Last mile delivery in omni-channel retailing: an explorative research

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Last mile delivery in omni-channel retailing: an

explorative research

March, 9, 2020

Elisa Kuipers S2711192

e.kuipers.7@student.rug.nl

Master Thesis Repair MSc Supply Chain Management

University of Groningen Faculty of Economics & Business

Word count: 9619

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Abstract

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1. Introduction

Among retailers, business models are changing and focus divides to include both an offline and online presence to attract and serve customers (Rai, Verlinde, Macharis, Schoutteet, and Vanhaverbeke, 2018). Because of the digitalization, traditional retailers are expanding to use e-commerce by adding online retail channels. The integration of online and offline channels so that, from a customer perspective, the boundaries between these two channels disappear is called omni-channel retailing. When the boundaries between channels disappear, customers can move seamlessly from one channel to another (Hübner, Holzapfel and Kuhn, 2016).

An omni-channel design can be developed across the stages encountered by a customer, for example the stage where the customer searches for a product or where they actually buy a product. This research focuses on the stage after the purchase is complete, namely the last-mile delivery stage, excluding the returns. This stage is the last trip of the supply chain, in which products are delivered to customers from the last inventory point (Martin, Pagliara and Román, 2018). In the last mile, there are many channels to choose from, for both the customer and retailer. The main strategies are home delivery, which can be attended or unattended, and customer pickup in store, parcel points and locker points (Rai et al., 2018).

Retailers want to opt for omni-channel retailing because this offers channel flexibility to and convenient purchase and delivery possibilities to customers, which creates profitable and more loyal customers (Lewis, Whysall and Foster, 2014). However, this new environment of omni-channel retailing influences the whole company, the integration between online and offline channels to make this channel flexibility possible require restructuring of structures, processes and people (Piotrowicz and Cuthbertson, 2018).

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6 costs and inefficiencies that presently occur in the last mile operations. Currently, the last mile is the most expensive and least efficient part of a supply chain (Gevaers et al., 2009). Therefore, the aim of this study is to obtain insight regarding how to (re)structure last mile delivery in a manner that omni-channel retailers gain profits of the new structure of their business and that their customers have a seamless shopping experience in the last mile. This is important because when the customer expectations of this seamless shopping experience are met the customer becomes loyal and profitable (Lazaris and Vrechopoulos, 2014).

Current literature is scarce on this topic about last mile delivery in omni-channel retailing. There is limited consideration of logistics in supply-chain management literature when talking about omni-channel strategies (Saghiri et al., 2018). Research on the last mile delivery of retailing has tended to focus on single channels and has investigated the last mile requirements for either physical stores or a single online channel (Hübner et al., 2013; Agatz et al., 2008). However, in an omni-channel design, these channels should by definition be seamlessly integrated. Omni-channel design in the last stage means that customers should have the possibility to switch between the multiple delivery channels available in the last mile to have a seamless shopping experience. There is scant literature dealing with the last mile strategies in these integrated e-commerce and traditional retailing channels and the switching between delivery channels.

Previous research focusing on multi-channel logistics, has shown that last mile solutions depend on multiple factors, such as customers’ expectations, and company strategy and their target group. However, it is not investigated yet how these factors influence the last mile delivery for omni-channel retailing. The specific aspect of switching between last mile delivery options could mean that there are also other factors that need to be taken into account when deciding which last mile delivery design option to offer to customers. In addition, it could also be that some of the already known factors might make it difficult or even impossible to switch between different channels.

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7 This study contributes to the literature by enriching the current knowledge about the last mile in an omni-channel context and adding an account into the possibility to switch between last mile delivery channels to offer customers a seamless shopping experience. Researchers have found that there are multiple factors where last mile delivery designs should depend on. However, these studies mention factors for offline, online or multi-channel retailing only (Hübner et al., 2013; Agatz et al., 2008), while the scope of this study is broader than this; it focuses on last mile delivery in an omni-channel context. One of the in literature mentioned factors is the requirements of customers for the last mile, however Yuen et al. (2018) shows that currently there are very few studies that explore these customers’ requirements of the last mile delivery an omni-channel context. The big difference between multi- and omni-channel retailing is the option to seamlessly switch between channels. An overview about which factors, and how these factors exactly influence this switching option in the last mile delivery is missing.

Additionally, this study has a practical contribution for managers of an omni-channel retailing company. As mentioned earlier, researchers have found that it is challenging for omni-channel retailers to (re)structure their last mile in an efficient way. The results of this research can help omni-channel retail managers by illustrating which factors are important for (re)structuring their last mile and especially to structure it in a way it guarantees seamless shopping experiences by offering options to switch between the delivery channels. These research aims led to the following research question:

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2. Theoretical background

In this section, concepts related to the research question are explained. A literature review was conducted, which led to sub-questions. These sub-questions were aimed at obtaining a clear and complete answer to the main research question. First, omni-channel retailing in general is explained, followed by the complexities it faces. Subsequently, information is provided about last mile delivery, where the advantages and disadvantages as well as current knowledge about factors influencing the last mile delivery are faced. Finally, the focus of this study is presented, including the sub-questions that guided the research.

