August 17, 2020

The Transformation of the Last Mile: The Way to Customer Comfort and Competitive Advantage

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Glossary

Last-mile – the final step of the delivery process from a distribution center or facility to the end-user.

Data оrchestration – the automation of data-driven processes from end-to-end, including preparing data, making decisions based on that data, and taking actions based on those decisions. It’s a process that can span across many different systems, departments, organizations, and types of data within supply chain execution and planning

Shipper – а manufacturer, а distributor or а retailer shipping physical goods to the end-user or end recipient

3PL – а third-party logistics providers typically specialize in integrated operations of warehousing and transportation services

CEP – courier, express and parcel service providers (e.g., FedEx, UPS, DHL)

 

The spread of COVID-19 profoundly impacted markets, industries, and most communities worldwide by massively disrupting logistics flows and deranging demand/supply patterns. As an opener for this article, this sentence probably doesn’t make anyone gasp. But when taking a close look at the most critical and likely most misunderstood part of logistics and supply chain execution, we cannot bypass the obvious – the last mile has become the key battleground for profitability, growth, and optimization for shippers, 3PLs and CEPs alike. Over the past few months, our discussions with companies across those verticals have exposed a clear picture of the capabilities (or lack thereof) needed to adapt to the challenges such as sudden demand/supply peaks and drops straining existing infrastructure and manpower capacity.

Scalefocus has prepared a specially-crafted webinar with guest speakers from DHL Germany and Bringg, to talk about just these issues.

Meanwhile, keep reading to get a head start.

 So what’s so special about Last Mile delivery, and why is it growing in importance?

The answer is complicated, and the new normal in this scenario involves many parties to interact in a highly coordinated manner.

From the perspective of a consumer, the last-mile looks like a simple “point A to point B” process. If you order shoes online, first they lay around in a warehouse, then a driver picks them up, drives to your door, and hands them over. No big deal, one would assume.

So why, then, 5% of all first parcel delivery attempts fail?

In Germany alone, 3.5 billion parcels are shipped each year; this means that 175 million deliveries fail in the first attempt. Imagine what amount of money, fuel, and CO2 goes wasted, and the point becomes clear.

From the perspective of the people involved in fulfilling this order, things look quite different. Unlike food delivery, physical goods are stored in warehouses and moved from large distribution centers (hubs) to smaller regional ones, or sometimes shops from where they can be shipped to the end consumer once an order is placed. 

By ordering a pair of shoes, you trigger a process that touches multiple organizations and their information systems. 

The order management system of an online shop needs to track:

  •  amount and location of inventory
  •  the warehouse management system of the shipper or 3PL supports the staging process (pick and pack) before the CEP driver arrives
  •  the dispatching and fleet management system of the CEP managing the pickup and delivery process
  • etc.

The list goes on and on. We won’t even mention systems that support curbside pickup, self-service stations, delivery window options, and live communication between courier and recipient. There is a lot of siloed data, that needs to stick together.

So, let’s say that after your order, you didn’t receive the package for whatever reason. As most consumers erringly do, you would most probably call up the online shop to complain instead of the CEP provider. In most cases, your call will land at a 3rd party call center operator handling customer service for the online shop, where agents don’t have any access to the CEP systems or couriers in order to help you out – how could they? 

This results in bad customer experience and negatively reflects on the online shop, the shoe company’s brand, as well as in more volume to handle for the CEP. All of this could have been avoided.

The Key to New Business Models and Direct-to-Consumer Strategies

We have seen that manufacturers, brands, distributors, retailers, 3PLs, and CEPs are all interlinked in the value chain that is shaken by skyrocketing e-commerce growth, and the unforgiving consumer demand frictionless convenience. Each of them is contributing their specific part to the fulfillment process along the chain. 

Imagine the following scenario: you are the CEO of a global sportswear brand, sitting at your desk reviewing annual reports. You see that marketing is doing a great job, demand is growing across categories, the premium segment performs very well, manufacturing cost was optimized with factory FOB down 5%, wholesale is booming.

