Grand Junction - Local Delivery Reinvented

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  1. Amazon Will Buy Sears and Other Big Predictions for 2017

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    For 2016 I made some predictions for the year in logistics. I was spot on with several (e.g., valuation pressure for on-demand delivery companies) and not so good on others (e.g., consolidation). Overall, though, I was good enough to make some more for 2017. So here goes:

    1. Amazon will Buy Sears – Imagine the shake up as Amazon enters into brick and mortar retail in big way, acquiring some great brands (Craftsman, Die Hard, Kmart, Kenmore) and also instantly adding 1,300 forward-deployed inventory locations for same day delivery.

    2. Uber-like visibility for package delivery – Shippers will have increased expectations for their delivery partners as they strive to provide consumers with visibility similar to what they get with Uber (driver photo, license plate and phone number, driver rating, route mapping etc.). Delivery providers will need to scramble to collect and present all of this visibility data to the end recipients.

    3. Uptick in Storefront Delivery – Major retailers will introduce more comprehensive and innovative storefront delivery programs. A few years of experimenting will give way to firm commitments to match Amazon, even if they are money-losing operations for several years.

    4. Drone mania comes crashing down – Actual commercial realization of drones for delivery will not materialize in 2017 as the hard realities of technology hurdles, regulatory issues, and common sense drag down the hysteria.

    5. Google Express will shift their focus to small businesses – It’s no mystery why Google is in last mile: They need to stem the loss of ad revenue from e-commerce buyers skipping Google search and going directly to Amazon. Google Express is a way to attract retailers with a unique local delivery option. As larger retailers develop their own local delivery strategies, expect Google to shift to smaller retailers who can’t do it on their own.

    6. FedEx will get off the sidelines – Expect FedEx to begin to innovate on local delivery through acquisitions, investments, or an innovation center. UPS has made some investments in local delivery (Convoy, Deliv, Shutl), but FedEx has held firm. Expect that to change as the threats of local delivery become more entrenched.

    2017 certainly is shaping up to be an interesting year with the pace of innovation and disruption in logistics accelerating.

  2. The New Battleground for Customers

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    Over the years, logistics companies and carriers have waged war on various fronts. Pricing is an obvious one, and service level is another (next-day air, next-day AM, same-day), but today these have largely normalized across competitors. Now a new front has opened: customer visibility and experience.

    Shippers—whether retailers, distributors, or manufacturers—are increasingly looking for real-time visibility into where their shipments are in the supply chain in order to identify issues that cause production or availability problems—problems that may ultimately affect their sales. At the same time, customer visibility and experiences provided by ride-sharing companies (Uber, Lyft) and food delivery companies (Instacart, Grubhub) are increasing customers’ expectations. These experiences are rarely seen (yet!) in logistics but, as with fast shipping, are likely to become standard.

    Here’s a partial list of capabilities that drive a great customer experience and are not widely available in logistics. Over the next few years, they will become important for shippers and the carriers they work with if they are to meet evolving customer expectations. (Remember when Amazon Prime seemed like a luxury, and how within six years customers would no longer accept 5-to-7-day delivery?)

    1.  Photo and name of the driver, and vehicle information – Uber has set the standard on this one;

    2.  Real-time driver location – GPS location of driver when inbound for delivery or pickup;

    3.  Estimated delivery time;

    4.  Scheduling – customers should be able to schedule a reasonable time window for their delivery or return pickup (i.e., not the typical cable company four-hour window);

    5.  Driver quality score – know others’ ratings of the driver or carrier;

    6.  Real-time survey – capture feedback immediately after the delivery or pickup is complete;

    7.  Easy customer support access – access that doesn’t require a phone call or a cumbersome contact form, and that reaches the shipper, not the carrier, directly;

    8.  Centralized delivery visibility – one shipper-controlled place for the customer to track deliveries, as opposed to providing a tracking number and making the customer go to the carrier, as is typically the case today;

    9.  Simple online claims submittal and processing – for example for damages, lost items, etc.; and,

    10.  Notifications subscription – customers pick and choose when and how (text or email) they are notified/alerted to events (out for delivery, delivered, etc.).