2.1 Omni-channel retailing

Omni-channel retailing is built on the concept of multi-channel retailing. The omni-channel shopper has evolved from the multi-omni-channel shopper, and uses all omni-channels simultaneously instead of in parallel (Lazaris and Vrechopoulos, 2014). Beck and Rygl (2015, p. 175) defined omni-channel retailing as “a set of activities involved in selling merchandise or services through all widespread channels, whereby the customer can trigger full channel interaction and/or the retailer controls full channel integration”. In omni-channel retailing, the channels are interchangeably and seamlessly used during the search, purchase and fulfilment process of a customer.

Channels refer to different options to interact with customers; different types of channels characterize the way in which products and information are transferred to customers (Sahiri et al., 2017). Currently, the two most widely used channels are physical stores and online shops. These two channels together empower customers to – for example – search online for product information, test products in a physical store, purchase an item using a smartphone, have the item delivered at home, and return it to the store (Rai et al., 2018). This is only one of the omni-channel strategy options. Another is to order in store and receive delivery at home; or to order online and collect at the store (Piotrowicz and Cuthbertson, 2014). Companies use omni-channel retailing to interact with customers and fulfil their orders through different channels (Chopra, 2015). The existence of channel flexibility for customers and convenient purchase and delivery possibilities create profitable and loyal customers (Lewis, Whysall and Foster, 2014).

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9 mobile device to gather more information, or to find the same product at a more attractive price sold by a competitor (Verhoef, Kannan and Inman, 2015). This example shows that an omni-channel customer is mobile, uses technology in their daily life, and is highly connected to the world. Compared to traditional retail customers, the behaviour of omni-channel shoppers is different: they are better informed, use technologies, and ask more from retailers they do business with (Cook, 2014).

2.2 Last mile delivery

As mentioned before, the fulfilment and delivery of orders placed in an omni-channel context is a challenging and complex task. According to Punakivi (2001), the main challenge is in the last mile delivery. Zhou et al. (2017) described last mile delivery as the direct delivery of packages to a customer’s home or to a pick-up point where customers can collect their packages The last mile can be defined as “the final leg in a business-to-consumer delivery service whereby the consignment is delivered to the recipient, either at the recipient’s home or at a collection point” (Gevaers, Van de Voorde and Vanelsland, 2011, p. 57).

2.2.1 Last mile delivery in omni-channel retailing

There are many channels to choose from for the last mile delivery (Rai et al., 2018). Figure 2.1 illustrates the possible delivery options for the last mile in an omni-channel context. This figure presents the last-mile strategies that this study focuses on.

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10 FIGURE 2.1

Different paths in the last mile delivery (based on Gevaers et al. 2011)

Figure 2.1 shows the main three last mile delivery strategies: picking up from the store, home delivery, and clustering orders to deliver them to pick-up points. There are two options for pick-up points. The first is unattended shared reception boxes, which are installed close to customers for shared usage (see Appendix 1). The deliverer places the goods in the box and the customer picks them up at any time using a password they receive in a message (Wang, et al., 2014). The second option is attended delivery at a parcel point. This means the customer can pick up their order during the business hours of a parcel collection point, which is generally a special desk for picking up packages. For home delivery, there are also two options: attended and unattended. Attended home delivery occurs when a customer is at home and receives their order directly from the deliverer. Unattended home delivery can involve the neighbours. Unsecured delivery means the deliverer leaves the package outside the house, either on the doorstep or in a covered location around the property (McKinnon and Tallam, 2003).

The literature includes studies on these various last mile delivery options. They provide insight regarding the advantages and disadvantages of the delivery options for both customers and companies. Table 2.1 shows the most common results of the different studies. Empty boxes mean that both advantages and disadvantages for customers or companies were not identified for the specific last mile delivery option.

Storage location (physical store or distributioncenter) Pick up at store Clustering Attended Parcel points (book shop, petrol

station)

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11 TABLE 2.1

Advantages and disadvantages of the last-mile delivery strategies

Advantage companies Advantage customers Disadvantage companies Disadvantage customers Attended home delivery Face-to-face opportunity with customers (Wang et al., 2014) Comfortable, no effort needed from customer (Xu, et al., 2008) Low efficiency because of small orders (Wang et al., 2014). Needs to be at home for receiving order (Park and Regan, 2004); Delivery fees (Ishfaq et al., 2015). Unattended home delivery No not-at-home problem, so no delivery failure and higher operating costs (Xu, Ferrand and Roberts, 2008) Comfortable, no effort needed from customer (Xu, et al., 2008). Chance of theft (McKinnon and Tallam, 2003) Attended pickup High efficiency because orders can be clustered (Zhou et al., 2016) Staff needed, which costs money for company (Ehmke, 2012) Needs to travel to collect order (Nahry and Vilardi, 2019). Unattended pickup High efficiency because orders can be clustered (Zhou et al., 2016) Times saving, no queues (Vakulenko et al., 2008). Pick up when product is wanted/needed (Weltevreden, 2008) Lockers might not always be available when needed, capacity issues (Faugere, 2017) Lack in information, flaws in hard- and software (Vakulenko, 2018)

Pickup at store More in store traffic which increase revenues in shops (Weltevreden, 2008) Customer can return product directly (Gao and Su, 2017) Opening hours of the collection point (Enders and Jelassi, 2000)

2.3 Factors influencing last mile delivery

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12 Strategy and target group of a retailer

One of the aspects that influences the decisions about last mile delivery design is the strategy and target customer of a retailers. When a retailer is a discounter with a low-cost strategy, it is plausible that this retailer will not offer al possible last mile delivery options to their customer because by doing this costs will rise (Piotrowicz and Cuthbertson, 2018).

