Last Mile Delivery: The Complete Guide for 2022

Adiba Muzaffar
January 14, 2022

What is last mile delivery?

Last mile delivery is the most expensive and critical step in the supply chain's final shipping and delivery process. It's the final run for safely transporting ordered items to the client's destination, directly translating to client satisfaction. While this used to mean delivering to warehouses receiving large shipments, online shopping has expanded the scope of direct delivery to small businesses and customer residences.

Order Management Systems for last mile delivery are designed with reasonable multidimensionality - capturing relevant facets for different business processes. With tracking added to the mix, consumers are granted considerable visibility on the status of their shipment. Safe and efficient order fulfillment is of utmost importance, with the delivery operations directly tied to the user experience and brand trust.

We've created a resource that unpacks what last mile delivery is today and how technology has enabled service offerings such as TOOLBX.

We'll be unpacking:

Why is last mile delivery important?

Today, customers have access to oceans of sophisticated data, making complete transparency a justified expectation. While the final mile of delivery is a time-consuming and expensive undertaking, it's begun to find adoption as a pertinent business investment. The most evident long-term gain is how it assimilates an end-to-end brand journey. In the current business environment, not having delivery schedules, the scope for issue-management, proof of delivery or contactless payment can be the beginning of myriad challenges that devastate business metrics and increase churn. Advanced delivery software is designed keeping in mind the goal of granting businesses fuller control and visibility into the final mile, essentially setting them up for maximized efficiency.One can understand the importance of last mile delivery in-depth if we look at how it contributes to logistical budgeting. Let's look at some data that helps contextualize the same:

  • The last mile by itself is 53% of the shipping cost today
  • With last mile technology, the average price for a small package can be as low as $10
  • Services around last mile delivery worldwide account for 41% of supply chain costs
  • 75% of global consumers exhibit user habits that indicate long-term loyalty towards brands offering a reliable last mile delivery experience
Last mile delivery has exploded across every industry, including construction

What are the challenges of last mile delivery?

An excellent last mile service offers speed and efficiency, which in terms of goals can be broken down as on-time delivery, accuracy, brand loyalty and customer satisfaction. However, shoppers are known to not settle for long waiting periods and choose not to buy again from brands whose shipping service was unsatisfactory. Therefore, this 'final mile' has come to represent one of the most time-consuming and expensive elements of the entire e-commerce supply chain. It can account for as much as 53% of total shipping costs.

Here are some critical last mile delivery challenges:

  1. Lack of visibility: The delivery process today requires clear information and a level of visibility. Creating such visibility has been a successful strategy in reducing customer care representatives' workload and contributing to customer loyalty. In addition, buyers have peace of mind when given information about when their shipment will reach them.
  2. High delivery costs: Infrastructure to support timely deliveries takes a significant amount of capital investment. Budgeting for the cost of complex routes, unsuccessful delivery attempts, extra stops, wages for overtime and fleet operation is imperative. Charges often double if a delivery attempt fails or is has to be rescheduled.
  3. Late deliveries: The inability to stick to predetermined timelines can get expensive for businesses. In addition, delivery delays harm a brand's reputation, increase customer churn, and affect the bottom line. Therefore, a robust last mile delivery plan that helps make timely deliveries is vital.
  4. Outdated technology: A good chunk of global transportation and logistics companies still rely on outdated technology. Tackling delays and high shipping costs are often not in the purview of older management systems. Monitoring the entire journey and predicting potential hurdles is the proactive approach that new tech can enable.
  5. Maintaining a level of efficiency: High levels of efficiency are crucial for order fulfillment. Deploying last mile delivery software streamlines the movement of a consignment from the warehouse to the customer's doorstep. Ensuring and maintaining customer satisfaction with timely customer support is consequential for last mile delivery efficiency.
  6. Inadequate route planning: Route planning can be a mighty task as it consists of multiple variables to take into account. Poor route planning causes delays, customer frustration and leads to unplanned costs. Route optimization is made possible by adopting routing and fleet management software.
  7. Unpredictable elements: Once in transit, all kinds of unpredictable situations can cause disruptions. Reporting traffic and weather challenges can be best addressed via contingency plans such as seamless communication with customers. Preparation for said factors is critical for actioning appropriate solutions.

Choosing a last mile delivery solution

A last mile delivery solution can be implemented by opting for a logistics partner or by going full scale by building one's own fleet. Marketplaces with their own delivery solution and platform that serve specific industries are another option that has gained traction recently.

