At a glance, last mile logistics looks simple enough: it's just a matter of companies transporting goods from a warehouse or distribution center to their end customers. But anyone who has ever grappled with the complexities of the last mile can tell you that there's a good reason that last mile deliveries account for such a considerable percentage of overall logistics costs.
For one thing, differences in customer needs and delivery types make it difficult to create delivery routes that actually utilize your truck capacity. For another, it can be incredibly difficult to track deliveries once the truck has left the warehouse. When your back-office teams and your customers are in the dark, it's a recipe for missed deliveries, poor customer ratings, and increased costs. Luckily, with modern technology, things don't have to be this way.
What Is Last Mile Logistics?
At its simplest, last mile logistics is the movement of orders from a hub to their end destinations. It's the final step in the logistics process, and it's often the most expensive, too. Why? Because despite seeming like a straightforward concept, their execution is incredibly complex.
Part of this comes down to the difficulty of developing efficient delivery routes. When you move goods from a manufacturer to a distribution center, it’s typically a straight shot from point A to point B. When you’re making hundreds or thousands of individual stops across a multitude of different truck routes, that simplicity vanishes—instead, you have to grapple with the virtually infinite possible permutations of stop sequences.
At this point, a human planner could potentially eyeball relatively efficient routes, but we’re not done adding complexity. Not only do your routes have to be efficient in terms of miles driven, they also have to account for customer time window requests, driver skill and speed factors, and differences in delivery and service time between types of deliveries, and much more. At this point, efficiency often breaks down, and cost per stop goes way up.
On top of all this, you need to find a way to track deliveries both in transit and after the fact. You also need to communicate with customers and drivers throughout the process.
The Importance of Keeping Last Mile Logistics Costs Low
Last mile deliveries can account for roughly a third of overall costs. Why? Because as we can see above, they represent. Cutting down on this cost will mean a higher revenue for your business.
Optimizing last mile delivery is more important than ever given that global demand volumes are continuously rising and volatility around fuel pricing and the global supply chain aren't going away any time soon. Sales from e-commerce have continued to grow: Nearly everything these days is being ordered online, from exercise equipment to large electronics to bulk food and why, all of which is testing the capacity and limitations of many business' fleets and transportation networks.
What Makes Last Mile Logistics So Expensive?
There are different factors affecting last mile logistics costs. Here are the major ones:
Fuel and labor costs
Let’s start with the most important cost factors: fuel and labor. Simply put, every mile driven consumes fuel—as does every minute idling. Driver and technician labor is also costly, regardless of whether you’re paying by the delivery or by the hour. These are more or less the cost of doing business, but they are impacted hugely by the efficiency of your routes and your ability to orchestrate smooth deliveries with a high level of transparency.
Demand for quick order fulfillment
There was a time when consumers would be content to wait a while for delivery. Those days are gone, and faster order fulfillment times have become the norm. On-demand orders are on the rise as well, which puts pressure on shippers to ensure that products are moved at a much faster pace.
When your routes don't account for real-world driving conditions, drivers will make adjustments on their own, often racking up more mileage in the process. Studies have revealed that out-of-route miles account for around 10 percent of the overall mileage of a given fleet, and it's easy to imagine that number going up in cases where drivers aren't being given routes that work for them.
Missed and failed deliveries
Delivering products to end consumers often requires that the customer be home to let the delivery personnel in and sign for the delivery. If there's no one at the delivery site when the truck arrives, you have to take the goods back to the warehouse and try again later. Then, you incur almost all of the delivery costs from fuel and labor all over again. Unfortunately, a lack of communication and real-time tracking makes this situation all too common.
What's the Business Impact of High Last Mile Logistics Costs?
Again, missed and failed deliveries aren't uncommon—with some estimates putting the rate around 5% across the industry. High failed delivery rates cost businesses a significant amount of revenue.
Aside from inflating operating costs, failing to optimize last mile logistics also affects repeat business. Consumers expect to get their goods on time, and businesses that fail to meet this expectation will also fail to gain customers’ loyalty.
Plus, customers may also end up canceling their orders if they feel the company is taking too much time to deliver what they ordered. Customer loyalty isn't as strong a force as it used to be. In order to stay competitive, your delivery experience needs to be just as strong as your products and customer service.
How Can You Cut Down Last Mile Logistics Costs?
There are ways for enterprises to lower their last mile logistics expenses. Route optimization is one of the best methods: optimizing routes can help businesses manage their fleets more efficiently, improve ETAs, reduce failed deliveries, and increase delivery capacity utilization.
Route optimization is about finding the fastest and most cost-efficient routes so drivers can deliver more orders in a day without risking late deliveries to your customers. This typically requires you to invest in dynamic route planning software that can handle the complexities of the last mile.
Route optimization software factors in a host of different variables when determining the most efficient routes and schedules for the drivers to follow, including customer preferences and driver speed and skill. This helps businesses deliver the product as fast and with the least cost as possible. Here are a few more features to look for that can enhance the cost-saving capabilities even further:
An advanced route planner should integrate with a driver mobile app and GPS solution to track the location of drivers in real-time, thereby allowing your business to provide the accurate ETAs that are updated in real time.
Automatic customer alerts
Your route optimization software should also send customers automatic alerts regarding the location of the driver. This capability is hugely beneficial in reducing missed deliveries and improving the overall customer experience.
Planned deliveries are difficult to handle, but on-demand deliveries are even harder to manage. Fortunately, an advanced route planner can reroute drivers according to driver schedules, locations, warehouse/hub locations and inventories, and planned destinations, to accommodate new orders for delivery. By the same token, your routing solution should make it easy to
Last mile logistics is not as simple as it looks. It’s a complex operation that can eat up a large chunk of any business' operating costs. Failing to address inefficiencies in last mile logistics can hurt profitability, as operating costs increase and consumers take their business elsewhere. Fortunately, optimizing last mile deliveries is possible with the help of routing technology that can find the fastest and most cost-efficient routes.