Saturday 10th Dec 2016 - Logistics Manager

Home delivery: Parcel dilemma

Parcel carriers have been investing heavily to ensure they can meet peak season demand. But, asks Johanna Parsons, what about the rest of the year?

This article first appeared in the March 2016 issue of Logistics Manager.

This article first appeared in the March 2016 issue of Logistics Manager.

The devastation of Black Friday in 2014 shone a spotlight on the disparity between retail promises and the physical limitations of fulfilment, and it has inspired some radical new approaches through the parcels market.

In contrast, peak 2015 was a massive success and smoother running was, thankfully, widespread. “In 2015, the difference in how well carriers coped with the peak period was evident,” says Matthew Robertson, of NetDespatch. “Parcel volumes were higher (on the NetDespatch platform alone we saw a 34 per cent increase in parcel volumes on the previous Black Friday/Cyber Monday weekend), yet we found most retailers and carriers were stepping up to this challenge of getting parcels out the door,” says Robertson.

This year-on-year improvement was no accident. E-retail is still increasing volumes. And if there was still any doubt, the demise of CityLink at the end of 2014 alerted retailers and carriers alike to the need for change.

Royal Mail invested some £130 million in PDAs over the last five years, as well as making major strategic acquisitions of NetDespatch and same day delivery company eCourier, and taking stakes in e-commerce technology start-up Market Engine Global, and personal shopping app Mallzee.

And Royal Mail wasn’t the only firm opening the cheque book. Hermes invested £18 million in scanning equipment, set up a secondary sortation tier at its automated Warrington hub, opened 125 sub-depots across the UK, and is now set to build an automated parcel distribution hub at Rugby, which at £31 million, will be the largest single investment made by the firm.

UPS is to build a £120 million sorting and delivery centre at DP World’s London Gateway Logistics Park. And DPD is investing a further £150 million in ten depots nationwide, following investments of £250 million in the last five years opening 15 new depots.

But Yodel’s executive chairman Dick Stead says that justification for this raft of spending has yet to be proved. “The parcel industry is investing at a level that is not commensurate with returns, but we all have to go for it or risk being the next CityLink,” he says.

He reckons that his own firm has effectively built a delivery capacity that will be surplus to requirements for 330 days of the year, but that’s a very conscious strategy. The six new service centres they’ve built are in areas where previously they’d had to invest in temporary sites for peak. And a more permanent presence also makes it easier to scale up staff in time for peak.

It’s not just the increased resources that made the difference in 2015, but significantly it was the way they were deployed. “Planning for peak periods is a very detailed and thorough process, as it should be if we are to deliver on our customer promise,” says Roger Morris, head of Royal Mail Parcels.

“The information we get from our retail customers allows us to begin forecasting the number and size of vehicles, the handling equipment such as bags and roll cages (or Yorks as we call them in Royal Mail), temporary workers and additional sorting centres we need to cover the peak period. For example, to cope with the Black Friday and Christmas peaks, last year, we recruited an additional 19,000 temporary workers and opened 10 temporary parcel sort centres,” says Morris.

Christine Key, director of packets and parcels at Whistl says: “There is much more focus on forecast volumes, with minimum and maximum volume requirements and commitments, so you’ve got to invest. But you can also mitigate that cost by working closely together, and capacity can be moved a little bit – with constant communication.”

Communication is unanimously seen as the most valuable tool. Yodel recently reported a gratifying 86 per cent approval rating for its customer service through 2015’s peak, and Stead says a big part of that was down to on-going communication with retail clients, whereby Yodel typically speaks to board level personnel at retail clients on a daily basis.

Emile Naus, partner & technical director at LCP Consulting, agrees that post-Black Friday 2014, expecting retailers to adjust their offering was no longer unthinkable. He says that in 2015, “as next day delivery capability became full, smart retailers dynamically removed this offer from their websites and only took further volume on the basis of standard three-to-five day delivery lead times to allow them and their partner’s time to deliver to promise.”

