Where Does Last Mile Go from Here?

last mileOmni-channel continues to be one of the hottest trends in supply chain management today, basically touching every software application you can imagine. In order to truly be omni-channel, retailers and brand manufacturers must provide a unified brand experience for their customers. This is true for all three major phases of the customer journey – before, during, and after the sale. The last mile of an order tends to be the most costly and headache inducing for retailers and consumer brands. So how are companies handling last mile deliveries today, and what does the future hold?

Over the last decade, I’ve been conducting omni-channel survey-based research to identify the current state of omni-channel commerce. Every year the survey takes on a different twist; while the base questions are the same to look at the larger trends, I take a deeper dive into a specific topic each year. This year’s survey is focused on the last mile. Once again, I partnered with DC Velocity to create and distribute the survey. My new report will be released in the next month or so, and DC velocity will run their feature article as well. For now, however, I’d like to share a quick sneak peek on the current and future state of last mile deliveries.

Last Mile Timeframes

One big question that most consumers have is how soon can I get my order? The Amazon Effect has changed everything when it comes to e-commerce, with more retailers trying to take a bite out of Amazon’s marketshare by offering their own version of a Prime-like experience. For some, this means a similar subscription model for guaranteed delivery timeframes. For others, it means a subscription-free model for guaranteed delivery timeframes given a specific spending threshold. Either way, the consumer wants their order as fast and cheap as possible.

The store has increased its role in the overall omni-channel landscape. As store traffic declines, more retailers are using stores as micro-fulfillment centers and expediting web orders from the store. According to my latest research, the number one reason stores are used for e-commerce order picking and shipping is the need for an expedited order timeframe. My research shows that 38 percent of respondents frequently use stores in this situation, and another 24 percent sometimes use stores in this situation. The second main reason for using stores is when the DC does not have the item in stock (36 percent frequently, and 23 percent sometimes).

So how quickly can a store get the item to a customer. In my survey, I asked respondents to give the quickest guaranteed delivery time for orders shipped from a store. According to respondents, 22 percent offer same-day delivery, with about a third of those offering a two-hour delivery timeframe. Competing with Amazon, and it’s move from two-day delivery to one-day delivery, has 39 percent of respondents indicating a one-day delivery timeframe, and another 26 percent indicating a two-day delivery timeframe. All in all, that’s not too bad, considering the complexities of running a store like a warehouse.

The bigger question, however, is how are retailers and consumer brands handling the majority of last mile deliveries, and what emerging technologies and processes are they considering?

Last Mile Operations

Currently, 83 percent of respondents are using parcel companies such as UPS and FedEx for last mile deliveries. These services were built to deliver small packages to your doorstep in a short timeframe. They are also affordable for small businesses to use, as well as retail behemoths. The two other highly used delivery methods are drop shipments from partners and 3PL delivery partners (51 percent each). Drop shipments are used by retailers to reduce their inventory carrying costs. Instead, the order is sent directly to the manufacturer for delivery. This is especially common for large appliances and shipments. Many companies are outsourcing their last mile deliveries to a 3PL delivery partner. This partner may control a private fleet or handle the company’s freight. This again can lead to cost savings while creating efficiencies in route planning.

One of the more interesting areas of last mile is around crowd-sourced deliveries. Currently, only 9 percent of respondents indicated using these partners, but 25 percent are planning to implement a partnership in the next 12 months. Crowdsourced delivery is popular in the restaurant and grocery space, and is gaining traction in big box and specialty retail as well. An incredible amount of investment money has poured into the space, and company valuations have taken off. To that end, Target decided to forgo a major partnership and instead outright acquired Shipt for $550 million. Some of the major players in this space include:

  • Deliveroo: the core business is restaurant delivery by bike. Customers can pay a fee for individual orders or pay a monthly subscription fee.
  • Instacart: the company focuses on grocery delivery, with key partnerships with Albertsons, Supervalu, and Wegman’s. Instacart also makes deliveries for CVS and PetCo.
  • New Dada: the core business is groceries and convenience items delivered throughout China.
  • Postmates: the company’s motto is “get anything delivered in minutes.” This includes restaurants, groceries, and alcohol for those consumers above the legal drinking age.
  • DoorDash: the company focuses on the restaurant delivery market, with over 54,000 restaurants in their network.
  • Deliv: the company’s offering spans multiple retail segments to connect drivers with consumers to deliver merchandise.

The Future of Last Mile

Everyone wants to know what the future of last mile looks like. My colleague Steve Banker asked the question, will delivery bots revolutionize last mile deliveries? In the article he mentioned that Alibaba has announced a last mile delivery robot called the G Plus. But Alibaba is clearly not the only delivery bot around. In fact, Starship technologies has moved beyond the pilot phase of home deliveries and has launched an on-demand package delivery system. And Postmates has dispatched delivery robots in the Los Angeles area. So how much interest is there right now in robots? According to survey respondents, 15 percent are actively pursuing the technology for last mile deliveries.

Autonomous technology has improved, hence the interest. Two other areas of interest, although not quite at the same level, are drones and autonomous vehicles. Drones have been all the rage for the last few years, with companies like Amazon and Google predicting drone deliveries by the thousands. However, the reality is that there are still regulatory hurdles to clear and more testing needs to be done. About 11 percent of respondents are investigating the use of drones for last mile deliveries. Autonomous vehicles have also been tested for home delivery. In this situation, an autonomous vehicle brings a package to a customer’s house, whereupon the customer enters a code and retrieves the package from a cargo hold. About 13 percent of survey respondents have indicated plans to adopt this technology at some point in the future.

Last Word on Last Mile

The last mile of delivery is complex, time consuming, and expensive. Retailers are constantly looking at ways to be innovative, efficient, and most importantly, satisfy the customer. Not surprisingly, most brands are still relying on the major parcel players to make their deliveries, even though this does not give them as much control over that final experience as they may like. But the future potentially looks bright for disruptive technologies. It looks to only be a matter of time before autonomous mobile robots, cars, and drones are delivering packages to a neighborhood near you.

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