Retailers are increasingly dependent on e-commerce to drive growth, but this is creating its own problems. Alex Leonards looks at strategies being used to tackle the challenges ahead.
Online shopping is no longer just an emerging trend. Internet sales now account for 18 per cent of all retail in the UK – and the market shows no signs of slowing.
With the growth of e-commerce, comes an increase of vans on the road, and arguably a hike in congestion. Although, there is a counter-argument that says a van on the road is better than 20 cars heading to the local supermarket or shopping centre.
Either way, heightened congestion on the UK road network is prompting logistics operators and retailers to consider ways to reduce the number of vans overcrowding our cities, towns and motorways.
Tony Mannix, chief executive of Clipper Logistics, says that retail on the whole has been on the front foot when it comes to sustainable supply-chain. “Measures such as port-deconsolidation, and consolidated inner-city deliveries have all been effective in reducing our own carbon footprint,” he says.
“The big opportunity for consolidated e-commerce solutions comes from click & collect.
“We initiated ClickLink, a joint venture with the John Lewis Partnership, which affords retailers and consumers, the convenience of guaranteed delivery to store.”
Patrick Gallagher, chief executive at On the dot, CitySprint’s retail brand, says that in the context of rising online sales alongside London’s T-Charge and ULEZ, sustainability is a continuing challenge for retail and logistics businesses. “We can likely expect more of this kind of legislation in other urban settings,” he says.
According to him, smart routing technology is already playing a significant role in reducing the impact of logistics on the environment, particularly in densely populated urban areas. “But there is more to be done, working in partnership with clients and other stakeholders,” he says. “To date, low-emission vehicles haven’t been at the stage where they can be used reliably for retail delivery.”
However, this is beginning to change. CitySprint has recently partnered with a client to trial a new hydrogen van for same-day deliveries within London over the next six months. The company has also been using cargo bikes.
It is now necessary for retailers and logistics businesses to find ways to reduce emissions to comply with new low emission zones like the ULEZ in London, and reduce miles by using consolidation centres. “While much of this will be driven by legislation, the transition to low-emission fleets is already gathering pace,” says Wayne Holgate, director, Paragon Software Systems.
“According to our latest customer survey almost 20 per cent of respondents already have some electric or hybrid vehicles, while a further 26 per cent expect to incorporate these vehicles in to their fleets in the next two years.”
He says that the growing realisation that the industry needs to rethink it’s position on the environment will have a significant impact on how e-commerce operates from now on. “Change is likely to be driven by legislation but consolidation and collaboration will also be needed to reduce delivery miles and therefore emissions,” he adds. “It is not sustainable in the long term for multiple retailers to be delivering to the same address in heavily built-up areas.
“We will also see significant uptake and innovation in low-emission and autonomous technology as supply chains strive to be more efficient.”
Neil Rowbotham, sector director for e-commerce at Eddie Stobart, agrees that congestion is one of the major issues surrounding e-commerce. “The logistics and supply chain sector must work hard to combat the unique challenge it faces from increasing levels of traffic on UK roads,” he says.
“We currently fulfil over a million deliveries every year (travelling six million miles in the process), but with 19.2 seconds per mile lost to increased congestion since 2010, we’re having to work harder than ever to meet the high standards that our customers have come to expect.”
To combat this, Eddie Stobart is deploying additional vehicles to ensure its customers don’t feel the impact of congestion.
Neil Ashworth CCO at Yodel and chief executive of CollectPlus says that an increase in online shopping invariably leads to an increase in vehicles out on the road making deliveries, but there are ways to minimise the impact. “At Yodel we’ve been using cheetah back and double deck trailers, eco-start Mercedes vans and route optimisation to significantly reduce our annual mileage and fuel consumption,” he says. “In addition, our new sorting equipment uses less power and our latest depots are strategically sited close to motorways and main roads to increase efficiency.”
As well as this the company uses bicycle couriers in a number of towns and cities, and is looking to expand the service. He says that click and collect services offer an environmentally friendly solution, because several deliveries are made to a single location which is accessible by foot as well as by car.
