The Last Mile’s Lasting Impact

The Last Mile’s Lasting Impact<br />

From traditional heavy goods shipments to the new influx of e-commerce-fueled home deliveries, the last mile plays a crucial role in the supply chain. Get it wrong, and you risk alienating consumers; get it right, and you may just gain a customer for life.

As anyone who has been through it knows, remodeling a kitchen can be a stressful experience. Expenses run over budget, design ideas don’t pan out, and the timeframe stretches longer than anticipated. Companies involved in delivering crucial kitchen items, such as cabinets and appliances, know they need to hit the mark with delivery— or make life worse for already stressed-out homeowners and contractors.

“The last thing consumers want is their new kitchen cabinets arriving late, incomplete, or damaged,” says Ron Drenski, director of corporate logistics for Masco Cabinetry, a Michigan-based company that manufactures cabinets under the KraftMaid, Merrilat, and Quality Cabinets brands.

“When consumers remodel and spend a significant amount of money to install their dream kitchen, all the components need to be delivered on time and damage-free,” he says. “Anything else, and the relationship between our company, the customer, and, ultimately, the end consumer can be negatively impacted.”

That’s why Masco considers “last-mile” or “final-mile” delivery— the last leg of the supply chain, in which consumer products are delivered to the home— a crucial part of its supply chain. “Our delivery network is part of our value proposition to customers and their consumers,” Drenski says, noting that Masco received a 2009 first-place rating from JD Power & Associates, based on its delivery model and service standards.

To ensure cost-effective, last-mile delivery that provides high-quality service for customers, Masco— which sells its cabinets through home improvement retailers as well as a network of more than 2,000 independent dealers— partners with two logistics providers that specialize in last-mile delivery: 3PD, a Marietta, Ga.-based company, and Cardinal Logistics, headquartered in Concord, N.C. Masco chooses one of the two partners to deliver its last-mile shipments based on which region of the country an order is being delivered to.

Because both 3PD and Cardinal perform last-mile deliveries for a variety of customers, they can offer Masco a breadth and depth of delivery options, physical assets, and cost efficiencies superior to what Masco could achieve by managing last-mile operations on its own. “3PD and Cardinal are able to spread fixed overhead costs across not just our products, but other companies’ products as well, which reduces our costs,” Drenski explains.

“Another advantage of outsourcing last-mile is having a transactional-style business relationship,” he adds. “If our volumes go up or down, our providers adjust; I still pay the same price per unit, which brings a great financial benefit. Also, when volumes fluctuate, we don’t have underutilized assets like we would if we handled deliveries in-house.”

These benefits prompt many companies to outsource last-mile operations to third-party logistics providers. While logistics challenges abound at every link of the supply chain, the last mile carries some specific hurdles and characteristics that make it particularly tricky.

For example, it is not always easy to maneuver a 28-foot trailer along residential streets, notes Jerry Bowman, Cardinal’s president and COO. “Sometimes we have to offload part of a shipment onto a straight truck in order to reach a cul-de-sac or other challenging delivery area,” he explains.

“In the past, heavy goods consumers could find out from a manufacturer or retailer where their products were in transit. But the last mile was a black hole; there was no communication there.” Will O’Shea, chief sales and marketing officer, 3PD

In addition, the intimate connection with customers inherent in home deliveries separates last-mile from other transportation legs. “When you deliver goods inside people’s homes, you have to be extremely careful,” says Bowman. “Workers have to be circumspect about soiling carpets and dinging walls— it’s much different than delivering to a distribution center or retail store.

“It is also vitally important that communication to the last-mile customer be outstanding,” he notes. “Even though we may have arranged a delivery appointment with the customer, circumstances may arise that keep them from being home at that specific time.”

In many cases, the final-mile delivery provider may be the only customer-facing organization involved in this portion of the supply chain. If a consumer orders Masco cabinets from Home Depot, for example, it is not a Masco or Home Depot representative that they deal with to schedule and solve delivery issues, but workers from 3PD or Cardinal.

Technology Leads the Way

“Last-mile deliveries require coordination among the retailer who sells the product, the manufacturer who produces it, and the consumer who purchases it,” says Will O’Shea, 3PD’s chief sales and marketing officer. To ensure it executes that coordination flawlessly, 3PD has invested significantly in technology that automates many aspects of communication among the various parties involved in the last mile.

Here is how that communication system works:

When a Masco order ships from its facility in Middlefield, Ohio, the company electronically sends an advanced shipping notice to 3PD. Truckload carriers deliver the cabinets to one of 15 locations in 3PD’s 28-crossdock network, where the order is scanned at the item level. This process allows Masco to provide order-tracking capability to the consumers who purchased the cabinets— they can go online and track their order the same way they could with a UPS or FedEx delivery.

“This kind of order-tracking visibility is new for heavy goods last-mile providers,” notes O’Shea. “In the past, heavy goods consumers could find out from a manufacturer or retailer if their products were on a container, en route with a truckload provider, or in a local DC. But the last mile was a black hole; there was no communication there.”

