Last-mile delivery, the critical link in e-commerce. How to reduce its costs?

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Last-mile delivery, the critical link in e-commerce. How to reduce its costs?

The last link in the e-commerce supply chain, i.e. the step involving delivery to a collection point or directly to the recipient’s house using a bike or delivery truck, generates up to half the total cost. Is it possible to change that?

The latest report, “Last Link. Quantifying the Cost”, prepared by Cushman & Wakefield, shows that the last link in the e-commerce supply chain (the so-called last-mile delivery to the recipient’s house or a collection point) accounts for up to 50% of the total costs associated with the supply chain. According to the authors of the report, such a large share is due to various types of inefficiencies related to the organisation of transport, such as:

– delivery guarantees,

– inefficient delivery routes,

– separate return trips.

This applies in particular to densely populated urban areas with heavy traffic. 

“As more people choose to order online, customer expectations about delivery increases and so does the need for air-tight last link strategies. The last link is the most expensive part of the logistics supply chain, but it is also the only link in the e-commerce supply chain in which customers typically have a real-life interaction. Optimising the last link not only has revenue-enhancing potential, it can also improve a company’s overall reputation for excellent customer service,” says Rob Hall from Cushman & Wakefield.

More rational last-mile delivery

The potential to reduce transport costs is considerable, according to specialists, the share of transport costs in total costs may even decrease from about 50% to 32%. 

One way is to change the delivery guarantee. This simply means rationalising the delivery (for goods that do not have to be delivered immediately) in such a way that the delivery person does not go to the customer with e.g. one parcel (this ‘delay’ is justified by costs).

Optimising tools dedicated to e-commerce and developing logistics services for e-shops is also important. For example, Arvato Polska boasts of changes that may be less visible to the end-user (e-customer), but are intended to increase the efficiency of the process.

“An example is the on-hold solution, one of the options of which is completing an order that requires a temporary put on hold of the shipment due to e.g. the need to collect all products or carry out consultations between the e-shop and the customer,” explains Przemysław Klich from Arvato in his interview with “TOP Logistyka”.

To put it simply, the process is as follows:

– The depot receives an order and carries out a standard pick&pack process;

– The process is put on hold and information is automatically forwarded to the e-shop, e.g. about the inadequate quality of the packaged product and the proposal to reduce the order;

– Systems check whether the required product is currently on its way from the central depot or is not in another process from which it can be released;

– The e-shop contacts the customer and confirms the final order;

– The depot releases the confirmed order.

Delivery and return in one go

Another key to increasing efficiency is the delivery and return in one go, which means minimising so-called empty runs. In addition, there is an appropriate organisation of urban depots (also shared between various operators).

“It is extremely important to find an effective solution for the last mile. Large cities try to regulate the courier traffic in the city centre (e.g. strategy #Warszawa2030, currently being developed), which will result in restrictions concerning deliveries and growing popularity of small depots, so-called city logistics or city flex,” explains Damian Kołata from Cushman & Wakefield.

A way to optimise the last delivery link is also to transfer some e-commerce tasks from the online shops to logistics operators.

Closer storage means higher savings

There are companies on the market offering this kind of service to companies representing various e-commerce sectors. Przemysław Kulbat from OSDW Azymut, in his statement to the trade press, stressed that e-shops can source their supplies in their logistics depot.

“For e-shops, for which we run a logistics depot and carry out a shipment to recipients, we also provide a dropshipping service (transferring the process of shipment of goods to the delivery company – editor’s note), says Przemysław Kulbat. 

There is a growing need for coordination of shared delivery services. For this reason, the last link has a significant impact on delivery time and cost by reducing the driving time between the urban depot and the delivery point, the so-called STEM distance. An analysis of four major European markets (London, Paris, Madrid and Milan) carried out for the Cushman & Wakefield report shows that reducing the STEM distance always reduces the total cost of the last link. Despite much higher rental rates, these costs are lower for urban depots than for distribution warehouses, which are usually located outside the city.

Urban depots allow to shorten drivers’ driving time, reduce personnel costs, reduce fuel consumption, and optimise the use of vans. It turned out that an arbitrary 10 minutes closer drivetime from an average-size urban depot results in a saving of around €1 million per year.

Customer can change the place and time of delivery

The problem is that, from the point of view of costs, deliveries remain ineffective (recipient is not available). Delivery companies try different solutions. To reduce costs, dedicated tools should be used more widely. For example, DHL Express has implemented the On Demand Delivery (ODD) application for B2C shipments. ODD already takes the recipient’s telephone number or e-mail address from the recipient’s contact data at the time of generating the order. In the case of certain network events (e.g. reception by a courier in the country of sending, departure with the courier on the route), the recipient receives a message about the expected delivery date with a link to a page where they can select the delivery option best suited to their needs. They can choose between changing the date of delivery, redirecting the parcel to the address of their place of employment, or agree to leave the parcel with a neighbour. They can also choose the increasingly popular option of delivering the parcel to a Customer Service Point or a machine (available in large cities).

Other operators have similar solutions, e.g. the UPS Access Point network in Poland includes more than 1,300 points located in corner shops, cafés and petrol stations. They allow customers to choose an alternative pickup location, while UPS My Choice lets them decide where and when to deliver. Parcels can be redirected to another address or to a UPS Access Point location or postponed for delivery (also so-called holiday settings so that shipments will be delivered when the recipient returns from holiday).

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