Executive Briefings

Can You Afford to Offer Same-Day or Next-Day Delivery?

You need to understand the requirements around speed of delivery, and the cost. Clients often come with questions like, "My customers want next-day delivery, what is it going to cost me to deliver that?" And the short answer is, "it depends."

How much faster do things have to be to remain competitive? In general, ecommerce has shifted customer expectations so that next-day delivery is becoming the norm. But certain channels and perhaps some customers may not need that level of service. You have to figure out if and where speed applies to your business.

Figure out your real service requirements. And if the requirements are same-day/next day, you have to ask “what’s the benefit of delivering that level of service?” or conversely, “what’s the cost of not accelerating fulfillment?” The answer should be focused on financial performance or profitability. For example, many companies that offer free shipping with orders over a certain dollar value look to increase the average order value for higher margin in order to offset shipping costs. Likewise, some companies that offer faster fulfillment view the investment as a defensive strategy against increased competition for customers and look for an offset in order volume, margin, transportation savings, or some other competitive advantage.

It’s important to distinguish between what a customer says they want and what they are willing to pay for. And keep in mind that different customers may have different service expectations. Do your branch customers need the same level of service as your direct-to-consumer channel? Are there different levels of customers even within a single channel that you need to service uniquely? Are some customers willing to accept a discount in exchange for longer lead time while others will pay a premium for the value of just-in-time replenishment? How about the planned vs. unplanned spend for MRO and the critical need for those higher margin unplanned items?

At the end of the day, speed costs money.

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How much faster do things have to be to remain competitive? In general, ecommerce has shifted customer expectations so that next-day delivery is becoming the norm. But certain channels and perhaps some customers may not need that level of service. You have to figure out if and where speed applies to your business.

Figure out your real service requirements. And if the requirements are same-day/next day, you have to ask “what’s the benefit of delivering that level of service?” or conversely, “what’s the cost of not accelerating fulfillment?” The answer should be focused on financial performance or profitability. For example, many companies that offer free shipping with orders over a certain dollar value look to increase the average order value for higher margin in order to offset shipping costs. Likewise, some companies that offer faster fulfillment view the investment as a defensive strategy against increased competition for customers and look for an offset in order volume, margin, transportation savings, or some other competitive advantage.

It’s important to distinguish between what a customer says they want and what they are willing to pay for. And keep in mind that different customers may have different service expectations. Do your branch customers need the same level of service as your direct-to-consumer channel? Are there different levels of customers even within a single channel that you need to service uniquely? Are some customers willing to accept a discount in exchange for longer lead time while others will pay a premium for the value of just-in-time replenishment? How about the planned vs. unplanned spend for MRO and the critical need for those higher margin unplanned items?

At the end of the day, speed costs money.

Read Full Article