The Growing Importance of Last Mile Logistics

Stephen DeAngelis

April 20, 2021

Thanks to the pandemic, consumers now find themselves more frequently on the digital path to purchase. Ali Amarsy, Senior Vice President of Global Product Strategy at Publicis Commerce, writes, “COVID-19 has catapulted us into the future. In 2020, global e-commerce sales growth jumped three years in the first three months of stay-at-home mandates, with a share of overall retail matching 2023 predictions. … Huge shifts in consumer behavior have left many businesses, often working in outdated systems and processes, faced with new challenges as they try to capture increased demand.”[1] Tom Standage (@tomstandage), editor of The Economist‘s ‘The World in 2021‘, puts its another way, “Grannies have discovered online shopping.”[2] Underscoring this dramatic change in ecommerce, Skylar Ross reports, “According to Digital Commerce 360, consumers spent $861.02 billion on online shopping in 2020, a 44% rise over the prior year.”[3] As the digital path to purchase gets more crowded, the pressure on last-mile logistics also increases. Greg Hewitt (@GregHewittDHL), CEO of DHL Express U.S., observes, “Almost two decades into the 21st century, there is no doubt that e-commerce has radically and permanently altered the retail landscape for U.S. companies.”[4] He adds, “Companies must be constantly ready to adapt their supply chains to reflect changing market conditions and customer demands.”

 

All Roads Have a Last Mile

 

Hewitt states this simple truth: “All of the investments and energy that retail companies devote to product evaluation, sales, marketing and customer engagement will amount to very little if they cannot get their goods efficiently and securely into the hands of waiting buyers. To this extent, logistics and shipping represent the final and essential factor in the equation for e-commerce success.” That’s what makes last-mile delivery so important in the age of e-commerce. The growing e-commerce trend also demonstrates the importance of omnichannel retail strategies. Companies that master omnichannel operations will thrive in the years ahead — if last-mile logistics can keep up. As Hewitt notes, “The potential problems involved in the last mile reflect the fact that e-commerce is, to a certain degree, a victim of its own success, with surging demand for deliveries creating the potential for bottlenecks and delays in the final stage of transit. The difficulties will continue to compound as more people around the globe move to dense, urban areas, and as seasonal demand for e-commerce products expands.”

 

Louise Hosegood (@LouiseH231), Digital and Strategy Director at Bis Henderson Consulting, reports, “Ecommerce has grown massively, and probably permanently, during the pandemic to 30% or more of retail trade. Customers increasingly value the convenience, assurance, immediacy, pricing, and safety of ordering online.”[5] Like Hewitt, she stresses the fact that ecommerce success has increased the pressure on last-mile logistics providers. She writes, “The traditional ‘last mile’ delivery model — from distribution center to home addresses, collection points, ‘click and collect’ stores, locker systems and the like — is under huge pressure to serve more customers and greater volumes, and many existing approaches are simply not sustainable in economic, environmental, and social terms.” As a result of the challenges faced by last-mile logistics, journalist Jack Glenn (@JglennFW) believes the last-mile is the supply chain’s weakest link. He explains, “If the supply chain is a cake, then final mile is the icing. Not only is the icing the last step in the cake-making process but it’s also the most visible aspect of the dish itself. Comparably, the final mile is arguably the most important stage of the supply chain because of its visibility to customers. A supply chain is only as strong as its weakest link. No matter how robust your logistics, a subpar delivery experience can tarnish the reputation of your entire brand.”[6]

 

Last Mile Challenges

 

Logistics expert Adrian Gonzalez (@talkinlogistics) reminds us, “Last mile delivery has always been challenging because it is one of the most complicated and expensive parts of the supply chain.”[7] Ross adds, “According to a report by SOTI Inc., more than 61% of logistics companies agree that last-mile delivery is the most inefficient process in the entire supply chain.” This past holiday season highlighted another challenge facing last-mile delivery — limited capacity. Many retailers scrambled in vain to find carriers that could deliver their products to customers during the holiday crunch. As ecommerce grows, capacity will remain an issue. Hosegood points out that sustainability is also becoming a big issue associated with last-mile delivery. She explains, “Currently, last mile delivery using [internal combustion] engine vehicles generate significant CO2 and noxious emissions, and raises many other environmental and social problems. … There is now an urgent need to create a ‘sustainability plan’ for the fast-expanding fleet of vans that is rapidly replacing the old regime of large trucks delivering to stores.” Packaging is another sustainability issue since home delivery requires enormous numbers of cardboard boxes — many of which end up in landfills. Ross lists some of the most significant challenges facing last-mile delivery. They are:

 

High delivery costs. “Shipping and logistics companies must allocate money for complex routes, failed deliveries, extra stops along the delivery route, drivers’ salaries, and fleet operation. And costs are doubled if a first delivery attempt fails and must be rescheduled.”

