As online shopping has exploded in popularity over the past decade or so, online retailers and logistics companies have been forced to find new ways to meet the changing needs of their customers. Order fulfillment has always been the backbone of any retail business but what customers really want these days is fast delivery. The challenge for e-commerce companies is to expedite delivery for their customers while also keeping their own costs down.
Modern technology has changed the way businesses do business, mostly for the better. Unfortunately, it has also brought about some unique challenges. The same technology that enables customers to purchase products with the click of a button comes with the expectation that the product will be delivered quickly as well. Fast, efficient, and reliable order fulfillment is the key to maintaining customer satisfaction, but it is also one of the biggest challenges any business has to deal with.
The order fulfillment process begins when the customer places an order and ends when the product arrives safely on their doorstep. It is that final stage in the delivery process that represents the biggest challenge and the largest expense for many retailers and logistics companies – it’s called last mile delivery.
Keep reading to learn more about last mile delivery and how you can use it to optimize order fulfillment.
What is Last Mile Delivery, Anyway?
To put it simply, last mile delivery is the movement of goods from a transportation hub or warehouse to its final delivery destination. In most cases, that final destination is a personal residence. The goal of last mile delivery is to deliver items to the customer as quickly as possible while minimizing company costs.
Last mile delivery is an essential cog in the e-commerce machine because customers can easily find an alternative product or retailer if shipping options don’t meet their expectations. This places retailers and third-party logistics providers in an awkward position because last mile delivery costs can be substantial – over 50% of total costs. In order for a company to offer free shipping to their customers, they may have to eat those costs themselves or find ways to supplement the cost by setting specific order minimums.
What Are the Challenges of Last Mile Delivery?
Think about the last time you ordered something online. Did you track the order from shipment to delivery? If so, you may have noticed that there is often a significant gap in the time between when the order is marked “out for delivery” and when it actually arrives on your doorstep. This sequence highlights one of the main problems with last mile delivery – inefficiency.
The final leg of the order fulfillment process sometimes involves independent shipping carriers taking the package from the warehouse and delivering it to the customer. The speed and efficiency with which this process is completed depends on several factors, including the following:
- The size of the company or third-party logistics provider
- The number of orders picked and packed each day
- The frequency with which orders are picked up by the carrier
- The proximity of delivery points to the warehouse or distribution center
- The location of the warehouse (ex: rural or urban)
- The number of deliveries along the route and number of routes
As you can see, many of the challenges associated with last mile delivery are outside the company’s control. Each of the things on this list affects last mile delivery in a different way. For example, a larger company with a higher number of daily orders may have shipments picked up from the warehouse every day or even multiple times a day while a smaller company may only have a few pickups each week. In rural areas, delivery routes may be longer with fewer stops spread across greater distances than routes in urban areas where delivery points are closer together, but there is the added challenge of traffic that slows down the delivery process.
The challenges and costs associated with last mile delivery have only gotten worse in recent years as the popularity of e-commerce continues to rise in the United States. Another major factor that affects the cost of last mile delivery is the free shipping movement. Customers are becoming less willing to foot the bill for shipping, so retailers often end up eating delivery costs themselves.
The Latest Trends in Last Mile Delivery
The world of e-commerce is constantly changing and evolving, so retailers and third-party logistics providers need to change with it. Staying up to date with the latest industry trends can help retailers make adjustments to their own practices to optimize their order fulfillment process as needed.
Here are some of the rising trends in last mile delivery:
- Gig economy and crowdsourcing
- Rapid order fulfillment
- Increased USPS handling
- In-house delivery services
- Upselling during delivery
- Smart technology
- Warehouses in major cities
- Improved traceability
- Self-driving delivery vehicles
- Anticipatory shipping
Let’s take a closer look at each of these trends individually and see how they are affecting last mile delivery in the world of e-commerce.
1. Gig Economy and Crowdsourcing
Venture capital investments in supply chain and logistics start-ups are on the rise, being over four times higher in 2015 than the previous year. Many venture capitalists are interested in companies that are based on technology and information, not on physical assets such as delivery vehicles. Instead, these companies rely on gig economy or crowdsourcing. Companies like Postmates, Amazon Flex, and UberRUSH post delivery jobs on their apps, which are then claimed by independent drivers. Though this type of ad hoc delivery is less efficient than a delivery system with strong route management, it helps minimize company costs by leveraging vehicle utilization through technology.