Let's look at these options in a little more detail:

  1. Outsource to a third-party logistics provider (3PL): Using a third-party logistics or fulfillment provider is often a solution for optimizing last mile delivery operations. Considering that you're outsourcing to a specialized business model, a few things that come as a given are labour with specific industry skills and contractually managed staff. This grants the business a high-performing crew - one likely to accelerate last-mile delivery operations and ultimately lead to a faster delivery operation.
  2. Build your own fleet: Although an expensive investment, having your own delivery drivers gives you an avenue for spreading brand awareness and doing local advertising. As soon as you choose to use a vehicle of your own, you're granted an extra marketing tool. Businesses wrap their vehicles with custom wraps or branding to represent their company.

    Brand loyalty often increases when customers see such design-savvy efforts, plus the very sight of the vehicle generates new customers while your crew is on-the-job doing deliveries. But there is the all-time risk of having a fleet with the name of your business on an accident-prone road. In addition, costs around insurance and vehicle maintenance should be considered.
  3. Partner with a last mile marketplace company: A digital marketplace is a platform that allows vendors to list themselves alongside their competition (like in an IRL market) to list their products and services to a customer base that is curated. A good marketplace owner brings together local vendors and customers, driving sales through a systemized, data scraping approach.

    Such visibility gained by the customer allows them to make their purchase from a given variety, and for the supplier, their consumer base gets expanded. As for the marketplace owner - they are enabled to earn a commission from each sale or the fee paid by converting vendors into regular platform-users, entering a subscription model.

To understand the marketplace model, let's take the example of how and why we've designed TOOLBX -

TOOLBX is a material procurement platform offering last mile delivery to the growing construction industry. Last mile delivery for construction is material procurement from suppliers and wholesalers taken directly to the job site. By partnering with last mile companies, TOOLBX is a connecting link in the supply chain.

Suppliers listed on our platform form a mapped marketplace that builders log on to procure construction supplies. Our developers are kept in motion as we design the user experience to help builders keep their moving parts in check. Construction projects are highly time-sensitive, making on-time material procurement via a marketplace model of direct consequence to job site productivity.

A TOOLBX delivery specialist submits a photo of an order as proof of delivery

What is last mile delivery technology?

As consumers of on-time, on-demand delivery for various products and services, we're not unfamiliar with the things that constitute final mile delivery technology:

  1. Optimized Routing with algorithms: An optimized delivery route can save both fuel and time. Being able to prep our drivers with an optimized delivery route is also the best way to reduce decision-making while being on the road.

    TOOLBX uses routing tech that makes optimal decisions around delivery routes. Moreover, it also solves for driver availability, pick up and drop off locations, traffic and weather updates, delivery windows and weight capacity for chosen vehicles. Eliminating last-minute intervention ensures that each day made up of multiple trips and routes is efficient and optimized across factors.
  2. An Updated customer with live tracking: The last mile process involves meeting the end customer, which is a high-stakes touchpoint quite naturally. However, managing obstacles leading up to that final touchpoint are possible today, given how customers get looped in via live estimates and other practical updates. Signing up for such updates has become the norm, but it's also added a layer of expectation management. Overall, the result of clear communication through tracking updates reaffirms convenience. And this is a behavioural shift, as the customer and the supplier can trust the tech behind the workflows.
  3. Analyzing last mile logistics data: Being able to access delivery data can prove extremely valuable in trying to recognize where to cut costs. Also, breaking it up and analyzing it sure helps in trying to save. Logistical data in its raw form can be a lot to process. But any good business today puts in the time and resources to glean factors that affect the bottom line by looking at data from their day-to-day. By being on top of our processes in this way, we're able to save on costs, analyze our operations by region and even monitor how much we can offset our carbon credits.
  4. Proof of Delivery: Proof of Delivery is a critical part of the delivery system. It establishes that the package has been similarly delivered to the customer - like a bill receipt becomes a form of evidence. It's a written acknowledgement that the order was received, costing a certain fee on a specified date and time.
Labour is one of the most significant costs associated with last mile delivery

How much does last mile delivery cost?

The cost of last mile delivery is one of the most significant portions of an organization's entire shipping cost. When you think of cost breakdown, there are five parts to consider:

