The COVID pandemic was the most important thing to happen to logistics and supply chain management since the invention of the truck. There's a problem, though, and it isn't a new one: last mile delivery, the silent killer of supply chains.
In just the first year of lockdowns, home delivery jumped by 43%, from $571.2 billion in 2019 to $815.4 billion by year's end of 2020. The next year saw even bigger gains (past $1 trillion!) as people got used to home delivery of everything from groceries to new cars.
Last mile delivery has never mattered more. Yet, it can be one of the largest expenses in your shipping and delivery process, eating up your profits.
In this article, we'll explain what last mile delivery is, how it works within the supply chain, the challenges it poses for ecommerce businesses, and how improved last mile logistics can help solve these problems.
What Is Last Mile Delivery?
Last mile delivery is the crazy cost of moving things that last mile (or three) from the warehouse to the customer's front porch. Because people's houses aren't optimized for logistics like distribution centers and transportation hubs are, and very few customers order groceries by the metric ton, you lose basically all your economies of scale reaching the customer.
Looking At The Supply Chain From Front To Back
Let's say you live in China and you want to sell iPads to Americans with disposable income, how would you do that?
For convenience and cost savings, you might put your assembly plant right on the dock in Shanghai and load cargo containers from your warehouse onto big cargo ships. So far, so good, since the average cost per mile of ocean shipping from Shanghai to Long Beach is about $0.80 per nautical mile or $4,800 on a container holding 10,000 iPads worth $10 million.
When the ship gets to Long Beach, the container clears customs and gets put on a train to Walmart HQ in Arkansas, a 2,000-mile trip on a stack train costing another $5,500, or $2.75 per mile. Less efficient but still good since those iPads are valuable, and getting them to a distribution center in Bentonville has only cost $10,300, or 1% of their sale price so far.
Now a truck will haul the packages to and from the warehouse, out to a shipping fulfillment center in Little Rock, at a cost of maybe $3.25 per mile, or more likely $4-5, since a truck only holds 5,000 iPads and you need two trailers at least.
Here comes the last mile delivery problem.
When a customer orders their new iPad through ecommerce on Amazon Prime or directly through Walmart online, a single box has to be driven to their house, which may be in the rural areas of eastern Oklahoma and far from the major trade routes, if you will. That drive is a killer since it's going to be done by third-party logistics providers like USPS, FedEx, or UPS.
The retailer might also use DoorDash, Uber, or another gig economy delivery service that also does food delivery and pays roughly $13.50 an hour in urban areas.
Challenges Of Last Mile Delivery
You can see the problem here.
At every stage of the supply chain, your delivery service is traveling a shorter distance at a higher cost until you get down to the level of real-time order fulfillment, which is the least efficient way possible to get inventory into the customers' hands. Everything you do during the last mile delivery process to improve the customer experience only drives up the total cost.
Free shipping to rural areas? More expensive.
Next-day or same-day delivery? More expensive.
On-demand and fast delivery? More expensive.
Drop-off service, environmentally friendly delivery vehicles, locally recruited bicycle couriers? All more expensive.
This is even true of cost-saving measures you would usually expect to reduce inefficiencies and save you money on last mile delivery costs.
If you want to develop more efficient routes, build more automation into the delivery process, or outsource to local startups or logistics companies with more experience than you have, all of that costs more. If you build out more distribution centers to improve your warehousing plan, you've got more carrying charges.
Whatever you do to improve the delivery experience inevitably drives up pricing for your last-mile shipping costs.
Externalizing Costs Back In The Good Old Days
Before the 2020 boom in consumer demand for home delivery, customers solved the last mile problem for you by just driving to the store.
Technically, this didn't actually make the problem go away, but it did externalize the cost of final mile delivery in a way that basically nobody minded. At least, most people took for granted that if they wanted a product, they had to drive out to get it.
All that began to change with the rise of online shopping. Ecommerce services like Amazon Prime and eBay really had no other way to get a product out than to drop it off at the customer's house. This put the last-mile delivery experience into every purchase, not just pizza and Chinese food like before.
