Last-mile delivery makes up a whopping 53% of total shipping costs. That’s a huge amount, for a business of any size.
Being such a large share of cost makes last-mile delivery solutions a big area for cost savings. But what exactly is “last-mile delivery”? And what steps can a business take to reduce those costs? Read on to find out.
What Is Last-Mile Delivery?
Last-mile delivery is one part of the larger outbound logistics process. We’ll explain the whole process first, before defining last mile (or “final mile”) delivery.
Fulfillment Process
Say you need to buy some soap online. You’ve found a good vendor and placed an order through their online shop. Your order goes into a centralized inventory system. This system is linked to a warehouse where that brand is storing its inventory.
These warehouses are sometimes run by third-party logistics (3PL) companies (instead of the vendor), but we’ll get into that later. The warehouse staff will pull your ordered item(s) from the shelves, and pack them up. After that, your order will get shipped from the warehouse.
Here’s where the process can look different, depending on what company you’re buying from. Sometimes your package goes to a regional distribution center first. A distribution center is a company-owned storage warehouse that serves as a shipping hub for one region. Only large corporations like Amazon tend to use them.
If a company doesn’t have distribution centers, it’s likely to get shipped from the original warehouse straight to your door. This is more common with smaller businesses, which don’t have a huge shipping infrastructure.
Where Does the Last Mile Start?
The “last mile” (or “final mile,” we’ll use the two interchangeably) is only one part of the process outlined above. It’s the journey a package takes from the warehouse or distribution center to the recipient.
For large businesses, like the Amazon example above, this is the leg from the local distribution center to you. The previous legs – from the original warehouse to the distribution center – would not be considered part of the “last mile.” For companies without regional distribution centers, the final mile takes up a larger part of the total shipping process.
Why Is the Last Mile So Challenging?
Now that we’ve defined the last mile, what makes it so important?
Well, there’s the cost factor we mentioned earlier – the last mile is a huge part of overall shipping costs for any business. Part of the reason why it’s so expensive is that this shipping stage is notoriously inefficient. Think about it like this: a company moving goods from a warehouse to a distribution center can pack its shipping vehicle(s) pretty tight. After all, the goods are all going to the same place.
By moving goods just from point A to point B, the business can maximize its investment in fuel needed for shipping. But packed orders headed to customers aren’t going efficiently from point A to point B. They’re heading from point A to points B, C, D, E, and beyond. Instead of one big load of packages going to the same place, it’s a ton of smaller packages going to very different places.
This requires a lot more fuel, drivers, and support logistics – which will all cost more money. What makes it even more complicated – those destinations change every day. Unless someone is shopping online a LOT. This means that if route planning isn’t careful, businesses can sink far more money than they need to in gas, drivers, shipping labor, and more.
What Makes the Last Mile Expensive?
We touched on these at the end of the last section. But there are a lot of logistics factors that contribute to the final mile cost. These are just a few:
Labor
Final mile delivery requires a ton of labor to be successful. Most businesses need many full-time drivers, who all need fair pay. Crowdsourced delivery services are an alternative to full-time labor. But crowdsourcing platforms come with their own pros and cons.
Time and Distance
The last mile could be just down the street from a distribution center or warehouse. But it could also be twenty miles out in the country, with no other houses around.
Great distances between drop points mean deliveries take more time. Each delivery requires the driver to stop the vehicle, locate the correct packages, drop them, confirm delivery, then drive off. Add in the fact that drivers are likely making many stops a day, and a delivery run could easily take over eight hours.
Fuel
Fuel is another significant cost to last-mile delivery, especially with gas prices so high. Long routes, especially those with many stops, can be less fuel-efficient than a straight shot from one place to another. If the stops are spread out over a wide area and require more fuel to reach, that further contributes to a high cost of delivery.
Failed Deliveries
Ever had a shipping company not deliver a package, because someone wasn’t around to sign for it? That’s a failed delivery. Failure to deliver a package is costly. A delivery failure effectively wastes the driving time and fuel cost invested to get there. If the service has to return the next day, they’ll essentially be paying twice as much to make a single delivery.
Delays
Seasonal weather issues could delay your trucks. Unexpected road closures could lengthen the time and distance needed for deliveries. Anything could happen to waylay your vehicles. Any disruption compounds the time, distance, and fuel costs of making the “final mile” work.
What Makes the “Final Mile Challenge” Harder?
It’s not just the monetary cost that makes the final mile a huge challenge. Customer expectations and planning strategies can also turn it into a logistical nightmare.
Customer Expectations
The last-mile delivery process is inefficient by nature. But the expectation of fast, cheap delivery makes the whole process even more complicated and expensive. Meeting same-day or one-day delivery turnarounds makes the final mile even more expensive. These time constraints add to the established cost of fuel and labor. They also require detailed route replanning at the drop of a hat.
