Navigating the e-commerce dilemma: Balancing convenience and cost in home delivery operations

The convenience of e-commerce and near-instant gratification for shoppers to get same-day or next-day deliveries for their purchases comes at a cost. Skyrocketing usage during the pandemic, followed by supply chain disruptions, and inflation pressures on fuel, wages, and labor rates, have continued to drive up expenses for distribution operations. Actions taken by some of the largest players, such as Amazon's increase in its Prime subscription price last year, changes to the minimum order size required for free shipping, or offers of incentives for customer pick-ups, are further indicators of the system inefficiencies and margin-eroding cost hikes.

We recently surveyed supply chain executives and consumers as part of our annual Home Delivery Survey. In it, we explore some of the key factors that are essential for running a lean and tight distribution operation. Our survey found that consumers continue to place importance on free shipping and returns, with expectations for fast and free shipping changing from five and a half days in 2012 to about three days now. However, nearly half of the retailers surveyed are not able to meet consumer demands.

As recently shared during a webinar hosted by Stifel, there are many levers that supply chain executives can pull to improve their home delivery operations, with distribution network optimization, technology platforms, inventory placement, and carrier strategy coming in as the top four options.

 Optimizing your distribution operations is critical to meet customer demand. Network optimization, particularly the design, stocking, and transfer strategies, can both help meet the 3-day demand and unlock significant fixed and variable cost benefits if done right. Seventy percent of all respondents agreed and confirmed the criticality and value of a diligent and thoughtful design–and 55% see opportunities in their inventory placement.

But there is more required beyond tuning the network–including routing, proper leverage of tools, and frequent evaluation of route redesign, along with policy adjustments to minimize distance, downtime, and driver churn. Configuring and using the full suite of features of the right execution technology platform is key, as almost two-thirds of respondents agreed.

Choosing the right partners and carriers, as well as diversifying the approach to reduce exposure and better cope with surging demand, particularly as the holiday season is approaching, can further unlock value and improve operating margins. Adding regional carriers beyond the two national carriers is an initiative that almost half of the respondents are leveraging to improve their home delivery operations.

Rather than looking for ways to pass on costs to price-sensitive consumers, our survey indicates that industry executives see solutions that will enable them to improve their distribution operations and focus on margin expansion rather than merely margin protection.

Download the full report to read more of our survey insights and recommendations.