What is Last-Mile Delivery? And, Why You Need to Know.
As we pass the two-year mark from when the coronavirus pandemic first created shutdowns in the U.S., the impact on e-commerce is profound. Although online shopping had certainly been widespread before the pandemic, from March 2020 through February 2022, U.S. consumers spent $1.7 trillion online, $609 billion more than the two preceding years combined, according to new data from The Adobe Digital Economy Index. Out of both necessity and convenience, online shopping became the first option for purchasing all types of goods – from groceries to clothing to household items – and slumping retail numbers show that this shift is here to stay.
Of course, online shopping is of little value if you can’t get your goods quickly and efficiently. With the growth in e-commerce, many manufacturers are now shipping small individual orders directly to consumers. Other manufacturers still ship bulk orders to warehouses, where they are then routed to the consumer. And in some industries, like food and beverage, retail stores are still the primary destination, and many consumers still go to these retail stores, and any online orders are fulfilled from the store. In all of these scenarios, last-mile delivery is a key factor in the equation, presenting both challenges and opportunities to provide better customer experiences.
As with most industries, last-mile shipping and delivery have their own terms and jargon. Here’s a glossary of terms that can help you make sense of it all.
The “last mile” of delivery is the final step in the delivery process (and is often more than a mile). It is the movement of goods from a transportation hub to their final destination, which is commonly the end user. Last-mile delivery costs can comprise up to 53% of the total transportation costs, making it a key area to look for efficiencies.
The last-mile delivery problem
Because customers want shipping that’s both free and fast, this presents a paradox since the last-mile delivery process is the most expensive and time-consuming part of the shipping process. Many companies absorb some, or all, of the cost themselves to keep customers happy – but this eats away at the bottom line.
You may think we made this one up, but it’s a thing. Really. When a disruptor like Amazon overtakes an industry, businesses must turn to innovative methods to keep pace with the new titan. (Does anyone remember Borders?) As a behemoth in e-commerce, Amazon’s Prime delivery service has set the bar and fostered high expectations for free and fast shipping. Even though there is an annual fee for Prime, customers get “free” shipping on all of their purchases. Most goods are delivered in 2 days or less, and as a result, customers have come to expect this type of delivery from all companies.
Customer Experience (CX)
The Amazon experience leads us to the term customer experience or CX; Amazon is clearly a CX leader and has set industry standards. The customer experience refers to how a business engages with its customers at every point of their buying journey—from marketing to sales to customer service and everywhere in between. In large part, it’s the sum total of all interactions a customer has with your brand. Customer experience has become important in recent years because it is a competitive differentiator. As products become more commoditized, customers differentiate based on experiences with your company more than specific product features and functions.
So, let’s zoom out for a moment. What are the steps in the supply chain, before you get to the last-mile delivery, and how does it work logistically? Here are some terms:
This industry term is now being bandied about on the nightly news. Most simply defined, a supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. Supply chain disruption during the COVID pandemic led to shortages of goods, which led to much more awareness by the public of how products (like toilet paper and hand sanitizer) get from the manufacturer to the customer.
Logistics is the process of planning and executing the efficient transportation and storage of goods from the point of origin to the point of consumption. The goal of logistics is to meet customer requirements in a timely, cost-effective manner. Typically, large retailers or manufacturers own major parts of their logistics network. Most companies, however, outsource the function to third-party logistics providers (3PLs).
3PL (third-party logistics)
A 3PL provider offers outsourced logistics services. These companies typically provide fulfillment services including warehousing, picking inventory, packing boxes, and shipping orders. The 3PL provider does not take title to the product. An e-commerce seller’s inventory can be shipped from the manufacturer to the 3PL, and the merchant does not need to handle inventory themselves. 3PL can be considered the supply chain integration of warehousing operations and transportation services.
Let’s follow the supply chain from the manufacturer to the customer. With e-commerce and the evolution of the supply chain, processes are changing, so stick with us as some of these definitions may overlap a bit.
This one is pretty simple. The manufacturer is a company that makes goods for sale. However, manufacturers are also responsible for packaging the goods and getting them to their destination. Three stages of the manufacturer’s shipping process include receiving an order, processing the order, and fulfilling the order. In some situations, goods are sent directly to a consumer (DTC), or in others, they are sent to a warehouse, distribution center, or fulfillment center and a third-party logistics (3PL) company fulfills the orders.
