Overcoming the roadblocks to last-mile deliveries

E-commerce companies, retailers, and logistics businesses need a strategic plan with a robust framework to address the challenge of making last-mile deliveries smart, cost-effective and sustainable.

In the post-pandemic era, the shipping experience has emerged as a key factor in attracting online shoppers. Spoiled by two- and even same-day delivery from Amazon and others, shoppers are increasingly unforgiving of poor delivery experiences—85% say they will not return to a retailer after such an incident. 

But as online shopping has boomed, so too has the cost of delivery, especially the critical last mile. By some estimates, the price tag on this final mile has ballooned from 41% of total shipping costs in 2018 to 53% in 2023. With last-mile delivery demand expected to grow another 78% by 2030, that’s a problem for businesses.

To meet customer expectations while reining in delivery costs, companies need a deep understanding of their customers’ shopping behaviors. They must create strong collaborations with last-mile delivery partners for crowd-sourced delivery platforms, and they must build the technological infrastructure to support real-time tracking in order to create operational efficiencies.

A plethora of challenges

As consumers’ delivery expectations increase, so do the cost and complexity of meeting those demands. Make no mistake: the last-mile delivery landscape is riddled with challenges. Customers want personalized delivery, certainty, convenience, and visibility in their delivery options—and, as noted, are unforgiving of companies that don’t meet their demands. But inaccurate addresses, poor delivery routing and fleet management, lack of package visibility, and high reverse logistics charges all stand in the way.

Moreover, logistics providers face issues that are beyond their control: demand fluctuation, traffic congestion, shipping delays, weather-related incidents, and so on. Not only is there an urgent need to address all these challenges; exploring eco-friendly delivery options and moving to sustainable packaging have become increasingly important.

The following figure illustrates the focus areas for these challenges.

Figure 1

Focus areas

With last-mile delivery expanding and growing more important, and with cost an ever-present factor, logistics companies must act quickly. Here are few ways in which they can improve their last mile delivery capabilities:

1.    Customer experience

As we’ve noted, consumers expect fast, convenient delivery options at low cost. Here are ways in which the consumer experience could be enhanced.

• Flexible, speedier and personalized delivery options. Customers want choice and are ready to walk away if they don’t get it. Shipping-related concerns account for 56% of abandoned carts, according to one survey. That study also found that customers want the option of in-store pickup and low expedited shipping charges. Providing a broad set of delivery options and matching them to consumers based on past behavior can help sellers optimize costs. It’s essential to provide multiple delivery options, such as out-of-home (OOH) deliveries to smart lockers and pickup and drop-off locales (PUDOs); specific date and time deliveries (same-day, same-hour delivery); and the ability to reschedule deliveries.
  
  
• Real-time visibility. Real-time tracking technologies offer customers precise updates on the status and location of their orders. From GPS-enabled delivery vehicles to smartphone apps with live tracking features, these advancements enhance customer satisfaction and enable proactive problem-solving in case of delays or issues. Customer service automation (chatbots) is key. Generative artificial intelligence (AI)-powered conversational applications integrated with the customer interface hold the potential to answer user questions effectively and efficiently, lowering response time and operating costs.

2.    Cost of delivery

With cost pressures an ongoing factor, businesses should use all the tools at their disposal:

• Local delivery options. Micro-fulfillment centers are localized hubs for online order pickup, located in busy urban centers and filled with high-demand products. They give shippers flexibility and allow them to act quicker. These centers bring inventory closer to the consumers, reducing delays and overall transportation costs.
  
  
• Leverage physical stores. Local physical stores can help reduce the distance between buyers and their shipment. Large retailers such as Walmart and IKEA are already shipping orders from the store closest to the shipping address rather than from distant warehouses. This brings down costs incurred due to unexpected customer demands, traffic, and weather delays.
  
