How to Make Free Shipping Profitable, Part 10

In the last installment of this 10-part series, I focus on emerging technologies and trends that will shape fulfillment in the coming months and years. These innovations enable merchants to fulfill orders faster while reducing costs, especially in the last mile and warehouse operations. Many large e-commerce merchants have started to adopt these technologies, and I expect many more will follow suit. I also expect the adoption of these innovations to accelerate as the industry braces for the new post-COVID world. (Here are parts one, two, three, four, five, six, seven, eight, and nine of this series.)

Autonomous Mobile Robots

Autonomous mobile robots (AMRs) are small robots that improve warehouse productivity by making it easier for workers to pick items they need to fulfill online orders. AMRs carry bins of merchandise from storage locations to a designated packing station, where workers pack, seal and label orders for shipping. Warehouse automation has become more and more popular since Amazon.com acquired the autonomous mobile robot manufacturer Kiva. In April 2020, UPS deployed AMRs from Locus Robotics to speed up its package sorting process.

AMRs reduces a merchant’s reliance on labor. They're especially useful in times when there's a strain in the labor pool, like the current COVID-19 pandemic.

The downside of warehouse automation technologies is that they require a substantial investment in time and money to set them up. However, companies like InVia Robotics and Fetch Robotics have developed a Robotics as a Service (RaaS) business model that dramatically reduces the cost of piloting the system, and they say they can have the system deployed within days.

Credit: Locus Robotics

Pros

• AMRs decrease the fulfillment “click-to-ship” cycle time.
• Robots can work around the clock, and in the dark with no temperature control, increasing the productivity of a warehouse.
• Subscription models can be deployed quickly and affordably, which enables businesses to pilot these machines.

Cons

• The ROI can be justified for high-volume fulfillment operation only due to the high total cost of ownership.
• Since this is an emerging technology, there’s a risk the technology you purchased becomes obsolete or fails to gain considerable commercial traction.
• It requires a standardized storage system so machines can pick items, which would require additional investment.

Last-Mile Innovations

Last-mile delivery, and the problems associated with it, have always been abundant. The biggest problem with last-mile delivery lies in the cost of transporting individualized shipments to distinct, often unreliable residential destinations through continually changing routes. Therefore, some companies are tackling this problem via crowdsourcing. Amazon is attempting to tackle the last mile connectivity problem in India using the “I Have Space” program. Amazon extended its reach to rural residential households in India by partnering with more than 20,000 mom-and-pop stores across the country. These stores help Amazon deliver packages to local addresses within a few kilometers for a fee.

Of course, large-scale crowdsourced solutions like “I have space” would require a significant investment. There are alternative solutions a merchant can use to minimize the cost of last-mile delivery — e.g., the same-day courier. Services like Postmates and Uber Connect leverage gig-economy workers to deliver your package within the same day. In Q3 2019, Postmates integrated with Shopify, enabling merchants to offer two-hour delivery. And in April 2020, Uber introduced Uber Connect, a contact-less package delivery service for customers to send packages to each other during the time of physical distancing. Packages are limited to five kilograms or ~11 pounds.

An interesting same-day courier is Roadie, which allows merchants to tap into cars that are already traveling towards the delivery address.

Pros

• Alternative last-mile services minimize the cost of delivery by tapping into excess capacity.
• Same-day couriers enable alternative fast, local deliveries for items that are expensive to ship.
• Crowdsourcing taps into excess capacity that would otherwise go to waste.

Cons

• Crowdsourcing last-mile deliveries (like Amazon) require a large-scale network that's very hard to build by any single party.
• Delivery quality may vary as it depends on gig workers who may lack professional training.
• Many crowdsourced couriers like Uber Rush and Deliv have either closed down or been purchased for technology assets in the absence of a profitable business model.

Robotic Last-Mile Delivery

Delivery robots are small mobility robots that can deliver items to homes. The last-mile delivery is expensive primarily due to its limited capacity, high cost of labor, expensive repeat delivery trials, and inefficiencies from traffic congestion. Robotic delivery is one of the breakthrough innovations that can change last-mile delivery.

Other delivery methods like drones trigger privacy concerns as their aerial presence might be misused as surveillance. As an alternative, robots that work in conjunction with human-crewed or autonomous delivery vehicles to bring items to doorsteps are being widely tested. Robots are physically located on the vehicles and disperse as the vehicle approaches the vicinity of the destination. These systems are an improvement on the current system and don't need radical changes in regulations or infrastructure. There would still be regulatory challenges.

Credit: Ford

Ford worked with Agility Robotics to develop a delivery robot that complements its self-driving cars. Digit carries packages of up to 40 pounds, and folds for easy storage within Ford’s self-driving car. The two-legged robot is built to deal with the messy environment between the road and the customer’s front door. It overcomes the limitations of wheeled robots, such as stairs and uneven terrain.