As the name implies, the long-haul portion of shipping covers the big stretches – usually road freight movements of greater than 350-400 km (roughly 185-250 mi) are classified as long-haul movements. Long-haul road trucks are typically heavy-duty and generally operate at high speeds. Long-haul truckers travel hundreds or thousands of miles across the country to move goods from their origin to their destination. Typically, there are both long-haul and last-mile elements to a delivery.
A hub is a central operating platform within a transportation network that serves to optimize transportation costs. This is where cargo is exchanged between vehicles and/or between transport modes. The concept was first introduced by Frederick W. Smith, founder of FedEx. Activities performed by the hub include unloading, scanning, sorting, labeling, bagging, and loading. From hubs, items go to the warehouse.
Traditionally warehouses have been used for storing goods and stockpiling inventory. Warehouses usually serve business-to-business (B2B) customers and inventory ships in and out of a warehouse on shipping pallets. With the evolution of the supply chain, warehouses still have their place, but distribution centers evolved to get the required quantity of the right product in the right place at the right time.
Distribution Center (DC)
A distribution center is more customer-centric than a warehouse, stores products for shorter periods of time, and serves as the bridge between a supplier and its customers. The operations at a distribution center are much more complex and can include unloading, inbound quality controls, inventory and order management, pick-and-pack, outbound delivery coordination, loading of transport vehicles, return management, and first-level repair. As a result, the distribution centers are equipped with more technology. Distribution centers are operated by all kinds of businesses, from manufacturers to retail chains and e-commerce companies. The DC can also be outsourced to third-party logistics (3PL) providers. Unlike fulfillment centers, DC’s don’t ship to retailers. Instead, they become retailers themselves.
Fulfillment centers are designed to service direct-to-customer orders for e-commerce businesses. A fulfillment center is a 3PL warehouse where incoming orders are received, processed, and filled. Using a fulfillment center can make shipping faster and returns easier. Major shipping companies typically negotiate pricing with fulfillment centers with high volumes of business, a saving that allows vendors to offer free shipping to customers. Additionally, returns can be sent to the fulfillment center rather than directly to the vendor.
DTC (direct-to-consumer) shipping
A model where manufacturers ship directly to consumers, often on behalf of an e-commerce retailer. This is a change from the traditional model of bulk shipping to distribution centers and then selling through retailers. Is DTC the same as a business-to-consumer (B2C) model? No, but they are related. For example, Coca-Cola is a B2C company that sells its products to consumers, but they don’t ship directly to consumers. They sell to retailers, convenience stores, and restaurants. Nike is also a B2C company that sells through retailers, but they also have a DTC model because you can go on the Nike website and order shoes.
Dropshipping is another term that crops up in e-commerce. A merchant that uses dropshipping is really just a middleman. Because the internet has radically changed how retailing works, “storefronts” on Instagram or Facebook can offer cheap goods via a platform like Shopify. These goods are typically sourced and shipped from China.
We warned you it might get confusing! To wrap things up, we’ll explain a little bit about how all of this shipping and delivery is managed.
Fleet companies manage commercial vehicles and practice some form of fleet management to productively operate those vehicles and their routes. This improves efficiency, reduces costs, and ensures compliance with regulations. Fleet management involves everything from proactive maintenance to dispatching and route planning to final proof of delivery.
Automated dispatch & routing software
As part of fleet management, the dispatch and routing function can be automated for greater efficiency. At Wise Systems, our artificial intelligence-driven dispatch and routing platform is designed to offer the perfect last-mile delivery experience. It helps companies to reduce fleet mileage, carbon footprint, and late arrivals, and increase efficiency.
Artificial Intelligence (AI) and Machine Learning (ML)
AI and ML represent an evolution in computer science and data processing that is part of a digital transformation across a variety of industries. In short, AI refers to processes and algorithms that are able to simulate human intelligence, and ML is a subset of AI where machines learn over time. What does this have to do with the last mile? Like many industries, there is a lot of data available in last-mile logistics, and AI and ML help to make sense of it to increase business value.
That wraps up our glossary of some of the terms that are associated with the supply chain, shipping and delivery logistics, and last-mile delivery. We hope it has provided some value to you.
Please visit our Resource page for more information and explanations.