What is Last-mile Delivery?
The last-mile delivery refers to the last of the product in a transportation life cycle. In other words, the transportation of a physical product from the nearest hub to the final destination is called last-mile delivery.
The nearest transportation hub determines product delivery from the closest warehouse facility to the customer. Primarily used by all delivery businesses, last-mile delivery is considered the most cost-consuming part of the transportation cycle.
How Does Last-mile Delivery Work?
Fulfillment is a critical factor in a profitable business. Successful completion of the last-mile delivery indicates the execution of a successful order.
Every stage in the transportation cycle is divided into several steps to ensure fluid movement. While such processes allow effective cost allocation, one might witness possible risks during transit.
The sub-stages comprising the successful execution of the last-mile delivery are mentioned below:
#1 Processing orders
Once an order is received at the nearest hub, the recipient and seller must confirm the quantity and product. As per the universal product code (UPC), the products are scanned in a centralized digital system. The hub updates a product list with all the required information in the system, and future processes are carried out once the seller gives a green signal.
The time required to complete this process varies per the number of shipped products. In this step, the nearest hub must validate certain information, such as the customer’s delivery address and contact information. The seller needs to ensure that the quantity and product description received and updated by the hub match the initial numbers.
#2 Delivery planning
Next, the recipient at the nearest warehouse sorts the products per specific location. Since a single courier carries out the last-mile delivery, the orders are grouped based on set criteria.
In most cases, the city is divided into smaller sub-sections, which are further allocated to a specific delivery executive. The addresses of the received products are sorted as per the mentioned details and a delivery executive is assigned, along with a specific date.
#3 Dispatching deliveries
The idea of resource pooling has been well implemented in the transportation business. It allows the formation of several stand-alone warehouses in every well-connected city. Owing to this fact, one can easily understand that such warehouses always deal with a high workload.
After the delivery of a product is planned, certain factors such as the availability and delivery schedule of every takeaway personnel, are re-evaluated. In the case of a nearby location, the products are accommodated within a preset delivery schedule.
However, in the worst-case scenario, a new delivery schedule is made based on the number of processed orders received by the hub. This sometimes results in extending the transit time for specific products.
#4 Picking up and scanning orders
Per the delivery schedule and the resonating locations, the products are grouped and ready to be picked up by the courier. Along with the products, the courier also receives a list of the products with details such as the buyer’s name, address, contact number, and any information required to successfully execute the last-mile delivery. Once the courier sets out for the final delivery phase, a message or an email is sent out to the buyer stating the required facts.
Some companies have further improved this process by including a live tracker. While being touted as a handy feature, the buyers can acquire better transparency, like the seller himself.
#5 Order arrival
Once the courier reaches the location, delivery personnel are required to establish contact with the buyer. They can use the given contact number to contact the buyer.
Once the buyer receives the product, they must sign the delivery slip per the UPC norms. The signature marks the completion of the product delivery cycle. However, every customer has the right to unpack and check the product for possible defects before signing.
If a courier fails to contact the buyer, they must wait for some time before resuming the delivery schedule. Even so, this does not mean the delivery has failed. Delivery personnel must try the next day again while sending subsequent messages to the registered buyer’s number.
As most orders are prepaid, such scenarios rarely occur. However, to ensure better efficiency, the centralized system of many transport systems is updated and shares a reminder to the customer once a courier is on its way.
Why is Last-mile Delivery Important?
Last-mile delivery is as important as any other phase in the transport cycle. An improper execution at any stage of this process might hinder the sale.
As mentioned, last-mile delivery is the last phase, where the product reaches the customer from the nearest hub. Even though this might seem easy, last-mile delivery is the most challenging phase in the said cycle.
Statistics have shown that last-mile delivery has increased the overall cost of the entire transport cycle by a staggering 53%. For most of the journey, all the products are moved in bulk, reducing costs and providing better control. However, last-mile delivery is more targeted, and cost-pooling is not an option here. The seller needs to pay individually for each last-mile delivery.
