The “Last Mile” Challenge and the Future of Logistics: Part 1

Some logistics professionals may long for the good old days when the last mile challenge primarily involved getting goods to a store. It was generally the customer’s problem to get the goods home from the store. In today’s digital-path-to-purchase world, the last mile challenge involves getting goods to every household and business with a connection to the Internet. Today’s last mile challenge is both difficult and costly, insists Matthias Winkenbach (@mwinkenb), Director of the Massachusetts Institute of Technology’s Megacity Logistics Lab, because “the last mile of delivery routes tends to be the slowest and least cost-effective.”[1] More changes are on the way as a result of growing consumer expectations and new technologies. “Last mile delivery is going to change significantly over the next few decades,” writes John Mabe (@techgistics1‏). “A sea-change is upon the Logistics industry and as is often the case when an industry is about to be turned upside-down, there are a number of converging factors, both societal and technological, that are accelerating the pace of change. Quite simply, eCommerce has made it easier and faster to get stuff.”[2] In this article, I primarily want to focus on last mile challenges. In Part 2, I’ll discuss some of the creative ideas being discussed to meet those challenges.

Understanding Last Mile Challenges

When consumers order something on line, they expect it to show up in their mailbox or on their doorstep in a few days. They seldom think about the complex steps it takes to get the product from the supplier to their home. Tim Laseter, Matt Egol (@mattegol), and Scott Bauer, analysts from PwC and Strategy&; (its strategy consulting business), write, “In the late 1990s and early 2000s, home-delivery startups focused on speed at the expense of variety: They could get you a small selection of goods relatively quickly. Today, when retailers approach the last mile, they make more nuanced trade-offs among speed, variety, and convenience. The right combination entails a complex set of compromises that depend on the product type, consumer segment, shopping occasion, and retailer positioning.”[3] Laseter, Egol, and Bauer believe customer expectations need to be kept in check. They explain, “Companies should … determine the right model for last-mile delivery of their goods, and create a value proposition that builds on their strengths. In other words, they should stop following customer behavior and start leading it, by ‘training’ their customers in the behaviors that make economic sense using digital engagement that builds on their brands.”

According to David Meyers, a Supply Chain Operations & Technology Professional at Tompkins International, mastering the last mile challenge is no longer something companies can ignore. He asserts, “The orchestration of processes and information for the procurement of goods to the ‘last mile’ delivery to the customer is a required competency in today’s direct to consumer marketplace.”[4] That competency, he insists, begins with better visibility. He explains, “Synchronization of information across systems provides the visibility that can help enable world class customer service.” Fortunately, new technologies like the Internet of Things (IoT) and cognitive computing can help improve visibility. Winkenbach insists, “Big-data analytics and the Internet of Things can be a powerful resource.” Unfortunately, he told Angus Loten, “More and more companies are sitting on tons of data, but they don’t know what to do with it, or how to understand it.”[5] Advanced analytics, like those embedded in most cognitive computing platforms, can help make sense of all that data. Loten explains:

“Until recently, Dr. Winkenbach said, gauging the efficiency of shipping routes has been limited to knowing when a package left a given depot, how far it travelled and the amount of time or fuel consumed in getting it there. But thanks to the consumerization of IT tools through smartphones, GPS-enabled devices, and IoT sensors and scanners — as well as the emergence of a fast, mobile Internet to collect and transmit large amounts of data from anywhere — shippers can now have a near-complete view of a given delivery route at any point in time. … Dr. Winkenbach said data-collecting tools can be used to better track the progress of delivery vehicles and inform route planning, by identifying patterns in delivery times. But they can also provide ‘transactional data’ in the form of a clearer picture of what happens between a delivery truck and a customer’s doorstep. … Together, all this data can be fed into creating better delivery training programs, more efficient routes, and helping companies determine the best type of delivery vehicles. Sometimes multiple short-route deliveries on smaller vehicles, including bicycles, makes more sense than bulk deliveries in large trucks, for instance.”

Even though e-commerce represents less than 9% of total retail sales in the U.S., the last mile challenge presented by those numbers continues to drive logistics providers.

