The first two quarters of 2020 reset our norms. Supply chain, more and more dependent upon last mile delivery, became a nightly news topic. If before 2020 you weren’t offering delivery through online orders, you’re probably now fully committed to touchless doorstep delivery.
Now, facing the combined forces of regional lockdowns in tandem with the busiest shopping quarter of the year, the existing shipping infrastructure is pressed to its limits. Warnings to reset delivery expectations are reported daily. Last week, media outlets cautioned that more than 250MM packages are at risk for non-delivery by the holidays.
Even prior to 2020, online commerce was exhibiting 20 years of exponential upward growth. The volume of packages moving each day in the US is staggering — keep in mind nearly 70% of the US economy is based on consumer spending. Needless to say, this year added stress to the shipping infrastructure. Most of that burden on the last leg of the package journey which is known as last mile delivery.
Simply put, last mile delivery refers to moving products from a hub or warehouse to the final delivery destination: home, business, or manufacturing location. It is often the most expensive and logistically problematic part of the product journey, consuming ~50% of the total shipping costs. In rural areas, the couriers face distance; in urban areas it’s usually time lost to congestion. In both scenarios, inefficiency can be deadly to profits.
Last mile delivery has a large impact on customer satisfaction, often reflecting disproportionately on a company’s rating or ability to retain customers. More than 98% of buyers say that a bad delivery experience will impact their brand loyalty. Yet, when last mile delivery is done well, it can be a seller’s differentiator.
“Delivery as a Service” (DaaS) is the on-demand transport of goods, most often tied to technology and logistics. DaaS fulfills customer expectations of a timely (and sometimes customized) experience. When a product’s cost is competitive across many vendors, the delivery becomes the customer-oriented, value-added service. As you’re probably aware, the demands are high for last mile delivery fleets.
Remember when packages were expected to deliver between two to five days? Today’s base expectation has become free, two-day delivery.
That’s an amazing standard realizing that upon customer click, the purchase goes from the vendor’s order management system to the warehouse information system, is picked, packed, and then checked out to the last mile delivery service. It’s then in the carrier’s system and out for delivery.
Timely last mile delivery is dependent upon the growing number of large warehouses/fulfillment centers located near dense population centers. This proximity shortens delivery distance making one day and same day service by regional carriers possible. In August 2020, the Wall Street Journal reported Amazon is eyeing geographically advantageous failed malls to convert into fulfillment centers. Strategically placed fulfillment centers will be critical as McKinsey & Company predicts that 20-25% of the market will be same day or faster delivery by 2025.
Yet another logistical approach is to build smaller satellite warehouses with targeted inventory. Keeping the most frequently purchased and seasonal merchandise closer to consumers allows last mile carriers to efficiently handle time constrained delivery. Again, this makes one day and same day delivery viable. The trade-off for the shipper in this instance is lower transport costs but higher warehouse and personnel expenses.
The right delivery vehicles for the last mile
To capitalize on last mile delivery opportunities, fleet efficiency is paramount — the right vehicle for the job will impact many aspects of delivery. Choosing the right chassis and upfit to optimize the efficiency of your delivery vehicles requires assessing the types of freight, the delivery locale and the well-being of your drivers. If your delivery needs are diverse, take this into consideration while choosing a vehicle or considering outsourcing to a fleet management company.
For last mile, you may need to assess fluctuating volumes and variety in products. Are your deliveries in the city or over long distances? Do you deliver parcels or appliances? Food? Medicine? Will the vehicle you are spec’ing require a driver with a CDL? Could you spec to avoid the CDL and increase the potential labor pool? Is security an issue? Will assembly service be needed?
What’s not working with your current vehicles? Don’t be reluctant to ask your drivers for input; they deal with design flaws on a daily basis.
The choices that you make here could impact safety, fuel, deadlines, driver availability, and delivery claims.
In reviewing your fleet, do you have costly inactive trucks or vans? Donlen estimates that ~5-20% of fleet assets are inactive at any given time. During times of peak volume, are you keeping up with preventative maintenance? This can ultimately impact expensive repair, downtime, and driver safety.
Invest in your driver’s well-being. Consider ergonomics, route optimization, vehicle safety features, and the pride of driving a well-maintained vehicle. Do vehicles on some routes need to safely allow for a second employee? Be certain that your drivers are fully utilized and not being wasted by vehicle downtime. Happy drivers lead to less driver turnover. Turnover is expensive.
How do you optimize your last-mile delivery service to meet demanding customer expectations without impacting profitability? Now, more than ever, your fleet needs to be efficiently managed… and technology is key.
First, you’ll need the fleet data. The right key performance indicators and business intelligence tools along with a strong telematics program will be essential. Real-time data and targeted reporting shows where vehicles and practices are impacting profitability. Telematics information supports cost-effectiveness—from keeping drivers on optimized routes to offering transparency to customers.
Second, you need to take a hard look into each aspect of your program to be certain it keeps up with accelerating volume and rising expectations.
Review for any costly behaviors unique to delivery service. Are deliveries in congested areas causing too much idle time? Do the erratic speeds of urban deliveries impact fuel usage? Are complex routes causing wasted miles, or are your drivers opting to deviate from planned routes? Are your delivery vehicles still the right ones for today’s business and your current shippers—is it time to re-evaluate?
There is no room for operational waste in last mile delivery and the forces impacting profitability can be overwhelming. The demands are always evolving. Despite those concerns, delivery as a service is experiencing exponential growth—and exponential growth can be exponential opportunity.
For more details on optimizing delivery fleet efficiency, click our link for a free PDF of Donlen’s “5 Powerful Tactics to Optimize Your Delivery Fleet” Guide.