Customers’ expectations

Omni-channel customers differ from multi and single channel customers, they have high performance expectations (Lazaris and Vrechopoulos, 2014). These expectations are important factors for influencing the last mile delivery, to offer it in a way that respond to customer’s specific wishes and needs (Murfield et al. 2017). There is evidence that in e-commerce, customer satisfaction can change between the stages of placing an order and after the delivery of the order. This suggests that the last mile delivery has an impact on the overall customer experience when buying a product (Jiang and Rosenbloom, 2005). The studies that provide insight into factors that are important for customers in selecting and adopting a last mile delivery strategy are limited. Morganti et al. (2014) investigated home delivery and showed that despite the advantages of reception boxes and pick-up points, home delivery remains the most popular last mile option amongst customers in France and Germany. Only 7% of customers in Germany chose self-collection over home delivery, whereas in France 20% of customers did so. Some researchers have stated that timeliness and low cost are the crucial customer expectations in the last mile for omni-channel retailers; these aspects can be achieved through – for example – unattended pick-up points (see Table 2.2). By contrast, Morganti et al. (2014) reported that customers preferred home delivery, which incurs delivery fees and requires time at home to receive the order.

2.4 Research focus

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13 how retailers can deal with these obstructions. The research focus leads to the following sub-questions:

SQ1: Which factors do retailers take into account when making decisions about omni-channel design in last mile delivery?

SQ2: How are these factors influencing the omni-channel design options for last mile delivery?

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3. Methodology

In this section the methodology of the study is explained. An exploratory study was conducted, which is explained in detail. Next, the data collection is described, followed by the method of data analysis.

3.1 Exploratory research

To answer the research question and the corresponding sub-questions, exploratory research was conducted. The reason for this qualitative research approach was the possibility to explore data in real life, in order to discover data about how the last mile delivery is currently practised and the way it can be made more efficient and usable for omni-channel retailers to offer seamless shopping experience to their customers. Additionally, this exploratory study helps to explain the complexities of real-life situations in the current last mile delivery in an omni-channel context, which may not be captured through survey or experimental research (Zaidel, 2007).

Qualitative data was collected to gain insight and knowledge about the problems in the last mile delivery in an omni-channel context (Steinert, 2008). The purpose of this research is to increase the understanding of the factors influencing and obstructing the last mile delivery design options for omni-channel retailers. Insight was also sought regarding how things are performed in a particular way in the last mile.

3.2 Data collection

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15 3.2.1 Selection of respondents

A person was viewed as expert if this person had 10 years or more working experience in the field of omni-channel retailing, last mile delivery or both. The person should have gained this experience from his/her work over the years or his/her studies they had conducted in this field. The opinion and knowledge of these experts was important for this research because they know about this specific topic, and have witnessed the changes in recent years. This experience gives them substantial knowledge about the issues currently occurring in the field of last mile delivery and omni-channel retailing, such as the challenges and development of customer requirements.

Managers of logistic service providers and retailers were interviewed because they deal with last mile delivery in an omni-channel on a daily basis. They must make decisions about the last mile delivery strategy to offer to customers. This gives them insight into how to respond to customer requirements and the current challenges in the last mile in an omni-channel context. In addition, they can observe whether their strategic decisions for the last mile delivery are successful. Detailed information about the interview participants is presented in Table 3.1. TABLE 3.1 Data sources Kind of information source Business Interview Time Way of interviewing FIRST ROUND Research experience Expert (E2) Lecturer TU Eindhoven, Last mile delivery expert

35 Phone

Working experience Expert (E1)

Manager Consultancy Company, Omni-channel retailing expert

45 Face-to-face

Working experience Expert (E3)

Owner Consultany Company,

Omni-channel retailing expert 35

Phone Strategic manager Logistics Service Provider (M3) Fulfilment party ± 500 employees 30 Face-to-face Account Manager Fulfilment Logistics Service Provider (M2)

Logistic service provider company ± 380000 employees worldwide ± 11500 employees in the Netherlands

30 Phone

Last Mile Manager Retail Company (M1)

Sport

± 80000 employees worldwide ± 2000 employees in the Netherlands

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Global CRM and Loyalty Leader Retail Company

(M4)

Home

± 211000 employees worldwide ± 5000 employees in the Netherlands

50 Face-to-face

SECOND ROUND

Head of delivery Retail Company (M5) General ± 4500 employees 30 Phone Account Manager Fulfilment Logistics Service Provider (M2)

Logistic service provider company ± 380000 employees worldwide ± 11500 employees in the Netherlands

- Follow up

questions by email

To recruit respondents, they were contacted via LinkedIn and email. Experts were mainly found on LinkedIn by searching the platform for people with relevant expertise. Managers of logistic service providers and retailers were contacted by email using the addresses found on the website of such companies. In total, a recruitment message was sent to 32 people, among whom 14 responded; it was noted that retailers were generally the ones who did not respond. Among the 14 respondents, nine were experts. Three of the 14 were unsuitable for the study because they did not have enough knowledge about the last mile delivery in an omni-channel context, which became clear after telephone and email discussion. For the remaining 11, an appointment was made with three experts and four managers for an interview. For the other four, contact stopped when they did not react to follow-up messages by email or LinkedIn. After analysing the data it became clear that an extra interview with a retail manager was necessary. Out of the previously performed interview, one retail company came forward to be precursor in the field of last mile delivery in an omni-channel context. The head of delivery of this omni-channel retailing company was contacted by email, and an appointment for an interview was made. Additional, after analysing arises some extra questions about the switching between delivery channels, therefore extra data was gathered from M2 by email.