“Many collections are executed as part of an existing customer journey, such as the school run or the daily commute, meaning fulfilment of online orders is consolidated into existing journeys,” he adds. “Talks of consolidation hubs have been mooted for big cities and it will be interesting to see how those conversations develop.”
Click and collect
Alongside the rapid growth of home delivery, is the rise of click & collect. In fact, according to Clipper Logistics’ Tony Mannix, it is potentially the biggest opportunity available to e-commerce retailers at the moment. And it arguably presents a more sustainable and environmentally friendly way for consumers to access their orders.
“By thinking smarter about how customers behave, and helping to fit around their daily lives, we can create a win/win situation,” he says. “When developing ClickLink with the John Lewis Partnership, we looked closely at the market, customer behaviour and the benefits that were on offer to everybody through Click & Collect.
“What we arrived at was a guaranteed next-day (before midday) solution, that can provide benefits for retailers of all sizes.”
Mannix thinks that introducing it into the wider supply chain is not only likely, but also vital. However, he says, there’s no point in half-way measures. A successful click & collect strategy needs the support of a flawless returns process, the right automation, staff training, warehouse locations and flexibility of networks.
The click & collect method is the fastest growing in the e-commerce market, and has also played a huge part in the general expectation of free delivery. “Consumers have become reluctant to pay extra for standard delivery services and intensifying competition levels means retailers are responding with more attractive offers to secure their sales,” says Eric Carter, solutions architect at Indigo Software. “Plus retailers like click and collect because apart from offering a valued service to consumers, it brings footfall into their stores.”
Free home delivery is much more of an issue for retailers and their logistics counterparts, than free click & collect. “Retailers only pay to ship items to a single nominated hub, rather than to customers’ individual addresses,” says Neil Ashworth, chief executive of Yodel.
Roger Morris, head of Royal Mail Parcels says that the market is due for another big innovation in e-commerce sometime soon.
While devices have seen much development in recent years (iPhone, tablets, etc.), some are saying the next step change will be in the user interface,” he says. “Whether this is in “zero UI”, speech recognition, AI, or something else, e-commerce will be an exciting place to work for a while yet.”
Changing consumer behaviour
Effectively managing an e-commerce supply chain is no mean feat. Especially when its presence continues to grow at such a fast pace. The very nature of the market means that sometimes it’s hard to predict what’s going to come next, or how to deal with those changes.
“Changing consumer behaviour is the only constant in retail,” says Clipper Logistics’ Tony Mannix. “Agility is crucial for any modern retailer, and reacting quickly to, or even predicting customer trends, is now vital to stay ahead of the game.
“Inactivity or standing still is not an option. Developments in the e-commerce supply chain have given retailers of all sizes the ability to make gains, and improve their customer offer.”
Royal Mail’s Roger Morris says that logistics and delivery is the second biggest cost that UK SME online retailers face in 2018. “34 per cent expected purchasing to be their biggest cost and 27 per said advertising,” he says.
But the real challenges exist for traditional bricks-and-mortar retailers, because all the growth in retail appears to be happening online. “Legacy retailers face the risk of losing business to multichannel and pure play online retailers as a result,” adds Morris. “So there’s a lot of focus on getting the online proposition right, with the right logistics infrastructure to deliver the customer proposition.”
Paul Tyson, commercial director at ArrowXL, agrees that in light of the turbulent economic landscape, retailers are facing continuing pressure on margins while also having to meet the rising expectations of the increasingly demanding consumer. “Therefore, we are seeing more retailers contemplating a switch from operating their own dedicated logistics networks to a shared user platform,” said Tyson. “Allows them to benefit from increased flexibility, scalability and ultimately a substantial cost saving.”
And this is most important for retailers that deliver bigger items, because there are generally more peaks during the year, for example in January, at Easter time, and of course Christmas.
Consumers are also expecting their deliveries to arrive on time, as and when they please. “The rise of same day delivery is unlocking the potential of retailers’ high street stock rooms,” says Neil Ashworth, Yodel. “But with this comes the challenge of inventory management – and knowing exactly where your stock is at any one time, including within the store itself.”
Ashworth has also noticed that, although traditionally the UK has been an exporter of goods, nowadays it appears that the world is selling to the UK.
