• Articles

Lasting Impact of Last Mile Delivery

Introduction

In the tale of Aladdin and the magic lamp, the genie would do Aladdin’s bidding and everything he needed was delivered instantly. With the maturity that the internet had reached, customer service has reached a level where the vendor or retailer is expected to be like a genie. When the customer orders something, he wants it to be delivered now (or earlier), at no cost and at his doorstep. The customer also wants transparency about the order at any given point in time. The supply chain process making this happen is termed as ‘Last Mile Delivery ’.

Let’s take a step back and explain some terms. These terms were first used in the Telecommunications industry but the Logistics industry has started using them as well. The ‘First Mile’ is the stage where the product starts its journey. It could be a manufacturing warehouse or a distribution center. The ‘Middle Mile’ is the intermediate stage of transfer from the initial storage area to the final storage area. The ‘Last Mile’ is the final step of the supply chain where the product is delivered from the warehouse to the customer’s doorstep. The ‘Last Mile’ could mean anything from a few streets or blocks away to tens of miles away.

Estimates for the cost of the Last Mile Delivery can range from 25%-40% of the total delivery cost depending upon myriad factors. Thus the importance of LMD to companies is extremely critical. On one hand, optimization and efficiencies will shave off costs of delivery and on the other hand, it can help them gain market share.

 Drivers

• E-commerce Sales

In 2018, global e-commerce retail sales are expected to touch $2.5 trillion i.e. about 9% of global retail sales. This number is expected to jump to $3.2 trillion in 2020. LMD is inextricably tied to e-commerce and will grow in tandem with it.

• The rise of Omni-channel supply chains

Omni-channel is an integrated approach to providing a consistent and coherent user experience irrespective of whether a customer is using bricks or clicks. Delivery can be flexible – at the customer’s location or the store. This approach requires a robust LMD supply chain to back up the strategy.

• The Amazon effect

Amazon has been the juggernaut of e-commerce sales. It has been consistently raising the bar and forces the competition to keep apace. It has fundamentally altered the way businesses operate by its focus on customer centricity. Logistics and specifically LMD is a key component of Amazon’s core competence.

•  Millennials

Millennials are the generation most adept at using mobiles to their true potential. They are the early adopters of new technology and are willing to pay a premium for quick delivery. They are the ones driving mobile-commerce (m-commerce sales) which in some places account for 50% of the total e-commerce sales.

•  Demographics

In 2020, about 55% of the world’s population will live in urban areas. This population tends to be more affluent and more likely to order online. Global demographics are causing the LMD pie to become larger.

• Rise of the sharing / crowd-sourced economy

LMD will doubtless involve the sharing / crowd-sourced economy to provide the flexibility and the resources to effect an increasing number of transactions.

• Penetration of the technology and internet

The increasing reach of internet-enabled mobile devices will lead to a boom in m-commerce which in turn will translate into huge opportunities for LMD companies.

Challenges

• Cost and Time to deliver

These are the primary considerations from the consumer’s point of view. If the consumer wishes to have the product delivered at low or no cost, on the same day, the LMD cost will eat into the margins. One way companies can save on cost is to have centralized locations from where the customer can pick up the parcel. A lot of cost savings can be had by route optimization and coordination.

• Visibility

With modern lifestyles where every minute needs to be stretched and expanded to fit in more work (or leisure), consumers want to know when the parcel will be available for them. The integration of telematics, IoT, and web/smartphone apps means that one can easily track the parcel, not unlike the way one tracks the Uber or Careem ride.

•  Technology

LMD is increasingly very technology intensive. Depending upon the mode of delivery and market segment targeted, LMD could include Cloud based systems, wearable & portable devices, Internet of things, autonomous vehicles/drones, robots and the blockchain. One challenge will be to integrate the LMD platform with the existing systems and processes.

•  Optimum Delivery Models

LMD companies will have to determine the right mode of delivery depending upon the size of the retailer/vendor, the product and the terrain. An autonomous vehicle might work on the streets of Memphis but not on the streets of Mumbai. In Asia, drone deliveries might work for deliveries in large housing complexes with their own private security but may not work across the board. Delivery of large products or those requiring assembly will have to be done by individuals. In Europe, DHL uses electric bikes to perform LMD in certain areas.

