To Win the Next-Day Shipping War, Decentralise Your Fulfillment
GLS President of North America, Steven Bergan, discusses how retailers leveraging decentralised fulfilment during peak seasons are the deciding factor in next-day shipping wars.
“Peak season is upon us; the time of year where retailers double check out of uncertainty if they can actually fulfill their promise of super fast and efficient delivery to their customers– in mass volume. According to CapitalOne’s 2024 Shopping Research, 21.2 billion packages shipped in the U.S. in 2022; projections indicate that as many as 32.0 billion packages will ship in 2028. Online sales alone are expected to hit $271.58 billion during the season. As we push through this holiday shopping season, fulfillment faces critical challenges that demand immediate attention.
The shift toward decentralised fulfillment models, the big strategic buzzwords on every retail leaders’ lips, while essential for meeting consumer expectations for rapid delivery, introduces rapidly changing complexities that can disrupt operations and erode customer trust. To maintain competitiveness and operational efficiency, retail and fulfillment decision-makers must address these challenges head-on.
1. Complexity of Managing Decentralised Fulfillment Networks
Decentralising fulfillment operations by establishing multiple regional hubs brings inventory closer to consumers from coast to coast, reducing delivery times—a crucial advantage in today’s next-day/same-day market. However, this approach significantly complicates supply chain management, as what’s going to move shelves in Los Angeles aren’t necessarily hot ticket items for Brooklyn customers. Coordinating inventory across various locations requires sophisticated oversight to prevent stockouts and overstock situations, both of which can lead to lost sales and increased holding costs.
Recent data from warehouse companies like Hopstack indicates that retailers implementing decentralised models have encountered a 15% increase in operational costs due to the need for advanced inventory management systems and additional staffing. This complexity is further exacerbated during peak seasons, where demand surges can overwhelm less integrated systems, leading to delays and customer dissatisfaction.
2. Rising Operational Costs and Labour Constraints
Operating multiple fulfillment centers inherently increases costs related to real estate, labour, and technology. The U.S. logistics industry is currently experiencing a 10% rise in warehousing costs, driven by high demand and limited space availability. Additionally, slow to increase wages make it challenging to staff fulfillment centers adequately, despite the lack of truck fleets.
These factors collectively strain profit margins and hinder the scalability of decentralised models. Retailers who profit on volume, like H&M, often sour their reputation with customers by being unable to ship quickly thanks to having only one central fulfillment hub to service the entire country. Without strategic intervention, retailers risk unsustainable cost structures that could compromise their ability to compete effectively. As Zara expands its reach and smart multichannel retailers like Walmart, Target and American Eagle continue analysing where to stock specific product, its competitors risk becoming secondary.
Strategic Imperatives for Retail and Fulfillment Leaders
To address these pressing challenges, retail and fulfillment decision-makers need to implement the following strategies:
1. Invest in Advanced Technology Solutions
Baseline, deploying AI-driven inventory management systems can provide real-time visibility across all fulfillment centers, enabling dynamic stock allocation and demand forecasting. This investment is crucial for maintaining operational efficiency and meeting customer expectations for timely delivery. They’re also built to be integrated with your own tech stack.
2. Optimise Labour Utilisation Through Automation
Integrating automation technologies, such as robotics for picking and packing, can mitigate the impact of labour shortages and reduce dependency on manual processes. This approach not only enhances productivity but also lowers operational costs over time.
3. Develop Strategic Partnerships
Collaborating with third-party logistics providers can offer flexible capacity and specialised expertise, allowing retailers to scale operations without the full burden of infrastructure investment. These partnerships can be particularly beneficial during peak seasons, providing the agility needed to handle demand fluctuations.
4. Implement Robust Data Analytics
Leveraging data analytics enables retailers to gain insights into consumer behaviour, optimise supply chain operations, and make informed decisions. This capability is essential for anticipating market trends and adjusting strategies proactively.
Conclusion
Decentralised retail fulfilment isn’t without its challenges, but it’s essential for staying competitive in today’s fast-paced market. To tackle these issues head-on, retail and fulfilment leaders need to prioritise strategic investments in technology, automation, and partnerships. Advanced tools like AI-driven inventory management can make decentralised networks much more efficient, keeping stock where it’s needed and cutting down on costly errors. Automation can also help address labour shortages, with robotics and streamlined processes that reduce the need for extra hands, especially during peak times.
Working closely with third-party logistics providers adds flexibility and brings in expertise without overloading in-house resources. Leveraging data analytics further empowers retailers, giving them the insights needed to anticipate trends and adjust strategies on the fly. By focusing on these solutions, retail and logistics companies can boost resilience, keep up with evolving customer demands, and secure a strong foothold in a continuously evolving retail landscape.”
About the author
GLS U.S. President Steven Bergan has been an executive leader in a variety of organisations for the past 15+ years with a primary focus in transportation logistics and supply chain. He is a graduate of the Wharton School of Executive Education.
