Last-mile delivery consists of the set of activities in a supply chain that will bring the service and product to the final customer. The name “last mile” derives from the fact that indeed this usually refers to the final part of the supply chain journey, and yet this is extremely important, as it’s the most exposed, consumer-facing part.
|Definition||Last-Mile Delivery refers to the final leg of the product transportation process, where goods are transported from a distribution center or transportation hub to the end consumer’s location, typically their residence or a retail store. It is a critical stage in the supply chain, often involving short distances and complex logistics. Last-mile delivery is crucial for customer satisfaction and plays a significant role in e-commerce and retail industries.|
|Key Concepts||– Efficiency: Striving for cost-effective and timely delivery solutions. – Technology Integration: Utilizing technology, such as GPS tracking and route optimization, for efficient delivery. – Local Distribution: Establishing local distribution points or micro-fulfillment centers. – Sustainability: Exploring eco-friendly delivery options like electric vehicles or bike couriers. – Customer Experience: Focusing on delivering a seamless and convenient customer experience.|
|Characteristics||– Proximity: Involves short-distance delivery, often within city limits. – Diverse Transportation: Utilizes various transportation modes, including vans, bikes, scooters, and even drones. – Time Sensitivity: Requires timely deliveries, often with same-day or next-day expectations. – Last-Mile Challenges: Encounters challenges like traffic congestion, parking issues, and delivery to remote or multi-story locations. – Customer-Centric: Prioritizes meeting customer preferences and convenience.|
|Implications||– Cost Management: Balancing the need for efficient delivery with cost containment. – Route Optimization: Utilizing technology to plan the most efficient routes for multiple deliveries. – Inventory Placement: Deciding where to store inventory for faster access. – Real-Time Tracking: Providing customers with real-time tracking and delivery updates. – Sustainability Efforts: Implementing sustainable practices to reduce environmental impact.|
|Advantages||– Customer Satisfaction: Enhances customer satisfaction by offering timely and convenient deliveries. – Competitive Edge: Provides a competitive advantage, especially in e-commerce markets. – Efficiency: Optimizes the supply chain by reducing transportation costs and improving delivery efficiency. – Urban Planning: Encourages urban planning solutions to manage congestion and environmental concerns. – Economic Growth: Can lead to job creation and economic growth in local communities.|
|Drawbacks||– Cost Challenges: Last-mile delivery can be costly due to labor, fuel, and infrastructure expenses. – Traffic Congestion: Urban traffic congestion can lead to delays and inefficiencies. – Environmental Impact: Traditional delivery methods may have negative environmental effects. – Security Concerns: Package theft or delivery fraud can be issues in some areas. – Regulatory Challenges: Adhering to local regulations and zoning laws can be complex.|
|Applications||– E-commerce: Vital for online retailers like Amazon, eBay, and Walmart to deliver orders to customers’ doorsteps. – Food Delivery: Used by food delivery services such as Uber Eats, DoorDash, and Grubhub. – Parcel Services: Provided by courier companies like FedEx, UPS, and DHL. – Grocery Delivery: Utilized by grocery delivery services such as Instacart and FreshDirect. – Pharmaceutical Delivery: Critical for prescription and over-the-counter medication deliveries.|
Quick intro to last-mile logistics and why it matters so much
Last-mile logistics, or the so-called “last-mile” comprises the activities that need to be done in order to provide a service to the final customer. The last-mile problem is a very hard one, now on the priority list for many organizations (Amazon, Uber Eats, Instacart, Grubhub and many others).
Each of those companies is trying to solve the last-mile problem in different ways, and industries. And yet, once tackled this can change the whole supply chain for good. That is why last-mile delivery is so important and strategic.
Let’s see what are some of the components that make up the so-called last-mile problem.
Outside the network
In a platform business model, or in an organization managing a vast supply chain, there are advantages of scale. Those advantages of scale usually come from the fact that the whole platform or supply chain network benefits from managing things at scale.
There is an exception to this rule, and that’s the last mile. Indeed, the last-mile falls outside the network, as it is the last leg of the supply chain and the point of connection with the final customer, that last mile is not scalable (at least not in conjunction with the network itself) and it falls in a logic that can’t be comprised in the overall network.
Imagine the simple example, of a set of packages that have gone through an extremely well-organized sorting, and storing center, where, perhaps, packages have been shipped even before the expected time, in the center outside the urban area, and are now ready to be delivered to the final customers.
The delivery person – which is usually in charge of the last mile – has to ship several packages in an urban location, perhaps in the center of an extremely busy city. All can happen in that last mile: delays, traffic jams, accidents, and worse.
Thus, for as much the supply chain has been organized to run at an optimal level. The last-mile will have the potential to disrupt the whole supply chain, as it might cause substantial delays to the final shipment to customers.
One of the key elements of last-mile logistics is also the fact that this is the consumer-facing part of the supply chain. As such, customers might attribute most of their experience to that single touchpoint.
Therefore, if the delivery person will, for any reason, get to the final customer later than expected, or to say, deliver the wrong package, the whole experience would be ruined.
The most expensive part
The last-mile is also the most expensive part of the supply chain. As organizations can’t leverage on economies of scale, the last-mile poses important challenges to the overall supply chain.
