The ultimate guide to last mile logistics

1. Why last mile logistics is important?

Last-mile logistics is the most complex and, happened to be believed, most costly part of the distribution supply chain. While there is a growing buzz around the expression, the last mile implies different things for different industries. So, before moving forward with the recommendations of how to optimize last-mile logistics one should first define what it actually means for the specific operating model and where the inefficiencies are?      

With the accelerated growth of e-commerce, increasing requirements is creating burdens on the logistics chain, which amplifies the final mile. According to a 2022 report by Deloitte, as consumers’ delivery-related demands increase—as does the cost and complexity of meeting those demands—new, nimbler options are arising to enable retailers to outsource last-mile delivery to the gig economy. Amazon Flex and Walmart’s Spark Delivery enable independent drivers to deliver online purchases to the retailers’ customers. Along with the growth of e-commerce, last-mile logistics has its specifics and new challenges for traditional sectors as well. These challenges can be sector-specific, such as decreasing delivery times and increasing density of fulfillment centers but also can result from general macroeconomic trends such as shortages of employees and supply chain problems.  

2. Last mile delivery logistics is not just home deliveries

“Last-mile” logistics or deliveries might have different meanings for different sectors and industries. First of all, different companies might be implementing final mile deliveries using private fleets or hiring carriers. Thus, we can differentiate between private fleet shippers and for-hire carriers. While for private fleet shippers logistics operations are supplementary to their main businesses, for-hire carriers or logistics service providers (LSP) generate income for transportation services. Secondly, the last mile will be different for companies that are in the B2B business such as wholesale distributors, or focusing mainly on home deliveries such as retailers. Some e-commerce companies could be put into a category of their own as they mostly don’t own vehicles but may combine both retail and wholesale operations.   

Retailers and e-commerce

“Last-mile logistics” in the retail sector mainly implies the organization of store-to-customer small-size delivery processes.   

According to U.S. Census Bureau News Total e-commerce sales for 2021 were estimated at $870.8 billion, an increase of 14.2% from 2020. Total retail sales in 2021 increased 17.9% from 2020. E-commerce sales in 2021 accounted for 13.2% of total sales. E-commerce sales in 2020 accounted for 13.6% of total sales.

Demands for faster, cheaper shipping result in a growing complexity of last-mile delivery operations. Consumers can now choose to get their purchases in a variety of ways: home delivery, ship-to-store, ship-to-locker, or reserve online and pick up in-store. Returns can now be made in-store or by shipping the product back to the retailer. Linear supply chains have given way to complex, interconnected supply chain networks. And the subscription services offered by a growing number of retailers often subsidize or waive delivery fees, making it incredibly easy for consumers to place many small orders instead of a few large ones. The result? More—and more frequent— orders, a sharp rise in demand for expedited delivery, an e-commerce logistics market with a compound annual growth rate (CAGR) of 20.4 percent, and rising costs for retail and consumer goods companies. Amazon is able to meet consumers’ demands by spending 15.6 percent of its net sales revenue on shipping costs and an incredible 27.9 percent on combined fulfillment costs. Retailers, by comparison, spend about 8 percent of revenue on e-commerce fulfillment on average; in the current retail environment, it would be hard for them to cover more of the delivery costs and still stay profitable.

Different companies prefer different last-mile delivery logistics models. Larger retailers tend to run private fleets of vehicles, while smaller ones rely on outsourced transportation. It should be mentioned that most private fleet companies usually combine both operational models. Hence, processes and problems may differ for different types of shippers.

We can also divide retail deliveries into grocery and the rest as delivery patterns and velocity are quite different. The average lead time for delivery of groceries is 0.7 days, compared to electronics which take 3 days, and 5 days for apparel. Thus, consolidation and logistics management models can vary substantially.    

