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The importance of last-mile delivery to logistics

Last-mile delivery is the key to customer satisfaction. Here are four reasons your supply chain management strategy needs to focus on this critical stage of logistics.

Last-mile delivery is the movement of goods from transportation hubs to their final destinations -- typically consumers' residences. It has become an increasingly important part of logistics as more consumers buy online and expect speedy delivery.

The last-mile delivery stage of logistics is key to overall supply chain management effectiveness because it plays such a powerful role in making consumers happy. And it's incredibly difficult to get right. Leaders may feel that they're being pulled in multiple directions by contradictory last-mile demands -- for example, consumers wanting products fast but expressing concern over the carbon emissions that result.

Here are four reasons the last mile is such a crucial part of logistics that point to priorities leaders must balance.

1. Consumers want speedy deliveries

Customers want products to travel quickly from a fulfillment center to their door, and achieving that delivery speed requires meticulous last-mile planning.

Online shopping was becoming more popular even before the pandemic. Amazon's free delivery for subscribers, which began as two-day delivery in 2005 and is now one-day for limited items, has permanently altered customers' expectations.

The pandemic accelerated online shopping trends by about five years, said Sundip Naik, managing director of supply chain and operations at Accenture, a consulting and processing company in Dublin. Consumers value speed and they're willing to pay for it.

The pandemic led to increased delivery speeds, which may be difficult to reverse.

Consumers in China and around the world now expect delivery within 24 hours or even one hour, said Virginia Xu, head of global branding at Suning Group, a Chinese retail conglomerate in Nanjing, China.

Now, "faster delivery is the new normal," according to the report "Future of the Last-Mile Ecosystem" by the World Economic Forum.

Although deferred delivery, which usually takes one to three days, continues to be the most popular delivery option, same-day and instant delivery -- such as food delivery from Grubhub or Uber Eats -- is the fastest-growing last-mile category, according to the same report.

In other words, delivery speed is a key factor in winning -- and keeping -- customers.

If one grocer can't deliver a customer's order the same day and its competitor can, the customer will choose the competitor, said Bryan Jensen, executive vice president of St. Onge Co., a supply chain strategy and logistics engineering consulting firm in York, Pa. Consumers look at a company's delivery speed first, valuing it more than brand loyalty or product quality.

2. Last-mile mistakes are expensive

If company leaders don't properly plan the last mile, costs add up quickly.

Last-mile delivery makes up a large portion of a company's shipping costs even if processes go smoothly. The final part of delivery accounts for 53% of the total cost of shipping and 41% of total supply chain costs, according to "The Sustainable Last Mile," a report by Accenture.

Urban areas are particularly expensive, especially if leaders don't take a highly strategic approach to logistics, Jensen said. The toll costs for last-mile deliveries in New York City's five boroughs could add up to six figures a year if shipping departments don't select the right routes.

In addition, if companies' delivery schedules put trucks in heavy traffic spots during rush hour, trucks' transit times and fuel costs could increase.

Failed deliveries also add to last-mile expenses.

Failed deliveries account for as much as 12% of all deliveries, said Tom Enright, an analyst at Gartner. A driver will need to return to a house if the package requires a signature and no one is home. The driver will need to make another trip if a customer received the wrong item and orders the correct one. These errors also add to fuel costs and delivery times.

3. Consumers want greener deliveries

Consumer scrutiny of a company's environmental practices has increased in recent years, and last-mile delivery can be particularly harmful -- especially speedy single deliveries.

"The carbon footprint of the last mile has long been an environmental and societal challenge," according to the Accenture report.

Increased deliveries during the pandemic have only worsened the situation. And there is very little marketing to inform customers about the environmental ramifications of various delivery choices and how small changes can make a big difference.

Some consumers are concerned about the additional CO2 emissions from all the vehicles they see on the road, Enright said.

However, many customers will likely feel conflicted but still opt for fast delivery.

One way for companies to meet consumer demand for a greener last mile is to build fulfillment centers near customer hubs so delivery trucks have less distance to travel. For example, Amazon is buying vacant retail malls and brick-and-mortar stores and turning them into distribution centers. This reduces last-mile delivery times as well.

In 2019, Suning added 5,000 electric vans in 100 cities across China, with some of them earmarked for last-mile delivery, Xu said. The vehicles, which travel an average of 106 miles per day, save about four gallons of diesel fuel per day and reduce carbon dioxide emissions by 74 pounds.

Packaging is another major environmental issue for many customers.

Consumers have been concerned about this for years, Enright said. Customer demand was part of the reason retailers and grocers started using more environmentally friendly packaging.

However, the pandemic caused some companies to revert to old practices because of germ concerns, according to the Gartner report "Dead Ends, Diversions and New Directions: How Retail's Last Mile Needs to Adapt to a Post-COVID World," authored by Enright.

"With fears of the virus being transmitted through surface-to-human contact … many brands that had strong sustainable packaging initiatives, including reducing or eliminating single-use plastics … have had to shift their practices to address the pandemic," Enright wrote in the report. "[This] brings into question how soon consumers and retailers revert to more efficient and sustainable use of packaging."

Once business returns to a new normal, consumers will likely demand a return to sustainable packaging, especially now that scientists understand so much more about COVID-19 transmission.

4. The last mile is the last impression

The last mile is a crucial part of logistics because if the last mile doesn't go well, customer experience suffers.

Customers don't see the supply chain process before the last mile -- they likely only remember how it got to their hands.

If a delivery person throws an expensive item on the porch or it arrives in flimsy packaging, the customer might choose a different store in the future, Enright said.

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