This post is a follow-up and is best read after reading How Many Distribution Centers Do I Need For One-Day Delivery? and How Many Delivery Stations Do I Need For 30 Minute Delivery?
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In our previous post, we showed how supply chain leaders can plan for ultrafast last-mile delivery. In that post, we asked ourselves: in a metro area, how many delivery stations would be necessary to ensure that customers are within a 30-minute drive of at least one delivery station?
For the Minneapolis – St Paul, Minnesota metro area, the answer is: four delivery stations are necessary to ensure 95% of the population is within a 30-mnute drive of a delivery station.
After that article was published, I spoke with Dominick Reuter, a reporter at Business Insider, about last-mile delivery. In that conversation (Business Insider article here, paywalled), the question arose, what if we went to 15 minute delivery? What would that mean for the number of delivery stations and inventory?
I re-ran my model and found that for 15-minute delivery coverage for 95% of the metro population, you’d need 31 delivery stations! Using some basic inventory math (the square root of N rule), that’s 2.78x as much safety stock!
Going from 4 larger delivery stations to 31 smaller delivery stations is an increase in capital, fixed and variable operating expense, and inventory investment. You better have a great business case to support that!
This is an example of something we see all the time in supply chain management. If you already have a high level of service – measured by delivery speed, customer service level, or another metric – then incremental improvements require increasingly large investments.
As I stated in the Business Insider interview, “There is a segment of people who will pay quite a bit of money for that convenience … [but] there’s just probably not as much of a market for anything under 30 minutes.”
(Note that this a very basic model – without capacities, routing, or other considerations that we’d consider in a real-life consulting project).
Conclusion
If your business depends upon fast, hyperlocal delivery, properly locating your delivery stations is critical. Contact us to talk more about how to make smart, strategic decisions about your supply chain.
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