It is estimated that the last mile accounts for up to 28% of the total delivery cost for retailers. Top-tier service comes at a price and as customer demand for delivery speed and flexibility grows, retailers must find new ways to optimize their last mile operations and make them as lean and cost-efficient as possible.
Several aspects of last-mile operations factor into the steps retailers can take to keep costs down without compromising the customer experience:
The amount of space in warehouses, as well as their storage characteristics and geographic locations have a significant impact on the retailer’s cost structure. There is a growing trend for retailers to build out or use existing urban warehouse spaces in order to gain easy access for fast customer deliveries. For example, Amazon created 58 Amazon Prime Now hubs in the US last year to fulfill same-day instant deliveries. While few retailers have the resources to create their own urban warehousing network, many can ‘rent’ space from other existing networks with strategic locations.
The number of individual SKUs, packaging needs, order fulfillment time, and amount of orders are at the heart of any retail delivery operation. Ken Chrisman, President of Product Care Division at Sealed Air suggest that the definition of fulfillment will change. He envisions a future in which fulfillment will performed by everyone from manufacturers and major 3PLs to an Uber-esque network of independent packers, drivers and small parcel shippers. Packaging will play a bigger role than ever in ensuring product integrity and an ideal customer experience no matter whose hands touch each order first, third or last.
This element includes the time frame, order size, delivery scope and mileage, making congestion, or inefficient route planning, hidden costs that add up to even more last mile expenses. Retailers will need to pay closer attention to route optimization and truck or car capacity. Fuel and driver costs can escalate and easily get out of hand – a great service shouldn’t come at the expense of a company’s ability to remain profitable!
The need for supply chain visibility and adaptability to customers’ continuously increasing and changing needs has a huge impact on costs. While we can see a lot of headlines about how robots, drones and self-driving cars will reshape the delivery industry, they’re still a few years away from becoming a feasible resource for most retailers. However, there’s currently a huge wave of tech innovation in the supply chain which is empowering retailers with software solutions that can be implemented immediately and are focused on tracking, managing and optimizing the last mile – and retailers must take advantage of these to remain relevant and profitable.