Last mile might be the latest buzzword (or buzzwords) in logistics, but not without good reason. If your company is trading in the fast-paced arena of omnichannel retail, this is one buzzword you really need to pay attention to. Perhaps the most important question to ask yourself is “Do we want our last mile services to compete on price or quality?” and the one question you should never ask is “Do we want our last mile services to compete?”
Everything Leads to Last-mile Performance
One way or another, the success—and perhaps the survival—of your business is going to depend on keeping your customers happy. If your service involves delivering to them at home, then trust me, the last mile will play a huge part in your ability to compete.
Now before you write off my statements as something you already knew, here’s a fact you might not be so familiar with: For your last mile services to compete successfully, you need to ensure that your entire supply chain (or at least the parts you can reasonably control) is set up to support a winning last-mile strategy. That’s what you’ll find covered in this post. We’ll explain how to use your supply chain to improve your last-mile delivery service and make sure it differentiates your retail business from its competitors, depending on whether you plan to compete on cost or quality.
Quality or Cost and What does it Mean?
Before getting into the issues proper, we should probably take some time to consider what it means to compete on quality or cost in the last mile. For example, what is meant by quality? High quality in the last mile might mean high speed, in which case you could be looking at deliveries made on the day of order or at least within 24 hours of order. If so, you’ll need to consider whether you will pass the costs of high-speed delivery on to the customer as shipping charges or absorb them in the retail price of your products.
On the other hand, quality might refer to delivery execution and whether your customers’ goods are dropped at the curbside, delivered to the door, or if extra services are included (such as installation of white goods or setting up of TVs and similar electronics). If you’re competing on cost, then you might need to get products to the customers’ doors without charging shipping fees, or perhaps you’ll stop short of home delivery and ask customers to pick their purchases up from a storefront or some other predefined point (we’ll discuss some related concepts, like smart-lockers, later).
These decisions all require steps to be taken throughout the supply chain to support them. It’s not just about the logistics providers you work with or whether you insource or outsource your distribution. You need to start with the service levels and costs of last-mile delivery, then look all the way back up the supply chain and ask what must be done to enable your strategy. If this sounds obvious, you’re probably already a step ahead of your competitors, many of whom make the mistake of considering the last mile… well, last.
Let’s Look at the Last Mile First
To help you make sure you consider the last mile first, we’ll do just that in this guide. Let’s begin by considering the assets involved in negotiating the last mile and putting your products into customers hands. Strangely enough, the asset that matters most here is the one which retailers often overlook completely—the human one.
The Human Touch
Your products are not delivered by a truck (although autonomous vehicles may not be far away from becoming an operational reality), or a motorcycle, or a bicycle. They are delivered by a person. This person is actually the face of your business, and if your business operates exclusively online, may be the only face your customer will see. With that in mind then, will you work with 3PL companies to get your products delivered? Are you prepared to trust in the customer-service promises of parcel and postal carriers? Or will you own the last mile operation (and its assets) yourself.
Much will depend on the size of your company, the geographic scope of your market, the nature of your products, and the capabilities of your business.
If quality forms the basis of your last-mile strategy, you might prefer internal asset-based operation, with delivery personnel under your company’s direct control. If scale is sufficient, it’s possible that this may also be a less expensive option too. Certainly Amazon’s decision to start cutting out last-mile middlemen seems to be both about control and cost.
Some Benefits of Last-mile Asset Ownership
Let’s stick with the quality factor for now though. If your company employs and manages its own drivers (or motorcycle/bicycle couriers), you can ensure direct control over the customers’ experience when their goods are delivered. This can actually be a huge advantage in the race for hearts and minds, especially if your drivers have a brand “code” to follow in their customer interactions. With your own delivery personnel, you also have the opportunity to monitor, measure, and manage the way their time is spent at each stop on the delivery route. This is something that often gets missed by companies with in-house fleets, as management attention tends to focus on vehicle rather than driver performance.
But what if fleet ownership isn’t practical? Your options will be to work with LTL or parcel carriers, or contract with one or more 3PLs for your last mile transportation.
With a 3PL, you may be able to gain a reasonable degree of control over driver behaviour if you negotiate a contract that includes appropriate customer service commitments from the logistics provider. If you choose the LTL/parcel option, the best you can do is try to work only with carriers that have a solid reputation for customer service.
