Can logistics services companies meet the demands of retailer clients in the internet-age and deliver a profit, asks John Maguire Commercial Director of Narrow Aisle Ltd.
Expectations too great?
The online shopping channel currently accounts for in the region of 12% of all UK consumer spending and it is forecast to reach a staggering 40% in the not too distant future.
As the percentage of online sales continues to mushroom, so does the level of competition among internet retailers.
In the hope of gaining competitive advantage, traders are increasingly looking to their logistics processes to accelerate shipping timeframes and reduce costs, with most shoppers not prepared to wait longer than a day, or, increasingly, a few hours, to receive their goods, the retailers that can offer the fastest delivery speeds are winning the most business.
As a result, many online retailers see supply chain efficiency as being as important as the quality and price of the goods they sell.
But can logistics services companies continue to fulfill the delivery promises of their retail clients in the internet-age and, at the same time, make a reasonable profit when consumers have been programmed to expect their orders to arrive ‘yesterday’ yet aren’t prepared to pay for such gold-plated service?
Anecdotal evidence suggests that it is becoming increasingly tough for retailers and their 3PLs to deliver a competitive fulfillment service and make a fair margin.
Such views are supported by the latest UK Logistics Confidence Index, produced by Barclays and Moore Stephen, that highlighted the fact that logistics businesses are facing increasing pressure from retail customers for lower prices during a period of rising competition and increasing costs. It was the biggest concern for respondents, cited by 49% as the most important issue facing their business.
Certainly, many retail analysts believe that across the market both retailers and the supply chain sector have been complicit in allowing consumer expectations to become too great when it comes to what they demand from the on-line shopping experience.
So, when will there be a reality check? And can retailers and their third party logistics services suppliers (3PLs) drive what appears to be a very necessary adjustment?
Put simply, over the coming years the challenge for the retail logistics industry will be to establish an economically viable business model for storing, picking, packing and delivering online orders, plus dealing with returns.
At the moment it is clear that too many 3PLs are being pressed in to doing more work for online retailers for less reward – often with the promise of greater business volume in the future dangled before them as an incentive to deliver. It is important to offer value added services but third party logistics providers must not allow themselves to become ‘busy fools’.
Unfortunately much of what a logistics company does is invisible to the end user and only gets noticed if there’s a problem so the logistics industry must start speaking up for itself and telling the world just how complex the services its constituent companies provide are.
But, inevitably, consumers will continue to demand what many industry-watchers consider to be unsustainable levels of online shopping service until such time as the leading retailers themselves are brave enough to start charging a realistic premium for next day delivery or – particularly at busy periods – having the courage and confidence in their brand to alert shoppers that, due to high demand, delays to online deliveries and collections should be expected.
There is evidence that some retailers are prepared to grasp the nettle: for example, anticipating a huge spike in sales in the run up to last year’s Black Friday, Tesco added a holding page on its website telling would-be shoppers that they might experience extended delivery times.
However, for many retailers, the fear that such warnings only serve to drive the customers away has prevented Tesco’s laudably honest approach from being widely adopted.
Of course, no discussion about online shopping is complete without mentioning Amazon.
Opinion in the logistics industry is divided when it comes to the question of whether the rise of the web-based retail giant has been a good thing for the supply chain sector or not, but there can be little doubt that the company’s approach and business model has played no small part in creating the sky high levels of online consumer expectation and nobody can deny that Amazon has raised the bar for both 3PLs and retailers and both have had to up their games as a result.
The emergence of Amazon has helped foster the public’s growing willingness to shop online and the relentless upward trajectory of internet retailing is driving huge changes in the way that supply chains work. The market is still in its infancy and is likely to be in an amorphous state for many years, so no doubt there are more as yet unforeseen changes to come. But, it seems obvious that those 3PLs that either don’t recognize which way the wind is blowing or are not agile enough to respond, will be left behind.
Those 3PLs that do last the pace have to ensure that they do not remain stuck between consumers who dictate and clients who demand, because, as a lot of companies in the sector have already found out, that’s not a comfortable place to be.
Narrow Aisle Ltd is a global developer, manufacturer and supplier of advanced truck based intralogistics solutions that contribute to the optimum efficiency of e-fulfilment centres.