As consumer demand drives speedy turnarounds, companies are hurrying to perfect the trickiest—and most costly—leg of the delivery process
Every journey may begin with a single step, but, thanks to the intensity of e-commerce, the last mile is truly make-or-break. Consumers are exerting continually mounting pressure on retailers to ship the goods they buy at the pace they want—be it next week, the next day, or in the next hour—and those who can’t deliver will pay the ultimate price.
By and large, companies driving to remain competitive in the age of Amazon Prime, whose reported membership growth bumps upward every year by roughly 30 percent, are struggling with the expense of last mile labor costs. McKinsey estimates that those last mile costs can account for a staggering 50 percent of the total cost of delivery. Nevertheless, last mile services such as same day and “instant” delivery is expected to capture a combined 20 to 25 percent of the market by 2025. When the costs for reaching rural customers are factored in, that number will most definitely rise.
A 2017 white paper published by the Global Journal of Business Research found that globally, last mile delivery costs in excess of $87.3B annually. Vehicle cost and maintenance, fuel costs, and driver pay are the main drivers; when packages are misdelivered, stolen, or unable to be left at a residence, those costs increase.
The question remains: how will companies conquer this precious distance between customer satisfaction and what must feel like a penalty for meeting customer demand? In these days of X2C—a relatively fresh acronym defined loosely as goods delivered to the consumer—retailers and shippers in the scrum will feel the pain. At this point, it’s a matter of how deeply, and for how long.
Customer Experience: From “You Want it When?” to “When Do You Want It?”
Most firms present their desire to become fulfillment superstars as a way to ensure positive customer experiences. Yet, when it comes to the supply chain, many are unprepared or unwilling to hitch themselves to the last mile delivery wagon.
A study co-authored by supply chain management firm Convey and business intelligence provider EFT surveyed 200 supply chain executives, and found that while 83 percent agreed that CX is a company-wide goal they are pressured to improve, 66 percent said their existing systems do nothing to improve the customer delivery experience.
Some C-suiters blame the system, grousing that only three percent of the retailers they work with “have current systems that fully support efforts to improve the customer experience.”
Finger-pointing aside, an overwhelming majority of the SC execs queried—a combined 79 percent—are focused on margins and cost cutting. So while there is increasing awareness in the industry of the need to add customer experience to the slate of traditional KPIs that must be measured, operational efficiency remains a critical consideration.
The Council of Supply Chain Management Specialists predicts that new digital technologies and automation will help companies solve the challenges of e-commerce logistics. There are several promising tech startups with healthy funding with the nerve and ingenuity to turn that vexing last 5,280 feet into a trippy jaunt down the yellow brick road.
Get the Door—It’s the Disruptors
Walmart’s 2017 acquisition of Parcel, a VC-backed same-day and last-mile delivery startup serving New York City, signaled the retail giant’s intent to command the urban last mile, for starters. Parcel delivers same-day, overnight, and in scheduled two-hour windows for Walmart acquisitions Bonobos, an upscale online fashion retailer, and discount e-commerce player Jet.com, as well as for other NYC retailers, and, of course, for Walmart.
“New York City is the top market for both Jet and Walmart.com, and because of the density of the area—along with the proximity of our fulfillment centers—it’s the perfect place for high-impact innovation,” Nate Faust, SVP of Walmart’s U.S. eCommerce Supply Chain, wrote in a company blog explaining the acquisition.
“Born and bred in New York City, Parcel has developed unique expertise delivering to customers in a distinctly challenging and essential market. This acquisition allows us to continue testing ways to offer fast delivery while lowering our operating costs.”
It’s no secret that this particular high-impact innovation is destined to hit Amazon right in the wallet. Other new market entries are eager and backed by serious VC money, including these five startups.
Poised to “out Amazon Amazon” with its same-day delivery system of goods from local brick and mortar stores, Deliv serves omni-channel retailers with platform technology that features smart routing via GPS-enabled smartphones and a crowdsourced driver pool made up of experienced customer service and sales personnel. Shoppers can watch their delivery in real time from the time of pickup until it arrives at their door, and Deliv’s crowd rating system allocates assignments to the highest rated drivers.
Launched in 2012 and backed by UPS, General Growth Properties, Simon Venture Group, and other institutional, strategic, and traditional investors, Deliv has so far raised over $40 million in three funding rounds. The firm is partnering with four of the largest mall operators in the nation, securing access to 800 malls and the tenants within them, all of whom will have an opportunity to use the service.