3.2.2 Interview process

The interviews were conducted by telephone or face-to-face; the choice was made according to the preference of the respondent. Table 3 shows detailed information about which interviews were held by phone or face-to-face. The interviews lasted between 30 and 50 minutes and were conducted as interactive discussions, in which the respondent gave their opinion about several topics and follow-up questions were based on that.

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17 Appendix 3). During the interview, the interview protocol was followed broadly; the first section was about omni-channel customers, followed by questions and discussions about last mile delivery in an omni-channel context. Sometimes the interview protocol evolved during the process because of the respondent’s answers.

3.3 Data analysis

Each interview was audio-recorded and transcribed within 48 hours after the interview. The data was coded and analysed using the program ATLAS.ti. This software is used to gain information from primary and secondary qualitative data.

First-order codes were created and the codes were added to relevant sentences for every interview transcript. Then the second-order codes were created. These second-order codes were the factors that influencing last mile delivery and impeding factors that influence omni-channel design in the last mile. To create these second-order codes, first-order codes were aggregated and combined into overarching topics. All codes were exported from ATLAS.ti to Excel, and based on the second-order codes, a coding tree was drawn. All the second-order codes of the seven interviews were combined, and based on core dimensions that emerged in the research model, several second-order codes were selected. Through this process, only the relevant codes were retained and the duplicate codes were deleted. In total, 8 second-order codes were created: customer requirements, environmental sustainability, technology, product characteristics, order characteristics, omni-channel customer characteristics, company vision and target group

The final coding tree had two dimensions, based on the research question. These influencing factors for last mile delivery in omni-channel retailing and the impeding factors for omni-channel design in last mile delivery. The coding trees are presented in Appendix 4. The coding tree was used to describe the results in a structured way and to link the various dimensions with each other, to gain an answer to the research question.

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18 3.3.1 Validity

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4. Results

In this section, the results of the data analysis will be presented, based on the following sub-questions: Which factors do retailers take into account when making decisions about channel design in last mile delivery? How are these factors influencing the omni-channel design options for last mile delivery? And which factors are obstructing for offering omni-channel design options for last mile delivery?

4.1 Factors taken into account for last mile delivery design

After analysing the interview data, six important factors that retailers take into account for last mile delivery design came forward. The six factors are mentioned and explained below.

4.1.1 Customer requirements

The first factor that arises from the data analyses is the requirement of the customers about last mile delivery. “If you talk about the most critical customers in e-commerce, the Netherlands is one of the countries where we are the most critical” (M1). In the Netherlands, the service level is very high, because all the retailers want to compete and offer increasingly better last mile services to their customers. In other countries, for example Germany, it is normal for customers to wait one or two days for their order to be delivered, while in the Netherlands, the customers choose the retailers that offer next day delivery. So, the requirements are not especially for the omni-channel design but are still mentioned because some of the requirements can be of influence on the last mile delivery design in an omni-channel.

According to three of the interview respondents, customers require that their order will be delivered fast. “We see how faster the delivery, the higher the conversion. Thus, how fast someone put something in their shopping cart online” (M1). This statement shows the importance retailers give to meeting this customer requirement.

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20 correct track and trace, so good information. Customers want to be informed about when their package will be delivered” (M2).

Thirdly, for customers it is also important that the information they get is correct and that their order will be delivered in a timely manner. When a logistic service provider informs a customer about the delivery time of an order, the customer wants it to be delivered exactly in that time slot. Reasons for this could be that customers stay at home specifically for the delivery or that they need their package directly. A retail manager (M4) stated that “the fact that customers need to stay home is a bit of an obstacle, thus making exact appointments, planning time slots, and fulfilling these appointments is very important’.

The fourth customer requirement that came forward is free delivery of customer orders. According to retail manager M4, “in the Netherlands, free delivery is still priority number one”. This is a big challenge because many of the last mile delivery strategies, such as home delivery and pick up points, are strategies that are, simply, costly.

The next customer requirement is control; customers want to have the last mile delivery in their own hands. This requirement is an important one for the omni-channel design because customers require having control over where their order is delivered, thus the possibility to switch between delivery channels. Retail manager M1 named this requirement ‘delivery on demand’: “not necessary the faster the better, but that the customers can choose. Even if it is in a week, two weeks, tomorrow, the customer should look at their agenda and say: then I will be home so I want to receive it that day and timeslot and at that place”.

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21 4.1.2 Omni-channel customer characteristics

Besides the requirements of the customers it came clear that omni-channel customers have different characteristics than other customers, for example of a multi-channel retailer.

One characteristic of omni-channel customers is that they are mostly from the digital generation: “there are, of course, more and more people that were born when the internet already existed” (E1). Because of this digital generation, people are increasingly making use of omni-channel retail services to order items, and decide their delivery. The digital generation is used to the internet and mobile devices; therefore, they increasingly use the available services, such as track and trace codes, moreover use them a lot more than past generations.

