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Last mile strategy: Enabling speed and flexibility upstream
Leveraging last mile delivery logistics solutions
Increasingly, the post-purchase experience matters as much as the first leg of the buying journey. So what considerations are needed when formulating an effective last mile strategy? And how should retailers reorganize their operations to enable successful last mile delivery? See how supply chain transformations can be the ticket to success.
- The current landscape
- Last mile strategies
- The road to fulfillment
- Minding the gaps in the value chain
- The benefits of a holistic last mile strategy
The current landscape
Consumer behavior has changed dramatically over the past decade. Consumers are increasingly leveraging multiple channels to purchase goods and services. A recent study of consumer behavior found that only 7 percent were online-only shoppers and 20 percent were store-only shoppers. The vast majority—73 percent—were omnichannel customers, using multiple channels during their shopping journey.
In the current consumer landscape, the post-purchase experience matters as much as the first leg of the buying journey. Focusing on the post-purchase experience—the journey of the purchased item from channel to consumer—represents the next frontier for retailers. Previously, retailers often handed off the customer experience to a third party, like UPS or FedEx, which focused on delivery. But as consumer expectations continue to evolve, retailers are realizing the potential benefit of investing more heavily in this area.
In a span of five years, the value of same-day delivery sales has grown significantly, starting from practically zero in 2013 to more than $4 billion in 2018. Today, more than 50 percent of consumers are willing to pay for this service. Same-day delivery is something shoppers expect.
A packaged item’s journey from production to the consumer has traditionally been broken down into three stages:
- The first mile takes the item in bulk from a production facility to a warehouse.
- The middle mile sees those items move from that warehouse to distribution centers.
- In the last mile, volume shipments are broken down into hundreds or thousands of individual deliveries, each with its own route, location, and timing.
Last mile strategies
Amazon has set the standard for last mile strategy, putting severe downward pressure on fulfillment service levels at much lower costs. It’s now offering free one-day delivery on more than 10 million items.
In response, other retailers are experimenting with their own last mile innovations. Walmart is testing Spark Delivery, a crowdsourced model where independent drivers pick up orders from Walmart stores and warehouses and deliver them to customers. Other companies have revamped their operations to ship to customers more effectively. A leading retailer, for example, is using its stores to ship more than 80 percent of online orders, reducing the time to ship to customers.
Retailers are feeling increased pressure to improve their last mile delivery logistics solutions and invest in solutions that bring down the time to deliver to a customer. Still, only 65 percent of retailers offer same-day delivery or are preparing to offer it in the next year.
Achieving faster and more flexible delivery to customers means rethinking workforce strategies around hiring and training, rewards, and scheduling to accommodate fluid work. Organizational design improvements can enable new ways of working and boost decision-making efficacy.
The road to fulfillment
What are the key changes needed across the end-to-end supply chain that enable effective last mile fulfillment? Additionally, how should retailers reorganize their operations to enable successful last mile delivery?
To date, most companies and retailers have focused their efforts on optimizing last mile transport—and for good reason. Last mile delivery logistics is the least efficient stage in the supply chain, making up 28 percent of the total delivery cost.1 However, retailers tend to develop tunnel vision in designing efficient last mile strategy, largely concentrating on improving transportation operations to enhance last mile delivery and entering partnerships with delivery service providers for faster service. But the emphasis placed on delivery service providers can limit the true extent to which effective last mile strategy can be facilitated and enabled.
Moving toward an effective last mile strategy requires end-to-end supply‑chain transformation. The transformation should examine supply chain’s people, processes, and technology to help create an environment that's flexible, data-driven, and customer-focused.
Minding the gaps in the value chain
Companies should develop a last mile strategy that identifies the existing gaps in their end-to-end supply chain and positions them against the end goals. Operational improvements at each node of the value chain (such as manufacturing and distribution centers) can allow companies to design a holistic last mile solution that will reduce delivery lead times and enable more flexible last mile fulfillment options for customers. Considering both people-related changes and broader operational decisions is critical. The nodes in which those changes occur will have unique impacts on workforce, rewards, and ways of working among teams. Retailers and consumer product companies can utilize the following considerations for each node of the supply chain:
The benefits of a holistic last mile strategy
A holistic approach to developing a last mile strategy can offer organizations numerous benefits, as it can help:
- Provide increased visibility and flexibility to the organization to deliver customer products from multiple nodes within the supply chain, as well as the ability to tailor shipments to customer requirements
- Reduce the order-to-delivery time and improve reliability, enhancing customer experience and increasing overall competitiveness
- Build trust with current customers and gains new customers through an enhanced delivery experience.
- Decrease the total cost of last mile delivery logistics through efficient processes and reduced waste through the network
Before making the shift, retailers and companies should recognize the barriers that stand in the way of succeeding in this integrated and holistic approach. For example, lack of reliable and actionable data and insights makes decision-making a challenge. Also, limited system infrastructure and capabilities can cause poor cross-functional visibility, rendering reporting a challenge for a holistic approach. One of the most stubborn obstacles is cultural. Organizational siloes, accountability, and controls can make end-to-end thinking and approaches in traditional organizations a cultural barrier.
Setting up for success
There’s no one-size-fits-all formula for success in this area. Each retailer varies in the value and range of product offered online versus in-store. As organizations develop their future supply chain strategies, a holistic approach is necessary to assess current practices, systems, and workforce. These approaches should:
- Examine physical and organizational infrastructure nodes to ensure they’re developing an integrated end-to-end approach to build their last mile capabilities
- Consider how upstream processes can affect last mile fulfillment and develop a solution that covers the end-to-end supply chain
- Invest in systems and tools that provide visibility across the network
- Put in place a change management program that ensures that organizational silos are broken down and new processes and solutions are adopted at the earliest
- Develop a performance management plan with the right KPIs in order to measure performance from an end-to-end perspective
1 Barry Hochfelder, “What retailers can do to make the last mile more efficient,” Supply Chain Dive, May 22, 2017, www.supplychaindive.com/news/last-mile-spotlight-retail-costs-fulfillment/443094/.
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