Network Design within a City for Same-Day Delivery

We typically think of network design at the national level.  However, the same principles apply when doing a study at a very local level.  For example, we’ve talked about the pizza delivery model as a good example.

This topic is becoming more important as retailers try to figure out same-day delivery.  I talk about his issue in  blog post at SupplyChainDigest.


Same Day Delivery and Network Design

Same-day home delivery is getting a lot of attention in the press.  The stakes are high.  Amazon is trying to cut further into the market share of the brick-and-mortar retailers with delivery on the same day.  The brick-and-mortar retailers are fighting back, trying to use  their existing stores to deliver internet orders to the home the same day.

SupplyChain Digest ran an article called “Here Come the (Same Day) Delivery Wars.”  In their article they talk about programs from Amazon, Walmart, eBay, and the US Postal Service.  This is not just about the retailers.  Delivery companies are figuring out how they can profit from this as well.

The Wall Street Journal ran an article focusing on the battle between Walmart and Amazon.  In their article, they pointed out that Walmart can take advantage of their existing stores and deliver from there.  However, there is a high cost to pick a customer order from a store.  And, Walmart is creating some interesting twists to the business model– they think there are customers who want to order on-line, but want to pay in cash and would rather pick-up at the store.

Network design plays a large role in home delivery.  That is, you need to make sure you have facilities located close to customers so you can make the same day delivery.

But, network design is just part of the equation.  We saw a lot of e-commerce firms promise same day delivery before the dot-com bubble burst in 2001 and these firms couldn’t come close to making a profit with same day delivery.  Ten years later, will better IT systems and better use of existing infrastructure make this work?  I’m not sure.  I don’t know the economics of the pizza delivery market, but they seem to make it work.  Maybe other retailers will make it work this time.

Top 3 Reasons You Should Use Pizza Deliver to Explain Supply Chain Strategy Concepts

I haven’t thought much about pizza delivery in the last 10 years.  However, it seems like a lot of people do.  And, efficient pizza delivery makes people happy.

So, maybe we should use pizza deliver to explain supply chain concepts to people who may not have thought much about the supply chain.  When we wrote the book, pizza delivery helped explain some concepts.  Within the last 48, I’ve seen two other examples with pizza delivery.

Here are my top 3 reasons why you should use pizza delivery to explain the supply chain:

  1. Our book has a good example that uses pizza delivery to define different uses of the term service level.  Service level can mean the time to get a pizza to someone’s house or the percent of time you have the ingredients your customers ask for.  You need good network design to locate your restaurants and good inventory control and forecasting to make sure you have what your customers will order.
  2. Yesterday’s blog post brought up the fact that you better have good processes in place to quickly get the order, make the pizza, and deliver it.  Specifically, yesterday’s post highlighted that you better be able to take orders from the phone, the web, and from mobile apps.  A good discussion on having the right IT strategy.
  3. The book, The Human Face of Big Data, used pizza delivery in Manhattan to show movement.  The picture at the top of the post shows the path’s of the Domino’s pizza delivery bikers on a Friday night.  From the picture, the very bright spots show the locations of the restaurants and you can see the areas with the most demand.  This highlights how a supply chain must deliver to its customers.  The article points out that these restaurants receive product from a warehouse in Connecticut (so, there is an infrastructure behind the local infrastructure).  Someone had to decide on this warehouse in Connecticut and how many cities it would serve.

With these three examples, you can explain a lot about supply chain strategy with a business that people can relate to.

Pizza Delivery and Service Level

Service level is an important concept in network design.

However, the term “service level” has many different meanings within a supply chain.

So, while writing this book, we needed a good example to help explain the different definitions of service level and how they do or don’t impact network design decisions.

One of the authors (who we won’t name) came up with the great idea to use pizza delivery as an example.  She thought that after a long week at work, being able to quickly get a pizza delivered to your home can bring pure happiness.  Everyone can relate to this example.

This example, which we expand on in the book, is easy to explain and describes the different types of service levels and how network design can help.  For example, network design can help locate your restaurants close to customers, but it can’t help you quickly take an order and bake a pizza.

Apparently, others are also using pizza delivery to discuss service level.  This blog post by Clay Richardson uses this example:

…I needed to order a pizza for my family after a very hectic Saturday afternoon. When I picked up my mobile phone to call the pizza delivery place, a light bulb went off over my head. Instead of dialing the pizza delivery company and waiting on hold for 15 minutes, why not download its mobile app in two minutes and order my pizza within another two minutes. I figured I could shave off ten minutes of wait time by simply downloading the pizza delivery company’s mobile app.

Take a guess how long it took me to order the pizza? A whopping 20 minutes! Why? Because the pizza delivery company did not invest time optimizing its order process for the mobile experience. “

This example again proves the difference between operational service level measures and those related to network design problems. Similar to our example in the book, in this situation the restaurant was located where the customer had already proven the pizza could be delivered in a time that was acceptable but the service level related to the order process causes an unsatisfied customer in the end.  Both types of service are important to the delivering a pizza on time.  And what else provides more satisfaction than a hot pizza delivered quickly to the customer’s while enjoying their weekend!