    As in every competitive environment, there will be early adopters who provide these capabilities before the rest. The early adopters will build market share, potentially gain pricing leverage, and also become stickier relative to the laggards—the capabilities mentioned above have been key ingredients in Uber’s rapid rise. Some of these enhancements are easy (e.g., online claims submittal), but most are difficult due to most companies having old legacy technology and not investing in new technology for logistics.

    Even UPS, who proudly claims to spend more than $1 billion on technology every year, is moving slowly toward this next-frontier customer experience. In 2011 UPS started Fast Forward, which allows recipients to choose a delivery window in certain situations. And in 2016 they rolled out a map for recipients to see the real-time location of their delivery. But these services are only available for non-business customers of Next Day Air and International shipments—both of which are less than 1 percent of their business. This slow progress is an indication of how hard it will be for even large carriers, and therefore their shipper customers as well, to meet emerging customer expectations.

    The irony is that the very technology investments that allow carriers to provide visibility to their shipper customers, and in turn to their end customers, also improve efficiency and reduce costs for the carriers themselves. To provide a high-quality customer experience, carriers need to get their own houses in order first. Real-time operational visibility, systems integrations, and paperwork elimination are all drivers of cost reduction as well as prerequisites for shippers to give customers a great delivery experience.

    The very largest carriers and shippers with in-house technology teams may be able to improve their systems on their own, but the bet here is that most will need to adopt external technology to keep up. Who knows how long it will take for an Uber-like experience to become a requirement for shippers, but good times are likely in store for supply chain software companies that can meet these visibility needs.

  3. Why Every Logistics CEO Should Fear Uber

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    I was recently at an invitation-only conference with the CEOs of most of the important logistics providers in the United States. Several wider themes emerged: the good (not great) economy, the emergence of last mile delivery, et cetera. But the most surprising theme for me was the near-universal assertion that Uber will be entering into delivery but is not a competitive threat. Truckload, LTL, small package, and supply chain technology providers all were dismissive. Each had reasons why Uber could not compete in their portion of the supply chain. It’s true that some of these companies are very well protected; for example, international customs brokerages and dedicated chemical carriers are pretty far from the fray. But many will be impacted directly, and all will be in ways they may not expect.

    The most straightforward challenge is that Uber’s customer service strategies are raising the bar for everyone in logistics in much the same way that Amazon’s raised the bar for all retailers. As a consumer, when you take an Uber ride, you can: see a picture of the driver, view the route, get a prediction of arrival and drop-off times, rate the quality of the ride, and communicate directly with the driver. Put simply, this is a great customer experience. Not coincidentally, it also keeps costs down for Uber by pushing customer support onto the driver, and it drives quality, as drivers are managed based on customer feedback (we call this the driver’s reputation capital).

    As more and more folks use Uber, Lyft, and other providers with this new level of visibility, it will start to become a customer expectation for every type of delivery, whether passenger or package. First for consumers, then for business buyers. How do FedEx, UPS, and all the other logistics providers stack up? Not well. Many of them have little technology, and most do not allow any communication between recipient and driver; some are even prevented from doing so by union rules! How much longer will it be OK to order a $20,000 living room set from Restoration Hardware without this new level of visibility? Not long. How long until 3pl customers begin asking for this level of visibility? It’s already starting to happen.

    As Uber enters delivery, they may not be a direct competitor for every logistics provider, but they are raising the bar for all. Providers that can rise to the higher-visibility challenge will be at a competitive advantage against those that can’t. Logistics will have an altered competitive landscape dependent on investment in technology and a focus on the end recipient.

    Uber as a more direct logistics competitor is also emerging. Through their Uber Everything brand, Uber is beginning to offer delivery via their pool of two million drivers. I’ll cover how Uber is entering the logistics space in another post. In the meantime, if you’re a logistics CEO, CTO, or CIO, you’d better start looking for solutions to match the Uber level of visibility, as that expectation is coming to your market. And for some, Uber itself is coming as well.

