Thanks to Amazon’s move to standard Prime one-day shipping, there’s an arms race amongst retailers to create the most competitive delivery promise. In just the past month, we’ve seen major moves from Walmart and Target, and even further rollouts from Amazon:
- Walmart made the announcement to offer free, next-day shipping on 200,000 items
- Target is expanding same-day delivery service while also boosting emphasis on providing more options: BOPIS, next-day delivery, and so on
- Amazon has said that more than 10 million products are now available via Prime one-day shipping
It’s clear the race is on, but should everyone be in it?
What it takes to offer fast, affordable shipping
Until recently, distribution networks were primarily designed to get goods from warehouses to store shelves. They weren't built to handle eCommerce, omnichannel, and myriad other ways customers purchase now. This has resulted in some significant logistics challenges including:
- Meeting customers’ ever-increasing expectations
- Lack of insight into operations that span multiple buying channels
- Responding to supply chain disruptions
Major retailers have spent years building out their in-house warehousing networks and refining inventory strategies. Since eCommerce hit, it’s taken continuous innovation to redefine their warehousing and direct-to-consumer fulfillment strategies to meet today’s demands for ever-faster shipping.
A better delivery promise, that doesn’t eat into margins (aka, doesn’t require either businesses or their customers, to pay premiums to expedite parcels) requires shortening the last mile of delivery.
To shorten the last mile, you must position more inventory closer to demand to optimize for fast ground shipping. To do this well, businesses need to know where customer demand is, what products are being purchased, and then have fulfillment centers close enough to service those areas.
You don’t need a giant fulfillment network
No one has the time or money to build out a fulfillment network like Amazon’s. But, not everyone needs to.
Major retailers like Amazon, Walmart, and Target have to compete on their delivery promise—a task that’s exponentially more complicated due to the large number of products they sell.
For everyone else, particularly digitally native retailers with smaller inventory counts, expanding your fulfillment footprint to shorten the last mile of delivery is simple … and doesn’t require as many locations as you may think.
Want to see how many fulfillment centers you need? Try our free, simple Network Analysis Calculator to find out.
Determining the size of your fulfillment network
It starts with a network analysis that analyzes your current demand pattern and determines three things:
- What is your current distribution strategy?
- Where are your orders coming from at any given time?
- Are there variances in product SKUs being ordered across different regions?
Answering these three questions can help determine how many additional fulfillment centers you need and where they should be positioned to improve your delivery promise.
For example, if you performed a network analysis that revealed you have an evenly dispersed demand pattern, you could offer varying delivery promises to the contiguous U.S. with the following networks.
With a general U.S. demand pattern, a retailer or brand with only three strategically placed fulfillment centers could still reach 84% of customers with two-day delivery or less.
For those wanting to directly compete with Amazon, up to 16 fulfillment centers would be needed to hit 98% of customers with next-day delivery.
The benefits of conducting a network analysis, even if you already have a fulfillment network, are to identify what locations could be added to complement and improve current operations to reduce last-mile transportation times and costs.
Your fulfillment network could equal happier customers
Seventy-one percent of customers abandon shopping carts because of last-mile logistics—either shipping costs and fees were too high, or shipping times were too long.
If you know your customers prefer shorter ship times, it’s possible to meet those expectations by expanding your fulfillment network. And, with new solutions like on-demand warehousing, building out your fulfillment network doesn’t require traditional 3PL solutions or a slew of fixed costs.
Getting started is simple, and with on-demand warehousing, you get the flexibility you need to scale your fulfillment network throughout the year as demand patterns change.
With a flexible solution, you benefit in two major ways:
- You have the ability to better manage supply chain disruptions like inclement weather, natural disasters, and tariffs, by having access to available warehouse capacity and fulfillment services on an on-demand basis.
- You gain the agility necessary to support new initiatives like entering new markets, rolling out products, and meeting changing market demands. A flexible logistics network also enables you to reduce last-mile transportation times by adding more locations to your network.
Logistics can get complicated quickly. Traditional challenges like inventory allocation and management can create tensions across your supply chain, especially when you’re distributing products across a wider network. But as the pressure to constantly improve on your delivery promise continues, determining the right size fulfillment network for your needs is the first place to start.
Find out how many fulfillment centers you need to stay competitive. Try our free, simple Network Analysis Calculator >>
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