• Government regulations

LMD companies will be constrained by government and bureaucratic rules and regulations especially when it comes to deliveries made by autonomous vehicles, drones land or robots. For e.g. the use of drones in the US is regulated by the FAA. Governments will increasingly have to keep up with times and lay down the framework of rules so as to not enfetter innovation.

• User Experience (UX)

The technology employed to deliver the product generates a user experience that can elevate the perception of the product itself. Not unlike the gift wrapping for a gift. A parcel delivered by a drone will invoke a different sense of customer delight than a regular delivery. A slick looking mobile app for placing orders or viewing deliveries is a must.

•  Security

LMD will involve new challenges to the security of the delivery person, vehicle and products. These threats could come from criminal elements or individuals and groups disgruntled with LMD companies poaching on their livelihood.

LMD Companies

Walmart, Target and UPS have Parcel, Shipt and Deliv respectively to perform their LMD. Udelv performs LMD using an autonomous vehicle built specifically for LMD. Starship is building a network of robots to serve customers within a 3km radius.

Given the thrust towards hi-tech by the UAE government combined with factors such as ‘global talent available locally’ and ‘presence of multinationals’, the scene is ripe for innovation. Fetchr claims to solve the unpredictability of package delivery in the UAE and Middle East because of the absence of a formal street address system by using the GPS in your phone for location-based pickup and delivery. Fareye offers a digital logistics platform enabling companies perform LMD. One Click is another start-up providing LMD.

Key Features

• Differentiator

LMD has become a huge differentiator. This specific competency may cause a retailer – online or otherwise to win or lose customers. A good example is the KFC and the #chickengate supply chain snafu which led to some very ruffled feathers in the UK. Almost 75% of KFC’s outlets were closed or serving a limited menu due to chicken shortages and then gravy shortages. The root cause was a switch in the LMD provider from a specialist food delivery company to a shipping giant. This critical component of the supply chain will be thus be handled by specialized players who can provide very specialized efficiencies.

• Disruptor

LMD will be a disruptor in the marketplace putting pressure on retailers and existing logistics /delivery providers. Companies will have to swim or sink. The disruption may not be restricted to the retailer or logistics provider though. In February 2018, Amazon bought Ring, a company that makes security cameras and doorbells connected to the Internet. One should not be surprised if Amazons next acquisition is one which deals with door locking mechanisms thereby disrupting the business of lock & key manufacturers. Amazon can then control the delivery of the package safely within your home by a human or an autonomous vehicle or robot.

• Digitalization

Everyday household products will be increasingly digitalized and this will also influence LMD delivery models. There will come a point of time in the future when devices will automatically determine your needs even before you do and the product will be delivered. For example, an IoT + AI enabled refrigerator or kitchen storage rack could easily determine the quantities remaining of certain products based on bar-codes, weights and such. It could then fire off a grocery list to your preferred grocer. The LMD company will deliver, stack your smart refrigerator or storage rack and cart away empty boxes for recycling.

• Demographics

In 2050, with the population of the earth at 9.7 billion, 7 in 10 of us could live in “megacities,” i.e. cities of at least 10 million people. Some of these cities would be as big as entire countries. Many twin cities will merge into one gigantic city (Tokyo-Yokohama, Mumbai-Pune). Some of the biggest megacities in 2050 will be will be Dhaka, Mumbai, Karachi, Shenzen (all 50+ million) and Lagos Nigeria (35 million). This scenario means huge opportunities for LMD providers.

Conclusion

One cannot adopt a cookie-cutter approach to employing strategies to have an edge and win in the LMD space. For the same product and industry, what may work in Dublin may not work in Dubai. In my opinion, the Last Mile’s lasting impact will be the true differentiator in winning customer loyalty. It plays a crucial role and is the yard-stick that will be used to judge the efficiency of your supply chain thereby ensuring customer attraction and retention.

---