Delivering on the last-mile challenge

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Faced with mounting challenges on urban congestion, cost pressures and environmental concerns, how should businesses adapt their delivery models to meet rocketing e-commerce order volumes?

E-commerce has grown massively, and probably permanently, during the pandemic to 30% or more of retail trade. Customers increasingly value the convenience, assurance, immediacy, pricing and safety of ordering online.

The performance of many home delivery operations during the Covid-19 crisis has been truly impressive, ramping up capacity at breakneck speed, running continuously at peak levels, or for some new entrants, being truly creative with ‘emergency models’. However, the traditional last-mile delivery model – from distribution centre to home addresses, collection points, click and collect stores, locker systems and the like – is under huge pressure to serve more customers and greater volumes, and many existing approaches are simply not sustainable in economic, environmental and social terms.

Currently, last-mile delivery using internal combustion engine vehicles generates significant CO2 and noxious emissions, and raises many other environmental and social problems, including noise, health issues and congestion – particularly in dense urban areas. With increasingly stringent emissions regulations and planned urban area vehicle restrictions, there is now an urgent need to create a sustainability plan for the fast-expanding fleet of vans that is rapidly replacing the old regime of large trucks delivering to stores. And that’s only the vehicle side of final mile; the green agenda extends much wider with the conscious consumer now expecting more in terms of packaging and choices over how and when their parcels are delivered.

The expansion of e-commerce has also placed great demands on physical space, whether it be fulfilment centres or sorting, consolidation and delivery hubs, and this has become a contentious issue. As consumers demand ever faster deliveries, more localized fulfilment models are required. Yet these same consumers, as residents, oppose plans for industrial development in conurbations, as seen by the recent rejection of Ocado’s fulfilment centre expansion in Islington, London. Many logistics property experts suggest that local government bodies are being slow to realize the mounting urban warehousing challenge heading their way.

What’s more, current models are economically moribund. Consumers expect ‘free’ delivery, but e-commerce is hungry for resources – warehousing, vehicles, order pickers and drivers – which have to be paid for and, as in the case of warehousing and labor, are in short supply. Meanwhile, the push for speed of deliveries means that many delivery trips operate ‘on demand’ and at well below capacity. For omnichannel retailers the switch in emphasis to online sales fundamentally challenges the cost structure of the business, requiring the challenges of the final mile to be addressed in a more holistic way to rebalance costs.

Of course, any comment on last mile wouldn’t be complete without mentioning Amazon. Welcome or not, Amazon’s dominance of e-commerce has almost single-handedly upgraded the expectations of every online shopper. This has placed substantial pressure on 3PLs, their delivery partners, and the e-commerce retailers they serve. On the positive side ‘The Amazon Effect’ has helped many retailers realize how critical final mile is to their success.

An additional factor, as yet barely addressed, is the need in an e-commerce economy for pickups as well as deliveries – not just of returns, but also of consignments from a growing array of micro-businesses and home workers. The recent announcement by Royal Mail that posties will also pick up pre-paid packages is an indicator as to how the market is evolving.

Solutions at every scale
To create an economically and environmentally intelligent approach to fulfilment, capable of meeting the needs of consumers, residents and companies, many partial solutions for individual firms are available and more are in development. Let’s consider some key elements of future last-mile solutions.

An obvious starting point is vehicles. With advances in engineering and creative design, options for delivery vehicles are changing – for example carbon-fiber bodies like those being adopted by AO and Asda are much lighter, reducing emissions and increasing payload capacities. Greener fuel options are gaining traction, such as electric and fuel cell technology, and pedal power and pedestrians may be a part of the mix. There may be autonomous delivery robots, as being trialled in Milton Keynes in the UK, and, less probably, drones.

Transport arrangements too will vary. As the market matures it will become evident that not all deliveries need to be same-day and on-demand, allowing for some degree of rationalization and consolidation. On the other hand, increasingly sophisticated, and affordable, IT systems are becoming available that will further redefine route planning and scheduling, optimizing operations in real time around criteria of time, mileage, emissions or a combination thereof.

Indeed, many of the solutions for last-mile delivery will be data driven, and much of the required data already exists or could readily be made available. Dynamic systems can balance options, offering consumers greater visibility and maximum flexibility, such as changing destination at short notice, with greater operational efficiencies of reducing failed or re-deliveries. Systems will provide a platform for greater collaboration by enabling easier consolidation of deliveries from disparate sources for a single destination, creating much needed operational efficiency and, crucially, adding another layer to the coveted customer service proposition.

The network of physical space behind the final mile is often forgotten in the race to find cheaper, faster wheels to deliver the parcels. Short lead times necessitate close proximity to customers but finding local warehouse space for sorting and consolidating consignments for last-mile deliveries is difficult – even harder than sourcing larger fulfillment facilities. This is where creativity will need to be at its best.

There is considerable scope for automation and IT systems, and simple changes in working practices, to improve the use of resources – labor, space and energy, in particular.
As high street footfall diminishes, some stores may become redundant, others may be too large, while in some, in-store order picking may no longer present the same degree of conflict with the ‘shopper-in-person’. In the future, last mile is likely to involve parcels picked from a variety of locations – from big distribution centres, to shops or former shop premises converted to ‘dark stores’. And that’s even before we consider the concept of urban logistics centres.

More collaboration is needed
The next significant trend, especially for fashion and general merchandise, is inter-retailer collaboration on deliveries, principally to drive down parcel costs, but also to offer consumers a single, timely delivery instead of three or four.

Greater collaboration is the route to creating a more comprehensive urban logistics model. With the right foresight and local authority support, we could see schemes like those popular in Japan, South Korea and Singapore where a multi-storey warehouse with vehicle access at all levels is sited on the periphery of a major conurbation. These facilities could push the boundaries of multi-use to maximize efficient operations by housing a variety of interconnected local area services, from e-commerce deliveries, click and collect point, shop replenishment or top up, supplier cross dock, inter-store stock rebalancing, returns and collections from customers and returns, and all while running a local green fuel multi-vehicle fleet.

This approach works well with a collaborating consortium of 8-10 manufacturers or retailers. The environmental and economic benefits of wider collaboration could be considerable, but success depends on a supportive approach from local transport and planning authorities, as is being offered by the Mayor of London and Transport for London.

In the current economic climate, substantial public investment in such comprehensive schemes is unlikely. But there is much that can be achieved by individual businesses and through close collaboration with other organizations and local authorities. Importantly, not every initiative requires significant new money: much can be achieved through intelligent decisions in the normal renewal cycle, and by repurposing existing assets.

More on Bis Henderson Consulting at www.bis-hendersonconsulting.com

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