The last mile is a term used in supply chain management and transportation planning. It describes the last movement of people and goods from a start point (like a transportation hub for a product or home for a person) to their end destination (the customer or the office – to keep the same examples). The term « Last mile » finds its origins in the telecommunications industry, which faced difficulty connecting individual homes to the main telecommunications network.
The last mile is the most expensive element in the supply chain. The unit costs of packages increase exponentially as the order gets closer to the customer. It represents on average 20% of the costs of transporting the package, which is considerable considering the distance that a package can travel to be delivered.
Some challenges of last mile delivery include minimizing cost, ensuring transparency, increasing efficiency, and improving infrastructure.
The last mile is key.
For retailers, ensuring a satisfactory “last-mile” delivery is now more significant than ever.
Customers want faster and more frequent deliveries
As the last point of contact with the customer in the purchasing process, it is often the main factor in customer satisfaction. A superior last-mile experience engages and retains consumers. Indeed, for 62% of them, delivery is the most important criterion when buying online.
Due in part to demand on retailers to provide expedited (same day, 48hours…) deliveries, tech-enabled last mile technology platforms have emerged in the past few years. Increased demand for last mile fulfillment has put pressure on shippers to manage many types of delivery companies, which range from traditional parcel carriers, to couriers, to on-demand service providers.
Customers… want to be delivered
And even prior to better deliveries, some customer first need to be delivered – and be able to order. Some remote areas, or less connected regions, are still a pain for retailers as they cannot be reached easily.The best illustration for this is Africa’s rural areas. One of the biggest challenges for healthcare in remote villages in Africa is not the lack of low cost affordable solutions, but rather access to these solutions. People in rural areas do not have access to all seasons roads. Some very specific and local jobs have even been created due to this situation, such as Jumia’s JForce.
Improving the last mile could then help firms to target new markets and expand their customer base.
A cost-reduction motivation
Finally, if the last mile is key from an « external » point of view (the customer), improving it is also key at an « internal » point of view. Last mile delivery is currently the biggest cost driver in the supply chain.
Mathematical Modeling, and Supply Chain optimization
How to achieve the last mile delivery ? Mathematical modeling, adapted with supply chain characteristics can be the key.
Leverage and optimize multiple fulfillment locations through maths
Last-mile delivery can be achieved in many ways :
- Stores in metropolitan and urban locations are well-placed to deliver groceries quickly to consumers but crowding the shop floor with employees undertaking fulfillment can inconvenience in-store customers. The delivery organization depends on the speed of response required. For very fast deliveries, the most popular route is using the storefront. For same-day deliveries, the most popular route is the backroom of the store
- Organizations also use dark stores, retail outposts with a store-like layout intended only to fulfill online orders. Dark stores can process high throughput of online orders since their layout is specifically designed for this goal.
How to arbitrate? And choose the necessary characteristics and organization?
Path optimization calculation models are useful as a working basis.
A general definition of the traveling salesman problem consists in seeking an optimal route for a fleet of vehicles, based in one or more depots, in order to serve a set of customers with known orders, and dispersed geographically, and this by minimizing the distance total distance traveled, total transport cost, journey time, penalties for customer service, number of vehicles used and / or profit maximization.
We can represent the problem in supply chain with the following characteristics:
- Symmetrical road network: since the transport cost from i to j and the same cost from j to i
- Suppliers S
- Customers C (Each customer has a known request, and it must be visited only once by a vehicle)
- Means of delivery D (different types because some means will be unsuitable depending on the situation or the difficulty of access for the last mile)
- The objective function under constraint (for example cost minimization, with certain potentially inaccessible roads)
On this topic, I invite you to check out Emilie Grellier’s thesis(Optimisation de tournées de véhicules dans le cadre de la logistique inverse : modélisation et résolution par des méthodes hybrides. Autre [cs.OH]. Université de Nantes, 2008. Français. tel-00483057)
These calculations can be combined with the choice of geographic location choices for hubs and network design
One classic method for this is the weighted scores method:1. Determination of relevant choice factors (labor cost, labor availability, site cost …)2. Allocation of a weighting index to each factor3. Construction of an evaluation scale for each factor (disjunctive scale, etc.)4. Determination of a score for each location5. Calculation of the sum of the weighted scores for each location6. Selection of the location obtaining a maximum weighted score
It is also necessary to make a transport-storage arbitration.Storage is necessary not to lose customers. At the same time, storing too much can be costly. Coca Cola uses advances analytics to predict restocking schedules at hundreds of informal kiosks across Africa
Technology driven innovations
Last-mile logistics leads the pack in terms of retail technology funding, with $1.3 billion in capital raised in Q2 2018. This is driven by the early adoption of new autonomous-delivery models in developed markets as well as an attractive business case founded on urban demand and the prevailing high labor costs for fulfillment.Innovative technologies include drone delivery (used at 7-Eleven), autonomous vehicles (used at Walmart) or self-service locker (already available at Amazon).
Drone delivery is already in place to deliver medicines in some remote areas in Africa.
Matching the supply of delivery with the demand is a problem that is being addressed by last mile technology platforms such as OneRail, Bringg, and Locus. These companies connect shippers to delivery service providers to facilitate final mile deliveries. These last mile technology platforms allow real-time data to be received by the shipper and the receiver which enables managers to act immediately when exceptions such as a late delivery, address error, or product damage occur.
A famous example is the company Equity Bank. Its CEO Mr. Mwangi said that « Well before cell phone based banking came along, Equity Bank introduced what it called « mobile banking ». It created mini bank branches that could fit in the back of a land rover and drove from village to village across rural Kenya. » Equity Bank’s best-known innovation is its agency banking model : it has accredited more than thirty thousand small retail outlets as bank agents able to accept deposits and dispense cash. This innovation has really taken banking to the last mile in every village.
Project Last Mile is another example of initiative. It believes life-saving medicines and health services should be in reach of every person in Africa. This pioneering cross-sector partnership between the Global Fund to Fight AIDS, Tuberculosis and Malaria (the Global Fund), the United States Agency for International Development (USAID), the Bill & Melinda Gates Foundation and The Coca-Cola Company and its Foundation is improving the availability of life-saving medicines and the uptake of health services in Africa by sharing the expertise of the Coca-Cola system.
The last mile is a key issue to enable a smoother supply chain. Improving the last mile will help companies build customer loyalty. Satisfied consumers are also willing to pay higher delivery charges for fast delivery, purchase more and at a higher frequency.
The topic is not only key for e-commerce companies, but for any industry. It is linked to market access and necessitates to build an effective ecosystem.