No one ever said consumer behavior was logical. Research shows consumers want fast shipping, but they also want it for free or at minimal cost. That can make your last mile ─ which is usually longer than a mile ─ very expensive.
More than 50 percent of consumers make purchase decisions based in part on the cost of delivery, and another 20 percent simply prefer the cheapest delivery option, McKinsey reports in “Parcel Delivery: The Future of Last Mile.” The same preferences hold true for B2B buyers as well as B2C.
Keep in mind that the last mile is a bit of a misnomer. That final leg of delivery, whether it's to a consumer's doorstep or a company's receiving dock, may vary. In the 15 most populous metropolitan areas, the final mile ranged from six miles in the San Francisco Bay Area to nine miles in the Inland Empire in Southern California, according to CBRE Research. Densley populated urban areas tend to have shorter distances because the infrastructure has been built up to handle the load.
So how can shippers serve consumer preferences while managing costs for the last mile?
Strategies vary for e-commerce-only shippers vs. retailers with physical stores. The basics are the same: understand your customers' expectations. Consumers want low-cost or free shipping, so incent them to bundle low-margin items or offer free shipping for loyalty programs or purchase levels. Think about return shipping as part of the mix ─ perhaps there's a fee for outbound shipping but returns are free, or vice versa.
Industry watchers say drones, automated guided vehicles and parcel lockers will help companies manage some of the costs for the last mile. A few online startups have apps that pair drivers with parcels, but they may lack tracking and visibility that will limit their utility for enterprise-level distribution.
Parcel and less-than-truckload (LTL) carriers are struggling to manage the many-to-one shipping model for home deliveries. They're looking to improve packaging and routing densities to make their networks sustainable over the long term. The ad-hoc nature of parcel and LTL services add to the complexity, as each day brings new routes and new stops.
Reconfiguring distribution centers to reduce the length of that last mile can help, especially in urban areas. Shippers can speed up deliveries from two-day to one-day or even same-day. Smaller, more nimble DCs can handle the most popular products and elevate delivery service to a competitive advantage. Carving out space in stores for fulfillment is one tactic; converting low-performing stores into a mini DC is another possibility.
Working with an Enterprise Logistics Provider that has in-depth knowledge of parcel networks and has the technology to perform "what if" modeling can help optimize your approach to the last mile. Transportation Insight has experience in aligning packaging, DCs and shipping patterns to fit seamlessly with the parcel carriers to reduce costs and friction. With our robust platform of technology solutions, including Insight TMS®, we can provide real-time visibility into your supply chain to optimize each parcel.
Transportation Insight can help you take control of your last mile to delight your customers and manage your shipping spend.