The rapid increase of e-commerce in recent years is a catalyst for the surge in last-mile services nationwide. With the addition of COVID-19 and online-only shopping, the importance of final mile is pushed to the forefront of the overall supply chain process.
Total online sales reached a record of $73.2 billion in June of this year, according to Forbes. That is more than a 76% increase year over year from June 2019. Due to the pandemic, many shoppers are opting to buy online versus traveling to a physical store. COVID-19 has also forced businesses to adapt to a fully digitalized business model to still reach their consumer base. This boost in e-commerce creates challenges to supply chain operations—mainly last-mile delivery. For shippers, final-mile highlights important factors and complex challenges as part of the overall transportation space.
Growth
E-commerce has been accelerating for the past 3-5 years and the logistics industry, being on the pulse of adapting to growth, is seeing many of these market changes far before the consumer experiences them. Third-party logistics services providers (3PLs) have been adapting to new distribution models, new warehouse locations, expansion of transportation modes, and an increase in visibility demand for shippers.
The COVID-19 pandemic simply accelerated this growth, with safety and fear being prominent driving factors for traditional shoppers wanting to avoid public places and the airborne virus. We have new customers entering the space as older generations, that would traditionally avoid online purchases, are now adapting to online shopping with COVID-19 store closures. Many new industries are forced into developing an e-commerce strategy and digital experience model to survive the current pandemic state while preparing for the post-COVID consumer era.
Distribution
Retailers are moving to new distribution models from the traditional distribution model, expanding last-mile and e-commerce shipments as online orders and demand for short delivery times increase. Big Box retailers with already established strategies are now looking outside of traditional distribution warehouse spaces and allocating space in brick-and-mortar stores as well as several other methods.
Distribution center models are seen as inefficient and many businesses are moving forward with fulfillment center models in order to meet demand with smoother, more localized operations. This model targets low-cost areas outside of cities and are used as touchpoints for divert to relay and transfer shipments. Moving forward, air freight will become increasingly important for e-commerce logistics as rail transport is slower and predominately used for raw materials.
Challenges
There are many retailer challenges that come with these types of demand for e-commerce and unfortunately, retailers who do not evolve risk the future of their business. Adding another leg of the supply chain—a crucial and complex one at that—requires strategic hiring across the company. These retailers face many challenges in their direct network with vendors, being forced to partner with those that can meet their evolving needs in the short term and long term.
Reverse logistics, or returns, have always caused a lot of headaches for retailers. The e-commerce boom has only heightened this stress on the supply chain, increasing storage costs and lost profits while being an uncontrollable aspect of your overall strategy to account for. Those shippers that have solutions and strategies surrounding reverse logistics can use it as a major competitive advantage moving forward.
Visibility
Technology has advanced the supply chain space significantly with the rise of e-commerce. Shippers across modes require standards for 3PL visibility in order to optimize their supply chains and better service the customer. With the rise of e-commerce, the consumer now demands a high level of visibility on their shipment, which becomes a big challenge for many retailers when partnering with a transportation provider.
In the case of last-mile delivery, scanners are a leading way to increase visibility and efficiency. With scanners, more packages can be delivered in a day because they are helping to eliminate manual work upon delivery. If managing a large fleet, having the ability to manage this volume of drivers effectively and efficiently through technology is crucial for success.
Financial Aspect
Despite its short supply chain journey, last-mile takes up a large portion of shippers’ transportation costs. According to the Bureau of Economic Analysis and FreightWaves, last-mile costs are as much as 28% of entire supply chain expenses. The traditional way of manufacturing, inventory, etc., have significantly changed in the last 2-3 years—pushed by transformative technology and the modern generation entering the workforce.
The pressure to have a firm grasp and find a balance between human vs AI and human vs robot in modern business models is a significant challenge across industries. For example, what happens if 3.5 million drivers do not have to drive because of autonomous trucks? How will the industry adapt moving forward? This is something that forward-thinking organizations strategize on and never leave out of discussions surrounding innovation and relevancy.
New cost structures along with adapting to a new budget model can be challenging for retailers. With adding transportation cost there is and will continue to be a need to figure out how it impacts the bottom line and whether product prices need to increase to help offset costs and stay profitable. There will also be operational challenges to face with last-mile delivery—does it make sense to hire within or contract/outsource? That is a question on everyone’s plate when targeting last-mile services.
Best Practices
In order to move forward, businesses require technology and strong partnerships. With the complexity of last-mile delivery and e-commerce supply chains, technology enables you to optimize your operation and ensure you are scalable as the industry evolves. Technology integration is imperative given the volume of deliveries per stop and the need for real-time location demands and automated delivery updates. It is essential that this data is shared regardless of the timeline between the retailer and the consumer.
Consumers now prefer and lean towards retailers that offer door delivery, but many retailers are asking if they are able to stay profitable with this last-mile strategy. Not every model will work for a company, but you have to find the best model for your operations that will position you for success in the next phase of e-commerce growth.
Last-mile is not the same as shipping between distribution centers and some 3PLs have the resources and the network to deliver the level of white glove service required in last-mile shipping. 3PLs utilize their carrier network and industry expert employees, which can relieve you of the headache that hiring company employees can bring. Outsourcing last-mile to a 3PL can also lead to decreased overhead, offsetting additional transportation costs that may arise. Each second counts in e-commerce and using a reliable and relationship-based partner can help you scale faster and more efficiently in the e-commerce, last-mile space.
Andrew Herpich is executive vice president of enterprise strategy with Nolan Transportation Group, a third-party logistics services provider.