The other characteristic of an omni-channel customer is that they do not exactly know what they want for the last mile. Mostly, they use the options they are used to and think of options, they never used before, as not useful. Expert E1 stated that “the customer does not know very well what they want for the last mile. Therefore, it is better to test strategies instead of only asking the customer their preferences”.

4.1.3 Product characteristics

The third factor that influences the last mile delivery design is product characteristics. The size of a product is mentioned often as one of the most important characteristics in deciding which last mile options to offer. Besides the size of a product, the weight is also important for the selection of a last mile delivery strategy. Another characteristic that was mentioned is the value of the product. The last product characteristic that is important is whether the product needs to be installed.

4.1.4 Order characteristics

Besides the characteristics of a product, also the characteristics of an order are important for last mile delivery design in omni-channel retailing. According to the interview data, there is only one characteristic of an order that influences the decision about a last mile delivery design, namely location, which is about where the order is placed or has to be delivered to.

4.1.5 Company strategy and their target group

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22 4.1.6 Market demand for being environmental sustainable

The demand from society to be environmental sustainable is the last factor the retailers take into account when creating a last mile delivery design. Nowadays, customers have become increasingly aware that some last mile delivery strategies are not very environmentally sustainable. Expert E3 stated that “the second thing that plays a role nowadays is the environmental aspect. The five trucks that drive through the streets. People start to be surprised about that: is this the way it should be? How do I contribute to that?” This shows that customers think about these effects and base their selection of a last mile delivery strategy on them.

4.2 The way factors influence omni-channel design in the last mile

The second sub-question is how the above mentioned driving factors influence the omni-channel design in the last mile delivery. In this paragraph will be explained how the different factors have influence on which last mile delivery strategy to offer, how many to offer and the possibility to switch between different delivery channels.

4.2.1 Influence of customer requirements

According to the gathered data the last mile delivery design of an omni-channel retailer should be driven by the customer. One of the retail managers (M5) stated that “We look from the customer perspective, not from the channel, what the needs of our customers are”.

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23 For the number of last mile delivery strategies to offer to customers these requirements are not of big influence. In general Dutch customers have high expectations, for these reason omni-channel retailers should offer as much strategies as possible to set a high service level.

For the option to switch between delivery channels, these customer requirements are of importance. The requirement of control is the most important one. Customers want to have control about when and where their order is delivered. If retailers want to meet this requirement, the omni-channel design of seamless switching between delivery channels is very important to realise.

4.2.2 Influence of omni-channel customers characteristics

The characteristics of an omni-channel customer influence the last mile delivery design by trying to move by with the use of digital implications and service of their customers, and by testing omni-channel design options to let customers experience all the possibilities.

The decisions about which strategies to offer is not influenced by the omni-channel customer its characteristics. All the different last mile delivery strategies are suitable with the characteristics of these customers.

For the number of strategies to offer to a customer, these omni-channel customer characteristics are also not of great influence. However, because of the unfamiliarity of customers of the different last mile delivery strategies, retailers should test the different strategies by offering them to their customers, so based on this can be said that it is best to offer much options.

For the option to switch between delivery channels, the omni-channel customer characteristics do have influence. The omni-channel customer is digital and makes use of current technologies. For retailers it would be important to offer the possibility to switch to their customers because they know the possibilities and should earlier use the option to switch, and let their choice to select a retailer depend on it.

4.2.3 Influence of product characteristics

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24 suitable if products are not very heavy, because otherwise it is not possible to transport them by bike. Another mentioned example is the delivery of a fridge, which is so heavy that it needs to be delivered by two people, and home delivery is the only last mile delivery strategy that is appropriate. Manager M2 stated that “Expensive products are often delivered to a pickup point, because a signature is required to generate more certainty for both the customer and the retailer”. Therefore, this shows that the value of a product influences the last mile delivery option because of certainty that is desired for high value products. For characteristics whether a product needs to be installed or not, the data shows that for installation of a product only attended home delivery is possible. “Retailers make a conscious the decisions to do home delivery, because the product needs to be installed” (M2); this can apply in the case of a washing machine, for example.

For the selection of last delivery strategies these product characteristics are very important. Table 4.1 shows an overview of the influence of the different characteristics on the suitability of every delivery strategy.

TABLE 4.1

Suitable last mile delivery strategies for different product characteristics

Attended home delivery Unattended home delivery Attended pick-up Unattended pick up Pick up in store Big product X X X Small product X X X X X Heavy product X X

Not heavy product X X X X X

High value product X X x

Low value product X X X X X

Installation needed products X No installation needed products X X X X X

For the number of strategies to offer to customers, these product characteristics do not have influence. If a strategy is suitable for the type of product a retailer is offering, then the strategies can be offered next to each other to the customer.

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25 Netherlands”. Logically, it is only possible to switch to channels that are suitable for the specific characteristics the product has.

4.2.4 Influence of order characteristics

Location influences the last mile delivery design in different ways, such as by determining which facilities are available in a specific area. For example, if there are good roads, there will be more options for last mile delivery (M1). Another aspect of ‘location’ is the different customer requirements per region or country, which will influence the choice for a last mile design (M4). Retail manager M4 mentioned that “location is an important factor, not especially the physical location but the facilities that are available at a specific location, like infrastructure, the safety, payment options”. When the facilities in an area are good, it is possible to offer more strategies.

