Tackling the last mile

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Cost, complexity, and opportunities for improvement make last-mile deliveries the most likely area to experience the next wave of substantial disruption in the supply chain.

In the last-mile delivery, what may start out as a truck or container load of a particular product, is broken down into larger numbers of units, until by the time it reaches its destination, it is a single unit. This “milk-run” nature of the last mile makes it challenging for companies to plan last-mile delivery efficiently, and it therefore carries proportionately more cost than other parts of the supply chain.

In a recent report, the Capgemini Research Institute provided recommendations for how consumer products and retail firms in the food and grocery segment can streamline their approach to this key part of the delivery cycle. The report is called “The last-mile delivery challenge: Giving retail and consumer product customers a superior delivery experience without impacting profitability.” The four key areas it explores are:

  • Consumers’ increasing desire for faster and more frequent deliveries
  • The benefits for firms that offer great last-mile delivery services
  • The impact of increases in last-mile deliveries on profitability
  • How organizations can get the last-mile value proposition right while mitigating profitability risks

These four areas are of course inter-related. For instance, customer expectations are continuing to increase. They want more choice and faster deliveries – and that, in turn, creates pressures on the system. So, too, does the need to accommodate returns.

However, I’d go beyond pointing only to the implications of this for profitability. I’d go as far as to say that the current infrastructure is becoming insufficient for product manufacturers and providers, and that there is a danger that e-commerce as we currently know it may collapse. Continuing to accommodate the vast and ever growing volumes of shipments is simply unsustainable.

A layered approach

What’s needed, in my view, is a fundamental rethink of supply chains. We need a multi-echelon approach to delivery, in which as much stock as possible is moved closer to customers. If that sounds to you like a sophisticated description of a shop, well, it could be. A shop can also be an online fulfillment center, but bricks-and-mortar outlets need to be located and designed to be customer-facing, and that doesn’t come cheap. In some locations, it might make sense to make a virtue of this, and to “go large” – so the shop can handle customers, fulfillment, and returns at scale.

An alternative is to keep the nearest local fulfillment center not customer-facing – and to stock it appropriately, by which I mean with items for which high demand can confidently be predicted. (Amazon is already doing this with one-hour city deliveries for popular products.) Such forecasts can be derived from consumer and supply chain insights, to which superior analytics capabilities are applied. This local center is the last link in the supply chain, with each link behind it holding types and quantities of stock appropriate to their level in the hierarchy.

Of course, in order to achieve a model of this kind, supply chain planners need to develop a deep and sophisticated understanding of the markets they serve, gauging likely demand not just in a general sense, but in terms of other factors such as geography, local economy, the competitive environment, demographics, culture, climate, and more. To meet this need, it’s likely they’ll have to make artificial intelligence (AI) an increasingly important part of their technological response.

Civic engagement

What exacerbates the last-mile conundrum are its societal implications. The more that people shop online, the more home deliveries there are. This creates more traffic on the roads, which causes congestion, and which also has environmental consequences.

As a result, city planners and local governments may well push for change. This could be in the form of urban warehouses, the running of which will be contractually awarded by the civic authorities. Product manufacturers would make their deliveries to the contracted organization for that city, and it would then be the responsibility of that (single) service provider to consolidate deliveries and plan so as to make the last-mile as economically and environmentally efficient as possible.

I said just now that a fundamental rethink of supply chains is needed. We can expect to see further significant disruption, and in my view, the most likely place to see this happen will be here, in the last mile. It’s certainly where the greatest focus is – and when you look at the costs, the complexity, and the opportunities for improvement that may be possible, it’s not hard to see why.

To learn more about how Capgemini’s Digital Supply Chain Practice  can ensure a smooth and satisfactory “last-mile” to retail and consumer product customers, contact: joerg.junghanns@capgemini.com

Read Capgemini Research Institute’s The last-mile delivery challenge: Giving retail and consumer product customers a superior delivery experience without impacting profitability report to learn more about how consumer products and retail firms in the food and grocery segment can hone in on the home stretch when it comes to last-mile delivery.

Jörg Junghanns leverages innovation and a strategic and service mindset to help clients transform their supply chain operations into a growth enabler.

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