Once a Masco order arrives at one of 3PD’s facilities, the company’s system sends an email and places an automated phone call to let the customer know the goods have arrived at the local facility. After Masco schedules the delivery date with the customer, 3PD sends an email confirmation the night before, offering a three-hour time window for delivery. 3PD’s drivers also place a phone call 30 minutes before arriving at a consumer’s house to confirm the delivery.

3PD’s automated technology kicks in again after the delivery is made to ensure drivers met the company’s customer service parameters. “About 12 minutes after we receive notice that the cabinets were delivered, an automated call surveys the consumer, asking questions such as: Was the team on time? Did they call 30 minutes in advance? Did the assembly meet your satisfaction? If you had another delivery, would you want this team back in your home?” O’Shea explains.

If customers are not satisfied, they can leave a voicemail, which is routed back to 3PD’s call center. The company promises to get back to the customer with a resolution within one hour. “The customer does not have to call us, or the retailer, or Masco,” O’Shea says.

3PD uses this information to measure each of its delivery teams every day, with a satisfaction goal of 4.82 on a scale of 1 to 5. If certain teams don’t measure up, 3PD is able to quickly address issues with the drivers and make any necessary changes.

“3PD’s teams make a very good impression on our consumers, which is key because these drivers represent Masco and are often the only people the consumer sees,” notes Drenski. “3PD understands how important that is.”

Last-Mile on the Job (Site)

This combination of technology and customer service is also key when making last-mile deliveries to construction job sites, as Cardinal does for Associated Materials Inc. (AMI), a leading manufacturer and distributor of residential building materials headquartered in Akron, Ohio. The company— which manufactures products such as replacement and new construction vinyl windows, patio doors, vinyl siding, and decking, among other products— serves the professional homebuilder and remodeler market through its company-owned distribution centers and direct customer network.

AMI began its partnership with Cardinal in 2007, tapping the logistics provider to handle last-mile deliveries for its West Coast operations. It counts Cardinal’s technology and service offerings as crucial benefits to helping make the last mile an efficient and cost-effective part of its supply chain.

“By utilizing Cardinal Logistics to handle our last-mile delivery, we can take advantage of its expertise, software, and technology to ensure every mile counts, while helping us manage and forecast our actual cost,” says J. Craig Morrison, director of corporate logistics for AMI.

“Cardinal offers a range of scanning and technology upgrades we never had before, and presents us with a consistent and predictable cost model for each month,” he adds. “This is especially important in today’s economy.”

Job-site deliveries also pose physical challenges that Cardinal is well-equipped to deal with, thanks to its infrastructure and assets. The 3PL provides all the equipment, professional driving staff, and technology interfaces necessary to make sure AMI’s last-mile deliveries are completed seamlessly.

“We do many job-site deliveries in small residential sub-divisions and territories,” Morrison notes. “Delivering this type of product via our own fleet or full-size tractor-trailers would be expensive and cumbersome.”

Cardinal also keeps personnel on site at each Associated Materials manufacturing facility, helping integrate the provider into AMI’s operations. The daily interaction strengthens the working relationship, notes Morrison. “Having a rep on site makes interaction between Cardinal and our shipping and production staff neat and clean, and helps resolve small problems before they become big ones,” he explains.

While delivery of heavy goods from shippers such as Masco and AMI is the traditional setup for last mile, the notion of what constitutes the last mile is changing rapidly. White-glove services provided by logistics companies specializing in last-mile deliveries still make up a good chunk of the sector, but business-to-consumer deliveries have expanded far beyond heavy goods and home items, populating today’s last-mile field with all kinds of providers.

“Ten years ago, last-mile delivery to consumer homes was restricted to heavy goods such as furniture, or high-value items that made it worth paying a $30 shipping charge for home delivery,” says Rick Rover, senior vice president of operations for Streamlite, an Atlanta-based shipping solutions company focused on delivery of lightweight items to consumers’ homes.

Today, thanks to the explosion in e-commerce, business-to-consumer deliveries have skyrocketed. In 2010, online retail sales reached $173 billion and will continue to grow, according to the Center for Retail Research. The frequency with which shoppers place online orders for products including apparel, electronics, books, and even small items, such as beauty products or medications, has changed the face of the delivery industry.

From Origin to Mailbox

“The supply chain has been extended as a result of changes in consumer buying patterns,” Rover notes. “As people turn to the Web to purchase lighter-weight, less-expensive goods, and do so more frequently, the supply chain extends right to the mailbox.”

While e-commerce orders and other business-to-consumer shipments are usually brought to homes by UPS, FedEx, or the US Postal Service (USPS), many in the logistics field now consider what takes place upstream of the actual delivery to be part of the last-mile process.

Sorting and moving packages around the country so they are in a position to be delivered seamlessly by the USPS, for instance, is the last-mile niche that Streamlite serves. The company, whose clients comprise a diverse group of apparel retailers, mail-order pharmacies, financial and automotive brochure publishers, and fulfillment companies, works with its customers to improve their final-mile shipping times and visibility, while reducing costs.