Furthermore, due to the inclusion of a hub pyramid scheme, sorted based on the location, lack of control builds another issue. Last-mile delivery single-handedly increases transportation costs by more than 50% and gives the seller minimal control. Hence, it is considered the most challenging phase. Being a major component of the cost increment, the last-mile delivery is considered a necessary evil that demands great attention from the seller.
Who Uses Last-mile Delivery?
Every business with a product fulfillment with a definite transportation cycle uses last-mile delivery. With the rise in e-commerce and online businesses, last-mile delivery has seen a massive spike in its demand. Most major retail outlets also use last-mile delivery but are limited to a certain radius within the store itself.
Prominent utilization of the concept is witnessed in the case of an online business that sells physical products. Companies like Lazada and Shopify use last-mile delivery solutions.
How Can You Operate a Last-mile Delivery?
When it comes to the operation of last-mile delivery, most companies are provided with minimal options. Unless a company owns a dedicated transport system in all the major cities, perfectly operating the last-mile delivery might be considered an intrusive step. As the primary aim is product quality, a streamlined inventory management system is equally followed by proper marketing.
The establishment of a dedicated logistics chain to create a controllable last-mile delivery system should not be considered very soon. Especially when such a system requires the creation of a new chain in every city. Even for the well-established online platform, the last-mile delivery system is still witnessing the inclusion of new cities.
Ensuring a close-knit operation of the last-mile system might be considered one of the biggest business challenges. However, a seller can expect a streamlined process with the rise of good transportation companies.
While focusing on aspects such as inventory management and marketing, a seller can access the ability to closely monitor and even operate the last-mile delivery in some cases.
Cross-referencing with the nearest hub and getting real-time information can be considered a step forward. With mutual effort from the seller’s end with the transport company, tracking, maintaining, and conforming to the data can be done effortlessly.
How to Build a Last-mile Delivery Operation?
Like building any other system, creating the last-mile delivery operation system requires close evaluation, planning, and excellent execution. You can create a last-mile delivery operation by establishing a new transport system in a targeted city. A seller can also opt for a dedicated employee collaborating with the shipping company to create a dedicated last-mile delivery operation.
Step #1: Evaluate your business
Business evaluation is the first and most crucial step before the inclusion of any service or system, for that matter. One needs to understand the priority of different processes required by a business and include them accordingly. The best way is to deduce the expected return after establishing the last-mile delivery operation versus the cost incurred in the business setup.
When an estimated cost is deduced, the seller needs to identify the dip in profit margin concerning a single sale. If such a dip is bearable, the seller gets enough orders to ensure a positive return on the planned investment. A seller can then take the necessary steps to create the last-mile delivery operation system.
Step #2: Decide the direction of your delivery
A seller might get orders from several territories and cities. Creating a last-mile delivery system in each location might not ensure a positive return on investment.
Considering the availability of enough data from past orders, one can quickly identify the direction of the delivery. You can deduce a specific city where establishing the last-mile delivery operation system will benefit businesses’ revenue. Once the city or the territory has been identified, a seller can proceed with the following steps.
#1 Decide on the offer
Same-day delivery and next-day delivery are two of the highest-grossing offers that have captured many sales. Apart from cost optimization and better operations, using last-mile delivery as a USP might further increase the customer acquisition rate.
While deciding on the offers, you can consider factors such as location, delivery personnel availability, product stock, and other related factors. A company must establish a goal or deadline to test the system’s efficacy while acquiring more customers.
#2 Decide on the delivery location
Focusing on multiple delivery locations might not be feasible for companies creating last-mile delivery operation systems. One should deduce a single delivery spot or locality to ensure sales maximization and positive investment return.
#3 Decide on the type of operation
As mediators such as warehouses and outsourced couriers are negated from the equation, a company needs to decide on the type of operation. As mentioned before, one can create a dedicated transport system to a specific locality with a targeted offer or hire a staff to manage the outsourcing. The mentioned options should strictly be selected per the business’s evaluation.
To create a dedicated transport system, one needs to include a system that allows the buyer to track the product. Apart from that, it should sync such a system with the company’s inventory. Once such a system is implemented, the dedicated system requires couriers who will be responsible for carrying out the last leg of the transportation cycle.
