Your company's back-end supply chain may be so efficient that you are the envy of all your competitors. But what about the customer-facing portion? Taking a look at the "last mile" in your supply chain may be what it takes to ensure your customers come back to you and not your competitors time and again.
Although the "last mile" of a company's supply chain is the final and critical link between the company and its customers, it has historically been a neglected segment of a corporation's supply chain strategy. At the last mile, merchandise is delivered from regional distribution centers to local branches or directly to end customers. While most companies have optimized their supply chains up to the store front, surprisingly few have focused on last mile deliveries.
It's surprising because, on average, 28 percent of transportation costs are incurred in the last mile, according to the Council of Logistics Management, which greatly impacts a company's bottom line.
The last mile is also a major influence on a customer's perception of a company's brand. Because the last mile is the final point of contact with customers, their good or bad experience with inventory availability or delivery directly impacts brand loyalty. Customer questions such as, "Is the merchandise I want in stock now?" "Will my order arrive on time and undamaged?" and, "Is delivery fairly priced in relation to my purchase cost?" are all answered at the last mile.
There are new solutions, such as outsourcing, which will be crucial in unlocking inefficiencies in the supply chain. But in order to fully address the needs of the last mile, we must first examine its unique challenges.
Challenges in the Last Mile
The last mile encompasses numerous geographic markets and widely varying customer needs. This makes it difficult for logistics professionals to forecast delivery costs and control quality.
Though a flood of new technologies and services have cropped up in the past 10 years promising to streamline companies' supply chains, few solutions have specifically addressed the last mile. As a result, companies have adopted several different practices though none fully address the unique requirements of the last mile:
Assign last mile logistics management and purchasing decisions to the local level
The upside to this option is that local decision makers, who closely understand local needs, can custom-tailor solutions to address the local needs. The downside is that decisions are sometimes made that address specific local interests at the expense of a company's broader business goals. Corporate management often gives up control over quality and cost of delivery services, and can't take advantage of economies of scale.
Invest in a proprietary delivery fleet
Hiring employee drivers and operating a fleet of branded vehicles is a surefire way for a company to own its last mile delivery operations. This is a good alternative for companies with high delivery volumes, consistent utilization within markets, and/or highly specialized delivery needs.
However, building a fleet requires a substantial upfront capital investment, and the ongoing carrying costs of driver salaries and benefits, vehicle costs and maintenance, and insurance become a financial burden if the fleet is not utilized to capacity.
Ironically, some companies also find that a proprietary fleet actually limits flexibility, since it's difficult and costly to build a fleet large enough to cover all locations and diverse enough to address all last mile delivery needs.
Contract different vendors for each geographical area or line of business
This is a viable option if a company's local operations and P&L centers are completely separated (as with some franchise operations), if the company has a very low volume of deliveries or if delivery needs vary greatly from region to region.