Same Day Delivery Part One: An Inventory Management Strategy

January 23, 2014

With large international companies like Amazon experimenting with same day delivery, merchants and fulfilment companies need to cooperate to compete.

First things first: to get a product delivered on the same day it is ordered, the product has to be in stock and within an 8 hour journey of its destination. England is in a better position than may countries, as even a good bit of Scotland is an 8 hour lorry ride from the London, and fully 1/3 of the population is clustered in the Southeast alone. Companies pioneering this strategy in the US or mainland Europe have to stock a lot of extra inventory along a network of warehouses, making it much more expensive.

Things to consider for your same day deliveries in order fulfilment

But having the stock (relatively) near the customer is not enough. Inventory management practices have to be up to the task as well. 3V analysis (stratifying stock keeping units ‘SKUs’ by their Value, Volume and Velocity) and developing different strategies for each strata is the key.

High 3V SKUs

These have relatively high value, volume and velocity, and are prime items to consider offering same day delivery for. The sales volume means that the effort gone to making sure you have sufficient stock on hand for same day delivery won’t go to waste, and the relatively high unit value means that customers are more likely to spring for faster delivery.

Mid 3V SKUs

 SKUs that are relatively low in volume or velocity will require more investment and more risk to reliably offer same day delivery for. You may want to think twice before offering the option for these unless the value figure is very high indeed. If it is, then it may still be profitable to offer same day service using a more expensive transportation strategy, perhaps a special courier or some other option, depending on the product.

Low 3V SKUs

Frankly, offering same day delivery on these items will usually cost too much to be practical. Unless you plan to recoup the losses based on reputation gains or centering ‘same day service’ in your marketing strategy, you’d have to charge quite a lot for the service to avoid taking a loss, and the take-up rate might not support it.

This stratification exercise should help you determine which SKUs you can expect to profit from with same day delivery, and whether there is a future in the practice for your business.

(More to follow over the next two weeks)

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