 

Late deliveries. “Delivery delays harm a brand’s reputation, increase customer churn, and affects your bottom line.”

 

Outdated technology. “A report by SOTI finds that nearly half of global transportation and logistics companies use outdated technology for last-mile delivery.”

 

Low efficiency levels. “High levels of efficiency are crucial for boosting fulfillment capacities.”

 

Inadequate route planning. “Ineffective route planning leads to delayed deliveries, increased customer frustration, and high costs.”

 

Unpredictable elements. “Traffic, bad weather, or vehicle issues are among the elements that are out of your control. To address them, you need to create contingency plans while ensuring seamless communication among your teams and with customers.”

 

Last-mile Solutions

 

To solve the challenges pointed out by Ross, most logistics providers are turning to technology. Shawn Winter, Vice President of Mobility Solutions at Descartes Systems Group, told Gonzalez, “The flow of data has become as important as the delivery of goods, both from the perspective of customer visibility expectations and for payment purposes. With some routes involving hundreds of stops, you can’t handle it with paper and clipboards.” Most providers now use some sort of cognitive technology (i.e., artificial intelligence) to help with route planning. Winter explained, “The data is important not just for the couriers, but also for their customers, such as retailers, to keep their customers informed, as well as to reconcile billing and payments. We’re also implementing artificial intelligence capabilities to help customers do predictive analysis so they can better plan to meet demand. Another important aspect of technology is ease-of-use. If it’s not easy to use, and interesting to use, people won’t use it. Scans won’t be done, data won’t be captured, and that impacts all areas of the supply chain. Lastly, the technology has to be fully integrated so all players in the supply chain — from couriers and their partners to shippers and their customers — have access to the data they need to fully realize the benefits. There is a wide range of planning, routing, mobility and data capture technologies that goes into this. Having this integrated technology is critical for all companies, but it is particularly important for smaller carriers to manage and grow their business.” Technology is also playing an important role on the sustainability front with carriers increasingly turning to electric vehicles. The tougher sustainability challenge will be reducing packaging requirements and waste.

 

In addition to increased reliance on technology, Hosegood believes better collaboration can help address some last-mile challenges. She explains, “Greater collaboration is the route to creating a more comprehensive urban logistics model. With the right foresight and local authority support, we could see schemes … where a multi-story warehouse with vehicle access at all levels is sited on the periphery of a major conurbation. These facilities could push the boundaries of multi-use to maximize efficient operations by housing a variety interconnected local area services from ecommerce deliveries, C&C point, shop replenishment or top up, supplier cross dock, inter-store stock rebalancing, returns and collections from customers and returns, and all whilst running a local green fuel multi-vehicle fleet.” In other words, logistics providers need to continue to innovate.

 

Concluding Thoughts

 

Affordable last-mile delivery is important for retailers and customers. Ross reports, “Research shows that 55% of customers abandon their shopping carts if presented with an extra shipping cost.” Cognitive technologies can help retailers and logistics providers with many of the challenges they face when conducting omnichannel operations, from visibility to route planning to customer service. As Hewitt predicts, “The future of logistics is racing toward the last mile.”

 

Footnotes
[1] Ali Amarsy, “The future of commerce is here. Are you ready?” Think with Google, November 2020.
[2] Tom Standage, “New technological behaviours will outlast the pandemic,” The Economist, 16 November 2020.
[3] Skylar Ross, “Seven Last-Mile Delivery Challenges, and How to Solve Them,” SupplyChainBrain, 26 March 2021.
[4] Greg Hewitt, “The Future of Logistics is Racing toward the Last Mile,” Material Handling & Logistics, 26 February 2019.
[5] Louise Hosegood, “Delivering On The ‘Last Mile’ Challenge,” IT In The Supply Chain, 2 December 2020.
[6] Jack Glenn, “The final mile: Fixing supply chain’s weakest link,” FreightWaves, 5 January 2021.
[7] Adrian Gonzalez, “The Reality Of Last Mile Delivery Challenges,” Talking Logistics, 8 February 2021.