Internet shopping really took off this Christmas, with home delivery becoming increasingly popular. But what are the challenges facing this rapidly growing market? Motor Transport assembled a group of experts to find out, in the second of our debates held in association with commercial fleet services experts Fraikin. One topic dominated the Motor Transport debate on home delivery. How do you get the retailer to pay you enough money to provide the service the customer demands and enable you to
make a reasonable profit? While many points were made, in the end it mostly came back to this fundamental dilemma. Or as Simon Bellinger, CEO of Sprint GB, put it: "From the internet company side, the market is price-led. They will talk about service, they will talk about the detail and the things they want. But the reality is, it is the price they are after. When you sit down with them they don't know what they want. They just want the job done at the cheapest possible price." His company receives e-mails each week asking for a price for a job. He now works out what he thinks the customer wants but will not agree a price until they sign off the detail of what needs to be done.
The price that home delivery companies pay is also being hit by Tesco. Rebecca Jenkins, MD of the Lane Group, whose company has recently been purchased by Wincanton, said: "I think one of the biggest challenges for us is the mighty Tesco. Expectations are rising, but how are we going to have high standards
when Tesco is delivering beds and sofas in two-hour delivery slots for less than £10?" She said that research forecasts the home delivery market will increase from the current £36bn to £43bn in the next few years. Brian Austin, general manager - business development at Kuehne+Nagel, disputed the view that it was just about money. "I do not think it is necessarily always about price. We have just won a piece of business from a retailer, I know that the price we quoted was higher than the people delivering it now. We won it because the retailer was prepared to take the big picture view and look at the whole supply chain costs and all the other issues of damage. We helped them produce a business plan to present to the board." He reckons that the cost of failed deliveries is going to come under increasing scrutiny and that means looking at customer care.
That sounds good, but Trevor Pope, transport manager for Screwfix Direct, has found that customers do not want to pay any more. Screwfix Direct receives 40% of its business through the internet and dispatches everything from a packet of screws up to a kitchen guaranteed for next day delivery. It offers pre-10.30am, pre-12 noon and Saturday services. "We were actually causing customers to be more demanding by offering these services," he said. "We introduced a timed service at £3 with the intention of increasing the price the next year. You see an increase in the volume but as soon as you increase the price the volume goes and timed services becomes irrelevant." Martin Dorchester, corporate fleet manager, London Borough of Hackney, who has helped set up the Tesco Direct and DIY dot.com and Sainsbury Direct web sites, thought that Screwfix Direct should have tried higher prices for longer. "You should have tested the market for longer than three months," he said. "The problem is that when the drop in volume comes you react to it immediately. People will not pay extra because volume drops and they know the price will fall. You are almost re-educating customers in the wrong way."
Dorchester also said that he was worried about the approach taken by the other participants in the debate. "I do not hear enough about the consumer and collaboration. If customers really believe that goods are going to be delivered for free at whatever time they want, it is down to us to change that message. Consumers can be taken on the journey but it has to be collaborative and everyone has to be involved."
Time slots and service levels
Rebecca Jenkins quoted research that the biggest frustration for customers was having to stay in all day because their time slots were not specific enough. Some 42% mentioned this problem. Another survey showed that only 53% of customers were satisfied with the level of service. There is also a divergence about when customers really want their goods delivered. "We offer deliveries seven days a week," said Brian Austin. "We find Saturday is very popular and will run a full fleet on Saturday. But there is less acceptance on a Sunday. There is still something different about Sunday." Simon Bellinger said: "We have found that we can charge a premium for guaranteed pre- 7am deliveries." Steve Allen, CEO of Nightfreight, said he sees more failures on a Saturday and the fleet runs Monday to Friday. "We know the consumer is not at home from 9am to 5pm but that is when we want to operate. We have built the economics around a 9 to 5 operation."
He also pointed out other problems. "The customer's expectation is for a perfect delivery, with no damage either to the property or to the product. It is also about getting a driver in uniform who will smile and is polite. Those soft skills are different from those we traditionally look for." A major part of home delivery is customer care. "We do three calls to the consumer," said Simon Bellinger. "There is the initial call to book it in and to make sure everything is fine. Then 48 hours prior to the delivery we will do a further call to remind them and to do the pre-survey call and check every fact. The final call will be one hour prior to arrival at the customer's premises. The view we take is the more you can communicate, the better your chances of getting your delivery. I do take the point about Saturdays. We have just withdrawn from Saturday delivery. The result has been a failure rate of less than 2%." But even making telephone calls can be a problem. Steve Allen said that women customers are increasingly refusing to give their telephone numbers.
Another approach has been introduced by K+N. It now offers a service where customers can be called an hour in advance so that people can briefly leave their workplace to accept the goods, which is better than taking a day off work. Brian Austin also spoke about the problems in delivering to homes. "You are invading someone's private space by going into a home and our philosophy is that our drivers' jobs are 80% customer care and 20% driving. Unfortunately we live in an environment where it is all too easy for a customer to say that the driver has knocked over a valuable Ming vase." Nigel Spooner, development director at DHL Exel Supply chain, said that the great demands made by marketing departments and the increasing size of goods is an issue. The marketing departments are expecting one hour, two hour and half day windows. "How do you manage that requirement with all the other things you have to do? Goods are also getting bigger and bigger. Doors are not the same size as in the rest of Europe so the weight and cube of the goods is becoming an issue. How do you get them into the lounge or up the stairs? It has a real effect on profitability."
He also pointed out the effect of two-hour time slots on schedules. "If you over-commit in this area you can muck up your schedules completely." It is a balancing act, he said, between how many options you offer the customer and delivering that efficiently. The other major problem is that the delivery window is getting tighter and tighter equating to a greater risk of failure, said Brian Austin. "What is the most important aspect of service? Is it reliability or the two-hour window?" Nigel Spooner said that London has a big effect and he has around 65% of the volume of goods going there. "Sorting out that conundrum is difficult, be it the delivery times or the congestion charge." John Ball, MD of Fraikin, said that there is a cost trade-off between setting tight time windows and an arrangement where the customer will be called when the vehicle is an hour away. "The customer is not so demanding as the retailer. If you have the opportunity to negotiate there is an enormous potential cost saving. The cost of a home delivery vehicle with two men with a 15 to 20% failure rate is a cost that is often not recognised in the supply chain."
Another problem is about customer expectation, said Steve Allen. "The customer expects that he will receive a complete delivery of his kitchen, and not 95% with the other 5% arriving in another nine days because of stock outs," he said. "That all falls back on the delivery rather than the retailer because the guy who is making the delivery is at the sharp end."Rebecca Jenkins had a similar problem when taking on deliveries for a kitchen manufacturer. There were about 115 items per delivery and the level of damage was high. "The natural response was that it was down to transport. We investigated the problem in great detail, leading to better packaging and stronger carcasses."
The participants:
The London effect
Making home deliveries in London is difficult. "The problem in London is attitude," said Nigel Spooner. "A customer will say that his builder will take delivery but he's often not there." Simon Bellinger reckons that there is a huge amount of arrogance in London "but we have to work around it," he said.
DHL has around 800 two-man delivery vehicles that regularly go into London. Nigel Spooner has recently looked into converting up to 500 vehicles to run on bio-fuels. "The fuel suppliers turn round and say that it is a great idea as long as you are in the South-east but as soon as you are outside that area, the availability of the fuel is poor and they will charge extra for getting it into a dump. I have the government on one side saying we have to be more environmentally friendly and I would happily convert a number of vehicles to bio-fuels - but I cannot get enough of the stuff."
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