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Just-In-Time Shipping - A "real-world" example

A "real world" example of using multiple sites to saving shipping costs.

I was recently approached by a subscriber to my elogistics101 newsletter, with an unusual shipping cost problem. In order to disguise the actual product, lets say the product in question is very unusual cut flowers which are shipped in a wide range of very attractive and unusual gift baskets and ceramic containers. Some of these gift baskets are quite large (cartons up to 10"x15"x18") and can cost two or more times as much to ship due to the excessive carton size for the weights (1-5 pounds) involved.

The business is currently located in a medium sized southern city and sells 150 baskets a week to local walk-in trade and 60 per week via the Internet. Shipping by FedEx 2nd day and next day cost about $8.00 and $17.00 respectively, since FedEx charges all parcels at a one pound rate regardless of actual shipping weight. For the "oversize" shipments, FedEx charges about $32.00 and $48.00 respectively, quite a burden on a $49.00 gift!

After thinking about the subscriber’s problem for a while, I made the following suggestion for a business plan to capitalize in a unique gift item and greatly expand his profit and sales while almost eliminating shipping cost as an important factor.

  • Expand or franchise the business to 4 carefully chosen national locations one on each of the US coasts: (New York, Chicago, Atlanta, and Reno, for example) These 4 locations are within 2 UPS shipping days of 90% of the US population and within 1 day of about 25%. 3 of the 4 are in major retail centers, where retail stores should do very well, supported by the Internet sales site to generate local business.
  • Each of the 4 sites could now ship the gift baskets for "free" next or 2nd day delivery (UPS ground rates for 1 and 2 day delivery zones are only about $4.00 and lower rates are possible with increasing shipping volumes). Customers out of the UPS 2-day ground range could be sent 2nd day rate for no additional cost (probably only 10% of the orders would require this extra cost.)
  • Many more (highly profitable) "oversize" products could now be developed and added to the product line, because UPS does not charge extra for these oversize cartons on ground rate shipments.
  • The existence of 4 nationwide sites would give the enterprise considerable extra capacity and spread the cost of advertising for the Internet site over a much larger sales base.
  • With the extra capacity and credibility of the multi-site business model, special portal and affiliate marketing deals could be made to drive even more sales traffic to the subscriber’s Internet site. The "free" shipping made possible by this multi-location strategy could be a powerful tool in increasing the percentage of customers making purchases from the site.

Will the subscriber adopt this multi-site model? Probably not today, but as Internet sales grow, the multi-site model will not just be an option, it will become a competitive necessity. Internet E-tail giants like Amazon.com and BarnesandNovel.com are both rushing to open multiple nation-wide shipping sites for this very competitive reason. I predict the next day and 2nd day for free will be the Internet business norm for 2000 and beyond.

 

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