Therefore, as highlighted so far, the primary reason last-mile logistics gets counterintuitive as it usually does not benefit from economies of scale. Therefore, the last mile sits outside the network effects created by the organization, as the last step – required to get to the final customer – is disconnected from the rest of the network.
The consequence is that the last-mile is the most expensive (most of the costs of the supply chain lie in that last mile), hard to tackle (it requires a degree of customization that can’t be canceled out), and yet extremely important (consumers see the face of the delivery person as the only “physical connection” with the company).
Let’s see now, how are companies trying to figure out the last-mile problem.
Decentralizing the last-mile
Amazon has been trying to tackle this problem in several ways. With Amazon Flex it tried to crowdsource delivery by tapping into gig workers at local level:
As Amazon Flex highlights “most drivers earn $18-25 an hour,” the mechanism of Amazon flex is pretty much similar to how other companies have been tackling the same problem in other industries.
Indeed, Amazon Flex comprises the delivery of all the items coming from Amazon.com, Prime Now and Amazon Fresh, Store Orders, Instant Offers, and else.
While the concept seemed quite interesting, it also posed substantial pressures on the last-mile flex workers (which only enriched the militia of gig workers born in the platform era).
Yet, this system didn’t seem to work extremely well and Amazon instead doubled down on its Delivery Service Partners. As Amazon explains:
DSP owners are responsible for hiring, training, developing, and retaining a team of 100 high-performing, hardworking employees, operating with up to 10-40 vans. We are looking for candidates who love building and growing a team, have the grit and leadership required to roll up their sleeves to get work done, enjoy operating as a part of a larger community, and have a can-do attitude that inspires their team to handle labor-intensive delivery work. We look at a wide range of information on each applicant, including work history, education, and financial information, to determine eligibility for the program. Please note that this is a highly competitive program with a limited number of available openings.
Therefore, instead of turning directly to drivers, Amazon is trying to solve the last-mile problem by helping to start delivery businesses that will handle drivers locally. A decentralized approach, which is local enough to make it manageable and yet cheap for Amazon, as those companies would run their own P&L, independently.
This works as a sort of a franchise model, where Amazon helps in the initial set-up and it guarantees business to its franchisee business owners, as long as they meet the quality standards set by Amazon.
Yet those are independent contractors.
Amazon Prime Air
Another solution that will help tackle, part of, the last-mile problem is the use of drones, where for objects with specific characteristics and in certain areas (rural areas perhaps) the drones are already in use as a valid test to tackle the last-mile problem.
Another solution that might help solve, part of, the last-mile problem is the use of autonomous vehicles. Amazon itself has been looking into the possibility of acquiring and expanding more and more into the autonomous vehicle space, which also would help solve part of the problem in the next decade.
- The last-mile is the final step in the supply chain and yet critical as it’s consumer-facing, thus, often, the only physical touchpoint between the consumer and the company. At the same time, this is also extremely expensive, inefficient, and hard to scale.
- The last-mile delivery then poses a last-mile problem that several companies are trying to tackle, as this is the key to unlock online-to-offline experiences and create a consistent end-to-end journey.
- Companies like Amazon have been trying different solutions. For instance, Amazon tried Flex, a formula that enabled anyone to become a delivery person.
- Amazon, however, started to abandon that program in favor of Amazon Service Partners, which attempts to create a whole new ecosystem of independent startups that run their business on top of Amazon’s last-mile supply chain. If this model works, it might, in part, solve the hard problem of last-mile delivery.
- Other potential solutions are the use of drones and autonomous vehicles. While those seem technically viable, they pose substantial regulatory challenges that might make them viable in the coming decade.
- Last-Mile Delivery Overview:
- Last-mile delivery involves the activities that bring products and services to the final customers.
- It’s called the “last mile” because it’s the final part of the supply chain, consumer-facing, and critical to customer experience.
- Importance of Last-Mile Logistics:
- Last-mile logistics is a challenge faced by many organizations like Amazon, Uber Eats, Instacart, and Grubhub.
- Solving the last-mile problem can revolutionize supply chains.
- Different industries approach the problem uniquely, but the importance remains consistent.
- Challenges of Last-Mile Delivery:
- Last-mile is outside the benefits of economies of scale.
- Last-mile disruption can impact the entire supply chain due to its sensitive nature.
- It’s the most expensive part and poses challenges in terms of customization.
- Consumer-Facing Aspect:
- Last-mile is consumer-facing, directly influencing customer experience.
- Any delay or error in the last mile can impact the entire experience.
- Solutions and Strategies:
- Amazon has explored various strategies to tackle the last-mile problem.
- Amazon Flex was an attempt to crowdsource delivery through gig workers.
- Delivery Service Partners (DSP) model was adopted, helping start delivery businesses.
- DSP owners manage teams, vehicles, and operate independently.
- Amazon Prime Air and drones are being tested for specific areas, like rural regions.
- Autonomous vehicles could also be a solution, although regulatory challenges persist.
- Key Takeaways:
- Last-mile delivery is crucial, as it’s consumer-facing and poses unique challenges.
- Companies like Amazon are exploring different solutions, from crowd-sourced delivery to partnering with independent delivery businesses.
- Technologies like drones and autonomous vehicles have potential, but regulatory hurdles need to be overcome.
- Solving the last-mile problem can greatly impact online-to-offline experiences and the overall end-to-end journey for customers.
Connected Business Concepts And Frameworks