Step #3: Set up the delivery
Once everything is executed, setting up the delivery is the last step. One should create contracts with a few delivery personnel in the specified last-mile delivery locations while putting them up for the task. Furthermore, the seller can divide and create routes for each delivery personnel to simultaneously save costs and increase efficiency.
Step #4: Market to customers
While setting up the last-mile operations systems, taking one step at a time is recommended due to the required upfront investment. The same can be said for marketing since it is also a recurring process and costs less.
However, one should focus on local marketing and only extend to the parts where the last-mile delivery can reach with minimum hassles. Sellers can offer specific features like same-day or 2-day delivery as a USP, which attracts them to acquire more customers.
Focus on customer experience
Once a product is ordered, buyers are excited to receive and try the product. As some say, customer experience starts when one receives the brand’s package. Such a notion is followed up to a certain level, but it’s not the entire truth. Providing the required bills in the mail, allowing product traceability and quick delivery, adds to a good customer experience.
Since bill generation and subsequent emails are already automated, the main issue looms over the transport system. With a tremendous last-mile delivery system that can provide quick delivery, a brand can always start on a positive note.
Using urban warehouses
Most warehouses in the past were loathed on the outskirts of a certain city due to the requirement for considerable hoarding space. Even though this solution allowed companies to stock up on many products, transportation suffered gravely in this process.
The new-age company is all about quick sourcing and fulfillment, which requires more focus on transportation and less focus on warehousing. This led to the creation of the concept named urban warehousing.
A strategically placed moderately large warehouse located right in the middle of a densely populated city. The primary goal of selecting such a location is to increase the efficiency of last-mile delivery by decreasing the transit time.
What Are the Problems With Last-mile Delivery?
Executing same-day delivery
One-day delivery has garnered attention from the netizens. Many companies have acquired customers only by the mere use of this perk. As lucrative as it sounds, one-day delivery requires a company to significantly compress several necessary and unavoidable tasks.
A company’s first issue while executing same-day delivery is improper product processing. The last-mile delivery is a targeted courier process where the products are shipped as a single unit. However, such products are often received in bulk at the nearest warehouse, which the seller then cross-checks through a centralized system. Processing products correctly requires a day or two. Furthermore, once the processing is done, the warehouse must consecutively check and allocate the products based on the delivery schedule.
To ensure proper execution of same-day delivery, all the processing tasks should be accomplished within a few hours. However, these normally take more than one day to complete. Furthermore, a company also needs to make sure some delivery personnel are on standby and available most of the time.
2. Traditional routing models
The traditional routing models are based on the topology of existing routes and serviceable locations. This model negates the consideration of existing availability, which has already been discussed as a huge problem. A traditional routing model can be considered a train route that the couriers usually follow to save fuel consumption and other costs. Most of the deliveries are categorized based on the specific route undertaken by a certain courier.
It is common for every company to set a departure schedule for the delivery personnel. In the case of same-day delivery, the best option is to assign delivery to the person who has visited the location before. However, such cases are dubbed an ideal scenario, occurring only once in a blue moon. A traditional routing model and a string of deliveries are used to deal with the most significant threat of last-mile delivery: cost.
However, several issues are faced when a courier is dispatched from its traditional route. It may ignore several deliveries just to ensure the fulfillment of the same-day promise. The idea of cutting down the related cost using the traditional routing model is completely defeated. Furthermore, several other deliveries are also affected in the process due to the change in the courier’s predetermined route.
3. Poor logistics visibility
Last-mile delivery has always been notorious for the lack of control along with poor transparency. With the addition of same-day delivery, the time taken to complete the last-mile delivery is significantly decreased. This means that the seller will not be aware of products received by the nearest hub due to the lack of time.
Furthermore, the inclusion of haste in the planning and allocating of the product as per the traditional routing model might cause some unfavorable situations. Mishaps and improper tracking can be expected, which can be the cause of poor logistics visibility.
4. Curbing the impact of COVID-19
The onset of COVID-19 has seen a sharp spike in the growth of e-commerce brands, with a 25% rise in deliveries. Even though such a rise can be expected to be a remarkable feat, several faults in the last-mile deliveries surfaced.