Rover cites the example of a financial company that needed to send an SEC-regulated financial publication to 750,000 customers in one week. Streamlite worked with the firm to print in prioritized ZIP code sets, pre-sorting pieces by destination as they rolled off the press. Because the firm was shipping from the New York area, Streamlite recommended West Coast ZIP codes get the highest printing priority. Sorting at the data level on the front end proved more efficient than sorting the 20-ounce packages in a processing center, and ensured that shareholders across the country would receive the communications by the deadline.

Many businesses that Streamlite works with have delivery needs that fall somewhere between a premium, overnight function, and the bare-bones aspects of basic delivery provided by USPS. For many products, shoppers are looking for that sweet spot where last-mile delivery takes about five to seven days and carries a reasonable cost. Businesses catering to those buyers often look to outside help to meet those shipping expectations.

“For our customers, delivery doesn’t have to be overnight, but it can’t take 12 days, either,” explains Rover. “It also can’t cost $5 or $6. It needs to cost $2 or $3, so they can offer greatly reduced shipping rates to their consumers.”

Because it partners with USPS, Streamlite can offer customers the advantage of the Postal Service’s six-day-a-week delivery and mail trucks that offer final-mile delivery virtually everywhere in the country. What Streamlite brings to the table is superior tracking technology and the ability to better move goods around the country prior to the final mile.

“With our technology, customers can tell when their products moved from the origin to destination city, when they are presented to the Postal Service, and when they are out for delivery— all of which enhances what USPS alone offers,” Rover notes.

The e-commerce boom has also added pressure on retailers and distributors to offer customers a variety of shipping choices— making it crucial for them to combine delivery speed and cost effectiveness. Because consumers have so many options for online shopping, they are not likely to purchase an item from a Web site if they feel the shipping costs are too high.

Unhappy with a delivery charge for a book on, for example, a customer will order instead from Barnes & or another online bookseller. Ditto the shipping time— if a customer needs her jeans for this weekend, she won’t order them from a site that doesn’t offer second-day or next-day delivery.

Last-Mile Options

As a result, it has become essential for companies to pay more attention to the type of shipping they offer for last-mile deliveries. Choosing from the myriad options to offer their online consumers can be challenging.

That’s where a company like Tagg Logistics can help. “We analyze how our clients handle their last-mile deliveries,” says Tod Yazdi, principal of Tagg Logistics, an outsourced fulfillment provider with facilities in Reno, Nev., and St. Louis. “We look at the type of product they ship and what the costs are, and try to pick the best carrier to deliver to the consumer’s door.”

There is also a marketing and perception value to final-mile delivery that impacts the choice of carrier, he adds. “For higher-value goods, consumers often prefer to have packages brought to their door by UPS or FedEx as opposed to having USPS leave them in the mailbox. So online shippers need to consider not only cost and time of delivery, but also how their product is perceived,” he says. “If it is a premium product, the customer will want premium delivery.”

That ability to determine which shipping methods to offer online consumers and how to handle fulfillment for last-mile deliveries is what made Scott Ohlgren, creator of a botanical-based, caffeine-free think drink called Brain Toniq, partner with Tagg.

A few months after starting the business in 2008, Ohlgren and his partner received their first shipment of about 125,000 cans, and had to store it in the partner’s barn. They did the fulfillment and last-mile shipping selection for that first shipment themselves, and soon realized they had a decision to make: purchase a forklift, rent warehouse space, and hire more employees, or find a fulfillment company to handle the process.

“I’ve seen many startups waste money doing things they should be delegating, and I didn’t want to do that,” Ohlgren recalls. “So, after researching several companies, I knew we should have Tagg manage our fulfillment and last-mile.”

The 3PL now handles the fulfillment and distribution of Brain Toniq’s roughly 250 orders per week. Each day, Brain Toniq receives orders from consumers, wholesalers, and retailers; collects them into one Tagg-specified file, tabulates the information, and by 10 a.m. the next morning sends Tagg an email with all the order data.

Tagg then processes and packages the orders, and ships them for the final mile via “the most time- and cost-effective method for each customer,” explains Yazdi.

“We use the same process for every size order— from half a case to four cases, to an entire pallet of 128 cases. It is easy for us to do, and Tagg is able to execute these tasks faster, more efficiently, and for a lower cost than we could do them ourselves,” Ohlgren explains.

Tagg also warehouses Brain Toniq’s product, receiving it directly from the brewer. The arrangement has allowed the company to keep overhead low— only four employees work in Brain Toniq’s Colorado office— while growing sales to one million cans in its second year.

Last but not Least

Just as Ohlgren’s product offers fuel for the brain, the services offered by third-party logistics companies and shipping providers fuel the ongoing demand for reliable last-mile service. And when it comes down to it, last-mile delivery is the ultimate example of the last-but-not-least cliché.

“Any supply chain is only as strong as its weakest link,” notes Streamlite’s Rover. “A company can move a product from China to the United States, clear it through Customs, move it to a distribution center, and fulfill it in record time. But if it doesn’t deliver the product to consumers quickly enough, they are not happy, and the company’s supply chain has failed.”

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