Logistics and Supply Chain E-Planning: Last Mile Delivery Strategy
Last mile delivery services can mean different things to organizations depending on the key revenue driving marketplaces. In some organizations last mile can be US domestic only, for some it could expand across all of Americas and others it can cover a global marketplace. This article focuses on steps organizations can take to resolve last mile delivery challenges in North America with current service providers constantly competing and changing their service levels.
- How To Manage Conflicting Priorities For Different Business Units?
Business units within organizations have metrics tied to either cost or revenue, while all teams are working towards the company’s common goal. Generally, for most retailers, and consumer goods companies these common goals revolve around providing customers with the best service, while growing the company’s market share at the lowest cost. As such, when e-commerce expansion the impact of last mile delivery costs become significant in strategic decisions such as: inventory optimization at different location and site optimization through a well-developed distribution and logistics network. Supply chain leaders must really understand where their inventory is located and how this empowers the business to interact better with customers. Offering ground delivery services with 5 business days in transit is not optima- the customer is waiting longer for the product and the company is paying more for ground or expedited delivery.
These factors can meaningfully impact the costs of last mile delivery and the service levels delivered to end consumers- both of which are important attributes.1. How Do
2. Last Mile Delivery Costs Affect Sales And Growth?
When a business has a clear consumer- centric strategy around increasing its e-commerce footprint, the first question that needs to be clarified is around shipping costs. Will these be covered by the business or passed on to the customer?
According to leading e-commerce fulfillment service Flexe, shipping fees are the number 1 reason for cart abandonment in the US.
Some questions to ask prior to forming a strategy include: will free shipping apply to all orders, all zip codes, even international? Is there an order minimum- will this encourage customers to add more items to their cart, or will it cause more cart abandonment? Is the shipping service level the determining factor for consumer shipping costs?
From the UPS “2017 UPS Pulse of the Online Shopper” report:
- 74% of consumers said options for free shipping were the most important part of checking out online
- 94% of shoppers have taken action to qualify for free shipping
3. Supply Chain Factors To Consider For A New Strategy?
There are numerous factors to consider when reviewing the company’s logistics network and last mile delivery, cost should not be the only input. Is the company’s goal to lower the time in transit to the end consumer? If so- then the best solution for the logistics network might be a multi-node location which both optimizes last mile delivery costs and time in transit, however this does not come without challenges on the inbound side. Depending on where the company’s products are manufactures, assembled and where they enter the American market some of the below considerations are of utmost importance:
- Production consolidation
- Order frequency
- Inbound/ Outbound transportation costs
- Risk of damage
- Number of touches and varying labor costs
- Holding costs
- Customer service
Improving last mile delivery metrics is a balancing act with competing goals across internal business units. A deep data dive into marketplace information and a stable logistics partner are crucial to successful change. The below diagram was presented by Expeditors Logistics and I have always found it to be a very useful visual for this ongoing balance:
4. Long Term Vision
Understand where the company’s current consumer base and forecast for future growth. Given current market trends and the impact of e-commerce organizations should consider supply chain planning- location and inventory optimization- as e-planning and account for all available and real time inputs such as click, views, product reviews to help predict future demand and trends. Leaders in future markets will be the companies who can see, interpret, and act on data the most efficiently on a global scale.
Supply chain and operations changes are costly, risky and take a long time to implement. Organizations must understand and have a clear vision for future marketplace development prior to adjusting for last mile delivery improvements and supply chain flexibility.
Using current sales data and partnering with a leading service provider who can assist in conducting a thorough supply chain gravity analysis can help ensure that the company’s long term operational strategy will support the organization’s growth and expansion goals.
5. Immediate actions
Key drivers of success are data and technology. Organizations might supply a different product to consumers but at the core of success lies the ability to gather all pertinent data and translate the story it is telling. First and foremost, organizations should invest in the right technology to get as close to the information generated by end consumers as possible, then consider the above outlined goals.
The supply chain discipline is young. As professionals in the field we are just now starting to learn from past mistakes and develop best practices. We are searching for innovative tools to help streamline processes, cut waste and increase visibility. As a group we are starting to have discussions around big data, analytics and the integration of machines that communicate and learn over time, as part of the greater internet of things (IoT).
The challenge? Software companies have not caught up with the needs of the industry.
Leading companies have been using integrated enterprise resource management (ERP) systems since the 1980s; more than 60% of all SMBs in the US are still not utilizing such platforms and their information storage is fragmented. Furthermore, those who are using these systems suffer from lack of communication between modules, and therefore remain stuck in decision making without real time information.
Organizations that have taken the leap to integrating their business management systems rarely have an easier time gaining visibility and real time information. Software companies develop solutions in silos, they do not collaborate with each other and create platforms that mimic the static vertical structures of organizations. These outdated structures fail to empower teams within organizations to make the most informed decisions. A recent study shows that there is a breakdown in communication between sales, operations and finance in more than 45% of all integrated business solutions.
There are no benefits to inventing working capital in hosted or cloud based solutions, and employee training on new platforms if he solutions are limited by design. The software and technology that will empower the supply chains of the future allows real time, seamless knowledge sharing across multiple departments and network participants. To maintain competitive advantage in a global economy where consumer’s desires are constantly changing companies must utilize consensus based collaborative forecasting and planning within their supply chain teams and networks.
To optimize supply chain decision making actors require a platform that supports collaborative and iterative simulation taking into account all constraints across the network and integration of PoS data for accurate forecasting.