The lack of scalability and the increasing cost due to improper optimization of the whole system was considered a bane. Even so, the world has witnessed several creative strategies imposed by the government to ensure the delivery of the required vaccines through the last-mile delivery system. The impact of COVID-19 on the e-commerce market brought an excellent opportunity to increase sales. However, last-mile delivery was still a challenge, thus, opening a learning curve for every business owner.
5. Scaling delivery operations
Scalability is a lucrative option. However, this is only possible for a process with zero to minimum flaws. The most critical threat posed by last-mile operations is cost and poor visibility. As the last-mile delivery alone is known to increase the total transportation cost, scaling the delivery operation might subsequently increase the price. It also scales up specific problems related to the lack of transparency.
Scaling a faulty and cost-hungry business process without proper optimization might result in a higher profit margin loss. It hence affects the company’s overall growth.
6. Rigid logistics processes
Each stage of the transport cycle follows a very rigid process to address different risks. Like every other stage, the last-mile delivery system is no stranger to its rigid operations. As discussed earlier, the execution of the last-mile delivery system requires one to follow several steps in proper order religiously.
However, with such rigid logistics processes, some of the biggest challenges about cost and visibility have not been solved yet. With no measurable solution in sight, the procedures are time-consuming and allow almost negligible control to the seller.
7. Increasing carbon emissions
Carbon emissions have been rising for quite some time, and the latter has only increased. As a real-time threat, many legislative bodies are implementing new laws to limit the use of excessive motor vehicles. As the last-mile delivery system is solely dependent on motor vehicles, the presence of several e-commerce chains has attracted the attention of many. With the last-mile delivery taking up a considerable role, an international law limiting the services is imminent in the future.
The Real Business Impact of the Last-mile Delivery Problem
Higher operating costs and lower profit margins
The goal of every business model is to provide service and grow. From the start of a business, once a new service is introduced a certain level of profit margin is already forfeited. Now, the creation of the last-mile delivery system is considered one of the costliest bids in business.
Furthermore, this service is considered ineffective and cost-hungry due to a lack of optimization. Hence, more overhead expenses are required to ensure the service’s operations when something inevitable as scaling, is involved. Thus, the operating cost keeps increasing with the business’s growth, resulting in a steadily decreasing profit margin.
Poor customer experience and little brand loyalty
Increased transit time and lack of traceability from the customer’s end are some of the after-sales services. These are directly related to poor customer experience. Last-mile delivery is the phase of the transport cycle, which is the reason for such causes. Since sellers cannot effectively track the package themselves, providing an accurate answer to a delivery query might be an issue.
Furthermore, with poorly orchestrated routing models, the last-mile delivery is entirely dependent on the delivery personnel. The outsourced warehouse dictates a process based on certain factors changing over time.
Even though the fees for these services are fully acquired, little to no consideration is given to faster movement. This results in poor customer experience right after a sale is made. Such cases further promote little to no brand loyalty, ultimately defeating the seller’s whole purpose.
More cancellations and returns
Cancellations are the direct results of increased transit time due to unforeseen situations. As witnessed in most cases, the increase in transit time usually results from last-mile delivery. This further cements the real business threat this concept provides.
Several factors, such as a complex process, the use of traditional routing, and the lack of tracking, are some causes of such delays. With several other e-commerce sites with the same niche, cancellations from the customer’s end do not require much consideration.
The lack of transparency and poor logistics related to last-mile delivery has also witnessed its fair share of damaged goods. As the seller does not have the luxury to track the product, identifying the cause of damage effectively is near impossible. Now, with several options available on the internet, every customer will opt for a return in such cases. Furthermore, with the lack of visibility, the seller not only loses a customer but also fails to identify the cause of such an issue in the first place.
How Technology Can Solve the Biggest Last-mile Delivery Challenges
Dynamic routing to reduce delivery time
Dynamic routing has been considered the long-awaited replacement to traditional routing models. The traditional routing models focused on a master route by only including the nearby delivery addresses. Dynamic routing can be considered the exact opposite.
A specific route is created every time based on a particular set of orders and delivery addresses. All the necessary adjustments in the route are made to ensure the best-fitting path. Unlike the standard routing protocols, dynamic routing creates new paths every time a set of addresses is uploaded.