Shortening the Last Mile
If your objective is to offer low cost as your last-mile differentiator (and you don’t have the scale to own your own assets), then you’ll need to consider whether carrier contracts or a 3PL partnership would offer the best opportunities to get your costs down.
Managing the people who make your deliveries won’t be an option, but if it’s any consolation, your service provider is very likely managing its drivers with an emphasis on cost-consciousness.
Of course it might be possible to reduce last-mile delivery costs while also addressing driver-management concerns, although the necessary technology and conceptual expertise is only just beginning to gain a foothold. I’m talking here about the possibility of asking customers to meet you halfway and collect their orders from secured (access by password) shared reception boxes or lockers located in public areas or commercial facilities local to their homes.
Similar options might include click-and-collect type services, especially if you’re operating a brick-and-mortar retail operation as well as selling online.
The beauty of these non-home-delivery services is that you can reduce transport costs by delivering to fewer individual locations and also eliminate many concerns about the way drivers represent your business. Cost-wise, a format that involves customers sharing the last-mile effort can help you control both the labour and vehicle costs impacting your operation.
Trucks and Other Types of Delivery Assets
The day may soon arrive when human assets really become less important than the mechanical equipment at your company’s disposal. However, drones and autonomous vehicles are still little more than a brightening glimmer on the horizon, so for now, you need to consider drivers and how they impact your last-mile costs and quality. Meanwhile, mechanical assets, whether your own or outsourced, also have a profound impact on last-mile performance. Without them, you have no service and no business. With them, you incur costs.
The name of the game is to balance the cost of transportation with the level of service you want to offer your customers. If your company chooses to own delivery assets, nothing is more important than selecting the right type of vehicles for your purpose. More now than ever, what that really means is the right combination of vehicles, since urban restrictions and increasing congestion make it hard to use the same equipment on city routes as you might use in the suburbs or the countryside. In fact, choice of vehicle is more important than you might think, even if you’re outsourcing last-mile services to a 3PL.
Choosing Asset-based Service Providers for the Last Mile
Try to choose a 3PL that can commit not only to a mix of city-friendly and larger vehicles to deliver your products, but also one that can offer flexibility in the mix. This is easier said than done, but if you can find a provider that’s a similar sized business to yours, you may be able to negotiate as a large customer and gain more asset commitment than you might from a large 3PL.
Similarly, it will pay to look for providers that specialise in the types of freight that your company wishes to ship.
If you sell products that take up a lot of space and require the aid of mechanical handling equipment (like tail lifts), a carrier or 3PL specialising in heavy deliveries may be able to offer you more attractive pricing than one which handles a mix of freight. You may also enjoy better on-time performance with such a specialist, since its trucks won’t get filled up with lots of small, time-consuming deliveries.
Is Bigger Better, or is Smaller Sweeter?
It’s also important to remember that in the retail space, deliveries tend to take longer than those made to business premises. Consumers don’t typically have unloading docks or parking spaces for trucks, and they are more likely to be absent when their deliveries arrive. In fact, one LTL operator in the United States found that residential deliveries take 100% longer on average than those made to commercial premises.
That’s another good reason to find a partner equipped specifically for retail last-mile work. Of course, if you can get your shipping nodes really close to your customers—as may be possible in urban conurbations—and your products and orders are small enough, you might wish to consider alternatives to heavy, fuel-guzzling commercial vehicles.
Motorcycle and bicycle couriers for instance, are becoming more and more suitable for getting deliveries quickly through city zones in which larger vehicles are often gridlocked to a standstill.
Indeed, the proximity and density of your customer-base will play a large part in your last-mile cost and/or quality objectives, so we’ll move on now and take one step up the supply chain, to the base/s from which you fulfill your online retail orders.
Repurposing the Warehouse… Literally!
If your entire supply chain is to support last-mile services effectively, you might need to consider (or reconsider) the true purpose of your warehouses, whether they belong to your company or are owned and operated by third-parties.
If your current strategy involves the use of warehouses to store inventory at the lowest possible cost, there’s every chance that your network isn’t well-suited to efficient last-mile services. The nature of omnichannel retail is one that favours more rather than fewer warehouses and requires the placement of inventory as close as possible to the densest customer concentrations.
This doesn’t necessarily mean that you need to completely revamp your distribution network. There are ways to make smart use of your own facilities, and those available for you to rent or lease.