For the selection of last mile delivery strategies, the number of strategies to offer and the option between delivery channels, the location of an order can have influence, as mentioned above. However, in the Netherlands the facilities are the same among the whole country, and also the customers in the Netherlands do not differ per region. Since this research is focused on retailers in the Netherlands, the location of an order does not have influence on an omni-channel design in the last mile delivery.

4.2.5 Influence of company strategy and target group

The strategy of a company influences the selection of last mile delivery strategies, for example: if the strategy of the company is to be the cheapest, they will offer the cheapest options to their customers. Another example is “if your company vision is to be good for the environment, then you will not always listen to the customer requirements for the last mile” (M2). The target group of an omni-channel retailer is also a factor that should drive the last mile delivery design of a company. If the target group is students, for example, it would be good to offer pick up from a pick up point or the store, because students are more used to these strategies than older people. Besides this, students are at home at irregular times, which make home delivery more difficult (M3).

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26 For the option to switch between channels, the company strategy has influence because of the same reason as mentioned above. The target group of a company also has influence on the option to switch between channels. When the target group of a retailer is elderly, it is less meaningful to opt for an omni-channel design in last mile. For the switching option between delivery channels, customers have to press a link that is mentioned in the notification of the track and trace code of their order (M2). Elderly are less digital and mostly do not know how this works.

4.2.6 Influence of market demand to be environmental sustainable

The last factor that influences the omni-channel design in last mile delivery is the market demand to be environmental sustainable. Customers and society are more aware of the environment, and want to do something to combat environmental pollution. This makes it important for retailers and logistic service providers to be transparent about their deliveries, and to offer last mile delivery options that are environmentally sustainable.

Which strategies to offer to customers should be based on the influence the strategy has on the environment. For home delivery, there are many trucks on the road that contribute to environmental pollution due to CO2 emissions. To decrease this pollution, retailers can offer

last mile strategies for picking up orders. In this case customers also needs to go to the pick-up point to get their order, however they can do this for example by bike or doing it on their way home from their work when they were driving anyway.

The number of strategies to offer is not influenced by the awareness of environmental sustainability. It does not matter if an omni-channel retailer offers many options of just a couple.

The option to switch between delivery channels should be influenced by the market demand of environmental sustainability. “Switching is possible from home delivery to a service point of the logistic service provider in the same zip code area” (M2). To offer this switching option, customers can change their minds and make a more conscious choice for the environment.

4.3 Impeding factors for omni-channel last mile delivery design

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27 4.3.1 Using technological implications

The first obstructing factor that was obvious from the interviews is the technological challenge. Nowadays, technology is becoming increasingly important for omni-channel retailing, and thus also for the last mile delivery. Retail manager M5 stated that “without technical implications, we cannot perform a last mile”. Besides these general implications, technology is also very important to create the seamless omni-channel design. To make it possible for customers to switch between delivery channels in the last mile, technological implications need to be installed. An example, a customer has chosen home delivery but then changes its mind and would rather pick an order up at the store, all the information about the customer and its order needs to be sent to the store as well. This information transportation is a big challenge because of the technology that is needed to provide this information (M1). There need to be information systems between the different parties, such as the online store, the physical store, the logistic service provider, and so forth, to know exactly where an order is and make it possible to change from delivery channel when the customer asks for. “Doing smart things with new technology, information and data will make more and more possible in the last mile” (E2). This is challenging because people with a logistics background know little about IT and vice versa.

4.3.2 Scarcity of logistic staff

Additionally, there is the need for a lot of staff due to the many orders online in the Netherlands. As expert E3 stated, "Another challenge is the problem of the vacancies in logistics. Because of the high customer requirements, people have to work through the night etc. This brings some extra costs and difficulty in finding staff”. This scarcity makes it a challenge for logistic service providers to deliver in a timely manner and to handle the omni-channel design in the last mile; the option to switch of delivery omni-channel. According to logistic service provider M2, customers can switch between channels till 11:59 pm the day before their order will be delivered. For handling all the last minute switching, logistic staff is needed. So, if the logistic service provider of a retailer deals with staff shortage, the omni-channel design in the last mile will be obstructed.

4.4 Summary of results

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28 the most characterizing aspect of on omni-channel design in last mile delivery. Table 4.2 gives an overview of which factors needs to be present/absent to offer the option to seamless switch between channels to customers.

TABLE 4.2

Factors influence switching between delivery channels

Switching option No switching option

Customer requirements

 If retail want to meet the requirement of having control, they should offer the option to switch Omni-channel

customer characteristics

 When retailer has specific omni-channel customers, they should offer the option to switch

Product characteristics No influence No influence

Order characteristics No influence No influence

Company strategy and target group

 When retailer is service oriented, they should offer the option to switch

 When retailer’s target group are younger/middle aged customers, they should offer the option to switch

 When retailer is cost oriented, they should not offer the option to switch  When retailer’s target

group are elderly, they should not offer the option to switch

Market demand of environmental

sustainability

 When retailer wants to contribute to the market

demand to be

environmental sustainable, they should offer the option to switch (from home delivery to pick-up) Technological

implications

 When retailer is not familiar with the technology for switching, or do not have staff that can help, offering the switching option is not possible

Scarcity of logistic staff

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29

5. Discussion and conclusion

This study has presented several driving factors that omni-channel retailers take into account when making decisions about last mile delivery, and the way these factors influences the channel design in the last mile. It has also shows some impeding factors for omni-channel design in the last mile delivery.

