CSCMP's Supply Chain Quarterly
October 22, 2018
Forward Thinking

Retailers turn to 3PLs for help in home delivery

Survey shows consumers expect free, fast shipping.

Under pressure to keep up with Inc. on free overnight shipping, retailers are increasingly turning to third-party logistics providers (3PLs) in an effort to compete through flexible pricing and creative marketing, according to a survey by consultancy Retail Systems Research (RSR) and Canadian IT giant Descartes Systems Group Inc.

In an effort to measure retailers' home-delivery processes and concerns, the survey polled 83 retailers and then compared their responses with those of 1,015 consumers that measured buyers' expectations for shopping and delivery. The survey found that an "Amazon Effect" now in place for about 15 years has conditioned shoppers to expect speedy home delivery without paying a premium—or, in fact, anything—for the expedited shipping.

Until the 1990s, swift home delivery was generally offered only to buyers of big-ticket items like furniture and large appliances. Everyone else paid a hefty shipping and handling fee, then waited four to six weeks for the package to arrive in the mail. But since 2000, Amazon and other large e-commerce companies have expanded their market share by offering home delivery, next-day service, and easy returns, even when the high cost of those services means they often run their retail operations at a net loss, according to RSR.

Most small and midsize retailers don't have the resources to play that game, but they still have to satisfy customers who now expect free overnight service, RSR managing partners Nikki Baird and Paula Rosenblum write in the report, "Home Delivery: Retailers' Brave New World." As a result, many retailers now find themselves in an unfamiliar place—the home delivery business—and are desperate to identify the best processes to manage e-commerce and omnichannel fulfillment demands. Turning to logistics service providers (LSPs) and 3PLs is a smart way to outsource this task to experts, Baird and Rosenblum say.

Asked about their preferred methods of delivering products to consumers, 54 percent said they shipped from DC directly to consumers using an LSP; 38 percent said that consumers picked up items at the store; 30 percent shipped from stores using parcel carriers; and 26 percent used their own or dedicated truck fleets, according to the survey.

Many retailers plan to hand off responsibility for consumer home deliveries to their vendor partners, despite being competitors with those firms in an age where vendors increasingly sell direct to consumers. About 72 percent said they expect during the next three years to increase their use of "drop-shipping," a practice where a retailer does not hold inventory but instead transfers orders and shipment details to a manufacturer, another retailer, or a wholesaler, who then ships the goods to the customer. About one-quarter said their drop-shipping activity would remain the same, while 4 percent said it would decline.

Many retailers also offer shoppers such services as product assembly, in-home installation, and removal of packaging and old products. However, the survey showed that these initiatives miss the mark of what consumers really want: low prices and convenient delivery.

That sounds simple, but the survey results also exposed a gap between customer desires for fast home delivery and willingness to pay for it. Many retailers are fearful of losing customers by boosting shipping fees, but RSR suggested a different approach. Through clever marketing, companies could offer discounts for consumers who choose slower shipping or wider delivery windows, and charge the full rate for "standard" overnight fulfillment.

The survey found that that both retailers and shoppers see room for improvement in 3PL performance. Technology investments by retailers could address those issues, allowing companies to improve profitability through route optimization, dynamic appointment scheduling, and real-time rerouting. Other technologies could help please customers by enabling predelivery customer notification, track and trace, and electronic proof of delivery, the survey found.

RSR conducted the survey last September and October, reaching companies ranging from revenues below $50 million to those generating more than $5 billion. Respondents' areas of responsibility ranged from executive management to supply chain and logistics/transportation. Respondents to the consumer survey also covered the full range of age, gender, and income.

To read the full report, see To see a webcast on the report, "State of Home Delivery Report 2016: Retailers' Brave New World," sponsored by Descartes Systems Group, register here. The webcast will take place at Tues., Jan. 26 at 2 p.m. EST, as RSR's Rosenblum discusses and explains the survey results with moderator Ben Ames, senior editor at DC Velocity.

Ben Ames is Editor at Large and a Senior Editor at Supply Chain Quarterly’s sister publication, DC Velocity.

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