6 last-mile e-commerce delivery challenges
By Komal Puri | October 13, 2022
Complex Retail Delivery
Retail, an industry that has existed for much of human history, has experienced more change in the past five years than it did in the 50 years before that. Much of this recent change has been fueled by shifts in the ways consumers shop. With brick and mortar in-store shopping losing fashion among shoppers, online shopping is quickly becoming the preferred channel for retail around the world. Global e-commerce retail sales are set to top $5 billion in 2022 alone. And with this growth in e-commerce shopping comes growth in online delivery and a new focus on last-mile delivery, a complex orchestration that can make or break a retailer’s reputation.
The complexities and added costs of the last mile arise in the form of additional variables that must be accounted for. Unlike the first and mid miles, the last mile is generally sporadic and unpredictable, with delivery destinations and timelines unknown until an order is placed. Combine that with various fulfillment and fleet types to choose from and you have a process ripe for inefficiency, delay and added risk.
Retail consumers are generally unaware of the logistics complexities involved in last-mile delivery and do not know what goes on behind the scenes. And luckily for them, they don’t have to. A superior online delivery experience is a bit like magic: place an order from a convenient device and within days or even minutes, their delivery appears at their doorstep.
Achieving this superior delivery experience requires retailers to simplify the complex last-mile delivery process and provide tracking mechanism in the last-mile to customers. Not only does this benefit consumers with a more seamless, cost-efficient delivery experience, but it also positively affects retailers bottom lines in both the short-term and the long-term.
Below we’ll explore some of the most complicated aspects retailers face regarding last-mile delivery that can be solved with innovative delivery technology.
Online retailers are increasing supply chain capacity and flexibility by utilizing non-traditional fulfillment centers such as dark stores, curbside pickup, pop-up distribution centers and micro-fulfillment centers. This strategy increases agility and adaptability for retailers, allowing them to diversify their last mile points of origination that can reduce risk if one channel experiences delays or bottlenecks. This diversification strategy, however, also introduces greater complexity. Managing multiple methods of fulfillment and delivery is a challenge. Technology can help retailers overcome these challenges by enabling enhanced route optimization, the use of crowdsourced gig-fleets and greater visibility of product status throughout the delivery process, to name a few. Below are a few of the fulfillment methods retailers around the world plan to use in the next 2-3 years.
Long before 20 years ago when e-commerce was in its infancy, consumers had little choice in how they received their purchased goods, as nearly all purchases were made and retrieved in-store. Fast-forward a few years and e-commerce enabled the convenience of home delivery. Fast-forward further to today and retailers are beginning to offer flexible delivery options, delivering to consumers’ homes, places of work, parcel lockers and even neighbors’ homes. A recent survey conducted by FarEye uncovers just how differentiated the end points of last-mile delivery really are.
This added flexibility, however, can complicate last-mile delivery even further. Having the right technology can increase flexibility through differentiated delivery destinations while at the same time simplifying the logistics processes involved - both of which are critical.
Transportation and Carrier Type
There are three main ways retailers move product along the last mile from point of origin to a consumer’s preferred destination:
Use dedicated logistics companies like FedEx and UPS
Outsource with delivery platforms like Instacart, Shipt or carrier networks
Use an owned delivery fleet
Many retailers may also use two or more of the above. For smaller retailers, using dedicated logistics companies and outsourced carrier networks typically makes sense, as these require little to no capital investment and offer more flexible capacity - most of the time. During peak demand season, many dedicated logistics companies like UPS may have constrained capacity that can lead to delays or worse. Owned delivery fleets mitigate this risk by giving retailers complete control over their delivery network, but require capital investment, transportation asset management, routing and scheduling capabilities, and additional labor.
Delivery technology solutions can alleviate the effort and simplify the logistics complexities involved in owning a fleet with artificial intelligence and machine learning-based routing solutions, loop optimization, real-time visibility, customizable Business Process Management (BPM) workflows and workforce management tools. Many of these same tools can be used to simplify the complexities of outsourced deliveries as well. With the right technology, retailers can use an optimized blend of the above approaches to offer greater flexibility and ensured capacity when it is needed most.
Recent headlines around the world have made apparent just how tight global labor markets have become. One sector of the economy in particular where finding enough labor to match the demand for it is in transportation. This pain point is felt most notably among truck drivers, where severe shortages are causing delays for retailers.
For retailers operating their own fleets, driver shortages can cause serious challenges like insufficient capacity and increased costs, which have to be absorbed by the retailer or passed on to consumers. A few solutions exist for retailers to dampen the effects of driver shortages on their businesses:
Expand capacity by tapping into carrier networks
Increase routing efficiency to utilize fewer drivers
Tap into gig-drivers to add to owned-fleet during peak demand
Gamify the driver experience to boost productivity and retain labor
Utilize autonomous delivery to reduce reliance on human drivers
Retailers that operate their own delivery fleets must account for the routing that their drivers and vehicles follow to get deliveries from the point of origin to the consumer’s preferred destination. Unlike the first and mid-miles, where routing and delivery timelines remain relatively unchanged over time, the last-mile is unpredictable and routing must be customized for each delivery. Routing therefore must be automated and optimized and delivery technology is a must to make this process easy and efficient. Advances in artificial intelligence (AI) and machine-learning (ML) are making this process more seamless, configurable and visible. According to Bain & Co., optimizing the routing of owned fleets can lead to a 13% reduction in the number of trucks needed and a 28% reduction in the total number of kilometers traveled. These are only a few of the many benefits a simplified logistics process enabled by route optimization can offer, such as:
Reduced operating costs
Reduced shipping time
Reduced carbon emissions
Reduced need for drivers
Increased SLA compliance
Real-time visibility of delivery progress
Delivery is not a one-way street. Oftentimes online deliveries must travel backwards from doorstep to fulfillment center due to returns. Consumers demand that retailers offer online return policies and they are using them - nearly half of all online shoppers have made a return in the past year and a whopping 30% of all online purchases are returned.
Increasingly, returns policies are entering consumers’ consideration set, as 75% of online shoppers look for an easy returns process and 92% of shoppers will purchase again from a retailer if returns are easy. In contrast, 84% of online shoppers will switch to a competitor if they have a bad returns experience. The reality? Nearly half of all online shoppers do not believe that online returns are easy.
The solution to the online returns conundrum lies in innovative technology and enhanced partnerships between shippers, logistics providers, and tech-enabled platforms. A perfect solution can offer free, fast, flexible, and sustainable returns to consumers and low-cost, resource-light processes for retailers, ensuring both parties are satisfied. Route orchestration and optimization can increase capacity utilization for trucks carrying less than a full load to take on return deliveries. Retailers can enhance the use of their many omnichannel nodes to accommodate returns, utilizing technology to determine which products should be sent back to where. Visibility technology can boost the communication between retailers, carriers, and consumers, alerting consumers in real-time when their return is processed, and refunds can be made. Each of these technology solutions will enhance the returns process by increasing speed, lowering costs, and maximizing flexibility while minimizing the impact on the environment.
Komal Puri is a seasoned professional in the logistics and supply chain industry. As the Senior Director of Marketing and a subject matter expert at FarEye, she has been instrumental in shaping the industry narrative for the past decade. Her expertise and insights have earned her numerous awards and recognition. Komal’s writings reflect her deep understanding of the industry, offering valuable insights and thought leadership.