Logistics service providers (LSP) and delivery companies

We can conditionally divide logistics service providers into long-haul and local delivery models. There are a number of LSPs that operate on both markets, we see a growing number of specialized local delivery companies, especially during the Covid 19 pandemic. We see also the emergence of platforms that connect shippers and individual vehicle owners. Later are essentially networks of independent couriers and delivery agents connected to a delivery ecosystem that pick up and deliver small packages. The other distinct difference between long-haul and local deliveries is that local deliveries are usually on the same day while long-haul deliveries can vary from 1-7 days.

As it turns out that the final mile can be used to describe the sharply different distribution and delivery models there is a wide range of estimated market sizes. The Bureau of Economic Analysis (BEA) reports that the last leg of overall transportation costs makes up as much as 28% of logistics expenses. Transportation’s contribution to the economy can be measured by its contribution to gross domestic product (GDP). The Bureau of Transportation Statistics reports the final (finished) transportation goods and services purchased by people, businesses, and governments in 2018 contributed $1,489.7 billion, or 8.9%, to U.S. GDP. If we apply the aforementioned 28% BEA figure, we could say the market for the final mile (from a GDP perspective) is an astounding $417 billion. Contrary, if we narrow down the final mile to home deliveries and assume that these are small-sized we need to look into parcel delivery numbers in the picture below4

There is also another important distinction between the organization of long-haul and same-day logistics – long-haul deliveries are usually done using semi-tractors or sleeper trucks while local deliveries are implemented by smaller trucks or even passenger cars. Thus, contracting, company and driver onboarding are different for long-haul transportation needs. The latter is a highly regulated industry that needs special licenses and drivers. The value of the average delivery is also much higher hence the carriers are going through much meticulous due diligence. The important peculiarity is that while more individuals can be involved in local deliveries, continued driver shortage, increasing insurance, and, lately, fuel costs make long-haul capacity scarcer and pressure on the costs higher. 

As you may see in the picture above, the ground transportation rates almost doubled during the last two years. 

Wholesale distributors

Wholesale distributors are the middleman between producers and retailers with slight differences from industry to industry. It is one of the more complex industries driven by high numbers of SKUs, customers, suppliers, and transactions, and their pricing and rebate structures. They can be grouped into major ones such as food, beverages, pharmaceutical, electronics, industrial, and building materials. According to the National Association of Wholesale Distributors (NAW) total wholesale distribution revenue ended the year at $5.970 trillion, just slightly below the April 2019 record high. GDP for the year totaled a record-high $21.734 trillion with a growth rate of 4.0%. The Wholesale Distribution industry is 27.5% of U.S. GDP

Last-mile logistics from the wholesale distributor perspective is different. As they are middlemen between producers and retailers/local businesses their last mile will be the leg between the distribution centers and local warehouses/shops. The wholesalers tend to rely on private fleet operations as they operate in an environment of rigid deadlines. The average size of a single drop also tends to be larger and distances longer, while the number of stops in daily routes will be fewer compared to home deliveries. We observe changes in the industry in the form of growing concentration as well as the emergence of disruptive business models as well. For example, Amazon’s sales platform is supported by more than 2 million third-party sellers worldwide. Of those sellers, 26% sell products using a wholesale sales model. 

3. Challenges of last mile logistics

Scheduling and routing is a great challenge

Scheduling and routing daily package deliveries for a relatively smaller delivery radius, i.e. 50 miles is different from scheduling and routing deliveries of hundreds or even thousands of boxes per one drop for a 300 miles radius. The first is going to be for home deliveries from warehouses of fulfillment centers located closer to city centers. The latter is the case of a food distribution operation to stores, restaurants, and other businesses. Large building or construction material distributors may have lesser stops per route but their route can strain through the weeks. Apart from the difference in distances, route durations, and the number of stops per route, this distribution model requires drivers with different skill sets and driving habits/work models as well as sometimes radically different equipment. When it comes to large 3PLs or LSP this process may combine all of the abovementioned with the need to solve the consolidation problem to/from multiple warehouses and the involvement of different counterparts.   

