Winning Moves for the Last Mile
With direct sales on the rise, retailers seek fast and efficient ways to deliver product over the threshold and into customers' hands.
What's so hard about last-mile delivery? That depends on what the customer buys, and where that order needs to go. Transporting a sweater to a ranch house is a different challenge than delivering a sofa to a walkup apartment, or a wide-format printer to an office tower.
But most last-mile deliveries share a common imperative: Customers ideally want their orders fast, shipped at no charge, and through transactions that involve no friction.
American shoppers spent 16.9% more on online purchases in the third quarter of 2019 than during the same period in 2018, according to the U.S. Census Bureau. The more growth we see in e-commerce and omnichannel sales, the more crucial the last mile becomes to a retailer's strategy.
Perfecting that strategy isn't easy, though. Buyers are pulling more and more shipments into the transportation network, and every retailer, parcel carrier, and third-party logistics (3PL) company feels pressure to speed up that volume.
"Being able to move orders faster through the system, and do it with some defense of margins, is crazy hard from a technical perspective," says Benjamin Conwell, senior managing director, practice leader, newCommerce Advisory Group, Logistics and Industrial Services at commercial real estate brokerage Cushman & Wakefield.
No Such Thing as Free Shipping
While many customers expect fast transportation to cost them little—or nothing—transportation across the last mile obviously is not free, points out Josh Johnson, CEO at Fidelitone, a supply chain management firm in Wauconda, Illinois, whose services include last-mile delivery for large and bulky items.
That last-mile cost has gone up, due to a tight market for drivers. "Driver pay has been one of the largest increases—about 15% over the past three years," says Johnson. Fidelitone relies on both employees and independent contractors to deliver product from 15 dedicated last-mile fulfillment centers and 20 multi-tenant facilities.
The services those drivers provide depend on each customer's needs. Fidelitone works with retailers to define the kind of last-mile services they want, then trains drivers to meet those expectations. The company also plans carefully, allotting enough time to make each delivery to a home or business and perform related services, such as unpackaging furniture or setting up office equipment.
"It's about addressing that experience and expectation up front, and making sure you've got the right cost built in to do that," Johnson says. To help make everything run smoothly, Fidelitone has implemented technology that optimizes schedules and routes.
Since drivers deliver a wide variety of products into a range of different environments, this planning is a never-ending challenge, Johnson adds.
Variety is also the order of the day for XPO Logistics, a provider of last-mile services based in Greenwich, Connecticut. "Each product requires its own special accommodations, so all deliveries are handled personally and case by case," says Daniel Walsh, president, last mile, at XPO.
When a consumer completes an online purchase from one of XPO's customers, that triggers an intricate planning process so everything will be ready when the product arrives from farther up in the supply chain.
"Once a product arrives at one of our 85 hubs, we work with the consumer to set a time and date that suits them for delivery," Walsh says. "After the product ships, consumers can track or reschedule orders with Alexa or Google Home."
XPO pre-packages and pre-assembles products so drivers can deliver and install quickly and cleanly. "Our technicians perform about 500,000 assemblies and installations annually, including plumbing, gas, or Wi-Fi," Walsh says.
Like service partners such as Fidelitone and XPO, retailers that manage their own last-mile transportation often use advanced technology to create efficiencies and track the progress of deliveries. One of those retailers is Build.com in Chico, California, an e-commerce vendor of home improvement products.
Build.com is a unit of Ferguson Enterprises, a distributor of plumbing, HVAC, lighting, and related products. Shipments to its customers often start in one of 10 Ferguson distribution centers throughout the United States, or they come as drop shipments from any of about 400 other vendors.
Build.com uses UPS and a variety of less-than-truckload (LTL) carriers to transport orders to homes, businesses, or job sites. In some cases, drivers deliver product to the customer's door; in others, they provide white-glove services such as delivery to the room of choice.
