Customers rarely stop and think about all the works that go into making the supply chain tick. It may very well be true that customers only care about the last mile—the final phase of the supply chain: After I hit "place order", how fast, how timely, and how much it costs for the parcel to reach my hand?
This article will address some big questions of last-mile delivery: what is it? How does it work in an eCommerce environment? What are the factors determining last-mile optimization? What challenges does it cause? And what technologies to adopt to improve last-mile capabilities.
What is Last-mile delivery?
As the last phase of the supply chain, last-mile delivery deals with the movement of goods from retail stores or storage centers to the customers' preferred delivery destinations.
A supply chain normally has 3 phases. Last-mile delivery is the third, and also is the last.
The other two phases that precede last-mile delivery are:
(1) the first mile, where goods move from the manufacturing factory to the distribution center or warehouse; and
(2) the middle mile, where finished goods move from warehouses to retail stores, ready to be sold.
A typical flow of Last-mile Delivery in eCommerce
A last-mile delivery journey usually has 5 steps, in which one step triggers another.
Step 1: Customer placing an order.
Step 2: Goods moving from the warehouse.
Step 3: Order arriving at the distribution center/warehouse for order processing.
Step 4: Order being allocated to a suitable driver for delivery.
Step 5: Order being delivered to customers’ preferred delivery destination.
Simple as it may look, last-mile delivery poses several challenges to businesses trying to optimize it.
Challenges involved in Last-mile Deliveries
Several reasons make last-mile delivery a pain to businesses that rely on it, including (1) high cost, (2) high customer expectation, (3) complex address location, (4) poor transportation infrastructure, (5) inefficient route planning, (6) unexpected events during transit, and (7) product return.
Last-mile delivery is the most expensive link in the entire supply chain. It accounts for up to 28% of total distribution costs. All the costs involved in this last mile are volatile and different to control. There are fuel costs, labor costs, reverse logistics costs (incurred when a customer returns products), replacement costs (when customers replace one product with another), and so on.
To attract customers and improve buying power, businesses are absorbing—partially or completely—last-mile costs, instead of passing these costs to customers as delivery fees. It is thus a challenge as to how they can reduce last-mile costs while maintaining healthy profits.
Last-mile delivery is where a brand interacts directly with its customers. How good or bad customers feel in this stage largely determines how good or bad their overall shopping experience is.
Businesses offering a poor last-mile experience would hurt their reputation as poor customer service.
According to Capgemini, when a customer feels good about the delivery service of a given brand, chances are he will spend more on this brand and will try its other products.
Magento—an eCommerce business—recently reported that 19% of failed deliveries are attributed to customers providing inaccurate addresses. Address inaccuracy could be the result of either that customers mistype the address, or that the address itself is ambiguous.
Failure to locate the accurate addresses and their coordinates does not only leave delivery agents idling—which increases fuel costs—but also prevents them from shipping the parcels on time.
The United Nations predicted that 68% of the world’s population will live in urban areas by 2050. People flocking to major cities—a phenomenon generally referred to as urbanization—have caused severe traffic congestions and degraded transportation infrastructure. This adds to the complexities of planning last-mile deliveries.
Route Planning and Optimization
It can be theoretically assumed that the shortest route takes the least time and cost. However, in last-mile delivery, the shortest route is not necessarily the most efficient in terms of delivery time and cost.
In real life, several things can prevent delivery agents from delivering parcels in time to customers.
Planning for optimal routes becomes even more complex when businesses attempt multi-stop deliveries, where they try to deliver multiple parcels to multiple points in one route, at the lowest cost and in the shortest time possible.
There are a lot of unpredictable problems that can take place during delivery. They badly affect the estimated time of arrival. It could be that drivers cannot reach customers, even when they have come to the right address. Customers may be in an important meeting, or they have urgent work to do.
Other unpredictable events can happen during the delivery, that the road is under construction, temporarily banning vehicles.
Product Return is a part of the delivery business. There are many reasons for customers deciding to return products after purchasing. Buying from the web, people cannot touch, feel, or try the product on for size. Another reason is that the products have "defects".