With the traditional routing protocols, including a far away delivery address used to be a pain. The only solution to this problem was to wait for the delivery personnel, who were already working on that specific route. Such a model has proven its worth in abruptly increasing the transit time by a few days. However, specific paths are created based on destination addresses, so one can expect minimal transit times and faster deliveries.
Auto dispatching reduces service time and saves on labor cost
The enhancement of the centralized delivery system has been rewarded with the feature of Auto Dispatching. Such a feature has brought down the rigidity of the last-mile process while making it more efficient. The need for human intervention is negated with an auto-dispatching system coupled with dynamic product routing. Since the combination of these two systems immediately starts to work when new products arrive, the service time is significantly decreased.
Previously, an employee was always required to maintain such processes, including adding human errors for bulk products. However, auto-dispatching reduces the chances of human error and undertakes certain functions, thus speeding them up. Instead of someone manually matching the product with a preset route, the same is done by an automated service. Such services cost less than the pay of a dedicated employee and are more efficient in every sense.
End-to-end control of delivery operations
One of the biggest problems that have plagued last-mile delivery was the lack of traceability. Such an issue affected both the seller and the buyer at different levels. As a seller, being unable to control the delivery operations’ end-to-end processes is often confused with transit time. While the customers also faced the same issue as the seller.
However, with automated services in place, a quick and effective response has allowed the seller to increase the level of control. Including several RFID tags and markers has further increased transparency for both parties. Since the customer can see the real-time movement of the product, questions regarding the transit times are filtered out. On the other hand, the seller can monitor the product whenever required, thus allowing him to identify specific faults in damaged goods.
Proof of Delivery (PoD) for greater transparency and efficiency
The proof of delivery is a document that underlines the buyer’s consent stating that they have received the correct goods from the seller. With several e-commerce companies on the horizon, outsourcing logistics has been considered standard practice.
A good indication of the poor logistics is highlighted by the absence of a PoD. When a third-party shipping company is involved, certain cases have been witnessed, where the buyer denied receiving the products. Such cases have often resulted in reshipping a product for free. These instances have occurred in the past due to a lack of any delivery proof.
The PoD is considered a solution to protect sellers from such situations. Furthermore, when looking for a suitable third-party logistics solution, a seller can quickly identify their quality just by seeking the presence of this measure.
Accurately benchmark KPIs
Perfectly executing the last-mile delivery while working with a third-party shipping company might be tedious. However, with the advancement and implementation of new-age services such as dynamic routing and auto dispatching, sellers are considered to have more control than ever. The efficacy of the delivery system is further increased with the presence of several KPIs. Some of the most important KPIs a seller should be aware of are as follows.
- Fuel consumption rate: In cases of intermodal transportation, zeroing down on a specific figure for fuel consumption is often regarded as a tough job. However, sellers can compute an interval-based consumption cost with an average idea of the fuel prices while considering the vehicle and the route. This allows the seller to get an insight into the estimated cost of a specific delivery.
- Average Service Time (AST): An average estimate of the time is the time frame a company needs to fulfill the last-mile delivery. This time frame is calculated based on a single order. It also considers the events from the time taken to acquire the product from the warehouse till it reaches the customer’s doorstep.
- Time of delivery: It gives a seller a broader perspective of the total time required. While some might argue that AST and Time of Delivery might sound similar, there are some crucial differences. Unlike the AST, some essential factors, such as the organization’s efficiency at a certain point, are considered while comparing it with the efficacy of the placed delivery strategy.
- Total mileage: This KPI is somewhat interlinked with the fuel consumption rate (FCR). The unlimited mileage is pre-calculated to provide the final estimated cost for these specific factors. Even though the actual mileage might differ from the computed mileage, you can make certain deductions. Sellers can quickly identify issues such as a problem during transit or a detour.
Dynamic routing services have added yet another benefit that has helped a company garner better customer loyalty. In many cases, customers might have a tight schedule, thus forcing them to accept the order after it arrives.