For example, you could make use of a double hub-and-spoke approach to distribution. This might involve the use of your own retail outlets (if you have them) as final staging posts for online orders. By trucking these orders in with your regular retail deliveries, you can cut down the costs involved in delivering smaller orders to residential addresses. If you don’t have local retail outlets, you may be able to use urban distribution facilities run by third parties to serve the same purpose. Cross-docks are your best friend for last mile efficiency, especially if you already have an established hub-and-spoke distribution network in place.
Read More: The Future of Retail Supply Chain
Exploiting the Growth in Urban Warehousing
On the other hand, if you’re starting a distribution network from scratch, you might want to consider the use of numerous urban warehouse facilities at which to store and stage your inventory for consumer home delivery. With this distribution model, your products would be shipped straight from the production site to the network of urban warehouses, and from there to your end-customers.
This could prove cheaper than using one or more large distribution centres and would help you to minimise lead times if fast delivery is part of your differentiation strategy. As more and more 3PLs decide to cash in on the last-mile explosion and brick-and-mortar retailers find it harder to compete with online business models, we’re likely to see an increasing number of retail stores turned into small urban warehouses.
This could be good news for smaller online businesses looking to decrease last-mile delivery costs and improve the speed and responsiveness of their supply chains. If you’re really not sure about how best to optimise your distribution/fulfillment centres and warehouses to support your last-mile strategy, it might be a good idea to draw on external expertise from a consulting partner—one who can help you analyse your current distribution network and execute some modeling to determine an optimal solution.
Manufacturing and Supply for the Last Mile
Is your company a manufacturer? Or do you sell goods that are customised from a base-product? If so, you can possibly optimise the manufacturing process to improve inventory management and make your omnichannel retail operation more cost-effective. The best way to do this is through postponement practices. To reduce the number of SKUs you carry in your last-mile distribution points, you may be able to work with a postponed fulfillment strategy. This would involve a final stage of manufacture (typically assembly or kitting) at the very last moment before individual products are shipped to your retail customers.
This form of postponement, commonly known as “manufacturing postponement” can be applied to many types of products, but in ecommerce, is best reserved for items that need only light customisation, such as labeling or external packaging, in which case it can be more correctly termed as delayed differentiation.
Beyond the Customer’s Doorstep
Thus far we’ve been journeying up the supply chain from the point of delivery, but if you’re using service quality as a last mile differentiator, you might wish to look at extending your supply chain activity beyond the customer’s front door. For example, it’s common for deliveries of white goods and other large articles to include a “white glove” service, which typically involves delivery to the customer’s point-of-use, installation, some basic usage instruction, removal of packaging and in the case of appliances, removal/recycling of the unit that’s being replaced.
However white-glove services are beginning to infiltrate the last mile in other product categories too, as retailers seek to compete through enhanced levels of service.
If your company sells anything that requires a bit of TLC in handling or requires assembly, you can consider offering white-glove deliveries. However, it’s a service you might not wish to get into if you’ll be relying on carrier services, although the number of operators specialising in this type of delivery service is on the rise.
When the Last Mile Becomes the First
Regardless of your service standards, your supply chain should be optimised for reverse as well as outbound logistics. Consumers receiving home delivery like to pick and choose what they keep and what they send back to their vendors, so a streamlined returns service is a prerequisite for success with online sales.
It’s not so much that customers care about how returns are moved back through your supply chain (as long as they can shift unwanted products off their hands easily and get their money back), but reverse logistics can add considerable expense to last-mile operations, which in any case can make up as much as a third of your total transportation cost.
For that reason alone, it’s vital to build as much efficiency into your reverse flow as possible. After all, with nearly half of all retailers offering free return shipping, it’s probably unrealistic to try and make consumers shoulder the financial burden of reverse logistics. Similarly, while it’s essential to focus on the quality of outbound products, it’s not realistic to expect a reduction in returns in markets where most returns comprise perfectly good items which were ordered on an “approval” basis by your customers.
So how can you optimise your last mile operation for returns. It’s a complex topic indeed, but it’s worth investigating some of the following possibilities:
- Separation and centralisation of reverse logistics
- Outsourcing your reverse logistics as an entire process
- Processing returns using a rules-process with reason codes
- Reduction of touches in the reverse logistics flow
Remember too, that what isn’t measured can’t be managed, so if you want to get on top of the reverse logistics process by identifying inefficiencies and implementing improvements, you should develop some appropriate benchmarks and KPIs. Of course, performance measurement is a prerequisite for success in both directions of your last-mile logistics, so that’s what we’ll look at next.
