Managing the last mile in your company's logistics processes can enable your supply chain to keep pace with the Christmas rush without having to deal with excessive delivery costs that can eat into profit margins.
As the holiday rush begins, retailers and their suppliers must manage exceptionally high order deliveries over a very short period of time. In an ideal world, they would like to manage this without increasing costs or compromising quality of service.
The 2004 Christmas season promises to add to the challenge. According to the National Retail Federation, total U.S. retail spending during the months of November and December is projected to be $219.9 billion this year, up 4.5 percent from the year ago holiday period.
Getting increased volumes of merchandise to warehouses, stores or end customers while maintaining profitability is one of the biggest challenges suppliers and retailers can face. This is especially true in an age where inventory keeps moving closer to the point-of-purchase and the demand for a direct-to-store or direct-to-consumer delivery models grows.
It is no surprise that the last mile delivery is one of the fastest growing areas of logistics. It is also the area where companies can achieve the biggest gains, since many dispatchers still manually manage daily scheduling and reporting. In fact, many delivery operations still rely on paper-based scheduling and dispatching.
This can be very costly when the stakes are high and competition increases. Statistics show that some operations have had to increase their staffing and/or trucks by as much as 50 percent to handle higher volumes during peak seasons. More efficient scheduling and dispatching could significantly reduce that number among other costs associated with missed deliveries, inaccurate addresses and other day-to-day challenges.
Companies are constantly looking at alternative ways to maximize their fleet and resource capacity, reduce transit time, minimize the use of additional drivers and vehicles, and keep their bottom-line intact. However, this kind of efficiency requires real-time visibility into orders and delivery schedules from the warehouse to the customer's house. That level of visibility is critical to maintaining quality service levels, especially when volumes are high.
The costs associated with owning and maintaining the technology has historically been out of reach, especially for smaller businesses. The capital costs are extremely high, integration needs are complex, installation can take months and, in many cases, the capabilities are limited. Staffing, training, specialized equipment and other infrastructure-related investment costs have placed these solutions well out of reach of most delivery operations.
However, in recent months managed logistics services have been making inroads in tackling the last mile delivery challenge. These subscription-based services provide organizations of any size with an affordable, comprehensive and integrated solution to address the delivery bottleneck. On-demand, pay-as-you-go services offer a highly cost-effective alternative to dealing with varying volumes of orders, since the fees can scale up or down according to needs. In addition, the real-time visibility provided allows managers to plan delivery routes and more accurately pinpoint scheduled delivery windows.
The Bottom-line Advantages
During peak delivery times, organizations must manage high order volumes, limited personnel and vehicle resources, and shortened delivery windows. The need to maximize fleet capacity and plan for additional resource requirements in real-time is paramount to managing costs.
Managed logistics services' planning and routing optimization capabilities help schedulers and dispatchers maximize delivery fleet capacity. It also allows for last minute changes or additions as the day progresses. For example, rather than having to increase staff/vehicles by 50 percent during peak periods, managed services can help organizations increase delivery volumes by as much as 30 percent with existing fleets, leaving only 20 percent to be outsourced.
One simple way to reduce costs and maximize driver routes is to ensure that all addresses are geo-coded and verified prior to the route plan being set. Typically, 10 percent of all orders have bad addresses and, if not dealt with immediately, can result in a driver wasting time trying to find the correct address. Address verification and geo-coding go a long way toward eliminating the problem.
Customer service costs can escalate quickly during the rush season if not managed accordingly. As volumes grow, it becomes increasingly difficult to establish reliable delivery windows a problem that often leads to a person not being at home when drivers arrive at their destination.
With real-time visibility provided by managed logistics, managers and customer service representatives can more accurately pinpoint a driver's location, their delivery schedule and any unexpected changes to provide as narrow a delivery window as possible. This can be supplemented through automated callouts that inform the customer of the delivery window and allow them to change or cancel the order if required. Not only does this reduce the percentage of no shows, it also reduces customer calls to the customer service center. This increased accuracy has proven to reduce no shows from an average of 10 to 2 percent or less, and callout costs to drivers by as much as 85 percent. In addition, customers can look up the delivery status of their order themselves online.
While last-minute changes are a common occurrence during any time of the year, they are even more prevalent during the holiday season. With on-demand logistics services, dispatchers are empowered to access and modify planned routes in real-time. Drivers, in turn, can stay up-to-date through their cell phone or other Web-enabled device. This type of system ensures that dynamic events, such as order status changes, weather delays, vehicle breakdowns or cancellations have a minimal impact on operations. The visibility provided through real-time global positioning systems (GPS) or Web-enabled phones not only helps provide drivers with visibility into scheduling changes, it also provides operations managers with a means to determine who is on schedule, who is ahead, who is delayed and why. It also enables an operator to proactively manage a delivery issue before it even happens. For example, the operator can now deal with a projected late delivery hours before it occurs.
The ROI Factor
Since managed services are offered on a pay-as-you-go subscription basis, organizations of any size can realize a number of financial benefits. Since the service requires no capital cost investment, integration, maintenance fees or hardware, return on investment can be realized within a matter of months. In addition, since set-up requirements are minimal, users can realize immediate gains.
Delivery operations that have transitioned to managed logistics services have reported a 20 percent reduction in delivery costs through improved scheduling. More reliable and accurate delivery scheduling also results in an average 25 percent reduction in redeliveries.
Since geo-coding allows for more efficient and accurate deployment of vehicles, fuel consumption is reduced. Optimized scheduling minimizes wasted trips, reduces time and distance between drops, and eliminates idling time at destinations.
Additional savings can be achieved through reduction in workload for call center personnel. Improved visibility, more accurate scheduled deliveries and up-to-date order status notification can significantly reduce the time spent calling drivers and calling customers back. Customer service resolution time, in fact, can be reduced by at least 50 percent.
Many have also reported up to 15 percent productivity gains through reduction in errors, improved management of service times, maximization of cube utilization and improved routing.
While last mile delivery has long been a challenge in logistics circles, technology has played an instrumental role in bringing affordable solutions to operations of any size. Real-time visibility is no longer exclusive to large-scale operators with substantial IT budgets. Now anyone can keep pace with the Christmas rush without having to deal with excessive delivery costs that can quickly eat into profit margins.
About the Author: Nicole German, director of Marketing for Cube Route, has more than 10 years experience in marketing, strategy and business development for organizations in the technology sector. Most recently, German was the director of Marketing at Platform Computing, a provider of distributed and Grid Computing software. Prior to Platform, she held management positions in marketing and business development with Delano Technology Corp., Psion Teklogix and Hummingbird Communications. Nicole holds a B.A. from Queen's University and an Executive Marketing Degree from Richard Ivey Business School at the University of Western Ontario.