Previously, taking a detour would increase the transport cost with the traditional routing models. However, with a dynamic routing model, the delivery personnel can quickly reduce transportation costs. They can return the best route while adding the visited one to the list. Surely, there is a little wastage of fuel involved, but the route is re-created based on a return trip. This has allowed many sellers to ensure cost savings while providing flexible deliveries to their customers.
Last Mile Delivery Trends
Quick order fulfillment
Same-day shipping or 2-day shipping has been pretty successful in helping companies acquire more customers. These two features have spread like wildfire, owing to their subsequent success. As of yet, same-day and 2-day shipping are considered a trend and the forerunners of a new form of efficacy for many companies. Even with such options, many sellers are yet to pick up this viral trend in the future.
Enabling order traceability
Order traceability during last-mile delivery was considered a myth in the last decade. However, with the advancement of technology, this concept is not only a reality but also a trend.
Sellers can now easily track the last-mile delivery while using several KPIs to denote the effectiveness of the outsourced shipping company. Many sellers take this trend a tad forward, by allowing the buyer to get real-time updates on the last-mile delivery of their ordered product.
Self-Sustaining last-mile logistics ecosystem
Including an additional KPI, such as the carbon footprint, has allowed e-commerce brands and shipping companies to bring out the carbon footprint. While this KPI retains its spot as a favorite for many companies involved in last-mile delivery, some brands have also started investing in carbon offsets. Speaking of logistics, these companies consider creating zero-emission delivery fleets an incredible leap.
With the rise of e-commerce, every country has seen a spike in traffic congestion, resulting in higher carbon footprints. Some studies done by MIT show a staggering increase of 15% in carbon emissions due to the rise of last-mile delivery. Creating a zero-emission fleet can decrease this staggering percentage, thus creating a self-sustaining logistics system.
Micro warehousing: Renting of additional warehouse spaces
Also known as micro fulfillment, this new trend revolves around decentralizing the generic warehousing structure. Micro warehousing focuses on creating a small network of moderately sized warehouses spread across a specific city. The primary goal of micro warehousing is to bring down the transit times of a product by enhancing the efficacy of the last-mile delivery system.
Deliveries through autonomous vehicles and drones
A developing trend, with experiments being done in countries like China and Japan, one can expect their arrival pretty soon. The majority of last-mile delivery expenses result from fuel consumption and human interference. Once autonomous vehicles and drones take over transportation and logistics, most cost-consuming factors will be deducted from the equation.
Why Is Last-Mile Delivery So Expensive?
Lower average speeds = more time on the road and fewer miles-per-gallon
The increased congestion in different cities due to several factors have resulted in a slower movement of the delivery personnel. Such an issue has always burned more fuel, resulting in increased fuel costs, not to mention the loss of time.
More stops lead to more idling and downtime
With the rise and gradual decrease of COVID-19, a sense of lethargy has slowly crept in due to inactivity. Following the widespread requests for a ‘Work-from-home’ scheme, such a notion is further proven. Regarding logistics, the courier has shown more affinity towards breaks, thus taking several ones during a certain journey. This has significantly increased downtime, making last-mile delivery very expensive.
Certain payment options, such as ‘Cash on delivery’ has been considered a crowd favorite. However, this has also led to several issues. Many cases are witnessed daily where a product is canceled halfway through the transportation cycle. Furthermore, the non-availability of the buyer also results in such cases, making the last-mile delivery more expensive than usual.
Complex routes lead to more out-of-route miles
The use of mileage KPI is used to determine the average cost, but unforeseen development projects by the government have often hindered the process. This forces delivery personnel to undertake a longer route, further increasing the cost of fuel consumption. Thus, taxing more money out of the seller’s pocket.
Returns, refunds, or discounts
While there are only a few cases of damaged goods, such insurance has been faced by most of the sellers out there. Considered a nightmare, not only an entire product is wasted, but three times the transportation cost is incurred to reship the product. Refunds have recently gained some notoriety due to this increase in fraud.
However, such an issue is solved with the help of an SKU code and PoD, which records a buyer’s consent to receive the correct goods from the courier. The recent ‘Free Shipping’ trend has taken the internet by storm.
The seasoned sellers have been able to traverse such a plain by spiking the price of the product. However, the reasonably new ones pay from their pocket due to their lack of experience in the field.