5.1 Discussion

As mentioned by Hübner et al. (2013) and Agatz et al. (2008), research about last mile delivery did not investigate the omni-channel design yet. In the omni-channel design for last mile delivery it should be possible to switch between different delivery channels, after a customer order their products. This research contributed to these studies by finding out which factors and how these factors and obstructions influence the omni-channel design in last mile delivery. Murfield et al. (2017) and Piotrowicz and Cuthberston (2018), show that customer expectations and company strategy and their target group are important factors for influencing last mile delivery. From this research it became clear that these factors indeed are factors that influence last mile delivery. However, besides these two factors there were also find another 4 factors for influencing last mile delivery in channel retailing; omni-channel customer characteristics, product characteristics, order characteristics and market demand for being environmental sustainable. Though, not all these factors especially do influence the omni-channel design for last mile delivery. Product and order characteristics are factors that have no influence on the decision to offer the option to switch between delivery channels. Besides all these influencing factors, this research also adds some impeding factors to literature. When a retailer is not familiar with the technological implication needed for the omni-channel design in the last mile or/and when a retailer has logistic staff shortage, it will not be possible for the retailer to offer the option to switch to their customers.

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30 use of an omni-channel do have specific characteristics, but the data shows that these customers do not specifically have higher requirements than other customers.

5.2 Practical implications

Managers of both logistic service providers and omni-channel retailing companies should consider the following when they want to create an omni-channel design for their last mile delivery. This research has shown the factors that needs to be considered for last mile delivery, and how these factors influences the omni-channel design. When omni-channel retailers and logistics service providers are aware of these influencing and obstructing factors, they can make smart decisions to create a more efficient and effective last mile delivery design to stay profitable and get loyal customers. Omni-channel retailers and logistics service provider should take into account the factors: customer requirements, customer characteristics, product characteristics, order characteristics, company strategy and target group and the market demand of environmental sustainability. This is for the last mile in general, when the retailers want to implement an omni-channel design in the last mile they first should take into account their strategy, target group, technological skills and their amount of logistic staff when implementing it.

Another useful, small finding in the study is that customers themselves do not even know exactly what they want. They think that they prefer home delivery, but they may only prefer this because they are used to it and do not know the advantages of other last mile delivery strategies. For this reason, it is advised that retailers test their strategies and do not only ask customers what they want but also let them experience the possible options. In this way, the customer preferences will become much clearer for the retailers and logistic service providers.

5.3 Limitations and future research

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31 Secondly, the qualitative nature of the research is good to explore new insights but is unable to demonstrate causal relationships between the driving and impeding factors on omni-channel design in last mile delivery. With this research, it was possible to explore the way factors influence and impede omni-channel design in last mile delivery, but it is difficult to examine exactly how much influence which factor has on this omni-channel last mile delivery design.

Thirdly, it seems that all the interview respondents did not specifically recognise omni-channel customers, and three of the respondents think that omni-omni-channel retailing is not a term that applies in practice and, instead, only applies in the literature. This makes it hard to gather data for the omni-channel context specifically, which leads to some results that are also relatable for multi-channel and even single channel contexts, such as e-commerce.

Since this research is explorative, future research should be done to test the relationships between the different concepts discussed here. This to know how much influence each of the factors has on omni-channel design in last mile delivery, which will help retailers even more by (re)structuring their last mile. Additionally, because of the importance of the customers in the last mile delivery in an omni-channel context, it would be valuable to extend this research to include the customer perspective and get insights into what customers exactly require from the last mile delivery. Based on this research and customers’ data, the last mile delivery in an omni-channel context can be (re)structured in even more efficient and effective way. For the omni-channel design it would be valuable to know what customers think about the switching option, and based on what factors to choose to switch of delivery channel.

5.4 Conclusion

This study has explored driving factors that influence and impede an omni-channel design in last mile delivery. This research gives a clear overview of all the factors that influencing last mile delivery in omni-channel retailing, but also adds the influence of these factors and impeding factors for creating an channel design in the last mile. In an omni-channel design in the last mile delivery stage, it is possible to switch between delivery channels after a customer ordered a product.

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32 demand of being environmental sustainable. However, not all these factors do also influence the omni-channel design option to switch between delivery channels in the last mile. The factors product and order characteristics are no driving factors for offering omni-channel design options in the last mile.

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33

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Appendix

Appendix 1: Unattended parcel point

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38

Appendix 2: Interview protocol

Good morning/evening, thanks that I can interview you for my research into last mile delivery in an omni channel context. This interview will be used for my thesis of my master Supply Chain Management. The interview will take around the 30-45 minutes. Before we start I would like to go through this form (informed consent).

 Go through form and have it signed

Firstly I will shortly explain and show where the research is about. From literature came clear that there is little research done about the last mile in an omni-channel context. Literature shows also that the customers of an omni-channel are very specific, they want to be served timely and fast form very low costs. I study how organizations organize their last mile in an omni-channel context, and what their reasons are for doing it that way.