  
• Hybrid delivery modes. Drones and autonomous vehicles have shown potential for speedy and cost-effective last-mile logistics. Importantly, they reduce emissions when compared to delivery trucks. Large retailers such as Amazon and delivery companies such as DHL have trialed drone-based deliveries for small packages. While those trials have met with mixed success, Amazon says it plans to deliver 500 million packages per year in the US alone via drone by 2030.
  
  
• Crowdsourced deliveries. Through partnerships with local delivery companies or by leveraging crowdsourced delivery networks, businesses can scale delivery capacity according to changes in demand. This model adds to sellers’ existing storage capacity. Providers such as Doordash and Instacart can enable ultra-fast two-hour delivery of shipments from retailers’ nearest stores. Unsurprisingly, 90% of retailers say they plan to use crowdsourced delivery for specific orders by 2028.
  
  
• Collaborative logistics models. These help overcome the limitations of the traditional linear models that were highlighted by pandemic-induced supply chain logjams. In an era defined by interconnectedness and collaboration, we anticipate a rise in collaborative logistics models aimed at optimizing resource use and enhancing delivery efficiency. Peer-to-peer delivery platforms, for instance, enable individuals to monetize their spare capacity by delivering packages on behalf of businesses. Similarly, partnerships between retailers, logistics providers, and technology firms are fostering innovation and driving operational synergies across the delivery ecosystem. By embracing collaboration, businesses can unlock new opportunities for growth while minimizing costs and enhancing customer service.
   

3.    Transformative technologies

It’s clear that several groundbreaking technologies have the potential to improve logistics in myriad ways. Here are some that leaders must focus on and invest in:

• Generative AI is poised to revolutionize the logistics industry, especially in the last mile, by using vast amounts of structured and unstructured data. By digesting shipping documents, for instance, generative AI can help streamline shipments. Importantly, it can not only forecast disruptions within supply chains but also explain the reasons behind events such as unfulfilled planned deliveries. It can also predict the likelihood of delivery exceptions. By predicting these events, generative AI allows e-commerce players and their logistics partners to plan their responses. For instance, customer service chatbots can be instantly trained to answer queries and concerns in case delays are expected due to an adverse event.
  
  
• Predictive analytics. AI-led predictive analytics can improve existing shipping patterns, optimize routes, improve supply-chain operations, and help businesses anticipate consumer behavior.
  
  
• Predictive inventory management. Conventional inventory management relies on orders made by local retailers or merchandise managers to determine inventory needs, leaving huge gaps in determining customer demands and other risk factors. The result: excessive scrapping, over-production, reduced service levels. The predictive process eliminates guesswork by filtering and analyzing inventory data from warehouse to warehouse to account for the many variables that affect inventory and demand.
  
  
• Route optimization applications. Businesses should embrace AI- and machine learning-based routing algorithms for scheduling, optimizing and planning routes. These apps not only help generate the most cost-effective and optimal route for a certain scenario, but can also run simulations on various input parameters such as costs, number of trips, distance, volume, etc.
  
  
• Revolutionary packaging solutions. Using advanced sensors, smart packaging solutions monitor package conditions such as temperature, pressure, weight, and humidity. This data, combined with precise location tracking, will provide near-real-time estimated times of arrival. Connected packaging can relay this information to customers’ phones and tablets.

4.    Sustainability

Growing consumer awareness about sustainability, paired with the need to cut delivery costs, necessitates that e-commerce players try all available options at their disposal in this area. While it may seem that adopting electric vehicles is the only silver bullet , there exist alternatives that can help cut the distance between consumers and their orders, thereby reducing emissions as well as cost.

• Committing to a hybrid fleet (including, but not necessarily limited to, electric vehicles); using sustainable packaging options; and considering OOH delivery options can all substantially reduce deliveries’ carbon footprint.

Consumers want and expect faster, more frequent deliveries. As the number of packages delivered increases, it becomes essential for retailers and logistics companies to have a holistic strategy. Such a strategy requires the right smart technologies, the right operating model for delivery, innovative approaches to staffing, and a willingness to collaborate with consumers. With these in place, companies can solve the profitability conundrum at the heart of last-mile delivery.