OM in the News: Is Fast Shipping Fast Enough?
“Free shipping isn’t enough any more,” writes The Wall Street Journal (Jan. 28, 2016). Online shoppers want fast shipping, too, and their expectations of an acceptable delivery window are shrinking. The new demands are largely a result of Amazon Prime, rival retailers say. Tens of millions of Amazon Prime members pay $99 a year and get unlimited 2 day shipping on millions of products, from snow boots to dog food. Now, the retailing giant is upping the ante, offering same day shipping in some markets. Other retailers, whose default shipping option is often 5 business days or more, are scrambling to keep up. Customers for the most part are no longer willing to pay extra for expedited delivery.
With shipping an increasingly expensive part of the business equation, operations managers are looking for cost effective ways to ship faster. They are building more distribution centers, fine tuning ship-from-store logistics and devising more creative delivery options. “Amazon kind of set the path for everyone with Prime. People just expect things faster,” says a luxury competitor. Cole Haan offers free 2 day shipping to online shoe shoppers who spend more than $250. Nearly 1/4 of customers either meet the threshold or pay $15 extra for 2 day shipping. Next month, Gap will narrow its free shipping window to 5-7 business days, down from 7-9 days. To shave off those 2 days, the company is relying on new technology to better manage logistics and routing.
Even just a few years ago, online shoppers were content to wait a week or two. Last year, the average delivery time for online orders was 4.1 days, down from 4.6 days in 2013. To speed up their delivery times, retailers are putting product closer to customers. Some of the biggest companies have a distribution center within a 10-hour drive of anyone in the country.
Classroom discussion questions:
- What are the advantages and disadvantages of adding distribution centers (see Figure 11.3 in the text)?
- Why does a shoe company, like Cole Haan, offer expedited shipping?