Ford and FedEx are not the only ones experimenting with delivery drones. Companies like Boxbot, Marble, Nuro, and Starship are also developing delivery robots to solve the same problem.

Pros

• Robots help make residential deliveries more affordable to carriers and shippers.
• Automation can reduce the hiring challenges from a strained labor pool.
• Current delivery robot technology automates only the last mile and can be implemented with minimal disruptions for the merchant.

Cons

• Robots face limitations in dealing with complex situations such as new construction and dealing with different acceptance mechanisms in buildings.
• Like drones, robots are also prone to damage from weather events or unpredictable events involving humans.
• Robotic delivery is very “visible” to the public. Therefore, it can draw negative attention from parties anxious about job security, which might hamper its adoption.

Micro-Fulfillment

Micro-fulfillment is about building and operating highly automated fulfillment centers close to customers in densely populated geographies. While a typical fulfillment center's shelves are limited to how high a human can reach, micro-fulfillment centers store inventory in a 3D matrix of totes, which dramatically reduces the space needed. With such high-density storage, it's now possible to establish fulfillment centers in the middle of a city. Fabric, a micro-fulfillment company, was born out of the need for grocers to offer same-day delivery. Its technology enables grocers to quickly add sizeable order fulfillment capacity with a minimal increase in workers.

Credit: Fabric

In early 2020, Walmart, too, deployed a similar solution called the Alphabot developed by Alert Innovation for delivering online groceries. It adopted similar high-density storage and automated picking system that enables Walmart to cut down on order processing time and improve picking accuracy.

Credit: Walmart

The biggest challenge with micro-fulfillment centers is cost. Takeoff Technologies' COO mentioned that its 10,000-square-foot systems cost about $3 million and can be up and running in about four months. Therefore, some companies like Fabric have begun offering this service to multiple customers in a 3PL model.

Pros

• Space-saving technology enables high-volume fulfillment centers in urban areas.
• Drastically improve worker productivity.
• Lower budget implementation is possible with 3PL such as shared resource business models.

Cons

• Requires a significant order volume to justify its high upfront investment.
• Machine downtime can be disastrous for fully automated micro-fulfillment.
• This technology is evolving rapidly. You can get stuck with a technology that fails to gain widespread adoption.

Peer-to-Peer Order Fulfillment

Another exciting new technology that will shape fulfillment soon is peer-to-peer e-commerce order fulfillment. Peer-to-peer fulfillment combines the benefits of in-house fulfillment operations with outsourcing by enabling merchants to collaborate. Offering free one- and two-day delivery from a single in-house facility is often unaffordable because merchants have to pay for costly expedited air shipments. For example, sending a one-pound package of cereal bars from New York to Los Angeles would cost $33 using a two-day air service.

The peer-to-peer model has some similarities to third-party fulfillment services. It enables merchants to expand fulfillment locations without building new warehouses or signing new leases. Merchants can quickly tap into the network of merchants and fulfillment providers to expand their fulfillment capacity. However, unlike third-party fulfillment, peer-to-peer merchants store and ship goods for each other through their warehouses. This exchange of services lowers fulfillment costs because storage and fulfillment costs are compensated in kind instead of cash.

Cahoot is a pioneer in this space that has built a peer-to-peer order fulfillment network that helps merchants across the country expand their fulfillment. Many businesses have found success using Cahoot to enable two-day delivery through Amazon Prime, Shopify, BigCommerce, Walmart, other marketplaces, and their own custom website. Having a flexible, scalable, and channel-agnostic fulfillment operation allows merchants to support growing demands during the current COVID-19 health crisis. For example, medical supplies merchant Oz Medical continued offering two-day delivery and expanded fulfillment to support the 80-plus percent growth in orders brought on by COVID-19 (listen to its story on the Total Retail Talks podcast.)

Credit: Cahoot Ecommerce Order Fulfillment Network

Pros

• Expand fulfillment network nationally and internationally without upfront investments.
• Lowest storage and fulfillment cost facilitated via the exchange of services.
• Scales quickly and cost effectively to support the most demanding fulfillment service-level agreements (SLAs).

Cons

• Not ideal for new merchants. Networks require a proven track record of shipping performance.
• A newer technology. It doesn't yet support bells and whistles like custom package branding and unboxing experiences.
• Not suitable for merchants that rely primarily on drop-shipping or just-in-time inventory

Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer order fulfillment network where merchants collaborate to increase their sales and margins by offering profitable one-day and two-day free shipping to customers nationwide without spending a penny more than the economical ground shipping.