  1. Labour costs: Labour accounts for one of the most significant expenditures - amounting to about 50-60% of the cumulative cost of last mile delivery. However, delivery truck drivers are the most expensive, as they are a crucial part of the logistics network.
  2. Fuel cost: Fuel costs increase as you scale and enter new markets. As the span of your delivery network increases, you need to cover more area, which leads to extra fuel. Another factor that makes fuel costs crucial is that it is a volatile entity. When you plan for different costs of last mile delivery, fuel is one expense that you can't predict.
  3. Delivery equipment cost: Delivery equipment costs account for another 10 to 20% of last mile delivery expenditures. It deals with the equipment or tools required to deliver a product safely to the consumer's location. For example, a food delivery business will need coolers, pizza sleeves, drink holders, freeze-dried ice, crates, and straps to serve food fresh to consumers.
  4. Delivery management software: Delivery management software can be costly if not planned and optimized. It accounts for 10% to 15% of the total cost of last mile delivery. Automatic allocation of orders is possible today with AI, and its efficiency is brutal to compete with. to respective delivery providers nearest to the location. Over and above that, there is also the cost of Integrating and managing such technology.
  5. Reverse logistics costs: Reverse logistics costs deal with the expenditure of product returns. This is the reason behind the small window within which e-commerce businesses can offer free returns. E-commerce firms need to create a flow that facilitates the item being returned to the warehouse, bearing double expenses.
  6. Miscellaneous costs: Finally, and also in the mix, are the cost of replacement and rescheduling, idling costs, maintenance costs, and storage costs. Again, it is often not directly associated with the final phase of delivery but can directly impact it.
Nuro, an autonomous vehicle startup focused on local deliveries

E-commerce and retail are the forces driving the surge in last mile logistics, and e-commerce is expected to grow to $2.4 trillion. The competitive advantage that online retailers are opting for can be better understood if we take a closer look at some upcoming trends in last mile logistics:

  1. Speedy fulfillment: Consumers want fast fulfillment end to end, and shippers need to swiftly move higher quantities of products. Last mile logistics has confirmed a stronghold, enabling this trend toward speedier fulfillment. In addition, among millennials, consumers are willing to pay a premium up to 30% more for same-day delivery, reports McKinsey & Company.
  2. Impact of supply chain disruption: Nearly 84% of global freight expenditure gets spent on trucking costs. These include fuel, labour, technology, asset tracking - amounting to more than $800 in the industry. According to Supply Chain 24x7, who have quoted Business Insider - Amazon is already well on its way to creating and managing an Uber-like app for trucking. So supply chain disruptors, such as venture capitalist start-ups, are certainly impacting last mile logistics.
  3. Shippers turn to smart-tech for tracking: Uber-like apps are likely to impact trends in last mile logistics. Innovative technology is already being used for tracking purposes, and sensors and chips on shipments allow every move to be tracked in real-time. Since 2019, when the electronic logging devices (ELD) mandate came into practice, the use of smart tech to track last mile logistics has only grown.
  4. Analytics will drive down last mile logistics costs: Automated systems and smart technology are put to better use when applied through analytics. Analysts isolate supply-chain entities to recognize cost-impacting factors across shipments. Data analytics provide a means of assessing subtle shifts and analyzing where pushing costs could be favourable. In a way, if more data gets analyzed, more deliveries will fall into lower-cost brackets and efficient scheduling.
  5. Insourcing reaches into last mile logistics: Companies providing third-party logistics (3PL) services have been doing the math around outsourcing. The sudden spike in last mile delivery encourages more businesses to establish insourcing solutions. To start with, using trucks to reach their immediate, local consumers is within reason. But most shippers have fewer than six trucks, which suggests a requirement for outsourcing.
  6. Autonomous vehicles and trucks: Self-driving vehicles or trucks are likely to impact last mile logistics. Also, include drones and robots in how last mile delivery options will increase. However, regulations around the trucking industry are likely not to give in to the wide-scale implementation of driverless delivery too soon.

    Up to 25% of consumers today are willing to pay the extra cost if given the option of same-day delivery. The prospect of 2-day or same-day delivery on most payment pages has shifted habits for individual suppliers and businesses. Same-day delivery is likely to reach a 25% market share in the next three years.
A TOOLBX delivery specialist delivers lumber to a local job site

In conclusion

Order updates are an added layer of transparency that's here to stay. Businesses report the trust they've gained and how resultant long-term client relationships have grown their profits. As a result, more companies, big or small, adopt these vital tech advancements to stay in the competition.

What has gained paramount importance for businesses today is customer expectation management. One can even go as far as calling it the factor that makes or breaks a business. For TOOLBX, such customer expectation management extends on both sides as we partner with both suppliers and builders. Our online marketplace is a meeting place, helping job sites sync up directly with various suppliers and ship-ready building materials. In addition, TOOLBX has located its role as an optimization component contributing to job site productivity. Material procurement in such a model is still in a nascent stage of adoption, with considerable reliance on the effective use of last mile technology.

Last mile delivery is an around-the-clock undertaking, which is to say that customers are being served each day of the year and exactly when they want. The gained control over expenses is the real reward for sustained growth and longevity relationships. Partnering with a tech-first last mile delivery company is a big-ticket solution for substantial gains with minimized capital investments.


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