The world of retail and logistics today looks completely different than it did just a few short years ago. Consider last year (2019) alone: Amazon finally made the definitive move to one-day shipping for Prime members, and then Walmart and Target quickly caught up.
These industry titans are not only shaping consumer buying behaviors, they’re practically bending time. So, how did we get here, what’s next, and how can other retailers compete?
Watch FLEXE Co-Founder and CEO, Karl Siebrecht, discuss the evolution of retail and the call to arms for supply chain and logistics providers everywhere to catch up and support omnichannel retail by improving last-mile logistics.
Below is the transcription of the video, which has been edited for clarity, and a breakdown of key themes in modern logistics.
For thousands of years, the world of retail has been the same: Bring the goods to a place, people go to the place to buy the goods. The $1.6 trillion logistics industry was built to support that model of retail.
Then the internet happened. And now, consumers want their goods to be shipped to their homes. This $1.6 trillion of investment is no longer sufficient.
In fact, that investment has the wrong assets, the wrong transportation lanes, the wrong types of warehouses to support eCommerce fulfillment—to ship products to your home.
We, as consumers, have been trained—largely by Amazon who's done a phenomenal job at this—we've been trained to have the expectations that we can buy products online and get it very, very quickly, without paying for shipping.
So when companies fail to do that, if they ship it too slowly or they charge too much for shipping, what happens? We, as consumers, leave the goods in our shopping cart on that website and we go someplace else where we can get the product quickly and for free. Because of that, logistics isn't just a cost center anymore, it’s required to drive growth—making it strategic to every company for their survival going forward.
However, in a world where logistics infrastructure is fixed (as it has been), it simply can't adapt fast enough to changing consumer needs. Businesses are struggling because they can't adapt, and their logistics infrastructure isn’t flexible enough to change quickly and keep consumers happy.
Logistics simply hasn't adapted quickly enough to keep up with consumer demand.
The key to creating, what we call, “structural flexibility” is the warehouse. One of the truths in the logistics industry—up until FLEXE was created fairly recently—is the fundamental economic construct of the warehousing industry, which has required long-term leases and fixed investments. The reality has been that your nodes, or your warehouses, are where they are—in fixed locations.
Whether you’ve had one or 10 warehouses, you have signed up for a long-term obligation that affixes your distribution network to those points. If the makeup of that particular distribution network doesn’t support order volumes or inventory placement, then those become constraints on your ability to be flexible—your ability to change how you want your flow of goods to go. You lack the structural flexibility required to make logistics network changes that your business needs.
The power of the FLEXE software platform lies in the ability to connect once—start with 1-2 nodes, and then just as easily add 3, 4, 5, 6, 10, 16 or more warehouses as you grow your business. That’s the true power of the FLEXE model—the combination of our technology platform and this massive network of capacity that the technology platform is connected into. And, that's how you can achieve structural flexibility.
Structural flexibility is what we're building at FLEXE and giving our customers—a fundamentally better way to manage last-mile logistics, and we're helping solve problems for our massive enterprise customers and some of the best digital-native brands in the world. We’re helping them go from being on the defensive and trying to keep up with those who are driving change in the industry to starting to play offense. It’s a strategy that enables retailers to innovate and find new ways to deliver better consumer experiences, but also complete and win market share in their respective sectors.
That's what we're doing at FLEXE. And in many ways, we're just getting started.
Logistics infrastructures aren't flexible enough to change quickly and keep consumers happy.
Let’s dig in: Key themes in modern logistics
Consumer behaviors have changed
eCommerce has fundamentally redefined how we, as consumers, buy goods. We don’t have to run errands around town to get what we need, if we don’t want to. We can hop on our phones and order online (where stores are open 24-7). The world’s inventory is at our fingertips.
And, we have so many more choices in how we get our goods: We can shop in-store (when convenient), we can opt in for fast delivery, free delivery, buy-online-pick-up-in-store (BOPIS), or in a lot of cases, any combination of the above.
Consumer buying expectations will only continue to keep pace with how quickly the industry titans evolve their delivery promises.