But your retail revenue where you earn double what you do on wholesale is struggling. You start drilling deeper. You look at the flagship stores and see they are having troubles in peak seasons by going out of stock like never before. You check with the head of e-commerce – the newly implemented e-commerce platform rolled out for key markets resulted in higher conversion rates and has boosted direct to consumer sales – and you see the problem.

Turns out, consumers have to wait up to 10 days to receive their orders. Therefore, many consumers cancel orders and order your product via Amazon or other marketplaces where delivery time is one day or the same day. 

This is how businesses lose half the margin to resellers and marketplaces. Many other brands and manufacturers experience the same challenges and are looking for ways to implement direct-to-consumer strategies as a new way to gain control of their distribution channels, retain customer data, and craft positive and loyalty-building user experience. 

Going down this path, there is no way around other than integrating and orchestrating 3PL e-commerce fulfillment and CEP execution across the distribution network.

A growth fueled by tectonic technological, demographics & social shifts

 

The last-mile of delivery can make up 28% of a shipment’s total costs, according to a report from Shipware. As the number of global shipments continues to rise, and e-commerce sales are expected to rise to 1.35 billion by next year, the preparation of an adequate response in the form of tech solutions should be imminent.

At the beginning of 2020, it was already clear that last-mile strategies are changing. In January, the World Economic Forum showed а detailed report regarding the future of the last-mile ecosystem. The changing dynamics of the consumers’ needs, the unparalleled rise of e-commerce, and some of the technological advancements were pointed out. 

The report concluded clearly that within the next one to three years following trend would gain prominence:

  • Integrated ecosystem approach that connects and optimizes the last mile for all parties across the supply and transportation chain
  • Solutions orchestrating data in real-time across the systems of those parties
  • Empowerment of brands and manufacturers to control end-customer data and experience across all channels.

 

Then, the grand disruption of the pandemic happened. And though it was not what brought about the need for an overall change and faster transformation of the final step of logistics, it was what inevitably accelerated it. 

As a result, 3PLs and CEPs, some of which work with decades-old technology in their core (the AS 400 never gets old), are stuck between a rock and a hard place.

Consumers generate unparalleled levels of last-mile logistics flows and the shippers demand ever more sophisticated e-fulfillment logistics solutions, including full live visibility and control of delivery processes.

Covid-19 acted as a massive catalyst for this process. Luckily there are now several market-ready, very mature solutions to tackle those challenges, some of them already in use by the most significant players in their field.

Technology Saves The Day… and the Delivery

Israeli based Bringg, one of the leaders in last-mile delivery technology already has some of the biggest retailers and CEP providers in Europe and North America actively using the data orchestration and AI-driven automation capabilities of there platform. 

The new paradigm emerging revolves around implementing such modular solutions on top of existing heavy and slow-moving enterprise infrastructure (ERP, OMS, WMS, TMS, CRM, etc.) and apply the vital new capabilities one at a time. This allows for de-risking and shifting away from old-school big bang projects that span multiple years and move towards agile implementations that are live within 8 to 16 weeks bringing instant business value.

Early adopters of such technology are able to out-perform competitors in the data is leveraged and put to use:

  • Data analysis: efficiency through digitizing every resource of the fulfillment network so as every pillar is optimized
  • Clear, concise communication at all times: knowing what’s happening at any point through notifications 
  • Gathering intelligence: tracking data, applying metrics, searching for the best performance indicators, improving the service, and bringing the right options and offers to the appropriate customer

 

Some of those early adopters have re-envisioned the way they can bring value to shippers, especially brands, by making the courier service as a multi-touchpoint, creating a branded experience that provides valuable end-recipient insights. 

 

In conclusion, customers have never been so central in the full process of delivery as they are now. Giving them full power and visibility over the process optimizes the process and impacts the result, bringing it closer to the so-called “Amazon Effect” – a.k.a. Stand as a real example of efficiency and really focus on the last-mile.

Scalefocus will expand the topic of last-mile logistics with a fireside chat with selected international guests – click HERE оr on the banner below to register.