  4. 2016 Predictions for Uber and the On-Demand Economy

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    2015 was a banner year for Uber and the on-demand economy— endless press coverage, incredible valuations, adoption and expansion by noteworthy retailers, companies refocusing or dropping by the wayside, and a blizzard of lawsuits. Here are my predictions of what will make 2016 another interesting year:

    Consolidation – Expect a bunch of acquisitions. Specifically, Google Express buying Instacart to reinvigorate their last mile, Uber doing their first acquisition, and some bottom feeders being ‘acquired’.

    Disappointing Progress on Storefront Delivery – Retailers will continue to experiment with storefront on-demand delivery programs to counter Amazon’s aggressive same day strategy but low volumes, spotty service and high costs will make progress frustratingly slow. Expect to see companies like Deliv announcing new customers but volume remaining minimal and retailers struggling to justify their investment.

    Amazon’s Logistics – As retailers continue to slow roll same day delivery in 2016, Amazon will do the opposite. Expect to see more and more stories about how Amazon’s logistics is their long term advantage in e-commerce. More and more Amazon customers will quietly be getting free same day delivery, extending Amazon’s lead.

    Tipping – Driver retention and recruitment will force Uber and Lyft to introduce tipping in their apps. As drivers recruited in 2015 get through the end of the year tax season and realize their effective earnings are surprisingly low, expect driver turnover to increase. Drivers will move to where pay is best. Uber and Lyft can increase driver pay without damaging their margins or increasing prices by opening up tipping for drivers.

    Last Mile Software – The supply chain software industry will start introducing product extensions to serve the last mile and storefront delivery. Expect Transportation Management Systems (TMS), Point of Sale Systems (POS) and Warehouse Management Systems (WMS) to build or buy to add to their functionality in this area.

    Emergence of AM/PM – The buzz in 2015 was all about on-demand (i.e., 1-hour) delivery. That service level has its place in food delivery and with high priced items that have plenty of margin to absorb delivery costs, but it is not the long term winner in local delivery because of its cost, disruptive effect on store operations and lack of consumer need. Expect 2016 to be the year that low cost AM/PM delivery emerges, and for “order in the morning, get it in the afternoon” to establish itself as the standard same-day service level.

    Forward deployed inventory – Sprig ( uses forward deployed inventory (each vehicle carries it’s own inventory) to achieve rapid delivery. Expect UberEats, Amazon and others to increasingly place inventory near buyers either in micro warehouses or in driver’s vehicles.

    Valuation Pressure – Tighter purse strings and sliding valuations mean that the “Uber for xxxx” companies funded in the last three years will face potentially fatal funding and valuation pressures.

  5. Transportation Management Software’s Critical Gaps When It Comes to Local Delivery

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    Enterprises with any complexity or volume in their supply chain have long used technology to improve efficiency and better collaborate with their partners. It’s no surprise, then, that, according to a recent Gartner analyst’s estimate, more than 50 percent of large shippers have a transportation management system/software (TMS). When integrated across transportation providers and populated with contracts and rates across modes, a TMS offers a huge potential return on investment, primarily from optimizing shipments for speed and cost. Unfortunately, enterprises are finding that when it comes to managing last mile logistics and local delivery, their TMS can have significant gaps.

    Although a TMS allows shippers to optimize among the better-known last mile modes of small parcel carriers (FedEx and UPS), truckload (TL), and LTL carriers, they don’t handle shipments through local carriers (aka couriers) and independent contract local drivers. These gaps have been around since the beginning, and the majority of enterprises have been forced to close them through inefficient and ineffective manual processes or by building systems in house. Both a growing focus on improving the customer experience and the inevitable emergence of same-day delivery, storefront delivery, and other similar programs, which only local carriers and independent contract drivers are able to provide, are starting to shine a spotlight on these problems and make them a top priority for most shippers.

    How do existing TMS offerings fall short for local delivery?

