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.
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.
Consumer-facing
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 among the companies trying to figure out the last-mile problem. That strategy for a company that founded its success on customer obsession.
Amazon Flex
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.
Where Uber and Lyft applied the last-mile problem to ride-sharing. Grubhub, DoorDash, Instacart, and Uber Eats applied it to food delivery, Amazon applied it to the delivery of everything.
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).
Amazon DSP
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.
Autonomous vehicles
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.
Key takeaways
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.
The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.
A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distribution to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.
A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through customers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.
By definition, a horizontal market is a wider market, serving various customer types, needs and bringing to market various product lines. Or a product that indeed can serve various buyers across different verticals. Take the case of Google, as a search engine that can serve various verticals and industries (education, publishing, e-commerce, travel, and much more).
A vertical or vertical market usually refers to a business that services a specific niche or group of people in a market. In short, a vertical market is smaller by definition, and it serves a group of customers/products that can be identified as part of the same group. A search engine like Google is a horizontal player, while a travel engine like Airbnb is a vertical player.
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.
Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.
A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.
Psychosizing is a form of market analysis where the size of the market is guessed based on the targeted segments’ psychographics. In that respect, according to psychosizing analysis, we have five types of markets: microniches, niches, markets, vertical markets, and horizontal markets. Each will be shaped by the characteristics of the underlying main customer type.
According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all, can produce products that customers want.
Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.
As startups gain control of new markets. They expand in adjacent areas in disparate and different industries by coupling the new activities to benefits customers. Thus, even though the adjunct activities might see far from the core businessmodel, they are tied to the way customers experience the whole businessmodel.
The bullwhip effect describes the increasing fluctuations in inventory in response to changing consumer demand as one moves up the supply chain. Observing, analyzing, and understanding how the bullwhip effect influences the whole supply chain can unlock important insights into various parts of it.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Consumer-to-manufacturer (C2M) is a model connecting manufacturers with consumers. The model removes logistics, inventory, sales, distribution, and other intermediaries enabling consumers to buy higher quality products at lower prices. C2M is useful in any scenario where the manufacturer can react to proven, consolidated, consumer-driven niche demand.
Transloading is the process of moving freight from one form of transportation to another as a shipment moves down the supply chain. Transloading facilities are staged areas where freight is swapped from one mode of transportation to another. This may be indoors or outdoors, depending on the transportation modes involved. Deconsolidation and reconsolidation are two key concepts in transloading, where larger freight units are broken down into smaller pieces and vice versa. These processes attract fees that a company pays to maintain the smooth operation of its supply chain and avoid per diem fees.
Break bulk is a form of shipping where cargo is bundled into bales, boxes, drums, or crates that must be loaded individually. Common break bulk items include wool, steel, cement, construction equipment, vehicles, and any other item that is oversized. While container shipping became more popular in the 1960s, break bulk shipping remains and offers several benefits. It tends to be more affordable since bulky items do not need to be disassembled. What’s more, break bulk carriers can call in at more ports than container ships.
Cross-docking is a procedure where goods are transferred from inbound to outbound transport without a company handling or storing those goods. Cross-docking methods include continuous, consolidation, and de-consolidation. There are also two types of cross-docking according to whether the customer is known or unknown before goods are distributed. Cross-docking has obvious benefits for virtually any industry, but it is especially useful in food and beverage, retail and eCommerce, and chemicals.
The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.
Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.
Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.
Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.
A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.
Jidoka was first used in 1896 by Sakichi Toyoda, who invented a textile loom that would stop automatically when it encountered a defective thread. Jidoka is a Japanese term used in lean manufacturing. The term describes a scenario where machines cease operating without human intervention when a problem or defect is discovered.
The andon system alerts managerial, maintenance, or other staff of a production process problem. The alert itself can be activated manually with a button or pull cord, but it can also be activated automatically by production equipment. Most Andon boards utilize three colored lights similar to a traffic signal: green (no errors), yellow or amber (problem identified, or quality check needed), and red (production stopped due to unidentified issue).
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