As far as delivery logistics go, this was actually the dark age for solving the last mile problem. Last-mile delivery services were actually getting the worst of both worlds by having an international logistics infrastructure set up for bulk shipping to retail outlets meant for customers, only to be stretched thin by new customer expectations of factory-to-door delivery.
Last Mile Logistics Return With The Pandemic
The pandemic didn't change everything overnight, but it did speed up a lot of trends that were blowing in the wind before.
When everybody in the Western world was scared to pick up their groceries from the store, retailers basically had no choice but to tackle the last mile delivery problem head-on.
Big retailers started hiring dedicated delivery companies to handle their drop-offs, while smaller businesses grabbed an employee or two to deliver sandwiches and sodas on the Pizza Hut model, usually free of additional charge. That left them eating those delivery costs, of course, but with lockdowns being what they were, these impromptu delivery operations were basically a cost of customer satisfaction.
When every industry in the world suddenly has a new cost of doing business, one that eats into profits and market share the way last mile delivery services do, it goes without saying that somebody somewhere will be working on more efficient delivery solutions.
High-tech delivery drones briefly made a splash in the news. Yet, it turns out the FAA has a problem with letting tens of thousands of independent flying robots buzz around residential areas and the controlled airspace close to airports. With that approach basically off the table (for now), customer-facing businesses started zeroing in on other fixes for delivery.
Some of the most productive solutions so far have come out of almost random tinkering with regional approaches to urban and rural deliveries, flexibility with delivery time, and investments in various upgrades that had never been pressing enough before to justify the cost.
1. Relocating warehouses
The most graceful solution to the last mile delivery problem is to eliminate it or to get as close as possible to that.
Retailers and delivery companies did a version of this by relocating a lot of their warehouse capacity to get closer to their delivery addresses. Instead of the very efficient huge warehouses separated by hundreds of miles, which had been the model before, now companies making deliveries, led by Amazon, were opening smaller facilities on the cheap, located in the suddenly empty strip malls all over suburban America.
This made for smaller fulfillment centers, but it allowed lots more of them, and now the typical delivery could shrink from several miles to just around the corner.
2. New technology (seriously)
New technology is a kind of superstitious approach to solving business problems, as if the magical problem-deleting machine will ever be invented.
Tech does have a place in delivery logistics, however, especially if it's replacing clunky old delivery fleets that haven't fundamentally changed since the '40s.
New systems for invoicing, dispatching, and packing are being tried out, not to necessarily make the problem easier to solve but to reduce costs enough everywhere else to make the delivery costs more bearable.
3. Dynamic vehicle routing
Dynamic vehicle routing can feel like brain surgery, but with enough computer memory and good software, you can do it.
In this kind of system, delivery drivers will roll out with their assigned loads for the day, basically last night's orders, and try to hit all their stops. As they work, orders keep rolling in.
To keep up, delivery trucks rolling to a delivery that passes close to a pickup location will be diverted to grab a customer's order on the way and maybe have a surprise same-day delivery for a customer who only just ordered their item.
4. Real-time customer communication
When all else fails, just tell the truth.
Customers feel enormously less frustrated by delays and delivery troubles if they know what's going on. That's why Walmart, DoorDash, and several other delivery companies have a widget on their apps that let customers see their item rolling toward their address on a Google map.
While it's honestly not 100% accurate, actually seeing the little van icon turning onto your street actually makes people feel better and complain less.
5. Better delivery tracking
All this depends on better tracking, from dynamic routing to little van icons.
GPS in vehicles or even just using drivers' own phones as tracking devices allow for eyes-on-target monitoring for the whole trip—which is one of those innovations everybody knew they'd do sooner or later, but only became universal when everything had to be last-mile delivered.
It’s Up to You to Help Deliveries Cross the Finish Line
That leaves you, the overworked ecommerce logistics manager dealing with last-mile delivery issues in real time.
All of the solutions we've gone over are potentially open to you, from contracting out your deliveries to others to investing in new vehicles and even moving your warehouses around. All it takes is smarts, though.
In modern logistics, those smarts come from clever software that can improve your order and shipment tracking processes. We wrote about many of the apps and delivery services you can use to manage your last-mile delivery problems, and we regularly update our lists to keep you informed about what's going on in logistics.
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