Should Last (Mile) Be First?

June 1, 2010
Don’t overlook last-mile efficiency when choosing the location of your DCs.

When it comes to logistics site selection, there are some criteria that consistently dominate the landscape. Last-mile efficiency hasn’t been one of them. After a brief period of intense attention in the late 1990s, this once-hot function largely faded from sight—and most corporate agendas. Don’t let the lack of attention mislead you, though, because over the past decade, last mile has quietly and steadily continued to gain momentum, thanks to the continued growth of transactions that require individualized delivery support.

According to studies from the U.S. Department of Commerce, annual online expenditures in the United States were $134.9 billion in 2009—more than five times higher than the $25.8 billion reported for 2000. Plus, conservative estimates place the value of large-product last-mile delivery, including products that consumers purchase at brick-andmortar retail locations but can’t transport themselves, at $8 billion to $10 billion. And that doesn’t even begin to factor in the powerful value of catalog and direct-response sales.

These statistics raise some interesting questions: If the need for last-mile delivery never waned, why did companies table their last-mile strategies in the first place? More importantly, as last mile continues to grow, can companies really afford to continue overlooking it when choosing the locations of their distribution centers (DCs)?

Why Last-Mile Interest Took a Detour

Last mile rose to prominence during the dot-com boom, when shippers were struggling with the challenges of how to ship products without inadvertently shipping their profit margins out the door. And it suffered from guilt by association. When the boom went bust, so did much of the interest in finding ways to get cost-effective fulfillment and delivery, even though it was still a very real issue.

Logistics professionals also had their interest diverted by many other pressing events, including a rise in terrorism, the shift to more global manufacturing, huge spikes in fuel costs and the decline in the economy.

Given the scope of these challenges, it’s easy to see why last-mile concerns had to take a number. However, given the many ways that delivery performance often directly impacts sales success, it’s hard not to push for a recount.

For example, there’s a strong link between last-mile delivery— a customer-facing function—and the customer service experience. The business value of that experience cannot be emphasized enough. According to a survey conducted by the Warehousing Education and Research Council (WERC), customers are willing to accept no more than two negative service experiences before deciding to take their business elsewhere. And, in a December 2008 report, Forrester Research indicated that the quality of a customer experience can mean as much as a $184 million difference in revenue for large retailers.

In addition, there is strong evidence that suggests the wrong approach to last-mile management can wreak havoc on a company’s bottom line. In the February 2010 issue of MHM’s sister publication, Multichannel Merchant, experts estimated that typical shipping costs constitute about 6% to 8% of the average order; yet they also said many buyers have come to expect free or discounted shipping orders. “Merchants lose a retail dollar amount any time they give away standard delivery shipping and handling,” the article states.

Ultimately, the ability to manage last-mile shipments more cost effectively could wind up being the difference between profit and loss. And few things are more effective for helping companies manage the last mile than the right location and facility.

Last-Mile Site Selection

Just as traditional DCs have huge impact on the success or failure of a company’s supply chain, last-mile DCs have a considerable impact on how well a company’s delivery professionals are able to perform. To help ensure that impact is positive, here are five questions your company should keep in mind as it maps out its optimal last-mile DC network.

1. How many last-mile DCs should a company have? It’s hard to offer a definitive number because companies’ business rules and customer bases vary so dramatically, making what’s just right for one company far too much or too little for another. However, as a rule, domestic last-mile DC networks include far more facilities than their traditional DC counterparts—as few as 12, as many as 120—because lastmile efficiency is all about being closer to consumers. And more facilities typically equal greater proximity.

2. What are the best last-mile DC venues? There’s a good reason no city has tried to bill itself as “America’s last-mile capital.” Companies’ high-population customer clusters can vary dramatically, depending on the kinds of products they sell, and that in turn can result in huge differences between which DC markets wind up being convenient and which wind up creating more trouble than they prevent. For example, if a company sells rain gear, places such as the Pacific Northwest may represent some of the most attractive last-mile venues. By contrast, if a company sells 10-gallon hats, more of its last-mile DC venues should probably be located in the Southwest.

But, generally speaking, many companies with extensive last-mile needs tend to include at least one facility near the Northeast and Eastern Seaboard. These are highly populated areas, so they usually offer higher concentrations of many companies’ home-delivery customers.

3. How important are traffic patterns? Good traffic flow is akin to good cash flow. Both are highly desirable, and both are affected by a number of factors outside a company’s control.

Pay close attention to surrounding congestion levels when comparing the merits of locations in two different towns or on two different sides of town because your last-mile delivery trucks will be logging a lot of in-city miles. And there’s a huge difference between the time it takes to travel five miles in highly trafficked urban areas such as Los Angeles, versus the time it takes to travel the same distance in more rural locales such as Whitefish, Mont. After all, there are good reasons some cities have nicknamed some their roadways things like Spaghetti Junction or the Mixing Bowl.

4. Is there an ideal number of dock doors? Just as some people say you can’t be too rich or too thin, you can’t really have too many dock doors at a warehouse, especially if that warehouse deals with last-mile fulfillment. With that in mind, try to find a facility that has one truck door per every last-mile truck you expect to routinely deliver from your facility. And don’t settle for any facility that has anything less than a two-trucks-per-one-door ratio.

In addition, should you choose to use a facility with fewer dock doors, make sure it has ample, secure yard space to accommodate trucks while they wait. Last-mile trailers are extremely susceptible to theft when they’re left out in the open. And having inventory stolen can erode even the healthiest of bottom lines.

5. What if our company needs more last-mile locations, but it isn’t ready to commit to them? Your company can always exercise the option of using a public or contract warehouse, especially when you consider that there are roughly 8,000 such facilities in the United States alone, according to Armstrong & Associates. However, make sure that any third-party logistics (3PL) facility you use is conducive to efficient last-mile delivery. And check out the last-mile credentials of the 3PL that’s operating the facility, because individual product delivery is a completely different animal than any other aspect of the supply chain.

The Last Word

There are those who would argue that last-mile is still merely the tip of the proverbial supply chain iceberg—one small link in a process that often encompasses many modes, thousands of miles, many carriers and a plethora of hand-offs. And in many ways, they’re right.

However, sometimes in business it’s the little things that count, especially when those little things are the only part of a process a customer sees. Like it or not, last mile is the sole portion of the supply chain that directly touches consumers. As such, it’s far bigger than the sum of its parts.

Bear that in mind if someone suggests that last-mile site selection shouldn’t be given the same weight as logistics tactics further up the supply chain. When it comes to customer retention, a strong finish can make all the difference.

Will O’Shea is chief sales and marketing officer with 3PD Inc., a provider of last-mile delivery and logistics services.

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