Planning multi-leg deliveries creates delays 

As we have already established, last-mile delivery logistics can mean different things for different industries. So, the complexity of the operational model hence the complexity of the planning process can sometimes differ cardinally. It is becoming even more cumbersome when planners are trying to coordinate the timing between the different legs of the supply chain, such as the first, the middle, and the last miles. While manufacturers and distributors will mostly use last-mile consolidation centers and warehouses, transportation companies and logistic service providers (LPS) might even bypass these centers and implement multi-day delivery to the final customers. It is going to be the case, especially for B2B or heavier deliveries. 

Coordination between different delivery operators

It can be a great challenge when planning the last mile. It is generally assumed that when the last mile is concerned there is one delivery party that moves the freight. While that could be a case for home or packaged deliveries, in many operational models or industries there are more than one or even two delivery/transportation partners. Thus along with the larger planning range (weekly or biweekly) and multiple consolidation locations involved, the need for coordination between multiple counterparts is going to pose another challenge. 

Visibility is important

When it comes to visibility, logistic managers usually imply to the consumer that they know where your truck is. While it is good information to have, especially in real-time, locating your delivery is one (small) part of the total visibility. It should help not only track deliveries but also make preventive operational management and long-term data analytics and efficiency optimization. 

Capturing data: Capturing data is essential as it is created in real-time or near time and distributed across different operational decision-makers. It particularly includes stops or order level updates of estimated times of arrivals (ETA) at a driver, customer, dispatcher, or DC level. Post factum delivery data such as late deliveries and actual service times is also important to capture and store properly. To minimize late deliveries by implementing dynamic routing, dispatchers need timely data that shows ETAs with service times and other variables not being produced by GPS tracking software.  

Aggregating data: Capturing and aggregating delivery data per different instances and layers is the key to efficient operational and strategic middle-mile network management. The difficulty of it is that systems across different parts of the logistics chain are captured and stored differently, so it is not always possible to have different levels of data aggregation without a synchronized ecosystem.    

Supporting decision-making: Aggregated data is a foundation for retrospective and prospective data analytics. One of the major problems of growingly complex logistic supply chains is the absence of full digitization and synchronization of all the necessary information across different layers of an organization.

Trucking capacity is scarce 

The ongoing truck driver shortage is now estimated at 80,000, up from 61,000 just three years ago. A new study by Bob Costello, chief economist for the American Trucking Associations (ATA), estimates that the industry will have to recruit 1 million new drivers within the next nine years to replace retiring drivers. This shortage makes it really hard for fleet-light shippers to cover loads and implement proper long-term transportation planning. This is also one of the main reasons for the rising freight costs described above.

4. Less Platform as the best last mile delivery software

Depending on the type of the operational model and or the sector of industry, last-mile deliveries can span from a couple of stops per vehicle per day to high volume short distance stops. Less Platform is capable to route and scheduling deliveries that are peculiar to any distribution model.  

Types of industries using last mile logistics software

Lest’s discuss several use cases.

For B2C type of high volumes deliveries that are peculiar to e-commerce and retail, it is important that the algorithms could plan 10’s stops in the routes. These deliveries are usually planned daily while vehicles usually cover shorter distances. Dynamic capabilities are also more important as a high level of discrepancies between optimized delivery plans and live deliveries can happen

The next type of local or city dispatch operations is fleet-light operations in case of which delivery companies don’t own vehicles. In this case, they may either crowdsource deliveries before or after planning or signup with major carriers (FedEx, UPS, DHL). 

The separate operations model of deliveries is the delivery companies that don’t have warehouses or distribution centers. These companies usually do high-volume pickups and deliveries during the day. Hence, a different class of algorithms is developed for these types of movies in Less Platform. 

last mile delivery operational models

For the wholesale distributors and also retailers that need to plan B2B moves such as DC-to-Store or Store-to-DC in case of reverse logistics, a distribution model covers a larger area. In the meantime, the number of stops on the routes will be lower, while the weight of each delivery higher. Vehicles are going to be larger as well so capacity becomes more important. 

