Retailers are in a race to offer faster and faster delivery speeds.
The world has come a long way since Jeff Bezos set the then-lofty goal of two-day delivery for Amazon Prime customers about two decades ago.
Now delivery appears to be converging on the Holy Grail speed of 30 minutes or less, especially in overseas markets like India and China.
In the US, Walmart, Amazon, and Target are competing to see who can get orders fulfilled the quickest. Walmart US CEO John Furner touted the company’s achievement of a five-minute fulfillment earlier this year.
But these single-digit milestones are probably not going to become the norm anytime soon, supply chain consultant Ralph Asher told Business Insider. As it turns out, some very real physical and financial limits start to come into play at ultrafast speeds.
“You need more and more expensive equipment to do it, you need more and more inventory, you need more and more real estate, you need more and more drivers willing to drop everything at a moment’s notice to do delivery,” he said.
Asher, who previously handled supply chain strategy for Target, developed a model to illustrate the mapping challenge of shifting from next-day delivery to 30-minute delivery.
In his example, Asher found that a company would need at least four fulfillment stations in the Minneapolis-Saint Paul metro area to promise 30-minute delivery to 95% of the population.
After speaking with Business Insider, Asher re-ran the model with a 15-minute delivery goal and found that a company would need 31 fulfillment stations.
“There’s a natural upper limit to what you can do without building more facilities,” he said.
Perhaps more striking is the effect on the inventory that retailers would have to carry.
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“One of the big trade-offs in supply chain design is the more facilities you have, the closer you are to your customers, but you’re going to have more inventory,” he said.
In the model case, cutting delivery from 30 minutes to 15 minutes required nearly three times as much “safety stock” or inventory held to ensure items are available when customers order them.
“If you’re talking about perishable things, if we’re talking about putting milk in 45 locations, well, you better sell that milk, or else,” he said.
If analyst questions on retail earnings calls are any indication, those steeper inventory costs could prove to be the real dealbreaker for any company contemplating ultrafast delivery.
Wall Street has not rewarded companies that aren’t extremely disciplined about the level of inventory on their balance sheets, and retail executives take great care to assure investors that they are doing everything in their power to keep exactly the right levels at all times.
Of course, that’s not really a problem for delivery companies like Instacart and DoorDash, which don’t have to take ownership of the inventory that is sold on their platforms.
But for companies like Amazon, Walmart, Target, and more that do sell their own merchandise, it looks like the sheer physical and financial demands of making a 15-minute delivery promise could vastly outweigh any benefits they might hope to see.
Asher estimates it would take him about 20 minutes to dash out to a nearby store for a last-minute item — a task that would also entail figuring out what to do with his kid — so waiting another 10 minutes (or less) is a more worthwhile trade.
“There is a segment of people who will pay quite a bit of money for that convenience,” he said.
But he’s not sure if people will pay up for the cost of delivery in half that time. “There’s just probably not as much of a market for anything under 30 minutes.”