Carbon Emissions
More and more companies are looking for more sustainable ways of delivering goods to customers. Final mile delivery is not inherently friendly to the environment, for the reasons we outlined in the “Time & Distance” section above. Many stops, over wide geographic areas, aren’t very fuel-efficient.
Complex Route Planning
Planning delivery routes manually makes last-mile delivery more complicated. For example, any of the following situations might require a complete re-do of the day’s schedule and routes:
- a driver calls in sick
- a weather event closes multiple roads in the area
- one or more vehicles require immediate maintenance
The time and effort it take to make these changes can have a high cost, especially when customers are waiting for their goods.
Who’s Doing Final Mile Delivery?
So who is carrying out last-mile delivery? It can vary and depends on the type of business shipping goods. However, the provider dropping packages at your door is usually one of these:
Postal Services
The smallest of small businesses use the postal service for shipping. And it makes sense. It has a well-established infrastructure and is easy to get started using.
Third-Party Logistics Companies
A third-party logistics company (3PL) doesn’t sell a product itself. Instead, a 3PL is hired to store and deliver a product to customers. Many online direct-to-consumer brands don’t own warehouses to store inventory. Instead, they work with a 3PL to rent storage in the 3PL’s warehouse. The 3PL will also pack and ship their orders.
Moving to a 3PL is usually the next step when shipping through the post office becomes too costly or inconvenient for a business. These days, 3PLs that specialize in same-day delivery are becoming increasingly prominent in the industry.
Vendors
In some cases, last-mile delivery is completed by the companies selling goods themselves. Because this requires a ton of investment – in trucks, drivers, and support staff – it’s not very common for smaller companies. The biggest and most prominent example would be Amazon and its branded Amazon Prime trucks.
Why Addressing the Last-Mile Delivery Issue Is Important
We’ve outlined how challenging last-mile delivery is, and the factors that make it so complex. But why is solving it such a big issue? Because it’s not only expensive but can directly impact customer experience.
Expense
We’ve already gone over the fact that last-mile delivery is expensive. We’ve also named several factors that help make it so costly. Many of these factors (labor, fuel, and so on) are unavoidable in our current transportation systems. But the expense can be cost-prohibitive. This is especially true for smaller businesses starting to scale up their operations. Finding ways to minimize last-mile costs is crucial to new business growth and competition.
Customer Satisfaction
A customer’s experience with last-mile delivery can have a huge impact on their opinion of your brand. Think about it this way: a customer receives a tracking status saying “out for delivery” at 7 am, but the package doesn’t arrive until after 7 pm. For someone who might need to be at home to receive a package, that’s wildly inconvenient. Or, say someone orders groceries with single-day delivery. If that order is late to arrive, and the customer has planned their meals around this delivery, that’s a huge problem. Dissatisfaction like this can cause customers to not purchase again from your brand.
Ways You Can Improve Your Company’s Final Mile Delivery
This final mile problem isn’t new. This works to your benefit because it means there are plenty of ideas and resources out there to improve it. Below are a few of our favorites:
Adding More Warehouses
For large companies who can afford it, this is a great option. More distributed warehouses or distribution centers make the “final mile” much shorter. More warehouses spread over a wide area allow shippers to start the final mile process closer to the destination. A shorter distance between the shipper and customer makes the “final mile” much less time, fuel, and labor-intensive.
Crowdsourcing Delivery Staff
Several companies are outsourcing their delivery services by crowdsourcing drivers. Some good examples of these would be Instacart or Roadie. The benefits are in labor savings – you wouldn’t have to pay as much as you would for a fleet of full-time delivery professionals.
However, relying on gig workers who choose their hours might affect your delivery reliability. Say a same-day order came in when there weren’t enough drivers able to take it on? You might be setting yourself up for a negative customer experience
Parcel Lockers
Parcel lockers are another way that larger companies can lessen their last-mile costs. Amazon would probably be considered the biggest example of this, along with FedEx and UPS.
Instead of delivering to multiple locations, personnel can drop packages in a single locker. This saves their drivers not only time but fuel as well. This is an efficient way to lessen costs, assuming that customers are near a locker and opt to pick up their purchases there.
Automated Delivery
Automated delivery options are just taking off. Using mobile robots or drones to deliver packages is still uncommon but is gaining popularity in the food delivery industry. However, these options can drastically cut down the last-mile labor costs for a business. After all, there’s no need to pay a driver if the vehicle making the delivery doesn’t require a driver.
The relative cost of infrastructure for these solutions is still up in the air. After all, robots and drones can be costly and need maintenance, just like driver vehicles will. This may make this option cost-prohibitive to smaller businesses.