Logistics has been slow to adapt
The traditional supply chain was discretely designed to get goods onto store shelves. Over years, it was nearly perfected—a tightly knit, linear function to support in-store sales. While there is still a need for that supply chain to work, a new one—either designed for eCommerce or a hybrid approach for omnichannel—is needed. Because, they function quite differently.
Legacy, enterprise retailers that arrived to eCommerce with an already-established network have had to update (practically rewrite) the functionality of that network. Or, they’ve been faced with investing in network expansion, which is often costly when relying on long-term leases or traditional 3PL cost structures.
Conversely, retailers and brands that started online (digital natives), have designed their operations to meet the distributed demand that eCommerce warrants. Now, many are faced with expanding their physical footprint. Until recently, these networks have been shaped by traditional solutions for warehousing and fulfillment—cost-prohibitive and inflexible.
However, as retail evolves and delivery times get shorter, both enterprise retailers and high-growth digital natives alike are faced with either steep costs to expand logistics operations or finding a better way.
Enter, structural flexibility
Online shoppers are free to abandon shopping carts and go to the next website that meets their needs. In fact, 53% of online shopping carts are abandoned because extra costs, like shipping, are too high—making it the #1 reason online carts are abandoned.
Your logistics strategy impacts sales. If you’re limited to a fixed network with warehouse locations that don’t match your demand patterns, then your delivery promise may be deterring sales.
With a flexible solution for warehousing and fulfillment, you can add “structural flexibility” to your network without reinventing the wheel. Forward-looking brands improve last-mile logistics by complementing their current network or logistics strategies with flexible, on-demand solutions.
Structural flexibility, in a traditionally static link in the supply chain, unlocks the ability to shorten not just delivery times, but also costs, by improving the most expensive piece of the supply chain: the last mile.
The future of logistics is open
Retail has changed, and logistics will continue to evolve to support those changes. Consumers are humans, which introduces innumerable variables that will never make your logistics strategy a one-size-fits-all solution.
With all the options (literally) at our fingertips, retailers and brands must diversify their logistics strategy, incorporate a level of flexibility, and continue to test and iterate as market dynamics shift.
Retail has always been about getting products in the right place, at the right time, for the right price. eCommerce has just increased the burden.
Last-mile logistics that work
The fundamental challenges that retailers and brands face is giving their customers what they want. In many ways, this isn’t a new obstacle specific to eCommerce. Retail has always been about getting products in the right place, at the right time, for the right price. eCommerce has just increased the burden.
Today’s retailers aren’t just optimizing for shelf placement. Now, “right place, time, and price” extends to warehousing, fulfillment, and the last mile of delivery, too. In omnichannel retail, the key to doing that comes down to positioning inventory close to consumers.
Getting inventory close to customers means shortening the last mile of delivery, whether the last mile is to a retail partner or customers’ doorsteps. By adding fulfillment centers closer to high demand centers, shippers can optimize for ground transportation to create It means sIt could mean expanding retail channels to partners, and storing inventory near intake centers to avoid out-of-stocks. It could also mean setting up warehousing locations to dropship and fulfill orders from third-party sellers. The list goes on.
Because there are so many options, retailers and brands need flexible logistics solutions to support those options. From freight-forwarding, middle-mile transit, warehousing and fulfillment, last-mile delivery, and more, today’s retailers aren’t building solutions in house. They are relying on new, digital logistics solutions to create flexibility that wasn’t previously available.
FLEXE on-demand warehousing and fulfillment provides retailers and brands with a superior (and flexible) solution for positioning inventory closer to demand. With no long-term leases or capital-intensive investments, FLEXE gives shippers the ability to stand up fulfillment centers quickly and make the customer experience stronger with shorter last miles. And, it’s repeatable. FLEXE customers and warehouse providers alike use the FLEXE technology platform—making it incredibly simple for shippers to expand and contract their distribution networks as the market demands.
Thanks to today’s modern logistics providers, retailers and brands have so many more options to complement their distribution networks and create better experiences for their shoppers.
You know your logistics strategy is running smoothly when your shoppers don't have to think about it—they just know that their purchases will get where they need to be, when they need to be there.
You know your logistics strategy is running smoothly when your shoppers don't have to think about it.