Four years ago, Internet users were radically divided when people had to weigh in on whether a certain dress was blue and black or white and gold. (Go ahead and ask a couple of friends. I’ll wait.)
Today, the eTailing industry is going through a similar debate, except our polarizing question is more along the lines of, “What does a national fulfillment service network really look like?”
On the one hand, we have lots of people saying that every network needs to be as large and Amazon-like as possible in order to match its speed, economy and service. On the other, we have folks saying there’s no need to be so decentralized yet.
As it turns out, neither side is wrong, because much like that dress, the right answer is all a matter of perception. Except in this case it’s your customers’ perception, not yours.
To help you get a feel for those perceptions, we’ve put together the following short test. What do the results suggest to you?
True or False: Thanks to the Amazon effect, every customer demands and expects two-day delivery.
False (at least for now). Although many Americans have been conditioned to expect two-day service, a recent AlixPartners study suggests that the latest maximum acceptable delivery time for free shipping in the US is 4.3 days. And according to a recent Forrester research study, only 8% of shoppers consider expedited shipping to be important.
But don’t get too comfortable with these longer timelines, because consumers’ expectations for fast, free delivery are getting shorter all the time – and likely to get even shorter now that Amazon and some of its competitors are migrating toward a one-day shipping model.
True or False: Today’s consumers are highly sensitive to shipping costs.
True. According to the NRF’s most recent consumer view, 65% of consumers look up shipping costs before adding an item to their cart, and 75% of consumers expect free shipping – even for orders under $50. Meanwhile, 52% of the Forrester study respondents said that free shipping is a major driver for them. And 70% of the AlixPartners study respondents indicated that shipping costs “greatly impact” their purchasing decisions.
While offering national fulfillment services with multiple locations won’t eliminate shipping costs, it can help minimize them by reducing the number of zones (which usually equal extra expense) that packages have to travel in order to reach customers in each region.
True or False: Adding fulfillment locations is a good way to cut shipping costs.
True. It’s definitely a way to cut shipping costs. As to what the net savings might be (after the cost of real estate and added inventory carrying and labor costs), that would depend on your individual circumstances. If you go from a one-DC to a two-DC or three-DC model, you can basically eliminate the higher-distance, higher-cost shipping zones of the parcel carriers.
True or False: Offering ultra-fast delivery is less necessary if you’re selling a product that is unique or that carries the cachet of a great brand.
True. Consumer demand for fast delivery is less of an imperative for one-of-a-kind or hard-to-obtain items, because it’s harder (or in some cases impossible) for customers to get that same merchandise anywhere else. Consider, for example, the case of the eCommerce vendor that sells a wide array of sports jerseys with team logos under a proprietary licensing agreement. Although Amazon sells similar fan jerseys, this vendor offers the only authentic and authorized versions. As a result, it really doesn’t have to offer national fulfillment services with ultra-aggressive delivery timelines in order to be successful, because it’s one of the only games in town. For the eTailer selling tube socks, it could be a different story.
Ultimately, if a product is distinctive or revered enough, it could buy your company some extra delivery leeway.
True or False: If you carry a huge number of SKUs, it will be easy to spread your inventory across multiple fulfillment center locations.
False. As a rule of thumb, the more SKUs you carry, the tougher it becomes to equitably and cost-effectively divide your inventory across multiple locations. Some of the complex issues that need to be considered include figuring out how much of each SKU should be kept in each location, calculating how much buffer stock is needed (and deciding whether it should be kept at one DC location or all of them), and determining how to cost-effectively fulfill a single customer’s order of multiple items when they need to be pulled from more than one location.
Keep this in mind as you weigh the pros and cons of creating a national fulfillment network, because at the end of the day, your company still needs to meet its own performance goals (like turning a profit), too.
True or False: When in doubt, it’s a good idea to ask your customers if fast, immediate delivery is a hot button for them.
True. Even in today’s instant gratification culture, there are some consumers who simply want the exact product they want from a brand they trust. If it takes an extra day or two to arrive, so be it – as long as the right product arrives as promised. As a general rule, if your customers aren’t complaining, cart abandonment isn’t rising, and sales continue to grow, it’s highly likely that your current delivery speed and cost are still getting the job done.
That said, it’s always smart to periodically re-confirm those assumptions by surveying your customers and potential customers – because much like the colors of the aforementioned dress have a tendency to shift depending on when you look at the picture, customers’ lists of delivery must-haves are constantly changing. And you always want to be sure you’re adjusting your fulfillment network accordingly.
Is it time to create a national fulfillment network?
While your customers are your best input source for determining if and when you need national fulfillment services, you can’t ignore what’s currently happening. The fast, free delivery train is picking up speed and Amazon is leaning hard on the throttle, creating a new normal for consumer expectations. As Amazon works on its stated intention to offer one-day delivery under its Prime program, the current two-day standard for Prime has become an expectation for many consumers. eTailers that currently lack a nationwide fulfillment network with a 2-day delivery capability may want to explore adding this capability before they get too far behind the consumer expectation curve.
Meanwhile, just so you know, the dress is definitely blue and black.
