Recent Capgemini research shows that food and grocery retailers need to improve consumer expectations with great last mile delivery services. A fundamental rethink of the supply chain is needed, as also argued by Jorg Junhanns. Both reports focus on cost, complexity, and improvement opportunities for supply chain management, starting with the last mile. However, there is a bigger forcing challenge that dramatically gains importance – last mile city logistics.
The challenges of last mile city logistics
Meeting the needs of demanding consumers is challenging, especially in urban areas. The urbanization trend will continue in the years to come. However, we see infrastructure in and around city centers is not prepared. The congestion this obviously creates results in a growing challenge for urban transport. At the same time, municipalities aim to reduce emissions resulting from city logistics by implementing so-called zero-emission zones, which limit access to vehicles and/or time for freight transport in order to retain accessibility, quality of life, and safety in cities. Other strategic policy measures, such as off-hour delivery, vehicle length limitations, or cooperative freight transport systems, are all standard practice today. To manage truck traffic, privileges and collaboration between parties could render the use of limited space and transport more efficient and thereby encourage the sustainable urban mobility necessary for maintaining good accessibility and a livable city.
On the other hand, consumers become increasingly demanding regarding last mile logistics. They expect to track and trace products during the entire delivery process; they want better, real-time, and predictive information about the actual delivery; and they expect a variety of delivery options, choice, and the resulting flexibility (such as same-day or instant delivery or pick-up points). Seventy-three percent of consumers said that receiving the delivery in a convenient time slot is more important than receiving it quickly. Customers nowadays are even willing to pay for faster speed of delivery. Fifty-five percent of consumers say that a two-hour delivery option would increase their loyalty, yet only 19% of firms offer two-hour or faster delivery. For their part, Dutch consumers (89%) mentioned that free returns are important when shopping online. Nowadays, sustainability is increasingly important. Customers are socially, ethically, and environmentally aware and expect further commitments to sustainability. They demand reusable packaging and zero-emission delivery.
Last mile logistics is the biggest cost driver (41% of overall supply chain costs) in the supply chain. On the other hand, consumers are still not satisfied with the current state of last mile logistics, even in a situation where 74% of satisfied consumers intend to increase purchase levels by 12% with their preferred retailer. So, retailers have a big challenge.
Redesign of the last mile
Rethinking the concept of last mile logistics, especially in urban areas where transport is a growing challenge, is needed in order to satisfying the demanding consumer. It becomes a competitive factor because consumers expect a transparent, frictionless last mile delivery, which impairs the cost and efficiency of the last mile. The last mile distribution of the future means minimizing costs by increasing efficiency while making the delivery frictionless and ensuring transparency. This requires better infrastructure, smart planning, and collaboration between parties while volumes increase, and challenges become bigger.
Last mile delivery by zero-emission vehicles is one of the solutions when it comes to delivering customer service efficiently and profitably. Apart from existing electric versions of Nissan or Renault, new types of vehicles have been introduced in recent years. The StreetScooter is one of the most famous, while the Goupil is immensely popular in the Netherlands, since Picnic uses it.
Additionally, using city hubs will provide added value to maximize consolidation opportunities and reduce cost for as long as service levels remain at a break-even point. B2B shipments are increasingly being combined with B2C shipments. This consolidation of flows leads to cost savings and a reduction in the number of transport movements, for example the consolidation of Wehkamp returns with Picnic delivery. The latter is particularly important in the city center. (Local) governments show a particular interest in the design and development of city hubs.
Regardless the type of concept, to reduce congestions it is essential that the organization of last mile be optimized. Think of clustering customer stops geographically, maximizing delivery efficiency and minimizing driver time, and unloading and reloading of inventory. Although the entire chain is well organized, the best plans are only as effective as their execution, so managing driver performance should also be in scope.
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I wrote this blog in collaboration with Maurice Uiterweerd.