2. Rapid Order Fulfillment
With the ever-expanding growth of the internet, consumers are able to find the products they need more quickly than ever. As it becomes faster and easier to find and purchase products online, customers also want to receive their products more quickly. This has resulted in a higher demand for two-day, one-day, and even same-day delivery. Third-party logistics providers rely on warehouse management software to optimize the order fulfillment process, but even the most modern technology has its limitations. Examples of industry where rapid order fulfillment and same or two-day delivery are particularly valuable are pharmaceuticals and food/meal delivery.
3. Increased USPS Handling
Though private carriers like FedEx and UPS are still widely utilized by retailers and third-party logistics companies, USPS is changing with the times and has seen some growth of late. Though traditional mail delivery has decreased over the years, e-commerce package delivery has increased, and USPS is starting to pick up their piece of the pie. Adding a parcel to a home delivery is a minor cost for USPS when a carrier is visiting the home anyway. It would be more expensive for FedEx or UPS to make that same delivery because it is an individual stop.
4. In-House Delivery Services
As a means of reducing last-mile delivery costs, several companies have started using their own shared vehicles for in-house delivery services. Some of these companies have even begun to co-op with competitors or other companies in their region, sharing transportation assets to minimize costs.
5. Upselling During Delivery
Retailers make a lot of money upselling customer orders, but the incorporation of upselling into the delivery process is still fairly new. Using predictive intelligence technology, companies can anticipate what other products a customer might want and can make those suggestions during the checkout process. In a similar vein, delivery drivers can stock their trucks with items the consumer has ordered in the past or might need, potentially processing an additional order in person when the delivery is completed. This model seems most applicable on the food delivery side of e-commerce, but it may also work for the apparel and pharmaceutical industries as well.
6. Smart Technology
The modern consumer wants to know where their order is at all times from the moment it leaves the warehouse to the moment it arrives on their doorstep. Modern technology has made this a possibility, and it also opens up other possibilities. For example, by using smart technology and sensors placed inside the package itself, customers can track things like temperature and humidity level. This is especially important for items in transit such as frozen foods, spirits, and pharmaceuticals.
In addition to advancements in in-transit technology, 3PL providers and fulfillment centers also use smart technology to predict weather patterns to better plan their packaging to keep products safe along the entire delivery process. When it comes to shipping perishable items, this type of technology could revolutionize the industry.
7. Warehouses in Major Cities
Another way to increase delivery speed and to offer benefits like same-day delivery is to increase the number of warehouses or fulfillment centers. This works best in major cities, of course, and it is a specialty that Amazon has perfected with their two-hour delivery option. Other companies have started to take advantage of urban warehouse space which gives them easy access to popular products for faster customer deliveries, usually same-day or next-day delivery.
8. Improved Traceability
Not only do modern customers want to receive their orders more quickly, but they also want to be able to track them throughout the entire delivery process. Improvements in technology have made it possible for shipping companies to provide step-by-step tracking information and drivers can provide proof of delivery when the shipment is complete — from creation of the shipping label to last-mile delivery to arriving on their doorstep. The challenge is when regional or local last-mile delivery organizations have to work with in conjunction with national carriers. Fortunately, smartphone technology is closing the gap and improving standards for traceability across the board.
9. Self-Driving Delivery Vehicles
Deliveries are currently limited by factors such as the cost of labor, worker availability, and shifts but autonomous delivery vehicles could cut those costs dramatically. Not only would self-driving vehicles and drones negate the need for delivery drivers, but it would make delivery possible 24 hours a day. There are, of course, regulatory and operational issues to consider, but there is a great deal of potential. In fact, Amazon is already placing a strong bet on the future of autonomous vehicles by investing $530 million into the self-driving car company, Aurora. This comes at no surprise as they have already created a working last mile delivery robot named “Amazon Scout”, seen in the video below.
10. Anticipatory Shipping
While driverless vehicles, drones, and robots will certainly improve shipping efficiency, full implementation is far off in the future. Plus, the challenge of getting the item in the “hands” of the autonomous vehicle/robot/drone is still a cog in the logistics wheel. For this reason, we’re starting to see a shift in inventory management where companies like Amazon are performing the bulk of their transportation before the consumer buys the product. For example, Amazon may use artificial intelligence to determine when large amounts of orders are placed in certain regions (e.g. tailgate supplies around football season) and pre-ship those items to local warehouses.
The solution to last mile delivery challenges is not one-size-fits-all. In fact, an online retailer or third-party logistics provider may find that a combination of improved technology and analytics could be the solution to rising last mile delivery costs.
Regardless of what your fulfillment strategy is, the importance of optimizing last mile delivery is undeniable. Take note of the rising trends we discussed and determine how they can best fit into your overall shipping plan.