Whether you’re a newbie or veteran as a logistics provider, it’s critical to recognize the many challenges the last mile delivery runs into and how to mitigate them.
The last mile delivery is the most difficult to achieve for a startup or for a relatively established logistics provider. While there are many challenges in this space, there are solutions to help overcome them or at least ease them as the industry grows demands increase. Same-day and instant deliveries will likely reach a combined share of 15 percent of the market by 2020, according to a report by McKinsey. With fast delivery options becoming increasingly popular, providers need to recognize the challenges the industry face as a whole, and what they can do as an organization to optimize operations.
According to Statista, reducing costs and improving margins for retailers and manufacturers in 2017 is the most important last-mile delivery initiative, and it should be since the last mile delivery accounts for approximately 30 percent of total transportation costs. For logistics providers, the last mile delivery means a lot more dollar signs. It is quite expensive to transport individual shipments to difficult destinations with varying routes. Labor costs can also be very high in some countries. Sometimes the cost is just too high to even offer to more rural areas, especially with the demand sometimes being lower than in more populated areas. A way to offset some of the costs is to explore opportunities for automation or to entertain varying transportation models, for example with a bike delivery model or via large vans for e-grocery deliveries. What could be automated options in the future? Drones and autonomous ground vehicles (AGVs) could be options within the near future to avoid increasing labor costs. Although, labor costs isn’t the only factor when it comes to last mile fulfillment. There are costs such as warehousing, fulfillment, delivery, and any technology costs to streamline operations. According to the American Trucking Association, 43 percent of trucking’s operational costs is driver compensation, the largest operational cost for a motor carrier.
Costs can also be lowered by having customers who order online, pick-up at their local store or at a parcel locker center. Although statistics show that this is not a customer’s initial preference, it could be if it also means a lower premium cost to the end user. Adding more distribution centers in high-volume areas may also be another cost-effective solution.
The last mile can be very inefficient. Varying traffic patterns, delivering to locations that may not be reliable, changing routes, and the general cost of transportation are all factors that make the last mile inefficient. There is a level of unpredictability that needs to be dealt with and that can be done through automation, big data, and analytics, especially looking into the future of the last mile delivery. For example, using routing software can allow users to take advantage of choosing a convenient delivery time out of those that are available to them. The delivery time is set at the point-of-sale resulting in a more speedy delivery, and allows retailers to offer deliveries and quality service that is feasible and promote operational efficiencies.
Logistics and dispatch management is a necessity in improving or eliminating inefficiencies or issues that may occur during the last mile delivery process. These features help logistics providers analyze a lot of valuable data to optimize their operations. Features such as re-routing algorithms that consider various parameters including weather and traffic conditions, time preferences, customer locations, interactive planning dashboards to analyze entire delivery networks, and real-time last mile tracking all improve the overall last mile delivery process and help identify problem areas.
Once providers understand where inefficiencies are by collecting this data, action can then be taken to optimize operations by adding more drivers in particular areas or just by understanding their current volume constraints. Providers need to collect actionable data to have a solid and successful delivery plan.
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Government restrictions have also made it quite difficult for logistics providers within the United States and in other countries. There are several regulations including vehicle size, weight, parking, and noise restrictions. To combat several of these regulations, some local delivery operations are investing in smaller vehicles. Productivity is also hindered when considering regulations for truck drivers and the permitted hours-of-service. The Federal Motor Carrier Safety Administration has rules and regulations regarding how many hours truck drivers can drive consecutively. Property-carrying drivers may drive a maximum of 11 hours after 10 consecutive hours off duty. As a logistics provider, that means it’s vital to maintain several fleets that are operating in shifts to account for off-duty drivers.
Keeping up with Demand
Consumers want more real-time tracking provided to them in regards to their shipments. This is where implementing inventory management software and customer relationship management come into play to relay that information to the end user. Statista also reports that according to retailer supply chains, 65 percent of the respondents in North America and Europe stated that customers demand delivery flexibility. The customer is ultimately the one who is dictating the future of last-mile delivery. According to a report by McKinsey & Company, although 70 percent of consumers still prefer the cheapest delivery option, 30 percent of consumers (most of which are younger) are more motivated to choose same-day or instant delivery options despite the cost and this percentage is expected to increase. Logistics providers need to identify how they can accommodate for same-day or instant delivery options and what options don’t appeal to consumers. For example, the same report indicated that investing in parcel locker delivery is not a smart move since not only is owning the real estate expensive, there isn’t much of a cost difference between that and home delivery.
Maintaining the Proper Infrastructure
The demands of consumers is constantly shifting and what might be a problem one year, might not be one in the future. Deliveries may shift toward locations where as a logistics provider, you don’t have warehouses or distribution centers setup. Overall, there is a shortage for delivery drivers. It’s important to maintain the proper labor force to fulfill last mile deliveries. According to the American Trucking Association, trucks move approximately 71 percent of the nation’s freight by weight and the industry needs to hire approximately 900,000 more drivers to meet the increasing demand. Without enough drivers to drive trucks, it will lead toward a dire situation for fast and reliable last mile delivery. In addition, DAT Solutions reported that only one truck was available for every 12 loads that needed to be shipped in the beginning of 2018, the lowest ratio since 2005. One of the biggest drivers of the shortage is that the average age of the existing workforce is older and are of retiring age. The workforce is also dominated by males, with only 6 percent of truck drivers being women.
In order to stay competitive and successful in last-mile delivery, being aware of industry trends, inefficiencies in your current operations, evaluating costs, and knowing what action items need to be addressed going forward are all challenges logistics providers need to stay on top of before they become too big of a problem to tackle.
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