In 2013, UPS and FedEx made a tempting promise to American consumers: Save your gift shopping until the last minute because we’ll deliver your gifts by Christmas Day. That promise was quickly broken. Countless shoppers woke up on Christmas morning to find there wasn’t so much as a piece of brown paper waiting on their doorstep. Angry consumers took to social media to complain while UPS and FedEx scrambled to apologise to customers.
Two big things went wrong.
First of all, it was a record breaking year for online holiday shopping. According to IBM Digital Analytics online sales on the weekend before Christmas that year were up 37 percent from the year before.
Secondly, a major snow storm hit parts of the country. Among the affected areas were Louisville, Kentucky and Memphis, Tennessee which host hubs for UPS and FedEx, respectively.
This could happen anywhere, and it reveals one of the major limitations of the traditional method of shipping logistics, the hub-and- spoke model.
The Limitations of the Hub-and- Spoke Delivery Model
The hub-and- spoke delivery model is often contrasted with the less popular point-to-point delivery method. With the point-to- point delivery model, all destinations are connected to each other, multiplying the number of necessary routes. With the hub-and-spoke model, the number of routes is reduced.
While the hub-and- spoke model offers efficiency, it lacks flexibility. If you experience a surge in demand in one area, instead of offering faster point-to- point delivery, an order must travel to the central hub and be processed there before continuing to its final destination.
The centralized nature of the hub-and- spoke model also makes it vulnerable because it contains a single point of failure. As the events of Christmas 2013 reveal, an issue at a hub has repercussions on the operation of an entire system.
Small Retailers Have an Edge Over Large E-Commerce
Companies when it comes to same-day delivery companies like Amazon appear indomitable to smaller retailers. Large e-commerce companies offer convenience, ease of access, low costs, recommendation algorithms, and more. But there’s one thing that these giants can’t offer that smaller retailers can.
Instantaneity.
A consumer can walk into a local store, purchase a product they want, and instantly hold it in their hands. At the moment, next-day delivery is the best most e-retailers can do. That comes at a premium. And sometimes, it doesn’t even come at all.
While e-commerce companies manage the logistics of several warehouses spread out across a region, local stores have the advantage of being their own warehouse. What’s considered “last-mile delivery” to a large company is the entire delivery journey for a local retailer.
Smaller retailers should use this to their advantage, especially during the holidays.
How Small Retailers Handle Seasonal Delivery Demands
There are a few strategies for handling seasonal delivery demands for surges for events like Black Friday or during the weeks leading up to Christmas.
These are all sensible options, but they do come with limitations. A small business owner’s fleet likely consists of one or two company cars, depending on the nature of their business and how often they usually make deliveries. It may not be feasible for a retailer to add to their fleet for a surge that will come and go relatively quickly, albeit intensely.
Traditional courier services are useful and they get the job done, but they’re expensive. Additionally, they may not have enough people on hand to handle the number of orders you have. Keep in mind that they are likely handling the needs of other businesses as well.
These limitations make third-party courier service brokers interesting. A third-party service maintains a large pool of freelance couriers. A retailer can use as few or as many of these on-demand couriers at a time. The service handles the logistics, ensuring a business is only paired up with someone who is available and geographically able to make the delivery within a certain amount of time.
In this way, small businesses enjoy the last-mile delivery of a traditional courier service with the reach and cost-effectiveness of a scalable pool of couriers.