Walmart: Still Running on a 56.6 baud Modem …

Walmart recently released a statement that it plans to use employees to do home deliveries, presumably to fulfill online orders, as recently reported on The Washington Post. the doctor couldn’t believe it at first … convinced it was an article from the Onion misposted on a real news site, but apparently it’s real.

Overlooking all the things that could go terribly wrong with this, and all of the new legal liabilities this could cause them to incur (which would give your average risk manager and Chief Counsel nightmares for months), this makes absolutely no sense from a supply chain perspective where the name of the game is cost control (unless, of course, Walmart is looking for a way to actually lose money as a tax avoidance scheme).

There’s a reason even Amazon uses third party carriers for its prime service, and the reason is that, as stated by the article, last mile logistics are costly. Very costly. And they can only be minimized by maximizing the number of packages delivered per hour by a driver. An employee who can only deliver a few packages due to space limitations in their car can’t maximize deliveries compared to a Fedex or UPS van driver that has a van built to maximize the number of packages that can be carried at one time and that is making deliveries determined by software that minimizes the delivery radius of all assigned packaged and delivery time using route optimization software (that eliminates left turns and backed-up routes).

Now, maybe Walmart is thinking that they can introduce a new kind of package assignment algorithm that minimizes the distance from an employee’s home route, and then just pay that employee for additional distance and time required (using google map calculations, etc.), but you still have the problem that the closest employee(s) may not be working that day, may not be able to do deliveries that day, or may not be able to fit the packages in their vehicle. Most of the time the software will have to re-assign and re-assign again until a viable sub-optimal match is found, and at the end of the day the cost would be more than just having a full time driver deliver everything according to route optimization software at a cost that is still more than negotiating a good volume-based outsourcing agreement with the dominant local carriers who can increase the delivery density even more.

The reality is that just because something sounds good (as in 90% of all customers live within 10 miles, where most employees are also located), does not mean it is good — and that’s why you need to perform analytics and optimization before embarking on major initiatives such as this. Because even if Walmart could get near-optimal assignments, it still needs volume, and as long as it takes 3 times as long to do anything on their site as it does on Amazon (and that is definitely true in Canada, where the outsourced development organization prefers to benchmark against sites for other real-world retailers and not Amazon from an online retail perspective), and as long as they continue to ship 6 (light) items on the same order across 5 boxes, their online volume growth is not going to be fast enough to make this idea anywhere as efficient as they hope in the next few years. This is one case where the doctor hopes their trials flop and they see the error of their ways and go back to investing in more hybrid vehicles, more efficient warehouses and inventory management methods, and other initiatives guaranteed to increase efficiency and sustainability.

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