Wednesday, May 20, 2015

Ecommerce and warehousing

As ecommerce becomes a larger part of retail, its impacts ripple further and further back in the supply chain. One aspect that does not receive much attention is warehouse design. A recent article in the Wall Street Journal points out some interesting aspects of this issue:
A prime example is Prologis Inc.’s new warehouse being built at the large International Park of Commerce project in Tracy, Calif. The building, which doesn’t yet have a tenant, will have 40-foot ceiling clearance that is taller than traditional warehouses, ample parking for workers and space to allow the easy movement of trucks loading and unloading cargo.
Traditional warehouses are configured for replenishing retail stores, with items packed in pallets or at least large cases. This makes it impractical to store inventory in too many floor levels, because transporting pallets across multiple floors is not easy. However, in ecommerce, most packages have a small number of items, often just one. So a system that stores inventory in multiple floors and moves stuff across levels using conveyer belts, chutes, elevators, and other such machinery, can be very efficient.

This reduces the land area required for the physical warehouse building. The WSJ article also mentions the need for more space for transportation vehicles (both loading/unloading docks and parking spaces), which somewhat offsets the space reduction, although if smaller vans are used for fulfillment instead of large trucks then that can also be done in different floor levels.

As ecommerce retailers rush towards developing capability to fulfill orders very quickly, they need to build fulfillment facilities closer to big cities. This increases the cost of the land the warehouses are built on, so anything to reduce the amount of land needed is significant. I'm sure we're going to see more developments in ecommerce warehousing: one of the things I can think of are drive-through pickup windows, for customers themselves or third-party fulfillers like Instacart and Curbside.

Thursday, May 14, 2015

Walmart's answer to Amazon Prime

From Slate and Associated Press:
Wal-Mart, the world's largest retailer, told The Associated Press on Wednesday that the shipping subscription service will cost customers $50 a year. Products will arrive in three days or less.
Jariwala [Walmart spokesman] said the service will be available by invitation only for now and it will offer more than one million top-selling items, from toys to electronic gadgets. Wal-Mart's online site sells more than seven million products. 
The Slate article has some good commentary on what this means for Walmart and its competition with Amazon. I continue to believe that Walmart's growth strategy must leverage its store network, in at least two big ways: use store inventory for ecommerce orders, and offer customers drive-through pickup in stores to save the last-mile delivery cost. We've discussed Walmart's grocery pickup service in this blog earlier; here's another article noting expansion of that service.

Wednesday, May 13, 2015

More coverage of grocery ecommerce work

The last 3 weeks was probably the longest break this blog has taken---end of semester work overload, followed by a vacation to India. Anyway, I'm back now, and more interesting stuff should start appearing soon. For now, a few more links to coverage of our grocery ecommerce supply chain work (original here).

- Radio interview on Stateside with Cynthia Canty, on Michigan Radio, NPR's local affiliate.

- Newspaper article in Business Standard.

- The May issue of Michigan Research, our university's monthly research newsletter.

As always, comments and additional connections are welcome. Happy summer!

Thursday, April 23, 2015

Amazon to test deliveries to car trunks

Ten days ago, I predicted that within 2 years Amazon would set up drive-through pickup. Well, here's some news out of Germany that is related (courtesy CSCMP's Supply Chain SmartBrief, on Logistics Manager): Amazon is testing a partnership with DHL and Audi where they would deliver products to the trunks of cars.

Using a smart phone app, the DHL delivery agent receives the exact location of the car as well as access to the vehicle’s boot. After the delivery men have placed the item in the boot and closed its door, the car is then locked automatically. DHL receives confirmation via the app and the car owner is informed of via email.
Although this is of course a different process than drive-through pickup, it seeks to address some of the challenges faced by Amazon's current system. For example, this system allows unattended dropoffs (no one needs to be home). If volumes grow and dropoffs are done only at selected locations such as clusters of city parking lots, this would give Amazon/DHL much cheaper last-mile costs. This system can also be adapted to handle returns: the customer can just leave the return package in their trunk and use the same system in reverse.

Ecommerce survey 2015

As we did last year, our team conducted a small-scale survey of customer attitudes towards ecommerce. The full report is available here. Highlights are reported below.

Before that, I should mention that this report is the final contribution to this blog by Maddie and Connor, the two undergraduate freshmen who worked on this project through the university's UROP program this year. Great job, both of you, and all the best for the future!

