In a significant move that could reshape expectations for cost efficiency in supply chain operations, Walmart has announced a 40% reduction in its U.S. delivery costs per order. This dramatic improvement has been achieved through several key strategies, including delivery densification, increased paid expedited deliveries, and the automation of fulfillment operations.
For U.S. shippers, this reduction signals an important shift in how logistics and supply chains can evolve to lower costs and increase productivity. In this blog post, we'll break down the strategies Walmart used to achieve these savings and explore how other companies in the shipping and logistics space can learn from these developments.
The Driving Factors Behind Walmart's Cost Reduction
According to Walmart's Chief Supply Chain Officer, Rainey, the retailer's ability to cut delivery costs by 40% per order is rooted in three main strategies:
Delivery Densification: This approach refers to increasing the number of items in each delivery, thereby reducing the number of trips or deliveries required. This not only saves on transportation costs but also improves the overall efficiency of the supply chain by optimizing driver routes and reducing fuel consumption.
Paid Expedited Delivery Orders: By increasing the penetration of paid expedited deliveries, Walmart has been able to offset some of the operational costs associated with fast shipping. This strategy allows the company to better manage its delivery networks while meeting the growing demand for faster, more reliable shipping options.
Supply Chain Automation: Walmart has made significant strides in automating its supply chain, with more than 50% of its fulfillment center volume now handled by automation. This marks a substantial increase from just a year ago, when automation accounted for only 25% of fulfillment activities. The scale and speed of automation have allowed Walmart to streamline operations and lower labor costs, further contributing to the reduction in delivery costs.
The Impact of Delivery Densification
One of the key strategies Walmart has implemented to lower delivery costs is delivery densification, which involves grouping more products per delivery. By increasing the number of items shipped in each delivery, Walmart is able to reduce its overall transportation costs.
In practice, delivery densification results in more cost-efficient and productive driver routes. When drivers are able to make fewer trips, they can carry more goods with each delivery, reducing the need for fuel and other operational resources. For shippers, this principle offers an important lesson: increasing the volume per shipment or optimizing delivery routes can have a profound impact on reducing overall costs.
The Role of Expedited Shipping in Cost Management
In recent years, there has been a growing demand for faster shipping, with customers expecting shorter delivery windows. Walmart has been able to tap into this trend by increasing the penetration of paid expedited delivery orders.
This model allows the company to offset some of the costs associated with expedited shipping by passing those costs on to customers who are willing to pay a premium for faster delivery. While this strategy may not be feasible for all shippers, particularly small to medium-sized businesses, it offers a valuable insight into how larger companies like Walmart can manage the rising costs of fast shipping.
For smaller U.S. shippers, integrating a premium delivery option could help subsidize the costs of faster services, thereby striking a balance between customer satisfaction and operational efficiency.
Automation: A Game Changer in Fulfillment
Perhaps the most significant factor in Walmart’s ability to slash delivery costs is its automation efforts. By automating more than 50% of its fulfillment center volume, Walmart has been able to achieve higher productivity, faster order fulfillment, and reduced labor costs.
Automation in supply chains encompasses a range of technologies, from robotic picking systems to AI-driven demand forecasting and warehouse management systems. Walmart’s use of automation allows them to operate more efficiently, with fewer errors and less reliance on manual labor.
For U.S. shippers looking to streamline their operations and cut costs, investing in automation could offer substantial long-term benefits. Automation can significantly improve warehouse throughput, reduce lead times, and enhance order accuracy—all of which contribute to lower operating costs and better service levels for customers.
Key Takeaways for U.S. Shippers
Walmart’s impressive achievement in reducing delivery costs by 40% offers several valuable lessons for shippers across the U.S. Here are some actionable takeaways for companies looking to optimize their own supply chain operations:
1. Optimize Delivery Routes and Shipments
Increasing the number of items per delivery can lead to more cost-efficient transportation. Shippers should explore opportunities to consolidate shipments or find ways to improve load optimization.
Technology solutions, such as route optimization software, can help improve delivery efficiency and reduce costs.
2. Consider Expedited Delivery Options
Offering paid expedited delivery could be an option for shippers looking to manage the cost of faster service. This allows companies to pass on some of the cost of expedited shipping to customers, while still meeting their demand for speed.
Shippers should consider conducting market research to understand customer willingness to pay for faster delivery.
3. Invest in Automation
Automation isn’t just for large retailers like Walmart. There are scalable automation solutions that smaller shippers can integrate into their operations. Automated picking, inventory management, and warehouse systems can increase throughput and reduce labor costs.
Exploring automation in fulfillment centers or even in the final mile of delivery could provide a significant ROI.
4. Leverage Data for Better Decision-Making
To replicate Walmart’s success, shippers need to invest in data analytics tools to gain insights into their operations. Analyzing delivery routes, customer behavior, and warehouse efficiency can help identify areas for cost savings.
Predictive analytics can also improve inventory management, reducing costs associated with overstocking or understocking products.
5. Focus on Long-Term Cost Efficiency
While the upfront costs of automation and technology may seem high, these investments can pay off over time by reducing operational expenses and improving efficiency.
Shippers should take a long-term view when making decisions about supply chain investments, considering the future benefits of automation, route optimization, and improved operational visibility.
Conclusion
Walmart’s ability to slash U.S. delivery costs by 40% per order serves as an inspiring example of how technology, automation, and optimized delivery strategies can dramatically reduce operational expenses. For U.S. shippers, this success story offers a roadmap for improving cost efficiency in their own supply chains. By investing in automation, optimizing delivery routes, and considering premium shipping options, shippers can not only reduce costs but also improve service levels and scale their operations more effectively.
At Gain Consulting, we specialize in helping businesses streamline their supply chain operations and implement cost-saving strategies that drive growth. If you're interested in exploring how these strategies can be applied to your own operations, contact us today to start a conversation about automating your supply chain and cutting delivery costs.
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