    1) TMS providers are not integrated with local carriers. In fact, even the EDI networks / VANs, which many enterprises rely upon to connect them to their carriers, are not integrated with local carriers. This is a huge challenge with seemingly no solution, since there are thousands of local carriers in the United States alone, and by some estimates, nearly 60 percent have proprietary software.

    2) Unlike the small-parcel, TL, and LTL industries, local carriers tend not to be technology enabled. They don’t have CRM / issue management or standard APIs for data exchange, and, in many instances, they do not have driver-level information. Driver-level information is critical when it comes to managing the customer experience, as drivers are often an enterprise shipper’s face to the customer.

    3) There are no standard service definitions and rate structures in place for local delivery today. There is no CzarLite. To one carrier, a “same-day” delivery could mean pickup and delivery within 90 minutes, whereas to another, it’s pickup by noon and delivery by 6 pm. These differences make pricing and cost optimization very difficult.

    TMS providers have no choice but to tackle these challenges as the last mile increases in importance. I expect to see standardization emerge (service level definitions, pricing, and APIs) in the industry, along with a set of emerging TMS providers focused on the last mile. Every TMS provider needs to address these challenges now, or they may fall prey to the “local delivery TMS gap” in their next sales cycle.

  6. Independent Contractors Are a Ticking Liability Bomb

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    I recently visited a multi-billion dollar home-wares retailer, talking about their supply chain and how they deal with local delivery. I was surprised to hear they work directly with individual independent contractors (ICs) instead of local delivery companies, or having a dedicated fleet with employee drivers. It’s a tempting practice for any shipper (retailers, distributors, 3pls), since it removes some cost from the equation. In particular, shippers avoid workers’ compensation insurance and payroll taxes, since that burden falls to the individual drivers. Also, the retailer is dis-intermediating the local carrier, and the dollars that normally would go into the pockets of the local carrier end up as cost savings for the retailer. This direct to independent contractor model has been around for years but is increasingly visible, since it’s the model used by rideshare companies such as Lyft and Uber.

    But going directly to independent contractors is in most cases illegal, as in the recent federal court ruling on FedEx’s Home Delivery operation. It’s a very fine line between having an employee and working with an independent contractor. Each state has different rules for qualifying workers as independent contracts vs. employees, which creates a blizzard of requirements to avoid stiff penalties and class-action lawsuits. One common thread is that the worker needs to get orders from multiple shippers to classify as an independent contractor. Does anyone truly believe that a local delivery driver running routes every day for the same retailer is an independent contractor? Across the country, state tax agencies and workers’ compensation boards are charging companies with mis-classification of workers, especially when it comes to transportation and delivery. Even worse, liabilities shift from the local carriers to the retailer when working with independent contractors, opening the door to even more lawsuits. Finally, recruiting, training, and managing independent contractors produces hidden costs that tend to be ignored.

    All in all, I’ve seen this model explored by a good number of retailers who dismiss the strategy when the true costs and liabilities are uncovered. I’d expect the same for the this retailer once the legal counsel or risk officer get in the loop.

  7. The Local Delivery Industry Is a True Alternative to UPS and FedEx

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    The local delivery industry is uniquely capable of providing same-day (one hour or AM/PM), scheduled, and two-person delivery programs. UPS and FedEx simply aren’t capable of (or experienced at) providing these services. What about next-day delivery programs? Can the local delivery industry compete?

    It’s hard to believe that anyone can compete against the military-like precision and or brand trust that UPS and FedEx have. The short answer is that, from a cost-per-package perspective, yes, the local delivery industry can compete; but from a quality and brand perspective, there is a lot of work to be done.

    First, the economics: Both UPS and FedEx are optimized to provide delivery across the country (intercity) through multiple hubs, automated systems, and on aircraft. They work with enormous cost structures to support, including largely unionized workforces, pensions, aircraft leases, and large management structures. The local delivery industry is made up of scrappy local entrepreneurs with simple cost structures and a workforce largely made up of independent contractors (ICs), not employees. The low overhead and flexible workforce combine for a very cost-effective operation. As a result, the local delivery is significantly less expensive than UPS and FedEx for next-day services at scale — roughly 2,000 packages in market in a day.

