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.