Forget about one- and two-day deliveries. E-commerce customers are increasingly demanding same-day service. Justin Cramer, co-founder of ProShip, explains how they're gearing up to make it happen.

SCB: What are the big challenges for retailers and merchandisers today in meeting customer expectations?

Cramer: Customers are expecting more and more from the delivery process. Over the past couple of years, retailers have moved toward two-day free delivery. In the last few weeks, it's changed even more, with Amazon and Walmart pushing to next-day delivery in many markets. The flag has been thrown out there, and so customers are starting to expect it.

SCB: You used the word “free,” but it’s not really free, is it? Amazon has Prime membership, and if you want something in two days from most merchandisers, you probably have to pay a little more for it.

Cramer: Even with Prime, there's a minimum purchase requirement that you need to meet. But the way that customers are thinking about it, they're expecting that process to be “free” because they paid for a membership upfront. So if they hit that $25 or $35 minimum in their shopping cart, they’re expecting one- or two-day delivery with zero additional dollars on that transaction.

SCB: Two days is hard enough a target to hit. What has to happen in order to make same-day possible, in terms of retailers’ capabilities?

Cramer: Number one, you have to use all of your inventory sources. The closer you can get to the customer, the lower the cost of service to meet a given expectation. I'm talking about both internal and external sources. Internal is your warehouses, retail D.C.s and stores. A lot of companies are just now figuring out the hard part — how to get shipped from store happening. But we’re also encouraging everybody to look at external inventory sources, including third-party logistics partners and manufacturers.

SCB: You’re talking about direct shipment from manufacturers?

Cramer: Exactly. From manufacturer directly to customers within a given area.

SCB: In addition to drawing from store stock, it seems as though one of the big trends we're beginning to see is the placement of distribution centers and warehouses in crowded urban areas, out of the realization that you have to be physically close to the consumer. What are the challenges involved in plopping a million-square-foot warehouse down in the middle of, say, the Bronx?

Cramer: You're talking land costs, labor costs, and a lot of material-handling equipment. It really is a very large investment. What we've seen a lot of our customers do is hedge by going to 3PLs, which may already have land there. You get a lot of the same benefits without having to make that huge capital investment in a lease and material-handling hardware, and trying to find the labor within these already crowded markets.

SCB: But 3PLs, who started out serving Fortune 500 companies with big transportation bills, have to step up their game in the last mile, too.

Cramer: Many of them can. You've got to shop around. Just because they say they're a 3PL and have a facility in the area doesn't mean they're the right choice. You need to look at their capabilities, call other customers that they’re currently serving, to make sure they can meet same-day delivery requirements for premium buyers. They need to be able to execute at the same level that you would, if it was your own building.

SCB: Still, anytime you insert an intermediary into a process, that’s going to raise the cost of your supply chain. How do you address that?

Cramer: It's only going to raise a portion of your supply-chain costs. If you can execute on next-day shipment, instead of paying for overnight air, you actually lower the cost of shipping.

SCB: Do you think that some retailers and merchandisers spend too much time worrying about the cost of the goods, and not enough on the cost of the transaction and the shipping itself?

Cramer: We've been looking at cost of goods for decades now. It's a known quantity. But now that we’re selling an experience to our customers, it's the cost of the transaction that's going to help control that experience.

SCB: What do you need to keep in mind when it comes to carrier selection and service?

Cramer: Amazingly, we still find a lot of large retailers, pharmaceutical companies and manufacturers that are single-carrier sourced. Each provider has a different network, and no one covers the entire country. By having more than one carrier available, you're able to shop the times as much the dollars that the transaction will cost.

SCB: It seems that if you're talking about last mile, by definition you’re going to be dealing with multiple carriers and multiple forms of delivery. There isn't anyone carrier that can do it all.

Cramer: You need to be. And if you look at what we're expecting to see in the next five years, which is same-day delivery, you must have multiple options in your basket.

SCB: Is the next step is one-hour or appointment delivery?

Cramer: It is. Already in the EU they have hour of choice deliveries.