Changing the delivery model

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As readers of this column know, I find inefficient home delivery services something of an irritant. Non-delivery is even more annoying and – as the recent e16.8m fine on Royal Mail demonstrates – I am not alone in having had CDs go missing in the post. According to some press reports as many as one in four CDs or DVDs sent to certain areas fail to arrive, with anonymous postmen quoted as describing such thefts as easy pickings.

Easy pickings maybe, but certainly not a gravy train that is heading for an extended future thanks to digital downloads. Datamonitor suggests that by next year around 60 per cent of UK households will have broadband. It’s a similar story across the EU with broadband now used by almost 50 per cent of western Europe, though that figure does fall to little more than 17 per cent among the newly joined and candidate countries.

A study by Zendor also suggests that broadband is the single biggest influence on the growth of online shopping. Broadband households buy more, shop online more often and watch less TV than their narrowband neighbours. Increasingly they can also avoid the postal pitfalls by downloading their music and films directly over the internet rather than waiting for those risky discs in the post. Downloading music to MP3 players or iPODs is a favourite pursuit among younger shoppers but as the growing range of offerings confirms, there is no age barrier or genre limitation to digital downloads.

HMV is one of a number of retailers already facing up to the implications. It expects that 10 per cent of its market in music, film, video and games will be digitally delivered within five years.

Digital takeover
Bill Gates goes even further. He gives music CDs a life of just five years and DVDs a future of only 10 more years before digital delivery takes over. HMV, working with Microsoft, has already developed a website that offers only digital delivery and is working on merging this site with its mainstream online presence during the coming year.

Phil Streatfield, formerly supply chain director at Entertainments UK and now with Woolworth, says: ‘Burning CDs to order would cut stocks and improve performance.’

Digital delivery could be at home or in-store at kiosks – something HMV is testing. Books are already on the digital agenda, with Sony’s ‘Reader’ coming to market with around 10,000 book titles available for download from the company’s website. Google is leading the way in digitising millions of books from the world’s libraries which will be available online, while already offers digital books and short stories on its website for instant download.

While those of us of a certain age will probably always prefer the feel and smell of real books, today’s digital generation will no doubt opt for screen reads every time. As Chris Charron, vp and research director at Forrester, says: ‘These consumers are a portrait of the future. Companies should look to this younger generation for inspiration in the design of products and services.’

Forrester’s report entitled Young Consumers and Technology suggests that 83 per cent of 12-21 year olds use instant messaging, they typically spend 11 hours online each week, while 55 per cent of boys in the age group prefer to play with their games consoles than watch TV. All of which adds up to bad news for postmen.

But entertainment products are not the only area where techno-savvy consumers are forcing companies to redesign their supply chains. Tesco, also entering the digital music download arena, is delivering rather more than 200,000 grocery orders to UK homes each week. Initially its fulfilment model was based on stores with pickers touring the aisles to collect the orders. In south London the level of orders is now so high that company pickers are starting to outnumber shoppers and cause congestion and irritation to customers.

The result is a ‘virtual’ store – an outlet built in Croydon that looks just like a normal Tesco, complete with produce counters and aisles laden with groceries. The only difference is that there are no real customers, only company pickers selecting items for web shoppers. This home delivery warehouse has to be laid out like a real store because all Tesco’s systems for fulfilling home orders are based on store selection – it is easier to replicate the store than design new IT systems. No doubt over time those systems will emerge and rather than a look-alike store, Tesco will evolve a single item picking warehouse which will improve efficiency.

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