The last mile of the delivery process is the most challenging, complicated, and competitive part of getting a package to the doorstep. To meet the challenges of rising delivery volumes, growing customer demand and calls for reduced emissions, logistics companies are experimenting with data, drones and new business models.
The ‘last mile’ of logistics is the final step of the delivery process – the part that takes the package from the distribution centre to the customer’s front door. It is the most important part in the sense it has the greatest impact on the customer’s perception: if a package is delivered at the right time and in the right condition, the customer is likely to be happy – no matter how smooth the earlier, less visible part of its journey may (or may not) have been.
“Fast and reliable delivery is what will be remembered by customers,” says Francisco Sanchez, Partner, Mazars. “For retail firms who do much of their trade online, the logistics provider is an extension of their brand.”
But this last mile also accounts for a high proportion of costs for the brand and delivery partners, in some cases over 50%. “This is in a sector where margins are often 2 to 5%,” says Kevin Le Denic, Partner, Mazars. “So it is crucial – but difficult – to get the last mile right.” Three challenges stand out:
First, customer expectations are higher than ever, and rising. Customers naturally expect their packages to arrive in perfect condition and on time. They want delivery to be fast and cheap, if not free. And they often expect real-time tracking and responsive customer service. “My advice to businesses fulfilling orders would be: talk to your logistics teams and find out what’s possible,” says Sanchez.
Many customers also want to receive their orders within twenty-four hours or even on the same day. That shift means a higher number of smaller deliveries, which adds an extra layer of difficulty.
Second, there is pressure on logistics companies to reduce emissions and pollution. “The last mile tends to involve places that are already congested,” says Le Denic, “some cities are experimenting with policies to reduce emissions, such as restricting access to freight vehicles over a certain size, weight or emissions threshold, or setting time windows in which they are allowed to deliver.” Different policies for different cities further complicate the challenge of meeting customer expectations consistently.
Third, volumes of deliveries are rising, driven by urbanisation and the Covid-19 pandemic. The share of people in the UK, France, and Germany who did more than half of their shopping online grew up to 80% in April 2020. Some 8 in 10 consumers intend to carry on buying as much online once the pandemic has passed. The 2020 uptick in pressure on logistics firms looks set to turn into a permanent increase in demand.
This new demand means more reverse logistics: “The more deliveries, the more returns,” says Remco Schoonderwoerd, Partner, Mazars, “that puts pressure on companies not just to make sure they can process the higher volume of returns, but also to get it right the first time to keep costs down.”
Logistics companies are responding to these pressures by competing to acquire better data on their clients and learning how to apply it in more sophisticated ways.
Building a data-driven advantage
Data is at the heart of reshaping last mile delivery. Companies increasingly use it both to improve existing processes and find new ways to cut costs. Marc Engel, Partner, Mazars, points out if a company has accurate data about its customers, it can more easily control the costs of serving them in a number of ways.
Reducing repeat deliveries - “If you have data which shows you when customers are at home, it gives you a better chance of only having to do a one-off delivery,” Engel explains. He adds: “The company might know that if they are delivering on Monday, this particular customer wants the package left by the front door, but if they are delivering on the weekend, they should ring the bell, and so on.”
Route optimisation - Data helps firms optimise the routes parcels take. There are, after all, many variables to determine what a good route is, such as traffic data, the location of the closest driver, the means and capacity of transport and the weight of the delivery. “Designing algorithms to consider all these factors is a must,” says Le Denic.
Real-time data sharing - The ability to use real-time data is also emerging as a key competitive advantage. For example, the capacity to access and use detailed weather data updated minute-by-minute and street-by-street enables companies to precisely estimate arrival times. Uber has announced a collaboration with Climacell, a weather API platform, to use hyper-local weather to improve its time estimates. Logistics companies will likely follow.
Customer communication - Data can also smooth communication between suppliers and their customers. When a company can do this seamlessly, it can offer customers the chance to rearrange deliveries as the parcel enters the last mile, further reducing repeat journeys. It can also help them predict future customer behaviour. “Looking ahead, accurately predicting customer purchases can help to put parcels closer to customers before they even order,” adds Le Denic. “This can reduce lead times.”
New delivery models
Another way that logistics firms are responding to these challenges is by experimenting with new forms of transport.
In 2015 convenience store 7-Eleven completed a drone delivery in the US by partnering with drone operator Flirty. Since then, several others have piloted schemes. Amazon has received Federal Aviation Administration approval for drone deliveries and says it can deliver items weighing 2.3 kilogrammes for a distance of 25 kilometres by drone. Ford, Walmart and delivery service Postmates are also planning to deliver groceries to Walmart customers using autonomous vehicles.
In response, Schoonderwoerd expects the delivery business model to move one of two directions. One path is for firms like Amazon to increasingly own the delivery space: “There is a trend towards big companies investing in their own delivery capabilities, which is squeezing out the medium size players. This is likely to continue,” says Schoonderwoerd.
The alternative scenario is moving towards the last mile as a public utility. As demand for online shopping rises, so will home deliveries. Many of the companies servicing that demand will duplicate services, producing unnecessary emissions. As a result, governments, states and local authorities might take responsibility for last mile delivery. This could reduce the number of journeys per delivery and help run the service as sustainably as possible. “I wouldn’t be surprised if the last mile in many cities were operated as a public service eventually,” says Schoonderwoerd, “offering parcels delivered by driverless vans that ‘ping’ you when they arrive. You would then open the door and take out your parcel yourself.”
Last mile logistics are increasingly important for customers and delivery companies. Customers expect excellent service within tight deadlines, while policymakers are looking for sustainable solutions. This should encourage experimentation to reduce emissions, errors and wait times. A new, competitive and data-driven era of last mile delivery looks set to begin.