First ship and then shop: the future of home delivery

Predictive algorithms will allow an Amazon or Alibaba to forecast what an online consumer wants to buy and so revolutionise last mile logistics.
The consumer-spend data accumulated by the global e-tailers means that buying a flat screen TV online will see a further purchase suggestion, for example a wall bracket to go with it or, with less relevance, a bottle of expensive perfume.
Katja Busch, chief commercial officer, DHL, says that today’s predictive algorithms have a hit rate of 70%, which is pretty good but points out that it still means a “nightmare” 30% returns rate.
“I believe that these algorithms will one day reach 95% [accuracy], which is a real game changer. Then we will first ship, and then shop.”
“If that happens, then it makes your stock management much easier in the warehouse.”
Busch, who also says that there is no such thing as “free shipping”, points out that e-commerce, already in its second decade, is not really a revolution but an evolution.
The business to consumer (B2C) e-commerce boom also has profound implications for business to business (B2B) logistics that launched the express parcel market.
Says Busch: “The whole B2B market is still untapped online. We are all consumers and have a seamless experience on the Amazon webpage. We will not accept in the future that we have a different [B2B] experience in our office. These old fashioned ways in the B2B environment will change massively.”
She cautions that such B2B changes will not herald a massive increase in volumes, but more cyclical purchases of smaller consignments.
And for those looking to coin record earnings from e-commerce logistics, she warns: “It is still incredibly hard to earn money in e-commerce, so I believe that there is no thing as free shipping.”
Retailers expanding their e-commerce offer also thought that they could save money on expensive shops in the middle of town and thus provide free delivery.
Says Busch: “This was not necessarily a mistake because there was the rise of e-commerce, but the truth is that fulfilment is expensive and complex, to do B2C fulfilment is much more complex than fulfilling B2B.”
Retailers believed they could provide B2C logistics out of the same hub as B2B but that did not work out, and instead it opened a business opportunity for the likes of DHL.
“The consumer is getting more and more demanding than ever, because they expect deliveries in short time windows, but are not necessarily willing to pay for it.”
In a rhetorical flourish, Busch poses the pizza question so beloved of online consumers: “What is so difficult about the last mile? Pizza guys deliver every day, so what are you complaining about?”
Busch provides a forensic analysis of why parcel home deliveries are more challenging than pizzas, both operationally and in unit cost.
“The truth is that this is the most complex part of the supply chain and this is the part where you can easily burn a lot of money.
“The difference between a pizza courier and a retailer in the e-commerce trade is that the pizza is produced locally, you just grab it and take it to the consumer.
“But the goods we are dealing with are not produced where we deliver it.”
She continues: “The biggest problem is that we have a clash between the schedule of the consumer and our schedule as a transportation company, The B2B time windows were made for delivery when people are at work during the day.”
This misalignment is the most challenging and has commercial implications for e-commerce home delivery: “If we don’t reach them with the first attempt they will stop buying,” says Busch, adding: “So you have to connect your inventory to your delivery capacity, the right goods in the right place at the right size.”
Other constraining factors in home delivery include trying to deliver one item per stop, clambering up to the 20^th floor of a tower block only to discover that the resident is out, compared with B2B where you might have up ten parcels per drop plus some to pick up.
“If you do that [home delivery] a few times per day you can easily burn a lot of money as a logistics company.”
“We need to make sure that we reach the consumer at the first attempt. We need to enable returns. People always forget that, and if the return process is not as convenient as getting the parcel in the first place, then they will stop buying online.
The return quota for fashion items in home delivery is 60%, which may have something to do with consumers choosing items of clothing in three different sizes or colours, and then sending two back.
All of which is good business for the logistics companies, if they get it right.
And home delivery will become even more demanding within the next decade as increasing urbanisation will see 60% of the global population living in big cities, armed with their ever cleverer smartphones.
“People are organising their whole life on the smart phone and the huge success of things like booking flights online was not just because it was cheaper, but because it was more convenient than going to a travel agency.”
One answer to this complex logistics conundrum is localised delivery, where the central mega-warehouse full of stock is replaced by a greater number of smaller warehouses closer to the consumer.
Home parcel delivery then becomes faster and cheaper, as long as the inventory control keeps pace with consumer demand.
Flexi-delivery solutions are another, where e-tailers and logistics companies find the best time and location for handing over ordered goods.
It also means that retailers can team up with logistics companies to share space and join forces.
There is also a cultural aspect to this, with consumers in Poland, for example, reluctant to let a neighbour take in a parcel, while the Swedish prefer going to their local parcel shop to pick up their goods rather than staying at home.
Busch, using the image of a hockey stick to describe a steep upward curve due to seasonal demand, says that the marketing success of Singles Day, Black Friday, Cyber Monday et al has extended the time period of the traditional peak season volume surge.
“That is relatively good news for us as a transportation company, in that we can flatten this huge hockey stick a little bit, but it also means that you have to cover at least two really stressful months in transportation.”
While e-commerce is often portrayed as the panacea for airfreight, it is clear that the last mile element is the key component, not just for DHL but for all sectors of the industry.
Says Busch: “It is the crucial place in the whole supply chain and there is no universal technology or silver bullet for the last mile.”