Preparing for the Digitization of Logistics

Tags: Demand Planning, Logistics, Supply Chain

By 2019 there could be 224 million digital shoppers in the United States, and according to research by McKinsey, about 70 percent of those shoppers will choose the cheapest form of home delivery. Why? Because of increased consumer preferences and the evolution of warehouse-to-home delivery systems. As we move beyond traditional deliveries and into a world where entire ecosystems of things must move seamlessly to any location, on-demand and regardless of ownership, supply chain and logistics professionals must be aware of emerging trends and the challenges and opportunities that come along with them.

Three main trends are key when thinking about the future of digitized logistics:

Expansion and Stabilizing Landscape

The current warehouse-to-home delivery model will grow as more people utilize e-commerce and other B2C providers to deliver things around the world. In this landscape, the most widespread changes will occur in the last-mile delivery segment.

Online shoppers are more price conscious when selecting the service-level for at-home deliveries. This preference will drive two major industry trends: businesses allowing consumers to choose delivery service-level agreements based on a trade-off between cost and speed and increasing commoditization of last-mile delivery. Additionally, these customers will expect reliable deliveries and quick resolution times for exceptions (missed deliveries, wrong items delivered, etc.) from providers — this means emerging solutions must ensure high delivery reliability with minimal requirements of the customer.

Shifting Delivery Methods

Full commoditization of the last-mile segment will emerge because of cost pressure, customer ambivalence toward the delivery method, and the resources required to deploy and maintain a network of autonomous vehicles.

As commoditization of the last-mile segment continues, companies will face rising pressure to increase capacity while maintaining costs. Many delivery solutions have already embraced the on-demand contractor model to handle this, and a majority of these deliveries will move toward automated delivery solutions in the future (drones, automated-guided vehicles, etc.).

That said, commoditization cost pressure will increase the challenge in hiring and maintaining a workforce as employers will be continually pushed to find ways to decrease labor costs while maintaining high service levels. I’ve already started to see erosion in this as companies increase hiring to meet demand and rely on contract labor to handle last-mile delivery.

Changing View of Ownership

The critical question left unanswered is what impact the sharing economy will have on last-mile delivery. A new era of managing interpersonal logistics (C2C) will form as people become increasingly comfortable sharing their homes, cars, and other high-value items.

Today, in traditional B2C arrangements these transactions tend to be for unique items, making them more complicated because each transaction gets tracked as one of one instead of one of many. Facilitating C2C transactions between an item’s “owner” and the person using the item requires systems to track the uniqueness of an item and ensure that both the “owner” can use it, and as many interested “users” as possible can also have access to it.

As this trend emerges, some may ask how a user will value their delivery experience in each case. When someone is interested in using an item instead of purchasing it, more traditional last-mile delivery solutions will be the most viable and cost-effective. When someone views the object through the lens of an experience, a high touch model is appropriate to ensure the customer can extract as much value as possible from the transaction without complications.

Knowledge of how items get delivered, what they get delivered for, and who receives those items all create an understanding of the changing dynamics of warehouse-to-home delivery systems. It’s more important than ever that supply chain and logistics professionals acclimate themselves with these trends, identify the corresponding challenges, and decide how to move forward into the next frontier of last-mile delivery.