    On quality, the local delivery industry has come a long way, but there is a lot of work left to do. Many local carriers have quality metrics that meet or exceed the quality of UPS and FedEx, but challenges remain for the industry as a whole. It remains very fragmented, with each market having dozens of carriers. There is also a serious lack of brand and industry awareness. Combined, UPS and FedEx spend almost $900 million on advertising and brand-building per year, according Hanover Research. The local delivery industry, as a whole, spends near zero, and the result is that UPS and FedEx are unchallenged as the only game in town when it comes to next-day. They have established a trusted brand that allows them to be forgiven for quality issues. The typical consumer is predisposed to be wary of the unknown local delivery company, whereas with the UPS and FedEx brands, the default assumption is success.

    Since the economics are there to use local carriers, major shippers’ use is increasing, which in turn forces quality improvement. Amazon, OfficeMax, and others’ use of local carriers is evidence that the local delivery industry is ready for prime time when it comes to next-day and other premium service levels. These companies have shifted more than 100 million annual small-package deliveries away from UPS and into the local delivery industry. Expect more to follow that lead, particularly retailers moving toward an omni-channel model, as they offer same-day, scheduled, and two-person delivery programs.

  8. A Proprietary Delivery Network…INSANITY

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    There seem to be daily announcements from technology companies that have local delivery as part of their offerings: Munchery, Postmates, Shyp, Instacart, Sprig, and a host of others. Each of these new companies faces significant challenges when introducing, and cost-effectively scaling, their delivery operations in new markets. Matching up supply (i.e., drivers) with demand (orders) is a challenge and usually results in back-breaking Yelp reviews and disastrous customer challenges. Check out the poor reviews for each of these companies, and more often than not, they’re due to delivery issues. Worse, the cost of recruiting, building, and managing these proprietary delivery networks requires serious capital and clumsy geographical roll-outs.

    Does every new tech company really need to build a proprietary delivery network? A shared delivery network, where multiple shippers access the same set of drivers and carriers, would improve availability, broaden geographical coverage, and dramatically lower costs. This shared supply model emerged in airline ticket shopping (i.e., SABRE), pharmaceutical distribution (e.g., McKesson), office supplies (United Stationers), and other industries as they matured. Why not learn from history and start out on the right foot? I fully expect the shared model to emerge in local delivery (led by Grand Junction); it would free up all these emerging companies to focus on where their value creation really lies: on sales, marketing, and the consumer front-end instead of the back-end logistics.

  9. Local Delivery and the Last Mile Defined

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    The terms “last mile” and “local delivery” describe essentially the same thing. In telecom, the last mile is the wiring that connects the house to the telephone poles. In the power industry, the last mile is the final step in the delivery of electricity (after passing through high-voltage transmission lines and transformers).

    In the supply-chain and logistics worlds, “last mile” or “local delivery” refers to deliveries made to a business’s customers, typically from stores or distribution centers to nearby business or consumer buyers. I prefer “local delivery.” Local delivery encompasses a wide range of service levels, including same-day, scheduled, or next-day, and is accomplished using local delivery companies (also called couriers or local carriers) in pickup trucks, cargo vans, box trucks, and sometimes even drivers’ personal vehicles. Over the past five years, local delivery has become more and more associated with e-commerce deliveries.

    As far as distance and geography, a local delivery initiates and terminates in a single market. A pickup from a distribution center just outside of Philadelphia and a delivery to the other side of the city is a local delivery. But a delivery originating just outside Philadelphia and delivering to Boston is not. That Philly-to-Boston (intercity) delivery typically goes through a cross-dock in the local market before it is really a local delivery.

    All of this may sound obscure, but local delivery is critically important because it’s the one step of the supply chain that actually touches the customer. That makes quality critically important, and service levels become competitive differentiators. And since the last mile represents about 28% of a typical company’s transportation spend, cost control is very important. According the US Census, more than 4,000 local delivery companies serve this market, with annual revenues of $46 billion.

    The last mile is a vibrant, yet largely invisible, industry, with a rising level of importance.