Reuters Events | Supply Chain & Logistics Business Intelligence

The last mile is booming, but so are the associated expenses, leaving supply chain planners with a headache that needs to be urgently solved

E-commerce demand is unrelenting currently, putting huge strains on those trying to plan and manage fulfilment in the last mile. Volumes are up, more consumers in more places are looking to receive a wider range of goods, and they now expect them direct to their door in shorter, increasingly precise timeframes.

This is often creating a daily logistical puzzle for supply chain planners, attempting to untangle the complexity involved in fulfilling our rapidly rising e-commerce desires, all while trying to prevent costs from soaring.

This is the tension at the heart of last mile fulfilment: A market that consumer-facing companies cannot afford to miss out on, but a rising cost-burden that a growing segment is struggling to handle.

Intervention is needed, and the technological aids that enhance the command and control of this area are becoming vital in supporting this key, but expensive, part of the supply chain.

From last mile to first priority

The growth in last mile requirements is stratospheric, pushed by the major growth in e-commerce across 2020 and into 2021.

Although this story is by now well known, it is worth covering the raw numbers to remind ourselves just how extreme this growth has been.

As consumers sat inside under lockdowns, turning their spending to physical goods in 2020, the e-commerce market expanded by around 20% from the prior year. Some sectors, such as groceries, saw an expansion in demand they hadn’t expected to happen for over half a decade occur within the space of just one year.

In turn, this caused an even bigger growth in the supporting last mile logistics market. One estimateput the growth in the e-commerce logistics markets at 27.3% from 2019 to 2020 and gave an expected Compound Annual Growth Rate (CAGR) of 8.6% between 2020-25.

Multiple industry figures working at the coalface of supply chains have confirmed that they have experienced growth rates similar to these estimates and, as 2020 has turned into 2021, the momentum has sustained, with long-term behaviours forming amongst consumers.

A perfect storm of customer expectations and logistics planning

As consumers have adjusted, and in many cases enjoyed the shift to online shopping, the stakes have risen for those operating in the space.

“Customer expectation over the final mile is high,” says Bobbie Ttooulis, Executive Director of GFS, a global multi-carrier delivery services and fulfilment provider. “They want choice, convenience, complete visibility over the order process and the ability to change details up until the point of delivery.”

This presents challenges for brands and their logistics partners as they seek to meet the consumer’s demand and expectations, with their current capabilities and capacities. Phil Roe, CCO UK&I at DHL Supply Chain agrees that “Where newer gaps are emerging in the current capabilities, it is asa result of the omnichannel experience and customer expectation. It is standard practice for there to be multiple routes to the consumer now, which places strain on the supply chain increasing the number of routes that need to be tracked.

“However, from a customer point of view this doesn’t matter” he says. “The end customer, whether B2B or consumer, really only has two interests aside from price and quality: Does the delivery promise meet expectations and does the delivery promise adhere to social and ethical values? Meeting expectations in terms of timings is paramount, and sustainability promises right down to the final mile are starting to grow in importance, and in many cases are driving purchasing decisions.”

However, the last mile rarely cooperates with a logistics plan and instead presents immense complexities. “Nothing really works as expected in the last mile,” says Andrew Mukerjee founder and CEO of eLogii, a delivery management software provider. “People are not in, there are closed roads, there are roads that can't take certain vehicle types and so on…. That coinciding with … exponentially increasing customer expectations, hour time slots and so on and so forth, really is something that leads to kind of a perfect storm.”

In his opinion “That's why technology … is absolutely essential to go ahead and put structure around it, and give the control back to companies and the visibility to their customers.”

A lack of supporting technology

Currently though “Many businesses lack the technology required to combine different channels, multiple carriers’ networks and full track and trace visibility required to give customers the experience they want,” notes Ttooulis.

Instead, Mukerjee notes that “There's a surprising amount of manual stuff that goes on” in the last mile, and that the manual workload frequently requires “a planning team, a routing team, and you've got loads and loads of lack of visibility issues.”

Combine this with the “Kind of old-school systems, legacy systems that have historically been pretty much on-premise, [and] very expensive, very clunky,” and there is a real capability gap. Combine this with the massively increased end demand, and there is a real impetus for change.

The “manual Excel sheet, Google Maps planning that is that is done for any operations that are more than a couple of couple of vehicles” is going “to be gone very soon, and I think that that that shift is already happening very dramatically,” believes Mukerjee.

Accounting for all the variables

Ttooulis summarises that companies “Need best-in-class technology that can be integrated from checkout to doorstep and back again, to ensure visibility, transparency and control.”

“From a supply chain visibility perspective, the technologies available today enable a level of transparency that has been absolutely critical over the past year,” concurs Roe.

Mukerjee and eLogii are aiming to add to the kind of visibility that Roe has found invaluable, with their route management software aiming to give a “Bird's eye view across the entire operation … taking into account all of the resources, which is the depots, the drivers, the schedules, and so on and so forth. We're looking at the constraints that there are in place, and we're looking at what needs to be done with everything taken into account.”

He, and many others looking at the supply chain planning conundrum, feel that the way to really get a grip on the last mile space is to move away from purely utilising the human mind alone and move towards much greater automation.

This is due to several inherent weaknesses and biases when it comes to complex systems with changing conditions. First of all, there is the hard limit of capacity, where “It's very difficult for a human brain to be able to plan and take into account all the variables over anything more than few tens of daily deliveries.”

In any daily plan, a person or system needs to take into account “Time slots, speed profiles, different vehicles, the ability to have different driver skills and vehicle capabilities, the ability to make manual changes in routes, etc. These are all absolutely vital for last mile operations.”

Then, there are our own inherent biases, where what may feel like plain old common sense, is in fact completely wrong. Often, the maths that underpin finding what is truly the most efficient outcome can seem counterintuitive.

Mukerjee notes that “A crude thing that people really struggle at,” but “that systems are very good at doing,” is the point-to-point shaping of a delivery plan.

A person will “generally look at something that looks geometrically nice on the map. So, it's got it's got a nice round curve to it, it's not zigzagging, you haven't got drivers crossing over, etc.” However, in reality “when it comes to what is mathematically optimal and pulling it down to its lowest common denominator, and making sure that you're not having redundant miles [and] you don't have redundant driving time, etc.” that route can look “geometrically funny,” to the human eye “but it can still be mathematically optimal.”

These factors mean that automation will be a vital tool to those attempting to wrestle down the workload and cost of the last mile. Mukerjee estimates that instituting automation can make major savings in the workload required by the planning team and save around “30-40% in the driving seat as well.”

With the last mile representing an estimated 53% of logistics costs, but consumer demand growing in double digits for the foreseeable future, a new paradigm is needed. Supply chain planners need to ask can they can afford to rely purely on people power over the next decade, or will they have to draft in machine help to take back control of the troublesome last mile?

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