Doorman gives consumers control of their last mile delivery, as well as their return pickups. The company’s API allows e-commerce shoppers to schedule the precise hour of delivery, and permits rescheduling without having to contact a seller’s customer service department.
The San Francisco based company showcases a community feature that eliminates the need for multifamily building management to store and deliver packages. Goods are shipped to a local warehouse, and residents schedule deliveries when they will be present to accept them.
VC funders, including Matrix Partners, Structure Capital, and Alrai Capital invested $3.4 million in Doorman, which features services for enterprises and individuals.
This darling of the small-to-medium business sector is on the fast track to revolutionize the courier industry. With a proprietary tech platform that includes a scalable API that links to clients’ e-commerce sites and warehouse management software, Dropoff promises a “seamless last mile logistics solution.” Dropoff facilitates web and mobile ordering, and provides flexible delivery options, real-time tracking and confirmations, and crowdsourced service ratings.
To date, the Austin, Texas-based company has secured $17.2 million in funding to fuel its mission of becoming “the first national brand for same-day delivery.” Dropoff currently serves 18 U.S. markets.
Pickup answers the question, “It’s great that you can deliver my book today, but what about my fashionably distressed 9’ x 12’ area rug?” The response is a confident, “of course we can get that to you today!” This real-time logistics network specializes in same-day and last mile deliveries of heavy, large, and specialty items. A clever twist on the same-day model is, according to the firm, “a trusted workforce of military veterans, first responders and other Good Guys,” who are, presumably, in tip-top physical condition.
Pickup is positioning itself as a brand extension for quality retailers that gives consumers control over the delivery of more than just grocery deliveries or small items. To date, the Dallas-based firm has raised $2.5 million in venture funds.
This one is about much more than food delivery. As the operator of the nation’s leading on-demand delivery fleet in 44 major metro markets, Postmates has so far raised $278 million from VCs and private investors. According to Crunchbase, the firm’s mission is “to power local, on-demand logistics focused on fast deliveries from any type of merchant at scale.”
Postmates collaborates with a host of household name retailers, including Starbucks, Chipotle, 7-Eleven, Walgreens, and Apple, and has over 65,000 couriers. In 2017, the company extended its services to Mexico City, its first international venture.
Can 3PLs Abbreviate the Last Mile Delivery Headache?
Another option is the involvement of less than truckload (LTL) shippers and third-party logistics providers (3PLs) in the mix. LTL transpo operator A. Duie Pyle launched a dedicated Express Solutions division, with trucks designed to perform well on last mile runs, and a dedicated New York City fleet of diesel-electric hybrid vehicles.
XPO Logistics’ Last Mile uses a network of roughly 5,000 independent last-mile carrier and installation techs to make all of its last-mile deliveries in North America, and facilitated over 12 million last mile deliveries in 2016 alone.
XPO invests heavily in warehouses and infrastructure to make those operations profitable, serving over 500 markets. Schneider Logistics touts its Final Mile+ service success as having the “scale and financial resources (to) make us a world-class, integrated delivery provider for omnichannel retailers and manufacturers.”
Despite that enthusiasm, some LTLs are nixing involvement in last mile shipping entirely. Speaking to the Customized Logistics and Delivery Association and reported in their association magazine, the VP of transportation for Roadrunner Transportation Systems’ LTL services remarked, “We have no interest in getting involved in final mile. We don’t want to bring products into consumers’ houses… we’re good on the road and at the dock, but if you have a driveway, that’s another story.”
For companies like Roadrunner and Fort Worth-based LTL Central Freight Lines, the extra time it takes to make these specialized deliveries is costly and hard to justify.
According to warehouse management system developer Datex, 3PLs have an opportunity to make last mile delivery a shining star of their service models for e-commerce while amassing a nice chunk of change. The company’s thought leaders are confident that with smart investments in labor, strategic warehouse locations, and technology, 3PLs can deliver last mile service while keeping supply chain, transportation costs, and logistics costs in line.
McKinsey speculates that three models will eventually conquer the last mile: autonomous ground vehicles with parcel lockers and drones, which they project will eventually deliver almost 100 percent of X2C items and 80 percent of all items; bicycle couriers will rule a two percent slice of the instant delivery segment, most likely in densely-populated urban areas; and traditional delivery will account for the remaining 20 percent of goods.
At this point, it doesn’t really matter who gets to the last mile first, as long as carriers of every stripe—from drones and autonomous vans to bicycle couriers and truck operators—arrive at our doors at the time we insist upon, with our correct and complete orders in immaculate condition. That’s not too much to ask, is it?