Back to survey highlights:

- The first, most important thing that was noticed was that for most people, a cheaper price was more important than expedited shipping. [...] When asked about the last time that they made a purchase online, 78% of people chose standard shipping while only 12% chose expedited shipping. Lastly, with their last online purchase, 58% of people paid $0 for shipping. These results really showcase that to many price is of more importance than speed. 
- The second thing that was observed in the data is that the food and beverage sector of ecommerce is the smallest. [...] Only fifteen people out of the 162 total ranked that food and beverage are items that they shop for online most often. One hundred and thirteen people out of the 162 surveyed responded that food and beverage ranked as one of the three types of products that they would be hesitant to purchase online. 
- The last observation that was made from the data was that in-store pick-up is not nearly as popular a method of distribution as home/work delivery. [...] When asked about their last online shopping experience, only 12% of people said they chose to pick their item(s) up in the store while 87% of people chose standard or expedited shipping. Although people say that they have used in-store pick-up options before, it is not the popular choice. 
- In 2014, only 13% of those who were surveyed ranked faster shipping as their first reason for choosing online shopping, whereas in 2015, 30% of those surveyed chose faster shipping as their number one reason. 
- Surprisingly when asked how much paid for shipping the number of people that paid $0 for shipping decreased from 65% in 2014 to 54% in 2015. One would think that with the expansion of programs like Amazon Prime and the increased regularity of faster shipping at cheaper prices that more people would be paying less for shipping. This was not the case.
For complete details, take a look at the complete report.

Thursday, April 16, 2015

Mixed up grocery order

And now a story of my personal experience: our family has been doing a big fraction (around half) of our grocery shopping online. We use our local grocery chain's "order online, in-vehicle pickup" system---after we place the order, the order is ready for pickup in 3 hours, and we just drive up, they bring the stuff out and load it up, and we go home. This has worked very well for the past several years, we love it.

Well, this past Tuesday, they loaded the completely wrong order in my car. I had my two sons with me while my wife was elsewhere with our daughter, and as the guy was loading it up I asked if he was sure it was our order, because many items looked unfamiliar. He asked my name and confirmed that it was the right order. My wife often orders items that I have no idea about, so I figured that my confusion about the items was due to the usual level of (lack of) communication between my wife and me.

But when I got home and looked at the receipt, I realized that the order did not even match the receipt. They had loaded up someone else's stuff in my car! I called, and of course they had figured out by then that they'd placed the wrong order in my car, and asked what they could do to fix it. I answered, "Well we use the online system because we live a busy and complicated life. Is it too much to ask that you deliver the right items to my home?" Within an hour they did deliver the right items, took away the wrong items, and threw in a gift card in addition. All's well that ends well!

Monday, April 13, 2015 Drive Through Pickup

I'm going to be bold and make a prediction: within 2 years (i.e. no later than April 13, 2017), will have at least one location operated by where customers who order stuff online can drive through and pick it up.

Amazon already has lockers where customers can walk in and pick up their stuff, but those are unmanned and don't provide the interactive convenience of a drive-through. By interactive convenience, I mean the ability to talk to a human, possibly modify your order, return stuff, etc. It may also be already possible to pickup stuff ordered on using third-party intermediaries, but that's not included in this prediction.

There are many thoughts behind this prediction. For one, brick-and-mortar retailers are adding this feature at a fast clip, either on their own, or through third-parties like Curbside, and eventually this will provide a competitive edge to them that Amazon will be forced to respond to. Second, Amazon's home delivery model can only go so far in terms of convenience (for some items, requiring someone to be home, for example), and cost (last mile is very expensive), even with their own fleet and eventually drones. Third, as the volumes of returns increases, giving customers a drop-off option makes returns processing cheaper. Fourth, Americans love their cars (at least in the suburbs and rural areas), and eventually ecommerce models will have to accommodate the large fraction of people who do not live in dense urban environments.

I don't know any inside story about Amazon that suggests they're planning this. I also haven't seen anything in the news suggesting this. This prediction is based only on my understanding of the ecommerce landscape after a few years of research.

Of course, I could be totally wrong. Part of the point of making a public prediction, which will be cached and stored forever, is to challenge myself. If I'm wrong, I'll freely admit it; won't be the first time. Feel free to call me out, now or later!