And these adjustments didn’t seem to cause huge problems or backlash from consumers. Joanne Morley, head of marketing at Hermes, points out that the nature of the sale meant that very few people were actually inconvenienced by suspension of express services. “As long as that decision was well communicated it didn’t cause a problem with the consumers – many of whom were using the opportunity to buy early Christmas presents and could therefore afford to wait a little longer to receive their goods,” she said.

Good communication can also cut costs by boosting first time delivery success, and that’s why many firms have focussed on communication with the consumer. Dwain McDonald, chief executive of DPD says “We are in contact with recipients every step of the way via email or text and they can track their driver around his route on the day of delivery.

“We are also giving more choice over how they want their parcel delivered, including the in-flight option to divert to a parcel shop of the recipient’s choice, as well as them being able to describe their ‘safe place’ to the driver or specify a particular neighbour right up to the point of delivery,” says McDonald

Yodel has taken communication one step further, linking the end user and retailer with its survey tool. This invites feedback after or during delivery via the tracking system, email or text message. Comments are registered immediately, and are shared with the retailer. This means that if the retailer is engaged enough, problems become solutions faster, allowing Yodel to reply not only with apologies, but details of the potential re-delivery.

Key says that further to the efficiencies of communicating with retailers and consumers, there is huge potential for carriers to talk and work with each other. She says that working together with retailers and carriers as partners, rather than approaching them as adversaries, has opened the way for many mutual benefits.

And as customer expectations demand more specialised services, operators are having to outsource certain services. WnDirect specialises in international deliveries, and UK managing director Jonathan Matchett says that retailers are prepared to trust carriers more. “The retailer partners we work with feel confident that we know how to manage their customers on a local basis. “This level of trust really changes a supplier/client relationship for the better,” he says.

Another big driver for communication and trust between parties is the requirements of fluctuating retail channels. For example, David Stocker, supply chain director at DAI says one customer, very.co.uk saw a 51 per cent increase in mobile device traffic alone last year.

“The retail landscape is much more unpredictable than it used to be, making long-term planning harder,” says Lucy Larkin, managing director at Accenture’s retail practice.

“In essence there has to be a focus on organisational agility, particularly at supply chain level, but also across the retailer’s entire eco-system. That requires faster access to data and better analytics. Better quality data supports faster decision making by experienced managers who need to be accountable for their results.”

And there are still improvements to be made, reckons Jason Tavaria, head of direct at rapid delivery specialist firm Shutl. “Many of the current models are too rigid for today’s consumers,” he says, “especially millennials who increasingly expect services to be tailored to their needs, rather than fitting in with the retailer/delivery requirements. Customers want more and better options to suit them.”

Indeed, Craig Sears-Black, managing director of Manhattan Associates says retailers are competing on more than just speed of delivery, “making things just as convenient as possible for the consumer.

“This has led to some significant changes, such as previously pure-play online retailers like ASOS and Missguided seeking to build a physical presence on the high street by leveraging Asda’s recently launched toyou service as well as opening their own stores,” he says.

Aggressively priced, or indeed free, services such as Argos and Amazon’s seven day, same day and “instant” options are possible due to these particular businesses’ networks of warehouses across the country giving greater control over fulfilment.

However most retailers have been consolidating DCs, so keeping up with this level is nigh on impossible, and will involve massive costs.

Perhaps it’s worth reminding ourselves at this point that online shoppers are not solely focussed on crippling carriers. They predominantly just want to get their stuff, intact and in reasonable time.

Naus advocates an empathetic approach. “Retailers need to develop a deeper understanding of what their customers value from their home delivery offer, rather than continuing the drive to the bottom in home delivery … pursuing a ‘faster and freer’ agenda seemingly in response to pure play retailers like Amazon.

“What few retailers seem to be recognising is that, while some shopping missions will demand same day or next day delivery, by far the majority of customers want cheap, reliable and convenient delivery services.

