There is a lot of focus on home delivery today, but doing it profitably is not a trivial task. What are the main challenges associated with home delivery, and what factors influence profitably?
During my trip to England earlier this year, I had the opportunity to explore those questions and more with Brian McCarthy, Logistics Director at Dreams, Britain’s leading bed retailer. As McCarthy put it, after a customer buys a bed, it’s his responsibility “to make sure we deliver it to their home brilliantly.” Dreams has its own fleet of 110 vehicles and operates an average of 120-125 vehicles per week, with over 400 people across 9 distribution centers in the United Kingdom.
“The key to home delivery and doing it profitably,” explained McCarthy, “is you have to provide brilliant service to customers, and brilliant service comes at a cost. I see it as my job to help educate the people I work with — above, beside, and below me — to understand that the customer experience is critical.”
There is also a volume component to it, especially in 2-person delivery operations. “The tipping point in volume, which I’ve assessed over a number of years, is that [here in the UK] if you’re doing more than 200,000 two-man deliveries per annum, you’re too big for somebody else to do it in a shared user network, so you have to invest [in your own delivery operations].”
McCarthy added, “The big thing that is impacting profitability is determining what to charge customers for service. The battle ground in one-man delivery is free — free same day, free next day, time slots — and trying to charge customers for the premium slots and give the standard for free. If you look at two-man delivery, where charges range from 8 quid [about $10] to your doorstep, 40 quid [$52] to your room, to 90 pounds [$117] to assemble stuff, there’s a big debate yet to be had about how you do it.”
Tying it back to the importance of the customer experience, McCarthy offered this advice:
“Some companies are afraid to talk about their service because of cost, but there’s no shame in selling a great service. People don’t mind paying for great service, but they resent paying for poor service. If you’re going to charge for delivery, be upfront about what people are paying for; you need to be transparent and I believe that’s where the debate will move to.”
Of course, e-commerce is creating new home delivery challenges and opportunities, which McCarthy discusses in the clip below. One key trend he pointed to is the growth in mobile transactions. “Within our business, we’re seeing mobile transactions growing rapidly, 20 to 30 percent annually,” said McCarthy, and this will further fuel customer expectations for faster delivery and more visibility to order and delivery status.
On the technology front, Dreams is using Paragon Software Systems’ home delivery solution for continuous optimization and route execution, as well as fleXipod, an electronic proof of delivery and configurable data capture system that can be implemented using PDA, tablet, and smartphone devices. In the clip below, McCarthy provides some details on how these solutions are enabling Dreams to improve its home delivery operations.
“The big efficiencies come in how you drive additional utilization of your vehicles when you’re going to customers,” explained McCarthy. “Typically, our vans are knocking on 12-13 doors per day, and if each of them go 10 percent above the prescribed mileage, that’s quite a significant amount of mileage every day, every week, every month, which drives up costs.” Getting real-time data from telematics and feeding it back into the planning system for ongoing process improvement is critical.
McCarthy was particularly excited about the value fleXipod is providing today and will provide in future phases of implementation. “fleXipod has been a phenomenal success,” McCarthy commented. “Currently [as of the end of May 2016], 20 percent of our customers are receiving deliveries via fleXipod. What does that mean to customers? They don’t get a piece of paper to sign, they sign on glass [on the device] and the receipt confirmation is sent automatically to our center. [The bigger value] is really about the future and what the solution can do for customers once we roll it out across our entire network by the end of August. In phase two, we will be able to give live track and trace visibility to customers, and also use it to dynamically update customers when the previous customer order has been delivered so they know we’re 15-20 minutes away. It will enhance the customer experience, and what that means for us is fewer calls to our contact center, and it will make customers more self sufficient in enabling them to see what’s happening with their order.”
He later added:”The beauty of fleXipod is that it will also give us real time data, so we’ll be able to track and trace and say, ‘If we planned an hour [for a delivery] and it took us an hour and thirty minutes, is it specific crews or specific products or specific geographies that are causing those delays?’ Knowing the answer is important because every additional minute, every additional mile costs us.”
So, what advice would McCarthy give to companies that are just getting started on implementing these types of solutions to improve their home delivery operations? Watch the clip below for his advice, which includes the following:
“Be really clear about what you want your customer experience to be. And if you start with your customer and work your way back, then you can translate it through to your costs. Many businesses start with ‘Well, what is it going to cost me, and therefore what I can offer?’ You have to start with the customer in mind and say ‘What does a great customer experience look like for a customer?’ and work your way back [from the end customer to your suppliers] and understand all of the transactions and movements involved in delivering a product, pull them together, and then you have a framework to go do it.”
I encourage you to watch the rest of my conversation with McCarthy (embedded below) for additional insights and advice on this topic, including which performance metrics are the most important, what new challenges and opportunities he sees moving forward, and why Dreams selected Paragon as its technology partner.
