drone deliveries take a third of the time compared to ground delivery vehicles when shipping packages to remote mountain villages.
Delivery drones reduce time in transit for last-mile deliveries and cut costs. These deliveries could cost as little as five cents per mile compared to typical UPS and FedEx ground delivery costs of more than $6 for shipments from a local distribution center. In addition, drone deliveries could take as little as thirty minutes.
Learn More: Looking for a fulfillment partner that is innovating to keep your costs down and your customers satisfied? Learn about Jay Group’s next generation fulfillment services or talk to a fulfillment specialist today.