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Smarter, Faster, More Efficient Delivery - Part 2

Furniture World Magazine
Volume 147 NO.5 September/October


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The April 2017 issue of Furniture World included a discussion of the advances in home furnishings transportation and logistics that will change our industry on a fundamental level. Topics included evolving customer expectations for speed and transparency, delivery strategies to meet these needs, the deluxing dilemma, the reverse logistics challenge, and the influence of Amazon and Wayfair. If you missed the article, find it at http://www.furninfo.com/furniture-world-articles/3674.

In Part 2, we look at the future of home furnishings delivery with a discussion of commingled models, smart trucks, robotics, augmented reality, innovative pricing models for furniture delivery, and more.

Commingled Delivery Model Possibilities

Christian Lafrance, the CEO of Clear Destination, a company devoted to automating the home delivery process for home fashion goods like furniture, appliances and bedding, envisions a new model for the home furnishings industry. “At the end of the day customers simply want their furniture, appliances and mattresses delivered to their doors by professional teams at a date and time that fits their schedules” he observes. “This has proven to be a huge challenge.

“Our industry has systems that drive everything in the background. These include manufacturers’ systems, their supply chains, companies like mine, and others involved in the process. These systems often do not communicate well due to a lack of coordination. It’s my view that the way it’s done right now, it’s not sustainable. There are too many ups and downs in daily volume across the whole supply chain to plan and deliver efficiently. Even if we just consider what’s done at the final mile in large markets, it isn’t possible for most retailers to maximize delivery efficiency and reduce cost in a standardized way.

“However, individual retailers share the same customers and deliver to the same neighborhoods every day. This creates an opportunity because their trucks are not full all the time."

Furniture World asked Lafrance if furniture retailers should adopt a model more like UPS.

“If I order a cover for my phone, from somewhere in the USA and have it shipped to Canada,” he replied, “that cover will probably go through seven terminals before it’s delivered, so that’s not an efficient model either. But there is an opportunity to improve at the supply chain level, to use common infrastructure to pack and move products in a more integrated and consolidated way.

“Moving towards a model that consolidates shipping to create density where you didn’t have density before is the way to go. This model requires that multiple supply chains come together to get home furnishings into customers’ homes.”

The supply chain of the future he believes, will give up delivery on branded trucks so costs can be reduced by using a larger, standardized network.

 


“In the supply chain of the future, furniture will be shipped to a consolidator and commingled for home delivery,” he suggests.
Lafrance tells us that there has been resistance to, for example, brick and mortar furniture chains mixing their home deliveries up with Sears and BestBuy on white trucks in their home areas. That's because there are real, benefits to branded home delivery. These include “free” advertising on branded company trucks and the ability of individual retailers to use branded last mile delivery to achieve customer service and competitive goals.

Rob Davis, Vice President of Client Solutions at Diakon Logistics explains the resistance to commingled delivery voiced by independents and regional chains. “Many of the retailers we work with are family run, multi-generational, and fairly regionalized. Their core competencies are never on the logistics side of the business. From that aspect alone I think it's important for guys like us to think about how to solve that equation and find efficient solutions for them.

"There are pros and cons to consolidating shipments. Retailers can gain efficiency by creating more efficient routes. But our experience is that most home furnishings retailers are looking for individual white glove delivery solutions. They have different product types and varying needs for set up, installation, delivery windows, the customer greeting, installation, follow-up, and how the guys on the truck should dress.
"With commingled trucks it’s difficult to manage how a retailer’s customers are greeted or surveyed. From that perspective, white glove home delivery may start to edge toward becoming threshold delivery, depending on what’s being commingled on the truck, the price points and volume being delivered for each retailer," Davis concludes.

“For these regional retailers who have doubts about a commingled model,” Lafrance adds, “it may make more sense to run their own trucks in areas where they have what they consider adequate density. But, for e-commerce consumers who live far from a store and the delivery density isn’t there, using shared trucks for this e-type of supply chain is a no-brainer. For these retailers there is an opportunity to use a mixed model with both white and branded trucks. This kind of mixed model, however, only addresses the last mile. If last mile trucks are full, but first mile trucks are half-full, it’s inefficient with added costs across the supply chain all the way to the consumer. To address this problem, we must look at the supply chain as a whole, all the way from China, Mexico or Vietnam to the customer’s door. To run full containers and full trucks efficiently at every point along the supply chain, to be full all the time requires scale, and I’ve never seen any individual company that can achieve that.”

 

A Third Way

Patrick Cory, CEO at Cory Home Delivery, thinks there is a third way coming that will be a game changer for independent furniture retailers. “The commingled model Christian describes tends to work for smaller retailers with one, two or three stores in dense metropolitan markets,” observes Cory. “These smaller stores tend to be very good at selling and design, but not very good at warehousing and logistics. So, they may outsource their entire back-end to a third-party company that consolidates perhaps five or six retailers under one roof in one warehouse. Each retailer gets the level of service they pay for, but their products are all delivered on the same trucks. They gain efficiency, productivity and density. If each one of those retailers ran their own trucks, it would cost them at least twice as much to provide the same level of service because individually they don’t have enough volume. In places where retailers don’t have a lot of volume like Wyoming or North Dakota, it makes sense to combine deliveries to achieve more delivery frequency.

