As more and more people around the ever-shrinking globe discover the benefits of shopping online, the demand for “free two-day delivery” popularized by E-commerce giant Amazon is placing extra pressure on the supply chain of virtually every company in the world.
In this new consumer driven economy, sellers must have products available that customers want at a price they are willing to pay. And the expectation today is that customers want that product(s) delivered for free within two days.
Hence, logistics organizations must step up their game to provide the delivery their customers require. This phenomenon has created an opportunity for third party logistics (3PL’s) who can “deliver the best delivery.”
E-commerce Logistics Costs on the Rise
This article in Logistics Management references a recent report by logistics consulting firm Armstrong & Associates that says Ecommerce logistics costs grew at a compound annual rate of 15% over the past five years and are expected to grow nearly 20% through 2020. Armstrong & Associates President Evan Armstrong said that Amazon and its two-day delivery promise is the primary driver behind the growth in Ecommerce deliveries and the resulting pressure on logistics organizations.
Online buyers now expect two-day delivery on everything they order and this requires that suppliers strategically place their products around the country in a way to meet that demand. The global logistics ecosystem is now focused on urgency – with constant pressure to deliver above and beyond.
Armstrong says the “change in E-commerce logistics…from execution to getting orders fulfilled is really changing the way logistics happens, especially in retail. That is what is driving logistics costs up, and, in turn, it is also creating some opportunities for 3PLs.”
Pressure on Warehousing, Logistics and Delivery Organizations
The pressure on warehousing, logistics and delivery organizations will continue to increase as more and more retailers demand the ability to fulfill orders in two days or less. One of the challenges for sellers is to “forward stock” their products into warehouses near the end delivery points and to do it profitably. There is a whole new dynamic being created that requires retailers to incorporate “machine learning” into their market mix analysis so they know how to price their products based on anticipated future demand.
Logistics organizations will likely need to do the same. They will need technologies that can help them anticipate demand and quickly build the infrastructure needed to meet the demands of their fast-moving customers.
Technology and Mechanization Play a Crucial Role
Providing competitive on-time service will become more and more challenging. 3PL’s will need to mechanize and automate as much of their operations as possible. Retailers and logistics organizations will need to understand how the new stocking demands effect costs and pricing strategies and everyone will need to incorporate advanced mapping technologies capable of “pushing products and services to the hinterlands of India.”
Customer expectations across the entire spectrum are high when it comes to the delivery of their online purchases, and companies need to become more sophisticated in order to optimize resources across the supply chain.
With costs going up, particularly around transportation of goods, the only way for businesses to maintain healthy profit margins is to invest ahead of time in creating a more efficient and effective supply chain.
The growth in the number of deliveries won’t stop anytime soon – it will only increase thanks to the E-commerce boom. Real-time visibility and measurability will become an imperative if companies want to truly understand the impact all these demand driven changes create so they can take action before it’s too late.