Trends Affecting Last Mile Logistics

Deborah Abrams Kaplan (@KaplanInk) has identified nine trends “forcing changes in how retailers and carriers do business.”[6] Some of these trends will be discussed more fully in Part 2 of this article. Those trends are:

1. Faster fulfillment. “There’s an emphasis on logistics and fulfillment due to an increase in on-demand or same-day delivery. … Customers want a window of delivery within a few hours.”

2. Gig economy/crowdsourcing apps. “There’s no better way to demonstrate the rise of the gig economy and use of crowdsourcing apps than by looking at venture capital flowing into the last mile delivery and urban logistics sectors. In 2015, venture capital investments in supply chain and logistics start-ups was more than four times higher than in 2014 ($1,202 million versus $388 million). … Companies like UberRUSH for parcels, Postmates, Deliv and even Amazon Flex provide spot-market deliveries by independent drivers.”

3. Focus on visibility. “Legacy carriers have improved traceability, with proof of delivery and tracking information. Regional and local last-mile delivery organizations don’t necessarily have the technology bandwidth to provide that data. … Smartphone apps have revolutionized the process for tracking with GPS. Now, customers can see where the driver or package is. … Although the process is not yet standardized across the board, consumers will increasingly demand the industry move in this direction.”

4. Postal service evolves. “Legacy carriers like the United States Postal Service (USPS) are changing with the times and continuing to grow. Given declines in mail delivery, increases in e-commerce package delivery couldn’t come at a better time. Adding a parcel to a home delivery is only an incremental cost to the USPS, since the carrier is going to the house anyway. It’s more expensive for UPS or FedEx to make that same delivery, since it’s an independent stop.”

5. Insourcing deliveries. “An increasing number of companies are using their own or shared vehicles for last mile delivery — and that includes Amazon.”

6. City warehouses. “The growing trend is for organizations to build or take advantage of this urban warehouse space and have easy access to products for fast customer deliveries.”

7. Carrier becomes salesman. “Using Big Data, retailers can predict what else a customer might want, even if they didn’t order it. The concept of a mobile warehouse is gaining steam. The fulfiller can load noncommitted inventory into delivery trucks, allowing drivers to upsell during the delivery process.”

8. Smart technology and sensors. “In addition to wanting visibility at each point in the fulfillment and delivery process, customers want to track temperature sensitive items.”

9. Delivery by self-driving cars, drones and robots. “While these futuristic delivery options are being developed and tested, they’re not yet trending. But keep your eyes on them for the future.”

Summary

“These nine trends,” Kaplan writes, “show stakeholders throughout the supply chain are actively trying to perfect the last mile in order to keep up with greater consumer demands.” When it comes to last mile logistics, the customer is king. “While there are many converging factors that will play a part in the disruption of last mile delivery,” Mabe writes, “a consumer-focused platform that allows you to connect supply with demand and optimize both will likely be the winning platform. It will be an extraordinarily challenging technical pursuit which will require the highest level of execution and innovation coupled with an obsessive focus on the customer. In building the platform, companies should consider Amazon’s approach to customer service; customer obsession is first on their leadership principles: ‘Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.’ Ultimately, the customer will determine the winner of the last mile.” In Part 2, some creative ideas for solving the last mile challenge will be discussed.

Footnotes
[1] Angus Loten, “MIT Team Uses Big Data, IoT to Speed Up ‘Last Mile’ Deliveries,” The Wall Street Journal, 23 March 2016.
[2] John Mabe, “Ways to think about Last Mile Delivery,” Tech|Gistics, 27 October 2016.
[3] Tim Laseter, Matt Egol, and Scott Bauer, “Navigating Retail’s Last Mile,” Strategy + Business, 9 November 2015.
[4] David Meyers, “How Last Mile Delivery Affects the Supply Chain,” Supply Chain 24/7, 3 April 2016.
[5] Loten, op. cit.
[6] Deborah Abrams Kaplan, “9 trends in last-mile delivery,” Supply Chain Dive, 22 May 2017.

Follow me on Twitter