“Those retailers who understand this are able to focus on maximising their channel economics by providing paid for premium services for same day/next day delivery, while at the same time offering the customer less expensive or free options for standard delivery allied to a convenient click and collect offer,” says Naus.

And empathy can work both ways. If online shoppers are savvy enough to negotiate a good deal for their goods via so many new channels, they should be able to understand the value of a delivery service. So maybe it’s time to dispel the myth of free delivery?

Patrick Gallagher CEO of CitySprint cites 2016 research conducted by CitySprint which showed that the price that customers are willing to pay for delivery can vary dramatically depending on why and how they want their purchases delivered. In June last year, CitySprint launched On the Dot, a delivery service that allows consumers to specify a one-hour delivery window.

CitySprint’s research chimes with research by Hermes, and Morley points out that the next vital step is for retailers to respond. “It is now imperative to offer consumers a range of home delivery options that complement the value of their items,” she says.

Yodel’s Stead reckons retailers simply have to stop being coy about their promise. “Retailers need to bear their souls and be upfront about the cost. I recommend offering a range of services at a range of prices.”

Gallagher argues that to ensure that delivery prices match expectations, “retailers need to understand why customers are buying products and tailor their delivery offer accordingly. They can do this by using existing customer data, picking up on cues (such as choosing a gift wrapping option at check out) and asking customers when they simply don’t know,” he says.

And that brings it all back to communication and understanding. There’s no doubt that a lot has changed in the last year or so. And it’s encouraging to think that the remaining issues around pricing could perhaps be solved by further developing these new relationships between carriers, retailers and consumers.

Case study: Delivery dreams

UK bed retailer and manufacturer Dreams has unified its core technology systems to boost the efficiency of its home delivery service, which handles around 12,000 orders each week.

The firm has integrated Paragon’s Home Delivery System (HDX) with business management solution Microsoft Dynamics NAV and GPS vehicle tracking to streamline its delivery planning and execution processes.

Dreams uses Paragon HDX to plan all its nationwide routes and schedules from its head office. The system provides a selection of optimised delivery days and customers choose the one that suits them best whether in the store, or online.

When a customer buys a bed, the Microsoft Dynamics NAV system will calculate the earliest availability for the product. This information feeds through to Paragon HDX, which then works out the potential delivery dates and times to offer the customer. The information is presented graphically to sales staff in red, amber and green, with green being the most efficient delivery.

Dreams offers customers the ability to book a delivery up to 90 days in advance if they require it; typically most choose between ten and 15 days after making a purchase. The company also has much more flexibility to move deliveries around if needed and can close off routes earlier. In fact, with the latest version of the software it can also shut off a depot early and pause specific routes, for example in response to known traffic problems or road closures.

Paragon HDX minimises the manual intervention required during delivery planning. It gives much tighter control of how many vans are needed and the number of driver shifts required to achieve the plan.

Together with the stock availability system, Dreams has a much clearer view of the supply chain as it can plan when goods need to be in the depots and is now running some as stockless, having just the items they need to deliver within the next 48 hours.

Integration with the GPS vehicle tracking units in the vans using Paragon Fleet Controller also allows the system to monitor delivery progress in real-time. This provides a live report feed, which is published on the Dreams intranet to show how deliveries are progressing and allows customer services to keep customers updated with ETAs. They can see the exact status of each delivery, whether the van is at the customer’s home or has completed the delivery and is on its way to the next drop.

Sustainability: Royal Mail

Royal Mail has been named global leader for 2015 in the industry in the Dow Jones Sustainability Indices. Some of its recent initiatives include:

l Size based pricing, which allows retailers to understand and manage the sizes of their items

l More effectively and as a result use more efficient packaging. Parcels can be managed and delivered more efficiently in vans when sizes are managed.

l A range of flexible delivery options to for shoppers to ensure items are delivered first time – saving redelivery costs.

l A Heavy Goods Vehicle telemetry system to improve the fuel efficiency of our fleet through capturing data more accurately and providing real-time feedback on driver behaviour.