E-logistics: why the last mile makes the difference

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Life isn’t easy for home delivery companies. High costs and thin margins force them to be creative. To remain competitive, they must be extremely customer-centered. Consumers want to decide for themselves where and when to receive their orders. They also want the possibility to return them in an easy way. Thanks to technology, it’s been easier to adapt to customer needs but the search for efficiency in the last mile is never-ending. In this article, I will discuss several options companies can tap into to gain efficiency in the last leg of the delivery process. Not only by using smart optimizers, but also by creating a smart process.

The main challenges of last mile delivery include minimizing cost, ensuring transparency, increasing efficiency, making delivery frictionless and improving infrastructure

The last mile that never stops
The last mile is a term used in supply chain management and transportation planning to describe the movement of people and goods from a transportation hub to a final destination in the home. Why is it problematic? This last leg of the supply chain is often less efficient than transporting products via freight rail networks and container ships. It can comprise up to 28% of the total cost to move goods. When deliveries happen in urban areas, there is an extra layer of complexity, as traffic and sustainability challenges come into play. On top of this, consumers are demanding more freedom to choose their delivery options.

How are companies meeting consumer needs?
Companies are listening to the customer and looking for the most optimal ways to deliver on their promise. Some options home delivery retailers are using include:

  • Home delivery at your doorstep / porch
  • Drop off at a Neighbors’
  • Pick-up points and lockers
  • Automated delivery
  • Large household goods shipping
  • Drone delivery

Online grocers are also experimenting with different delivery services, including:

  • Bus service model (implying only a few possible time windows to choose from)
  • Taxi service model (implying a lot of options for the consumer to choose from
  • Same day delivery
  • Bike delivery
  • Personal shoppers

Service organizations, such as those offering maintenance and repairs, have been using time-slot booking for years to tackle the last mile. Logistics businesses have learned from this use case too. Let’s dive deeper into some of these delivery types and the challenges they bring.

The last mile in home delivery: neighbors to the rescue
Most consumers are away from home when deliveries are made. For small and ambient goods, it is in general no problem to drop off at a neighbor’s house, but for groceries and heavy goods (like large appliances) a door-to-door delivery at the final destination is required.

White glove deliveries for large household goods
Shipping large household goods from their manufacturers to residential or business locations is complex and carries with it a higher potential for damage and error. Once these large goods arrive at the last mile hub, which is typically located less than 50 miles from the final delivery location, a dedicated last mile carrier, also known as a “white glove” delivery company, will handle the final leg of the delivery.

White glove refers to the highest service level for the last mile delivery of heavy goods. It involves the delivery team bringing the item to the room of choice, unpacking, assembling and installing it, and removing all packaging, waste and the old goods from the customer’s home. In US alone, there are over 4,000 white glove delivery companies, most of which only perform local deliveries. Some large less-than-truckload shipping carriers also offer this white glove delivery service, and in recent years start-ups have emerged that offer networks of white glove delivery coverage. With the growth of e-commerce websites that sell heavy goods around world, the white glove delivery marketplace is shifting from mostly regional carriers working with local brick-and-mortar stores to e-commerce websites working with national delivery networks.

Pickup points
In my neighborhood, we take each other’s parcels with pleasure. This makes things easy, as I can avoid going to pick up goods at a pick-up location. When consumers choose not to get products dropped off at a neighbor’s house, companies often offer pick-up points. Amazon for instance, has set up lockers in some urban centers as a way to deliver packages. This type of automated parcel delivery is becoming a popular option. Europe has led the way in this with Germany, Britain and Poland being the first markets for these services.

In Taiwan, and several countries in Europe, many online vendors offer the option of delivery to a convenience store of the customer’s choice. Payment for the purchase at the store may also be offered. The main challenges of this model include minimizing cost, ensuring transparency, increasing efficiency, making delivery frictionless and improving infrastructure.

Drone delivery: fact or fiction?
Retail companies like Amazon and China-based Alibaba, have researched and deployed drones for deliveries. Domino’s Pizza recently concluded a successful test of drone deliveries in New Zealand in an effort to reach more rural customers and improve delivery times in congested urban environments as well.