In the interview the following topics are covered:

 Definition omni-channel and last mile delivery  5 minutes  Personal question  5 minutes

 Omni-channel customers  15 minutes

 Last mile delivery in an omni-channel context  20 minutes

Definitions:

 Show definitions and explain shortly  Show research model and explain

Personal questions:

- I saw you are expert/manager in the area of omni-channel retailing/last mile delivery, I could tell this because…… What is your exact expertise regarding this subject? How would you describe this yourself?

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39 Omni-channel customers

- What do you think that are specific characteristics for omni-channel customers?

o What do these characteristics for consequences for their wishes and requirements?

- From literature came clear that omni-channel customers want fast, timely and free delivery

o Do you recognize this?

o Is this different for multi-channel customers?

o Do you see differences in customers segments? And do these have different wishes and requirements?

- How do the requirements of omni-channel customers play a role in choosing a last mile strategy?

 Show picture of last mile strategies Last mile delivery in omni-channel retailing

- Show picture of location of last mile

o What reaction does this evoke in you? Do you thinks this is a correct presentation of the last mile in an omni-channel context?

- What is the difference between omni-channel retailing and multi-channel retailing?

- For companies, the last mile in an omni-channel context bring some challenges, what do you think that are the biggest challenges?

o Given various mobile devices that make it possible to search and buy products anywhere, anytime

o Given the high customer requirements: free, fast and timely delivery o With a view to environmental sustainability

o With a view to efficiency

- How should companies face these challenges? Can you give an example of a company that is doing a good job in facing these challenges?

o Why are they doing a good job?

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40 - Is there a difference between the design of the last mile in an omni-channel context and a multi-channel context?

o What is the difference?

o How to respond to this difference?  Show picture of last mile delivery strategies

o Which of these strategies fits in an omni-channel context?  Can you give an example of a strategy of a company?  Why is this a good example?

 What should be taking into account?

o How many strategies should be offered to a customer next to each other?

o Which combination of strategies fits well?

o How should the coordination between strategies be done?

- How do product characteristics play a role in choosing a last mile strategy? - How do order characteristics play a role in choosing a last mile strategy?

Closing:

This was the interview. I want to thank you very much for your time and participation. When I have finished my thesis I will send it to you, so you can read all the findings. Do you have any questions or remarks yourself? Are there some things you would like to mention about this subject? Do you have any documents that may be useful for my study?

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41

Appendix 3: Informed consent

Form for informed consent concerning human subject research (Update: July 2019)

I

NFORMED CONSENT

I

………

hereby consent to be a participant in the current research performed by Elisa Kuipers

Phone Email

I have agreed to take part in the study entitled

Last mile delivery in omni-channel retailing: an explorative research

and I understand that my participation is entirely voluntary. I understand that my responses will be kept strictly confidential and anonymous. I have the option to withdraw from this study at any time, without penalty, and I also have the right to request that my responses will not be used. The researcher is responsible for a safe storage of the data. For questions about privacy protection: mr. A.R. Deenen (privacy@rug.nl, data protection officer of University of Groningen).

The following points have been explained to me:

1. The goal of this study is

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42 Participation in this study should help advance our understanding of

The last mile delivery in an omni-channel context

2. I shall be asked to

Answer some questions about the subjects

3. The current study will last approximately 30 minutes.

4. My responses will be treated confidentially and my anonymity will be ensured. Hence, my responses cannot be identifiable and linked back to me as an individual.

5. The researcher (or the contact person) will answer any questions I might have regarding this research, now or later in the study.

Date: Signature researcher:

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43

Appendix 4: Coding trees

Example quote Code Second order Dimension

"So making exact agreements, planning

time slots, is very important" (M4)

Timely delivery

Customer requirements

Influencing factors "We want to have everything very fast,

we like same day, same hour, same two hours delivery slots" (E2)

Fast delivery

"Customers themselves want to have

control about delivery moment and place" ; "Customers may want to do an intervention. Suppose the weather is nice in the summer and you decide to go for a swim, then you want to do an intervention by clicking on a link and say: I do not have to have that package today, let it bring to a service point" tomorrow” (M2)

Control

"In the Netherlands free delivery is still

number one, as in low costs" (E1)

Free delivery

"The biggest challenge right now is

that everyone is testing things. It is not clear what customers want" (M1)

Retailer does not know exact

customer requirements "Maybe it is more important to know

when order will be delivered exactly"

(E1)

Information availability

"The second thing that plays a role

nowadays are the environmental

aspects. The 5 trucks that drive through the street. People start to surprise themselves about that, is this the way it should be? How do I contribute to that? (E3) Customer awareness of environmental sustainability Market demand to be environmental sustainable

"If you buy a garden set, it will be

difficult to put this in a locker" (E2)

Product size

Product characteristics "The weight of a product influences

how you can organize the last mile"

(E2)

Product weight

"If you order a very expensive product,

you maybe do not want it to be delivered at your neighbours" (M3)

Product value

"You make conscious the decision to

have it delivered, because it needs to be installed" (M2)

Installation of product

"Location is an important factor, not

the physical location but the

infrastructure, the safety, payment options that are available in an area "

(M4)

Location Order

Last mile delivery in omni-channel retailing: an explorative research