There are also large use cases of long-haul delivery planning and routing by 3PLs, large shippers, and carriers. Two types of moves are being planned; a) consolidation and routing of LTL’s (Less than truckload) shipments into FTLs (Full truckloads) both by asset-light and asset-based shippers, b) Forward planning of FTLs. It is worth note that in the former case the main optimization parameter is the mileage for fleet-based operations while for fleet-light shippers and 3PLs total cost should be minimized. In the case of FTL forward planning the main optimization parameter is the deadhead or the empty moves between stops (which should be minimized). Decision-making functions also might differ depending on who is making these decisions – shippers and 3PLs would be interested in mainly cost optimization by finding cheaper carriers, although 3PLs might also reach that via better preliminary consolidation or forward planning. Fleet-based logistics service providers (LSPs), such as LTL trucking companies might be interested in an increase in loaded mileage. 

A special case is the companies that run a mix of fleet-based and fleet light operations. These are large 3PLs such as Hub Group or JB Hunt as well as retailers such as Walmart, Hope Depot, or Pepsico. They need to combine delivery routing technologies with load outsourcing or even by relying on spot markets.   

Software Functionality

The are many features in Less Platform that support or work for almost all the abovementioned delivery models.

Multiple DCs. For example, multiple depots or distribution centers (DC) planning functionality. It is very convenient for companies that have centralized operational planning activities. Secondly, it helps to generate data for separate DCs as well as aggregate it on a company level. A number of warehouses or DCs is growing and getting closer to customers these days, making both operational and strategic routing harder and potential inefficiencies bigger. In the meantime, companies that run multiple pickups and delivery operations without consolidating their shipments in the warehouses can use Less Platform’s pickup and delivery routing and scheduling algorithms.

Delivery windows and variable service times. Two important constraints that make it hard to plan are daily delivery windows and variable service times. These two constraints can also drastically affect capacity used and routes planned. The absence of proper planning tools can make a planner’s work daunting and consume too much time. It is also the main cause why distributors use excessive capacities, drive unnecessary miles and have late deliveries. These effects are being amplified due to increased demand variability, speed of deliveries, and tightening delivery windows. 

Delivery windows in delivery software

Dynamic planning. Automatic routing is easiest the job but there are plenty more situations requiring manual planning. Less platform as a delivery software provides dynamic planning functional for both pre-dispatch and post-dispatch stages. After getting a route plan, a planner can reroute different stops by assigning them to different routes both individually and in bulk. Then sequencing algorithms will re-optimize the total plan. After making changes algorithms assess the feasibility of delivery windows by checking with recalculated ETAs. All the changes are instantly visible for drivers post-dispatch.  

Delivery routing

Scheduling. Planned loads can be scheduled both daily and weekly for respective drivers. Less Platform’s dispatch

Delivery driver mobile

management software is connected to the driver app so all drivers have planned loads once they are assigned to them. After the dispatch, the driver app updates all ETAs and synchronizes them with the dispatch board. Less Platform’s algorithms then check potential late deliveries by comparing ETAs with delivery windows. This way dispatchers can be proactive to avoid late deliveries or dynamically optimize the delivery process otherwise.

Optimization with contracted carriers. Less Platform also brings together demand and supply by helping shippers cover more loads at lower cost and carriers increase loaded mileage and earn for additional stops. According to our calculations and based on the information provided by more than 50 trucking companies, the average over-the-road truck has 10 linear feet or approximately 10,000 pounds of unused capacity. This “dark capacity” has a market value of over $200 billion. We help carriers to fill a partially loaded truck as fast as an empty truck, leading to a dramatic increase in asset utilization, the main driver of profitability for carriers. As shown in the picture below both shippers and carriers can find shipments or available space in the trucks using our AI algorithms. 

Transportation carrier finding

This was a small list of various tools and innovations that Less Platform offers to different industries and companies.

Please contact [email protected] if you want to learn more about Less Platform’s Last-mile delivery logistics orchestration capabilities.