Understanding new innovations in last mile delivery for eCommerce

Last mile delivery in eCommerce is evolving at a rapid rate, with advanced analytics, dynamic route optimisation and AI, retailers can now provide greater speed and flexibility for deliveries

It’s clear that the new battleground for eCommerce supply chains is the ‘last mile’ and retailers need to find a way to provide cost-effective same day delivery

Few things have turned the world of supply chain logistics on its head quite like the advent of eCommerce. These days, evolving customer expectations reign supreme.

Customers want more control over the whole delivery experience; real-time tracking, the ability to rate delivery drivers and redirect orders are a must. On top of this, they want same-day-deliveries as well.

According to Ben Dunne, delivery lead at Accenture, who spoke to Information Age at The Dock, Accenture’s flagship R&D and Global Innovation Centre, last month, retailers are more than aware of these changing customer expectations, and many are even altering their supply chains to keep pace with change.

“Whereas retailers typically would have fulfiled eCommerce orders from out of town fulfilment centres, more and more are now retrofitting their urban stores to function as distribution hubs,” he explained.

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He argued, however, that retailers face problems because many of them are still using legacy delivery carriers who have not enhanced their systems and operations to provide the required visibility and flexibility.

“If you think of traditional delivery carriers, the likes of the Royal Mail in the UK or An Post in Ireland, they’re very good at next day deliveries and international deliveries, they have the infrastructure and set up to allow them to do that,” he said. “But when it comes to a same-day delivery proposition, they lack the flexibility to meet those expectations.”

Startups to the rescue?

In this regard, it’s little wonder we’ve seen a significant rise in the number of same-day delivery startups, such as Deliv, Postmates and Instacart entering the market. These players are certainly disrupting things, not only are they quick, but they also meet that customer expectation in terms of control, providing that ‘Uber-like experience to track and trace the drivers and rate them.

However, concerns remain around the profitability and sustainability of these new delivery models as they continue to face fierce competition, thin margins, potential regulatory action against the gig economy and a host of operating challenges that have blunted the effect of economies of scale.

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Dunne also sees problems in their delivery models; he explained: “Look at the way they operate, they receive an order, then go straight to the store, they collect that order, and then they go straight to the consumer. We call this a taxi model system and they’re problematic because they can only deliver one or two orders per hour using this model.

According to Dunne, in their pursuit of speed, they have sacrificed parcel consolidation, larger drop sizes and route density, which are the key factors required to reduce operating costs and drive efficiency.

Research by Accenture shows that the average variable costs per delivery by these startups are as high as $7-$10. While consumers are willing to pay for same-day delivery, the majority are unwilling to pay more than $5. To date, a combination of retailer delivery fees and venture capital funding for start-ups has subsidised the real cost of delivery with the consumer only paying c. $4-$6.

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Overcoming the ‘last mile’ problem

It’s clear that the new battleground for eCommerce supply chains is the ‘last mile’ and retailers need to find a way to provide cost-effective same day delivery.

According to Accenture, this can be done by adopting a ‘continuous delivery’ framework. With this, retailers would have the ability to add parcel collections and deliveries to a driver’s route continuously throughout the day.

According to Dunne, to enable continuous delivery, an organisation must have four essential capabilities:

• Advanced forecasting: this is where advanced analytics are used to predict collection and delivery locations, and time of order. These forecasted orders are provided to the route optimisation engine to improve driver response times, increase collections and deliveries on each route, and reduce transportation costs.
• Optimised delivery: this is all about optimising delivery routes and responding to changes throughout the day by leveraging real-time data analytics.
• Intelligent insights: this is about measuring delivery performance and identifying opportunities to increase route density and delivery efficiency further. This also includes additional features to provide retailers with increased transparency over the end-to-end delivery process to monitor carrier performance and find the optimal solution among their delivery options.
• Real-time tracking: using GPS technology to provide customers with increased visibility and control over the end-to-end delivery experience. This also includes real-time track and trace capabilities, delivery notifications, flexible delivery windows and instant communication with the delivery driver or customer care operator. These live customer updates are then fed back into the route optimisation engine alongside all real-time data updates.

Dunne added: “The beauty of this approach is that you’re moving away from the need to sortation centres because you’re making collections from urban hubs or a store, and then going to the consumer so, essentially, you’re continuously collecting and delivering.”

Utilising a continuous delivery framework

There’s no denying that this framework comes with a lot of complexity and hefty investments will be required.

However, with the same-day delivery market forecasted to account for $200 billion in US online sales by 2025, retailers, post and parcel companies and on-demand delivery start-ups all stand to gain from utilising a more localised continuous delivery model.

Of course, each company’s approach and investment will depend on whether they have sufficient scale to offer their same-day delivery service cost-effectively or if it is more efficient to leverage a partner’s delivery network and supply chain capabilities.