A city in Ukraine will be the first to allow drone deliveries in the country and one of the pioneers in drone deliveries world-wide. The country’s postal service, UkrPoshta has a pilot program that enables packages of up to 6.6 pounds to be delivered over 14 miles away at speeds of 44 mph. Drone delivery holds a lot of promise for companies. It enables companies to offer a better service at lower costs. A drone costs much less to maintain and operate compared to a truck, as it runs on batteries instead of costly fuel. The main issue here is regulation. Not all countries and cities are been quick to adapt to the possibility of pilotless aircraft delivering goods.

Creative online grocers: same-day or next-day delivery
Some online grocers such as AmazonFresh and Webvan, and delivery services operated by grocery stores like Peapod and Safeway, have had same-day windows for some time.

Other online grocers, such as Picnic in the Netherlands, offer the “bus-service model” instead of the taxi model. This means that they are in your residential area only a few times per week to incur lower delivery costs. This concept seems to be a good alternative to the taxi-model, which offers delivery service during the whole week. Online grocers that offer the latter will have much higher delivery costs.

Food delivery
Many restaurants have long delivered locally on-demand, and those that haven’t can now make use of services like Foodora, Deliveroo, Uber eats and Thuisbezorgd.nl, all of which offer last mile home delivery. This was unimaginable a decade ago. Mobile phones have given restaurants a bigger (online) reach through these types of services. They have also lowered the costs of personnel because they can now outsource home delivery. Customer satisfaction has improved as well, with consumers being able to select from a myriad of restaurant options and indicate the best time to get their dinner.

Time-slot booking
Speaking of time selection, delivery companies are also starting to catch on to consumer needs by offering time-slot booking and by communicating transparently and accurately about expected arrival times. This improves customer satisfaction and lowers the risk for a no show. Recently, in the busy month of December, parcel company DPD advertised their “1-hour Predict Service.” A service in which they communicate early in the morning the expected hour of delivery with very high reliability.

In the service industry, time-slot booking has been commonplace. Energy provider Eneco in the Netherlands steers the planning of home services such as repairs, maintenance and installation by assigning technicians/mechanics to the right area at the right time and offering clear and realistic time slots for consumers to choose. The result of applying this concept is an increase in productivity and a better NPS (Net Promoter Score).

A word of caution is in order though. Time slot booking can become expensive. It could become a taxi-model in which the company rides very inefficient routes to meet the times picked by customers. When managed right, by promoting certain time slots with attractive fees/booking costs, the extra costs can be more than halved. To do this, you need an advanced planning system.

The bottom line

Companies have been quite resourceful in accommodating changing consumer needs by offering white glove services, pick-up points, drones and other delivery methods. We see a recurring pattern in all of these cases: the customer is in the driver’s seat. Companies have a lot to gain from the last mile if they:

  1. Take the customer-journey as a starting point
  2. Predict the customer demand / personal preferences as precisely as possible
  3. Plan their capacity of resources (people, transport, skills, tools and accessories, etc.)
  4. Steer the customer to the preferred time window
  5. Are always transparent in their communication about the expected time of arrival
  6. And offer pleasant alternatives for delivery.

 

Edited article for the global market.

First published in Dutch in Logistiek.nl: https://www.logistiek.nl/supply-chain/blog/2018/01/e-logistics-de-last-mile-maakt-het-verschil-101161876

http://www.ortec.com

Goos Kant
Bio: Goos Kant (1967) is a full-time professor of Logistic Optimization at Tilburg University. He is involved in the master program of Business Analytics and Operations Research, as well as in the master program Data Science & Entrepreneurship. He is the project leader of a large R&D project on horizontal collaboration in logistics. Goos is also a managing partner at ORTEC, with global responsibility for all solutions in the logistics industry. His primary area of interest lies in the 3PL-industry in optimizing their planning processes in the end-to-end supply chain. Goos is involved in courses from MBA-schools TIAS and Nyenrode, and member of ORTEC’s supervisory board. He holds both an MSc and a PhD in Computer Science.

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