“This transition means that both retailers and delivery providers must ensure they adapt their offering to ensure they can evolve in line with this shift,” he adds.
Wayne Holgate, director of Paragon Software Systems, says that although same-day delivery is growing in popularity (championed by companies like Argos and Amazon), super-fast delivery is only possible with a physical infrastructure that holds stock nearby and a fulfilment system that can dynamically plan delivery slots in a highly-efficient way.” Fulfilment systems have had to evolve to keep pace with consumer expectations, such as same-day and nominated-day services, “ he says. “It is now possible to continuously optimise delivery requirements as orders are taken, which means that retailers have the ability to offer a wide range of windows that they can be confident are both feasible and accurate.”
This method establishes high-density delivery routes with less miles, which in turn frees up resources and achieves operating efficiencies.
Indigo’s Eric Carter identifies a number of key issues associated with e-commerce that are currently happening in the warehouse. The first is poorly planned pick faces and time consuming walk-throughs. “Typical order profiles for an e-commerce warehouse can result in a high volume of single item orders that are more time consuming and resource intensive to fulfil,” he says. “Not being able to finish the day’s order pool on time is a common indicator suggesting there are problems in the warehouse.”
This can happen because space utilisation hasn’t been optimised, or because stock is difficult to locate, and in some cases the distances to be covered during the picking process are too long.
The second issue he identified is reliance on excess inventory to counter poor accuracy.
Ripe for disruption
The initial image that comes to mind when talking about e-commerce, is online retailers delivering everyday products to its consumers. But the e-commerce market is expanding outwards, absorbing new industries and sectors. The life sciences and healthcare sector isn’t naturally associated with online buying, but it is certainly making its way into the market.
In fact, says Scott Allison, president life sciences & healthcare at DHL, the market is ripe and ready for disruption. “The push for online pharmaceuticals is underway with multi-billion dollar e-commerce markets opening up,” says Allison. “Very soon, patients around the world will have a genuine alternative to receiving drugs direct from their prescribing doctor and having to wait in line to fill prescriptions at their local pharmacy.”
It’s no longer just the traditional channels that are available for access to important drugs; there is now an e-commerce channel for healthcare. “[This] means patients are starting to receive insulin along with many other life-saving pharmaceuticals literally to their doorsteps,” adds Allison.
Allison identifies five key drivers for the growth of healthcare e-commerce. Profit-seeking is one, as providing pharmaceuticals to patients is, of course, extremely profitable. “Recent data from the USA indicates that Walgreens and CVS make at least 70 per cent of their profits from the pharmacy outlets, which are typically tucked away at the back of their stores,” he says. “This kind of margin makes it attractive for different players to try and take a share.”
Cost-cutting is another obvious reason. “In traditional distribution channels, multiple parties have always had a finger in the pharma pie: manufacturers, wholesalers, distributors, pharmacies, doctors and hospitals, even the insurance companies profit heavily as products move from the factory to the patient,” he says. This means that e-commerce can cut costs by forming a relationship directly between customer and manufacturer. Cutting out the middleman.
Of course, customer demand is a huge influence. “Across many countries of the world – particularly in the vast e-commerce markets of China, the USA and the UK – consumers are very familiar with the convenience of online purchasing and expect consistency in their omni-channel experience,” he says.
And, in fact, many of these people are purchasing healthcare products online already. “Rejection of protectionism” is also driving the growth in online healthcare services. “As technology and progress are enabling new business models, lobby groups are very involved in protecting and bolstering the existing pharmaceutical channels of large companies,” he says.
And essentially, these businesses have to make a big decision. They must disrupt or be disrupted. “Around the world there is rejection of protectionism in favour of open access and customer centricity,” adds Allison.
And last but not least, the sheer momentum, he says, has resulted in a move towards online healthcare. Of course, the healthcare and life sciences market isn’t just about prescription drugs. “ Many of the largest pharmaceutical companies – such as Bayer, Colgate, Johnson & Johnson and Pfizer – have huge businesses that sell consumer healthcare and OTC products in vast quantities via the biggest online platforms,” says Allison.
This article first appeared in Logistics Manager, March 2018