The 4 success factors in last-mile operations
Speed, Efficiency, Transparency, and Personalization are the 4 pillars of excellent last-mile fulfillment.
Speed: The ability to offer fast delivery
Retailers and eCommerce sites are competing on speed of delivery to attract customers. And the reason is clear: people now seem unable to wait for their orders; they want faster and faster deliveries.
To meet this expectation for express delivery, more businesses have offered same-day and next-day deliveries.
Consumers are also ready to pay extra fees if deliveries are faster, as in same-day or next-day deliveries. In a survey by PwC surveying consumers in Southeast Asia, 60% said they are ready to pay the extra charge for same-day delivery.
Efficiency: The ability to efficiently execute every touchpoint in last-mile delivery
There are several touchpoints to a last-mile delivery journey. Each of those touchpoints must be handled flawlessly to maximize last-mile efficiency.
Critical last-mile touchpoints to account for include inventory management, order dispatching, route planning, rider allocation, order delivery, and product return. Any touchpoint being handled poorly could impact the overall last-mile delivery experience.
Transparency: The ability to let customers keep track of order status in real-time
Customers want to know what happens to their orders throughout the last-mile delivery journey: where my order is, what stage of delivery is it at, and who is handling it?
The status of the order should be informed and notified to customers in real-time until they receive it. When customers can keep track of the order status, they gain the peace of mind that their orders are being processed professionally, and will come to their hand in time.
Personalization: The ability to tailor delivery services to customers’ personal preference
Personalized delivery is a new standard. Many retailers and e-commerce sites are offering convenient delivery time-slots, where customers can choose the time most convenient for them.
Some others have introduced preferred places of delivery, allowing customers to choose a specific place—that is not necessarily their home, such as a convenience store, to pick up the orders themselves.
Under the COVID pandemic, there is also contactless delivery. If customers choose this option, the shippers/riders will leave the parcel (wrapped with a special kind of bags) at the customers' doorstep, let the customers know the parcel has arrived by knocking the door or texting messages, and then the shippers/riders leave.
Smart technologies for last-mile operations
Manually planning the last-mile takes time and is especially prone to errors. Logistics planners can spend hours gathering order data, planning deliveries, and assigning deliveries to suitable agents. Also, they sometimes fail to account for real-life constraints such as traffic congestion that directly impacts last-mile delivery.
How to locate addresses accurately remains a challenge inherent to last-mile delivery. Customers sometimes provide unclear addresses that lack vital information. Other times it is the official address that is unclear, as commonly is the case in remote areas..
Geocoding can be the solution. It uses Machine Learning algorithms to turn fuzzy, ambiguous texts into precise coordinates (latitude/longitude).
Using geocoding, there is less distance to travel and less fuel to waste. Riders can reach delivery destinations faster and increase their First-Attempt Delivery Rate (FADR).
Route Optimization finds the most cost-effective route after testing (1) what-if scenarios, (2) analyzing historical data, and (3) taking into account real-life constraints, such as traffic congestion, vehicle & driver availability, specific time slots, etc.
The goal of Route Optimization is not only to automate route planning but also to minimize errors.
Intelligent Parcel Sorting
Smart parcel sorting segregates parcels according to attributes such as size, nature, delivery area, etc. This technology automates the parcel sorting process, reducing nearly all human intervention.
Overall, intelligent parcel sorting helps to increase the accuracy and speed of shipment planning.
Rider allocation usually goes hand-in-hand with route optimization. It automatically assigns delivery orders to the most ideal riders, taking into account riders' attributes such as their tribal knowledge, area preferences, and delivery expertise.
Enhanced Last-mile Visibility
On the one hand, real-time fleet tracking helps managers keep track of everything that happens on-ground and push live notifications if there is any deviation from delivery plans. This way, it provides a real-time view of day-to-day activities.
On the other hand, it helps customers stay informed on their order status, so they have real-time visibility of when, where, and how their package is handled. This way, it improves the customers' delivery experience.
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