The Power of Inventory Optimization to Unlock Greater Efficiency and Sustainability

As leaders seek areas for improvement and investment in 2024, they must prioritize these foundational components.

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As 2024 gradually unfolds, we’re already seeing the transportation and logistics sector face a spectrum of challenges. Mainly, how leaders can reduce costs and increase profitability, while improving sustainability and operational efficiency in last mile deliveries and returns.

The last mile of delivery and reverse logistics are often the costliest and most environmentally impactful aspects of the supply chain. In fact, an estimated 25% of all greenhouse gas emissions in urban areas are caused by transportation, with last mile deliveries accounting for up to half of all delivery vehicle CO2 emissions. Additionally, total online returns constituted $816 billion in lost sales for U.S. retailers in 2022. Growth in e-commerce sales, hitting $6 trillion annually, as well as heightened consumer demand for faster deliveries, have further exacerbated these issues. 

Fortunately, deliveries and returns can also present the greatest opportunity for companies to improve their environmental performance, which is becoming an increasingly important differentiator for businesses. In a 2023 survey, 60% of consumers indicated they were very interested in environmentally friendly delivery methods, and 33% expect a published carbon footprint for deliveries.

While some companies may view investments in electric vehicles (EVs) as the answer, there are foundational processes that businesses need to get right that are just as impactful to achieve sustainability – and simultaneously, operational efficiency – on a larger scale. These include:

1.) Optimized Last Mile Inventory

One of the first steps is inventory optimization, including van load and route scheduling, as it is crucial for minimizing costs and reducing the environmental impact of last mile deliveries. Just as retailers need to accurately forecast demand and effectively manage inventory levels to avoid overstocking and understocking, leading to less waste, last mile companies should take a similar approach. For example, it was reported that the average capacity when a vehicle departs from its location is 84% full in terms of the total space available or the total amount of weight that the truck is allowed to carry. Through inventory optimization, companies can more effectively plan delivery routes to maximize vehicle capacities. This involves grouping deliveries that are geographically close together, eliminating unnecessary stops and ensuring that delivery vans are fully loaded for each trip.

2.) Efficient Delivery Strategies

To further improve operational efficiency, many companies globally are integrating out-of-home (OOH) delivery strategies, such as locker stations and pick up and drop off (PUDO) points, to reduce the number of home deliveries. These strategies can lower fuel consumption, decrease emissions and improve route efficiency.

Adoption of OOH delivery strategies is widespread, as companies enjoy increased sustainability, cost-effectiveness, and other benefits from these approaches. Amazon alone has over 1,800 Hub lockers and thousands of Counter pickup locations across the U.S., and these numbers increase annually. European locker company Cleveron has projected that within a decade, 80% of last-mile deliveries in Europe will be conducted via parcel lockers.

3.) Improved Return Management

Reverse logistics is another key area to get right from an environmental and operational standpoint, as it’s an innately unsustainable and costly aspect of business. Optoro estimates that returned inventory in the U.S. last year created 9.5 billion pounds of landfill waste and 24 million metric tons of carbon dioxide emissions. Additionally, every returned item comes with a hidden cost for companies, including restocking fees and potential markdowns for resale. In fact, the cost of returning an item averages 27% of the purchase price.

Many companies are trialing new return policies to counter these issues. For example, 40% of retailers began charging fees for returns in 2023 compared to 31% in 2022, including popular brands such as H&M and DSW. An alternative solution is to offer free returns only via a locker station or a PUDO point. However, regardless of new policies, companies must improve the efficiency of return management – particularly item sorting across warehouses. Only then can companies hope to reduce the environmental and costly impact of reverse logistics.

4.) Implementing the Right Technology

Technology plays a major role in mastering these foundational processes. Technology such as artificial intelligence can help tackle the challenge of demand forecasting by being able to analyze large, complex datasets and identify patterns that are harder to notice with the human eye.

Smart data capture strategies provide consistent and intelligent recording of inventory across the supply chain to extract this data in the first place. Smart data capture is the ability to collect data from barcodes, text, IDs and objects using mobile devices, such as smartphones, drones, digital eyewear and robots. The technology empowers workers and delivery drivers to record and monitor inventory in real-time, plus guide them with augmented reality overlays. Additionally, it ensures greater efficiency and accuracy by automating repetitive, time-consuming daily tasks such as counting and scanning.

The Crossroads of Sustainability and Profitability

Leveraging these and other sophisticated technologies to bring inventory optimization in transportation and logistics creates a ripple effect – streamlining last mile deliveries and the returns process to ultimately lower greenhouse gas emissions and costly expenses for companies. As leaders seek areas for improvement and investment in 2024, they must prioritize these foundational components to not only see better margins and heightened efficiency, but also meet consumer demand for sustainable and environmentally conscious operations.