978-0134731889 Cases Teaching - Note - Same

Teaching Note – Same-Day Delivery

The Future of Same-Day Delivery: Same as the

Past?

Case Synopsis

In 2012, several retailers, including Amazon and Walmart, experimented with same-day delivery.

Home delivery of pizzas had been a very successful model in the United States and had been copied all

over the world. In contrast, home delivery attempts by companies such as Kozmo and Urbanfetch had failed

and both companies went bankrupt. The goal of this case is to build a framework that helps students identify

the factors that influence the success or failure of home delivery models.

Learning Objectives

Suggested Uses

The case is appropriate for undergraduate, graduate, and executive education students. It will be

effective in supply chain management courses and can be positioned after transportation.

Discussion Questions/Student Assignment

1. Why has same-day delivery of pizza been successful, whereas the practice has failed in other settings

(e.g., Kozmo.com)?

Table TN1:

Driver

Sit-Down Dining

Customer Pickup

Home Delivery

Service

Food served as soon as

cooked but customers have to

drive to restaurant

Driving similar to sit-down

dining with service delay

No driving by customer but

there is service delay

Facilities

Space requirement grows to

handle customer seating

Space requirement shrinks

Capacity

“Level loading” by moving

around orders is difficult

“Level loading” by moving

around orders is easier

“Level loading” by moving

around orders is easiest

Inventory

“Build to order” model allows

for postponement

“Build to order” model allows

for postponement

“Build to order” model allows

for postponement

Transportation

No outbound transportation

cost

No outbound transportation

cost

Delivery cost is incurred by

restaurant

Information

Simple information flows

More complex information

requirements

Most complex information

requirements

Pricing

No delivery fee

Delivery fee of $2.75 at

Domino’s

Home delivery allows a pizza restaurant to increase its revenue per square foot because it can reduce

the space allocated to sit-down customers. Home delivery (with a queue of orders) allows the restaurant an

opportunity to batch some orders to get better throughput from its kitchen facilities. The downside, of

course, is that home delivery increases outbound transportation costs and requires more information details

than an in-store order.

Pizza orders also demonstrate “temporal aggregation” in that most customers will place pizza orders

around mealtimes. This potentially offers the restaurant an opportunity to bunch nearby deliveries together.

Pizza restaurants are located close to the customers they serve through home delivery. This reduces the

driving distance on the outbound side. Pricing seems to indicate that the tradeoff of all these factors still

results in a cost increase, and thus, a delivery fee is added.

If we look at the tradeoff for pizza delivery, the presence of many facilities reduces the outbound

delivery distance but has the potential to increase facility and inventory costs. Pizza restaurants reduce

inventory costs by storing ingredients rather than finished product (making finished product only after a

customer order) thus reducing the variety held. They reduce facility costs through home delivery by

reducing the space requirements and getting greater revenue per square foot. If orders are placed online, the

online channel allows them to potentially reduce the effort for order taking while ensuring accuracy of the

order.

2. Under what conditions can same-day delivery be offered at low cost?

Same-day delivery can be offered at low cost if the fundamental characteristics found at pizza delivery,

Jimmy John’s and others, can be replicated. These characteristics include:

• Pizza delivery uses vehicles belonging to the employee. These vehicles would otherwise have been

idle (parked in the lot). Thus, the use of an underutilized transportation asset reduces the investment

required for same-day delivery.

The biggest challenge to offering free home delivery of pizza is the relatively low value of an order

placed at a restaurant like Domino’s.

3. What are the characteristics of businesses that can succeed with same-day delivery? Can Amazon,

Walmart, or Instacart succeed with same-day delivery? Who is likely to do better? Why?

TN2).

Table TN2:

Amazon

Walmart

Variety

Higher

Lower

Number of facilities

Lower

Higher

Potential for postponement

Low

Does home delivery reduce footprint?

Not at a DC

Potentially allows better use

of back room at a store

The fewer facilities in the Amazon network increases the average delivery distance. The greater variety

will hurt inventory if Amazon increases the number of facilities. Home delivery does not reduce the pick–

pack operation at Amazon and adds a pick-pack at Walmart. If same-day delivery is based on a cutoff time

With Amazon’s recent acquisition of Whole Foods, Amazon may become more effective for home

delivery of groceries, as well as semi-cooked (in direct competition with Blue Apron and the like) and fully

cooked meals.

Amazon is the use of lockers positioned at physical locations such as Seven-Eleven stores (see Figure

There will always be a convenience-seeking set of customers who value responsiveness in delivery and

are willing to pay for this service. For this set of customers, a third party such as Instacart may succeed.

Figure TN2: Home Delivery Success Factors

Another factor that can make a difference is a dynamic delivery fee that can be used to drive customers

into time slots to level load the delivery effort and get good utilization.