Debunking the Myths of Same-Day Delivery (Or What Amazon Learned from a 90-Year-Old Distributor)

What do both Google and eBay do wrong that a 90-year-old industrial supply distributor does right? I’m talking about same-day delivery. And I’m also talking about Grainger, the longstanding industrial supply distributor whose doorstep delivery footprints are being followed, even now, by another of the most innovative companies in the world — Amazon.

Same-day delivery might be a hot topic in the press, but in private, most of the executives I speak with dismiss it. Having spoken with execs across businesses of every type and size, I hear four myths repeated consistently. By looking at Grainger, a company that has offered same-day delivery for decades, I want to debunk those four myths right now.

Myth 1: Consumers don’t need or want things within a few hours of ordering.

Amazon has offered same-day delivery in just a handful of markets, but most industry analysts agree that it will expand the service soon. In the years since Amazon Prime’s launch, consumers have come to expect free shipping. Similarly, once Amazon offers same-day delivery, consumers may not “want” or “need” same-day delivery, but within three to five years they will come to expect it.

The myth in this statement is really the phrase “within a few hours of ordering.” When most people think of the future standard for same-day delivery, they think of a service like eBay Now, Google Shopping Express, or Deliv, where the product is delivered within a few hours (not surprising considering the amount of press those companies have received). However, the same-day delivery standard will be an AM/PM service — order something in the morning, receive it by the evening, and vice versa. This two-cycle approach is cost effective because it creates flexibility and density (i.e., you can group nearby deliveries together so they take place around the same time), enabling the seller to fulfill orders efficiently. While Amazon provides this service level today, Grainger has done it (along with two- and four-hour delivery options) for decades. While Amazon’s service looks impressive, it has weaknesses. Because of where Amazon’s distribution centers (DCs) are located, it cannot offer the two-hour delivery option. This is where brick-and-mortar companies, that effectively own mini-DCs today already, can set themselves apart. Eventually I expect leading brick-and-mortar companies to offer the AM/PM standard as well as a range of same-day service options: a choice of “rush” service levels, and a scheduled appointment window, just as Google Shopping Express does today.

Myth 2: UPS, FedEx, or the US Postal Service are the best options to make same-day deliveries.

None of these companies are viable options today, nor will they be anytime soon. Why not? They all feature the same model of “one-size fits all customers,” with hard cut-off times for deliveries inbound to their facilities, “hub-and-spoke” models for efficient sorting and routing at massive scale, and union contracts that restrict delivery days, holidays, and hours. Given the challenges facing the “one-size fits all” approach, it’s not surprising that Grainger uses local delivery companies, or couriers, to perform same-day deliveries. The local delivery and courier industry is full of small, nimble, and highly flexible companies, accustomed to operating nearly 24/7, on most holidays, and meeting their customers’ needs as opposed to requiring their customers to meet their operational practices. And, while they’ve historically been involved in business-to-business deliveries and struggled with quality, over the last few years, couriers have gone “mainstream.” Want proof? Just look at the way Amazon has steadily shifted more and more of its next- and two-day deliveries onto couriers and off of UPS and FedEx. Even eBay Now has moved away from the private fleet/dedicated driver approach it used in San Francisco and is starting to use couriers, a commitment clearly illustrated by its recent acquisition of UK-based fulfillment service Shutl. Today, Amazon joins Grainger and a handful of other companies including healthcare distributor McKesson, as the only companies with a national network capable of same-day delivery.

The local delivery industry has overhauled its reputation for poor quality, thanks to  its adoption of dispatch software and increasingly affordable smartphones. However, most large shippers still invest significant resources in transportation, IT, and customer service to raise the customer experience to their standards. Either much of what they do is still manual, or the technology they use is home-grown or cobbled together, because when it comes to managing local delivery, their transportation management software (TMS) has gaps. As a technology company, Amazon has the development team to build and maintain what it needs to close these gaps and today it has real-time visibility and control over quality. Technology matters when it comes to managing couriers: we’ve seen our customers reduce their damages by 20 percent, cut their operating expenses by nearly the same, and lower their customer service issues 18 percent.

Myth 3: The economics around same-day don’t work because no-one will pay for it.

If you look at the “all-in” (i.e., fulfillment and delivery cost) of a two-hour same-day delivery performed by a courier for a package, it can cost more than $30 a delivery. Clearly, eBay and Google are losing money regardless of whether or not they use couriers. However, if you consider the AM/PM service level,  the cost starts to become reasonable. At higher shipment volumes using couriers (assuming a company is the size of Grainger rather than Amazon!), the delivery cost component starts approaching $15. And, while it would certainly require a big change in fulfillment strategy and more cost than fulfilling from a DC, companies could reduce their delivery costs even more by shifting next- and two-day volume onto couriers and off UPS and FedEx, as Amazon did. Eventually, rates will go down further when someone takes Uber’s model to local delivery, and both creates a nationally-recognized brand and disintermediates companies by using technology to deal directly with drivers. Uber’s UberRUSH, which launched last week in Manhattan, is a step in this direction, but it is light years away from being the suite of tools that a high-volume shipper needs to manage its delivery program.

Myth 4: Same-day delivery is something only retailers need to worry about.

If Amazon is doing same-day delivery, everyone should pay attention. As shown by its rapid expansion across categories from appliances to groceries, Amazon has its eyes on everything which anyone buys. And that even includes business-to-business purchasing, as illustrated by the company’s launch of Amazonsupply.com in 2012, which set it on a collision course with Grainger. Retailers and distributors need to start figuring out a same-day strategy now, or they risk losing sales growth and market-share.

Rob Howard is the founder and CEO of Grand Junction (www.grandjunctioninc.com), a software-as-a-service (SaaS) platform for managing the unique requirements of local delivery and customer-facing logistics. Prior to Grand Junction, he cofounded Ensenda, a non-asset based third-party logistics (3PL) provider focused on the last mile. Rob has a fifteen-year track record of driving innovation and leading both start-ups and nonprofits to success.

Comments

  1. Great article with great points! I think companies don’t like change. This is the way it has been done for years, why mess it up? But if they would look at it as another potential income stream, because people have been trained to expect a higher price for faster delivery. Just look at ground shipping verses overnight. We once sold a roll of color packing tape, nothing special about it. Tape $2.50, shipping was going to be $5 or so, but customer had to have it the next day, they paid over $50 to have it next day, and probably would have paid more for same day delivery. And I have many more stories just like this. We even had a company negotiate with us to drive 120 miles to deliver a couple items the same day, and was willing to pay for us to do it… Easy money really.

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