“Right now, the largest home furnishings retailers have enough density, and do enough volume, that they want to have complete control over their supply chains. It makes sense for them to have their own warehouses and distribution centers.

“But, there’s a new delivery model coming,” Cory forecasts, “It won’t necessarily change what the big retailers are doing locally, but it will affect what they do nationally. It will also, absolutely change the way smaller retailers do business. Growth in the industry is not going to be primarily from brick & mortar sales. It’s going to be internet sales growth from both brick & mortar and internet-only retailers.

Driving Fundamental Change: Internet Sales

“Companies like Wayfair and Overstock,” Cory continues, “can afford to offer millions of SKUs, because they don’t hold inventory. And, for the most part, they have delivery networks where products go right from the distributor or manufacturer to a home delivery center. In order for local home furnishings retailers and even larger retailers to compete, especially online, they will need to offer a product selection that’s too large for them to hold in inventory. This is going to happen in the electronics and appliance businesses as well. Retailers are going to say to their product suppliers, “Look, we’re going to sell your product on-line, but we’re not going to inventory it, either because we don’t sell enough of it, or we don’t want to put it on our floor.

"They’re going to rely on home delivery companies and manufacturers to provide what’s called end-to-end services. This is what Amazon does, really very well through their Amazon Marketplace. For example, a retailer that wants to expand selection from 1,000 SKU’s to 10,000 will be able to send small items, those that are UPS-able, no problem. UPS and FEDEX are the best. Big furniture items that UPS and FEDEX really can’t handle, or are just too costly for them to deliver, need an alternative solution. To address this need, home delivery companies are starting to offer these end-to-end services.

“So, third party logistics companies like ours are going to scale up to work with the trans-ocean shippers and with the manufacturers. We’re going to provide drayage services from the port to the warehouse. We’re going to either hire LTL companies or provide LTL or truckload services to get products from point A to point B, then to our home delivery center. And obviously, third party logistics companies are going to provide last mile home delivery to consumers. Retailers will never touch the product. It will be pulled directly out of the manufacturer’s or the distributor's inventory. What retailers will do is to sell online and make a profit. Everything else will be handled behind the scenes, including customer service and reverse logistics with technology that will provide transparency and complete visibility throughout the supply chain all the way to the consumer. That’s going to be the future state of our industry."

 

The Future of Delivery Technology

In addition to changes wrought by internet sales, cost considerations and consumer expectations, advances in technology are likely to have an oversized influence.

Self-Driving Vehicles

"By 2020 or 2025," notes Clear Destination's Christian Lafrance, "we will see computer-aided trucks that can self-drive. Orders will flow directly to the truck’s IP address and it will adjust routing and make stops on it’s own."

Diakon's Rob Davis also believes that self-driving vehicles will have an impact, but won’t substantially change the nature of final mile delivery. "Driverless transport will disrupt the long haul portion and the way carriers look at this business, especially with regard to the number and location of distribution centers.

“Many traditional, family owned retailers have a single distribution center and are limited by their ability or willingness to invest in additional DC’s," he explains. "Of course regional brands strategically invest in DC’s that can service multiple markets.

“A big challenge, especially for independent retailers, is shipping to customers over long distances. For many right now, it isn’t worth the capital investment to build out additional DC’s, so these retailers tend to focus on saturating their home markets to create delivery density. Moving products across the country might take five DC’s, however, once autonomous delivery vehicles that can drive 24/7 arrive, the economics may dramatically change. If products can be moved around faster and more efficiently using self-driving trucks, the necessary number of DCs required to service areas outside of a retailer's traditional market will change, and this will also change where and how the last mile is served.”

Patrick Cory believes that other emerging technologies will have more impact than self-driving technologies, especially in the shorter term. “Self-driving trucks are coming, but it will probably take 20 years because infrastructure and regulations will all have to catch up with this technology.

"It’s one thing to take a load of furniture from North Carolina to New York on a tractor-trailer. That truck could drive itself from point A to point B. That doesn’t really change the local delivery model. With self-driving trucks you’re only covering part of that supply chain. Once products arrive at the local market it may be possible to self-drive the final mile. But unless we develop furniture that will grow the kind of legs that can self-deliver, we will still need people to carry products into customer’s homes.

"And of course, it depends on what a retailer's delivery model is, if products going to a home delivery center will be opened, inspected, assembled, touched up, whatever. So, self-driving technology is going to have an impact on the supply chain. But right now the technologies that potentially will have the most impact on our industry are the kinds of warehouse robotics currently in use at Amazon.

"Today we depend on local labor to run warehouses. It’s an element that can’t be outsourced. Labor is already tight and it could get much tighter. Short term, likely changes in immigration policies, especially in places like New York or New Jersey will have short-term negative impact on furniture warehousing and delivery. Lots of our workers are first generation here.

