Last mile demand pushes micro-fulfilment solutions
Soaring e-commerce demand is pushing retailers to look at stores in a new light
This year e-commerce has been supercharged. The effect of this has been pressure on retailers and their supply chains to perform from the first mile to the last.
Erik Caldwell, President of Last Mile at XPO Logistics told the Supply Chain USA Virtual 2020 Summit that “A lot of our big customers are saying they've gone two years [ahead] of their forecasts in terms of expected growth online. This translated into volumes this summer that were higher than last year's peak volumes in the big and bulky [sector and] in the last mile delivery space…. We are now forecasting something like a 25% to 30% increase in capacity needs going into this peak, and so the landscape has changed dramatically.”
Karen Leavitt, CMO of Locus Robotics, noted this meteoric growth in the grocery sector as well. “At the start of the year, online grocery represented about 3% of the entire grocery sector. By May or June, that had jumped up to almost 10%, so grocery has seen about a four-year acceleration and adoption for online purchases ahead of what analysts had planned.”
This not only puts pressure on the supply chains in terms of volume, but also from consumers eagerly watching and waiting for their deliveries.
“We're seeing a strong trend toward service and service expectations,” said Caldwell, setting a “new baseline”, particularly “around the last mile. This is a category where you're going into the consumers house.” If it is a major purchase it is also often “a very emotional purchase, and there's a lot of feelings tied around that delivery in that purchase. So the expectation is perfection, and the last mile is the most complex piece of the puzzle in supply chain - because it's the end part, everything has to work upstream for that delivery to go perfect.”
This means “Customers are wanting to be informed as much as possible with any type of delays in the fundamental logistics network” said Arnaud Deshais, Chief Supply Chain Officer for e-commerce brand Redbubble. “So, what we spend our time on is to really provide the maximum available information to our customers, whether it was through email, or through our help centre, but being forward and providing customers with the information they need.”
Moving to micro-fulfilment
Another critical approach to try and mitigate risk and to reduce the probability of a problematic delivery that hits the relationship with the customer is to reduce the distance in the last mile, which is driving change in the way distribution is done in the latter stages.
Michael Murphy, EVP of Development for industrial real estate developer CenterPoint thinks “It's really created a separate supply chain. The big DCs that would feed stores, they still exist, and then they used to run quarter of a million-footer [facility for e-commerce]. Now that's a separate dedicated distribution centre and that's feeding into the urban last mile facilities. So, for my business, it's really created a different supply chain, in much greater demand for warehouse and distribution, and then unique demand for these last mile facilities.”
“In last mile over the last couple years, we built 85 delivery hubs that are within 125 miles of 90% of the [North American] population… so we can get there in one, or at most two days when the product arrives. That's changed pretty dramatically from a metro sense,” said Caldwell.
“Moving the supply chain closer to the consumer is a huge priority right now for a lot of organisations,” noted IAM Robotics’ Founder and CTO, Tom Galluzzo, driving a major move towards micro-fulfilment centres.
“What it means is that we have local retailers who are now scrambling to implement programs that they thought they had a little bit more luxury of time to have to go do. So, we've seen micro-fulfilment centres cropping up,” said Leavitt.
An increasing need for automation
“The market is evolving to where they're trying to move the supply chain operations closer to the consumer. [It] is a huge shift,” thinks Galluzzo, but this will too require more automation in supply chains, “because these e-commerce fulfilment centres typically require a lot of labour, sometimes 70% more labour than a regular distribution operation.”
“With the recent disruption of retail and the fact that COVID has put so much stress on retailers and so forth, it's opened up an opportunity for a lot of organisations to look at how they're using their real estate in new areas, and there's a lot of real estate available on the market,” explained Murphy.
This is causing Locus to have “Early conversations on the concept of the hybrid store. We think it is going to be something that will have some legs, where a store might be set aside, for instance, for consumers shopping during the day, and then for automated shopping with associates doing the picking overnight for curbside pickup the next day. Imagine using that same footprint to have this hybrid model where you can be running different types of picking and fulfilment that really maximizes the flexibility for the customers and for the operators,” said Leavitt.
This is part of our reporting from the Summit. To be notified when we release the complete post-Summit report,sign up to our newsletter here!