Measurements for Last-mile Success
As with any logistics activity, retail distribution and the processes that support it must be measured. The perfect order metric is ideal for keeping an eye on end-to-end service and cost performance, but for the last mile, you might want to implement a few metrics of specific relevance.
The following KPIs can be useful if you own your own delivery assets and can also be used as part of a service level agreement with a 3PL:
- Fuel consumption per vehicle/driver
- Planned kilometres versus actual kilometres driven
- Number of deliveries per route
- Deliveries made on-time, as a percentage of total deliveries
- Percentage of vehicle capacity used
- Percentage of fleet capacity used
- Vehicle operating costs per kilometre
- Driver hours (stationary and in motion)
- Total costs per kilometre (driver, vehicle, and fuel)
- Total number of legs per trip (a leg being the journey from one stop to the next)
- Average distance per leg
- Average distance per trip
- Average time spent at each stop
- Number of stops (actual versus planned)
Other metrics can be used to identify how well your supply chain supports your last-mile strategy. The most important measurement areas include inventory accuracy, cost per order filled, forecast accuracy, and product cycle times. For your reverse logistics flow, KPIs could include any of the following metrics:
- Percentage of product value recovered
- Transportation and handling costs per returned item
- Distance travelled per item
- On-time pickup performance
The metrics and KPIs described here are of course, fairly generic. They may or may not be suitable for your company’s operation, so I encourage you to treat them only as a guide and perhaps some inspiration for developing your own portfolio of last-mile metrics.
Get the IT Team Involved
The last-mile logistics explosion is born of technological advances which allow consumers to shop from home with ease, and it’s going to be hard to compete with all the other players in the space without the help of advanced technology. This is especially true if your company owns or leases an in-house fleet and employs a delivery workforce.
Optimised Loading, Routing, and scheduling
Perhaps the most important application of information technology in last mile delivery is a dynamic route planning and optimisation platform. The routing and scheduling modules built into ERP and TMS solutions are rarely sophisticated enough to meet the needs of large omnichannel sales organisations, which typically have to accommodate a continuous stream of fresh customer orders into route plans, and provide customers with a range of delivery options. If the last mile is to be a successful value-added activity for your customers, you should seriously consider investing in a best-of-breed scheduling and optimisation solution.
Visibility Adds Value
Spoiled by technology-driven services in the personal transportation space such as Uber, consumers are becoming accustomed to total visibility into service delivery. They want the ability to see exactly where their purchases are in real time, from the moment of ordering until their goods arrive on the doorstep.
This requires the integration of dynamic route optimisation with comprehensive tracking technology, enabled by vehicle telematics and/or mobile technology in the hands of delivery personnel.
While real-time visibility is the ideal, your company should at the very least be able to offer alerts informing customers when their orders reach certain points in the delivery process. Finally, at the point of delivery, the cost and quality benefits of electronic proof-of-delivery solutions simply can’t be ignored. It’s probably fair to say that there’s no place for paperwork in your last-mile delivery system if you plan to use it as a driver of competitive advantage.
The last-mile technology space is full of disruptive developments, including futuristic concepts such as delivery drones and autonomous vehicles, all of which are worth keeping an eye on.
However right now, your IT budget is best invested in software to make the most of the operational assets at your disposal and to give your customers maximum convenience and visibility into your outbound supply chain. If you don’t own distribution assets, you may not need to go overboard with the IT side of things, but you’ll be wise to select a provider that’s technology-driven and can give you/your customers access to real-time shipment tracking at the very least.
The Last Mile is the Last Frontier in Retail
Home delivery to consumers is really nothing new, but the sheer scale of the market and the fact that it has become an expectation rather than an extra means your company has little to gain from sitting out of the last-mile race. You might choose (as some retailers still do) to manage last-mile services as a cost to be borne and hence do the minimum to meet customer expectations. But the companies succeeding in omnichannel retail are the ones turning home delivery into a value proposition.
Hopefully this post has given you some ideas if you plan to compete in the last mile, either on cost or on quality. We’d love to hear about your own experiences with the omnichannel retail revolution though, and how your company is tackling the tricky conundrum of last mile differentiation, which could well be the final frontier in retail commerce.