MHI Solutions Improving Supply Chain Performance
Feature
Over the last few years, the definition of last-mile delivery has been expanded to encompass many different methods of getting goods to customers. These include delivery services dropping off packages at front doors, the white glove unboxing of large items like furniture inside a home, consumer pickups from lockers, curbside or retail store locations and even the collection of returns. At the same time, the quality of the fulfillment experience has become increasingly important to consumers, who are now more likely to switch brands when they can’t get purchases delivered when, where and how they want them.
Retailers that want to be successful in ecommerce understand that they must provide last-mile deliveries that are timely, customersatisfying and cost-effective. The possible solutions range from smaller, localized fulfillment centers to data-based logistics software to autonomous delivery vehicles.
Last-mile challenges
Retailers have to consider many factors when developing their last-mile delivery strategies.
Cost is a major concern. Last-mile deliveries account for 53% of the total cost of shipping and 41% of the total supply chain cost, according to a report from the World Economic Forum. “On top of that, consumers are not always willing to absorb the entire cost,” said Debrup Jana, senior director analyst with Gartner’s supply chain practice. “Per a report from the Capgemini Research Institute, lastmile delivery costs the organization an average of $10.10, but the consumer only pays an average of $8.08. Those remaining costs have to be covered by the retailer or the consumer goods company.”
In addition, customers today expect more visibility into the fulfillment process so they can always know where their purchases are and when they will be delivered. Jana said that precision and reliability of deliveries has become even more important than speed. “If you tell me that I’ll get my package between two and five tomorrow, I want it in that specific timeframe, not at 10 a.m.,” Jana added.
The sustainability of the delivery process has also become a bigger concern. “The need to reduce carbon emissions and customers’ expectations for zero emission deliveries have put pressure on logistics companies to start thinking about sustainably in the overall lastmile equation,” said Stephane Gagne, VP of products at FarEye.
Jana noted that the awareness of the carbon impact of delivery is changing consumers’ priorities. People now may be willing to wait a few days for their products if they see it as a positive environmental choice, and/or if there’s some incentive for doing so. Amazon, for example, may offer customers a digital credit if they are willing to delay a delivery to make it more environmentally friendly. In 2020, Timberland promised to plant a tree when buyers would agree to a later delivery date. After six months, 14% of their customers had chosen that option, leading to 55,000 trees being planted.
Companies must develop a better understanding of customers’ behaviors. A retailer today may know that on any given day, they will have about 100 online orders to go out, but they aren’t able to predict how many customers will want next-day delivery and how many can wait until next week. Also, they need to predict where the customer wants the shipment delivered, i.e. either at home or at a pickup locker. Once they have found a way to make those predictions, companies can decide whether they place a product at a distribution center or at a store, or maybe dropship it directly from a supplier, Jana added.
Last-mile delivery has become a product in its own right. “The productization of delivery puts the consumer in charge of the delivery journey, where the consumer chooses what they want, when they want it and how they want it. This gives the shipper more control over the delivery models and the ability to execute flawless fulfillment,” Jana said.
New inventory strategies
Some retailers are using purpose-built micro fulfillment centers or converted no-longer-needed retail locations (dark stores) for local fulfillment centers to address last-mile delivery challenges. “Robotics may play a big part in the different types of micro fulfillment applications; I’ve seen some pretty amazing fulfillment centers where basically everything for an order gets put in a box and the box gets sealed. Not a single person, except maybe the quality checker, has even touched it. Low touch, highly skilled fulfillment centers supported with the right technologies are critical for the last-mile delivery solutions,” said Douglas Kent, EVP, corporate and strategic alliances at the Association for Supply Chain Management.
Large retailers like Walmart are using a combination of large and small fulfillment centers to ensure they can serve a certain percentage of the population within a certain cycle time. “The difficulty, of course, is that the greater the number of centers that you have to fulfill, the more complex the inventory management becomes. Which SKUs do I have in which centers? This is a difficult play, because you’re not only trying to assess the speed in which you can perform the fulfillment, but on which products,” Kent said. People may be fine waiting 24-48 hours for equipment for a home network, but may want a critical need like diapers overnight.
“Sales and operations planning and inventory strategy has always been important, but it’s becoming even more important now, because items that have the greatest degree of volume fulfillment and short cycle times are often the ones that have shelf lives as well. So, you’re not only at risk of not having the right product in the right place, but you also have to play that against the potential of having inventory that is no longer in a usable state,” said Kent.
He sees companies investing more in supply chain network design capabilities and becoming more cognizant of the tracking and shelf-life information they need to do this effectively. Access to accurate, real-time data is critical to determining the best ways to fill orders for last-mile deliveries, whether that’s from a traditional warehouse, a micro fulfillment center or directly from a supplier.