"Future warehouses," Cory continues, "even those handling items like furniture and appliances will use much less labor. Self-driving lift trucks will move palletized products where they need to go without human drivers. Potentially this could have as much or more impact on our business as self-driving trucks. A 500,000-square foot warehouse that right now employs 100 people might be able to reduce that number by 50 percent. That’s 50 percent less labor costs using machines that can operate 24 hours a day, essentially in the dark. This could have a significant impact on costs. So, I think the first impact you’re going to see is actually going to be inside warehouses, not necessarily on the road.

 



3-D Printing & Delivery

Another other big development on the home furnishings horizon that may affect home delivery are 3-D Printing technologies.
"There’s a foreseeable future," suggests Patrick Cory, "where a customer might walk into a store, for example a retailer like Restoration Hardware. Let’s say the shopper sees a product that’s the right product, but it’s not the right color or it needs to be 12 inches shorter and four inches wider. In this potential future, using 3-D printing, instead of having furniture made overseas and waiting weeks for delivery, it will take days to manufacture customized furniture. These machines are going to be inside of distribution centers like ours. And when the product is ready it will be finished, inspected and delivered locally. Manufacturing will shift back to the U.S., not because our labor’s ever going to get any cheaper, because it won’t, but because technology will advance. The furniture will still have to get moved from point A to point B, but instead of it making a trip from Asia to the final destination, it will be all local delivery. It’s going to allow for much more customization and cut down on the time between ordering furniture and its delivery to the consumer.”

Augmented Reality

Augmented reality will almost certainly impact how home furnishings retailers display and present their wares, but how might it affect delivery?

"A big challenge with home delivery,” says Diakon’s Rob Davis, “is not knowing what environment we are going to encounter until we’re there in the house. Any data we might gather and distribute with augmented reality such as confirming addresses, measurements, stairs, elevators, etc., would be insightful. I can’t say how augmented reality would have a huge impact in terms of executing delivery, but it is an exciting technology.

“Augmented reality like Google glasses,” adds Patrick Cory, “will have less impact than advances in routing technology, or the ability to have products, inventory systems and delivery trucks integrated in the internet of everything. Right now it's most important that we find the best routes, get faster inventory updates, load trucks for the next day based on what’s coming in today. That can be done now through scanning technology, but it’s still not 100 percent efficient. The idea of moving to RFID (Radio Frequency Identification) tags or something similar in a much more automated fashion is a more promising technology."

Advanced Delivery Pricing

"It's my opinion that every single customer should be charged a different delivery price,” states Rob Davis. “It should be based on the true delivery cost associated with the work that's actually being done. The tendency, however, is for retailers to simplify delivery pricing.

"Today, retailers charge an average set delivery fee, bake it into their cost of doing business, or charge based on a delivery radius.
"What we need in our business is a more dynamic model that takes into account each item delivered in a way that best manages efficiencies and minimizes cost.

“Such a model would take into account what’s being delivered, where it’s being delivered, when it’s scheduled for delivery and the number of deliveries,” he notes.

"Let's say that a retailer only has one delivery to make on a certain day, it might cost $300. If information on future sales orders to be delivered to that same zip code were available, that same retailer would more easily be able to reschedule, fill the load, and bring down the average delivered price.

"A good way to understand this is to look at what Uber is doing with UberPOOL.


”Riding Uber, the cost for a business traveler to get from an airport to downtown might cost $35. But using UberPOOL, it’s possible for the traveler to pay only 10 bucks. All the rider has to do is to agree it's OK for the driver to take a detour of up to five minutes to pick up another customer going along the same route. The passenger saves $25 in exchange for a potential five-minute delay. It becomes a communal experience based on an algorithm that can figure out how to make a route efficient.

“So instead of commingling goods from different kinds of retailers on the same truck, a model like UberPOOL's would allow retailers to create delivery efficiencies and pricing flexibility within a single retail operation.

"Here's another example. A hypothetical furniture retailer has six deliveries scheduled on a particular day, with the first delivery located 80 miles away from the DC scheduled for 9 a.m., and the five remaining customers scheduled for an afternoon delivery window. Obviously this retailer doesn’t want to send out a truck 80 miles to make the 9 a.m. delivery, then send out another truck to do the afternoon deliveries. The obvious solution is offer the 9 a.m. customer a later delivery time in exchange for cutting the delivery fee in half or eliminating it. In environmentally conscious markets like California, consumers might also be persuaded to take the offer if it were explained to them that the change would greatly decrease the carbon footprint of their delivery.”

Conclusion

From the first mile to the last, furniture delivery will undergo huge changes in the next five to 10 years to become faster, smarter, and more efficient.

Questions about any of the topics discussed in this two-part series can be directed to the interviewees at editor@furninfo.com.

Russell Bienenstock is Editor-in-Chief of Furniture World Magazine, founded 1870. Comments can be directed to him at editor@furninfo.com.
Read other articles by Russell Bienenstock