Technology Solutions
There are all sorts of software tools that support logistics operations. Some address only one part of the final mile challenge, while others tout an end-to-end solution. Since there are many benefits to these solutions, we’ll go into more detail in the next section.
Why You Should Use a Tech Solution to the Last Mile Problem
Keep in mind that software can’t make the problem go away entirely. But there are many tools out there that can mitigate the natural inefficiencies of final mile delivery.
Dynamic Route Planning
Remember our example from earlier, of how manual schedules require a lot of maintenance to be effective? Dynamic routing can help with this. Dynamic routing builds your delivery routes for you but takes into account the information you’d need to look up separately to do it.
That means your routing tool will already know many factors that would otherwise affect your route planning. It’ll know what drivers and vehicles you have available, any weather alerts for the area, and any relevant road closures. It can use this information to plan the most fuel- and time-efficient routes. This efficient, adaptable routing system can therefore save you time and money.
Better Tracking Capabilities
Logistics software can upgrade tracking capabilities for the customer. Instead of seeing only “out for delivery” 12 hours, many companies allow customers to track delivery in real-time. This is a little more common with food delivery apps at the moment. But it provides great assurance to the customer that their order is on the way to them. This assurance can create a more positive customer experience in the last-mile delivery process.
Proof of Delivery
Proof of delivery isn’t new – people have been signing for packages for decades. However, software tools have increased companies’ proof of delivery options. Some offer photographic proof (taken by the deliverer) that the package was dropped at the door. Others simply specify whether a package was left near a mailbox or handed directly to a recipient.
Either way, this digital chain of custody is helpful if an issue arises from a missing package. The company can quickly sort out what might have happened, providing an excellent experience to their customers.
Easy to Scale
Adjusting your existing logistics workflows is very easy with software tools. Instead of needing to manually adjust routes and schedules with each new hire, the software can do it in just a few clicks. With this functionality, you can simply add a new driver schedule (or a new vehicle available), and let the dynamic routing take care of the rest. No more time wasted manually updating all your planning systems.
Valuable Analytics
This functionality will depend on the platform you use, but most software has them. Many software-based supply chain solutions will provide valuable analytics on your operations. You can get a much fuller picture of where your last mile processes need more attention.
Getting these insights served to you by a piece of software is ideal because you don’t need to spend as much time analyzing your ops. You get actionable information fast.
Efficient Machine Learning
This benefit goes hand-in-hand with the analytics mentioned above. Not all software solutions might have it, but services that use machine learning to power your ops are very valuable. Software solutions powered by machine learning don’t just serve data insights. They can also power the dynamic routing tools mentioned earlier. Incorporating machine learning is what makes these supply chain solutions possible.
The Benefits of Finding a Final Mile Solution
Your supply chain issues may not get fully “solved.” As we’ve said, the final mile in every delivery is inefficient by nature. But there are upsides to improving your final mile experience.
Cost Savings
We’ve mentioned this before, but it’s worth mentioning it again. The final mile is a significant part of shipping costs. Addressing those challenges can decrease your business’s shipping costs. For example, using dynamic routing instead of manual route planning will save you money in fuel and time spent.
Positive Customer Experience
Addressing your final mile challenges can make your customers’ shipping experience much better. So many tools out there help companies to manage their drivers’ time and routes to create specific shipment ETAs. If you can get more specific on where your customer’s items are and deliver them on time, you’re providing an excellent experience for them. This, in turn, may help raise repeat purchases.
A “Failed” Delivery Example
Let’s use a failed delivery as an example to illustrate these benefits. Say someone was expecting an important package but was not home to receive it due to unforeseen circumstances.
Standard practice is to send the driver out to the same location the next day and try again. The customer then needs to re-arrange their schedule to receive the package this time. Even then, something might happen and the second delivery could fail as well.
If your software includes a delivery window specification (such as 3-5 pm), you can avoid making another failed delivery. If the customer can define a preferred dropoff day and time, the deliverer only needs to make one more trip out there. The latter option saves you money in labor and fuel costs and provides on the whole a better customer experience.
Install a Last-Mile Delivery Solution Today
It’s clear the supply chain challenges in the “final mile” are ongoing. There’s no silver bullet solution that’ll get rid of them. Your best bet is to work with modern software tools and consultants. Automate the process as much as you can with smart technology and use those insights to keep improving your last-mile delivery.
Which supply chain solution(s) are you using? If you’re looking for an end-to-end solution powered by machine learning, check out the NuVizz Last Mile Delivery Platform. Your customers, and your supply chain operations team, will thank you. Schedule a demo with the NuVizz team today!