For LTL shipments, Build.com uses Convey, a last-mile delivery management solution, to choose the optimal carrier. "We pass that information to the Ferguson DC where the order is going," says Jake Velikonia, the company's senior director of operations. A drop-ship vendor logs into a Convey portal to get information about a new order and the carrier that Convey has selected. "Then they just download and print all the bill of lading information for the warehouse," he says.
Software for the Last Mile
Convey, based in Austin, Texas, offers software modules to address three main functions in last-mile logistics. First, it lets a retailer promise a delivery date on a product page or online shopping cart. Retailers may also set delivery appointments for large items.
Second, the software recommends the most effective carrier for a given shipment. "Many smaller retailers use between three and six carriers," says Rob Taylor, Convey's co-founder and CEO. "But in the case of large omnichannel retailers, we have customers that use 40 carriers on our platform."
Third, Convey receives electronic status updates from all its customers' carriers, analyzes that data to detect potential delivery problems, and then takes action on that information.
For instance, Convey might intercept a carrier's exception code indicating that a shipment has been damaged. "That kicks off an automated process for a few of our customers," Taylor says.
First, the system notifies the retailer of the damage, even if the carrier hasn't yet done so. "That then automates a reship of a replacement product from the retailer, as well as a customer communication through email and SMS," he says. The message could, for example, tell the customer that damage has occurred but a new product will arrive by the original delivery date.
For Build.com, one big challenge Convey has helped to solve is how to update customers on the status of incoming shipments. Before Convey, the retailer simply gave each customer a link to a carrier's tracking page. That made for a confusing experience.
"The process was different on every website," Velikonia says. "Customers had to log in to multiple places."
To provide a simpler, more consistent experience, Convey established a link with each of the merchant's LTL carriers to pull in tracking information. "They standardize all the different messaging," Velikonia says.
Customers now track all deliveries through Build.com's own site. "It's always the same look, always the same messaging," he adds.
As software can provide an edge in the last-mile competition, so can a well-designed network of fulfillment centers. "There has never been more strategic value attached to where to locate these kinds of facilities," Conwell says.
Retailers look for several things when they choose fulfillment sites. "One, proximity to customer density is paramount so it's feasible to do same-day delivery," says Conwell. To ensure adequate coverage, retailers or their logistics partners may open multiple facilities in certain markets.
When choosing a site in a city center, a retailer might renovate an existing industrial building, or it might demolish that building and construct a replacement from scratch. That choice could add 18-36 months to the project, but it lets the retailer develop parking, dock doors, and other features to its own specifications.
Whichever choice it makes, the retailer must understand how traffic congestion in the neighborhood will affect its own operations, and whether traffic in and out of the facility will violate local zoning law. And, as with any high-volume operation, the retailer must understand the local labor market. An urban market offers a large pool of potential employees, but commuting could be a problem. "Is there on-site or off-site parking for workers?" Conwell asks. "Is there adequate public transportation?"
Traffic and parking at last-mile facilities are so important that the trend today is toward smaller buildings surrounded by acres of asphalt. The facility needs lots of parking space for associates' vehicles and delivery trucks.
"Almost as important, though, is to have room to properly circulate traffic on the site, so you can have ranks of delivery vehicles being filled and then heading off the site," Conwell says.
In a few cases, those circulation lanes include ramps that lead to multistory final-mile facilities. For example, Conwell points to the 590,000-square-foot, two-story facility that developer Prologis recently built in South Seattle, leasing space there to Amazon and Home Depot. "It's a harbinger of things to come," he says, adding, however, that the multistory concept is still largely unproven.
For omnichannel retailers, buy online, pick up in store services may help take pressure off last-mile operations. "The more orders customers pick up at the counter or at the curb, the fewer orders the retailer needs to run through a final-touch facility," Conwell says.
Given the ongoing growth in direct-to-customer sales, though, merchants will continue to hone their last-mile strategies for the foreseeable future.