Last Mile Logistics: Biggest Problems and Ways to Solve Them with IT

The hardest part of last mile logistics is finding balance and tracking the entire process from start to finish. In this article, we reveal the most exciting problems and describe how your company can solve them with IT.
8 min read
31/10/20
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By Denis Baranov
Head of Retail & Distribution Practice
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Last Mile Logistics: Biggest Problems and Ways to Solve Them with IT

The “last mile” is the most resource-intensive and critical link in transport logistics - for both corporate supply chains and retail markets. It is also frequently a key factor influencing the growth of a freight base in the freight forwarding sector, as well as a prerequisite for ensuring customer loyalty.

Disappointed recipients will not only turn to other providers for future orders, but will also share their negative experiences with other potential customers. So it is critical for transportation and logistics companies to be aware of the major issues impacting this all-important last mile, and how to solve them.

The Biggest Issues in the Last Mile

The term "last mile" originated in the telecommunications sector and migrated to logistics and other areas of business. This is relevant because the problems of the last mile exist not only in cargo transportation but also in other industries. And these problems are solved, across industries, by providers with powerful infrastructure, who take the time to work them out.

The solutions can then be mirrored in logistics. Cargo transportation businesses can learn important lessons from the travel industry, for example, from tour operators who derived the best way to provide high quality transfers.

The last mile was - and remains - the most expensive, intensive and difficult to control link in the value chain, in general and transport logistics in particular. This is partly due to the human factor: the responsibility, politeness and punctuality of the driver, forwarder or courier. But beyond that, there are other complexities that the industry must learn to cope with. Let’s take a look at them in depth.

Problem #1: Poor Communication Along the Chain

Ordering, execution and organization of the last mile are often performed in different parts of the chain. This means that, in most cases, the customer, carriers and couriers are conditionally related to each other and have different business goals.

For example, the final recipient is of key importance to the original sender as their degree of satisfaction and willingness to re-order directly impacts future business. But the carrier is most concerned about the payer - usually the recipient or a third party.

This gets more complicated when we consider that door-to-door delivery can be an additional service provided after the actual arrival of cargo in its destination city; so the interests of the final recipient are not paramount to the carrier.

The final recipient is then only associated with the city carrier and does not have relationships with other participants in the transportation chain. Problems with delivery of an order can arise at any point in the chain: delays with the transport company, mistakes by the sender in the recipient’s address, or a lack of punctuality by the carrier. But regardless of where the chain breaks, the recipient will blame the original sender of the goods for any issues, who in turn will blame the transportation company, and so on.

For the B2C sector, a partial solution to this problem is the development of checkpoints for deliveries. But this solution is not universal; for example, there are loads that are physically impossible to place in small bins at checkpoints.

Improve your last mile

The B2B sector faces a more difficult task, relating to the operation of individual chain processes. It is necessary to tie all parts of the chain together and bring the sender, carrier, courier service, and final recipient as close as possible.

Processes must ensure that each participant in the chain works in a single, and ideally completely digital, environment. This will help to increase transparency and responsibility of the executors and will also make it possible to use predictive tools to manage the process.

Problem # 2: High Costs and Opaque Pricing

The last mile is an expensive stage of delivery, at least in relation to warehousing. The reasons for these high costs are rooted in non-transparent pricing.

Take long-distance transportation. The cost of delivery in a city can be calculated in at least three ways: by zone (for example, residents of New York living outside the city are charged New York region tariffs); by the hour (calculated based on the minutes/hours actually spent on the process, including downtime not caused by the client); and by "footsteps," or the number of orders made in a set period (paying a fixed cost for a volume of deliveries in a period, regardless of how many items are actually shipped). The market also offers mixed options.

In addition to all of this, tariffs vary for bulky goods and consignments and depend on the weight, volume, and often the specifics of delivery geography, sometimes even the topology of the city.

These pricing methods are the most common, but there are other pricing models, which can be hard to pinpoint and make the entire market difficult to compare. This is how counterintuitive situations arise, for example, where it is cheaper to send large-sized goods from New York to Boston than it is to deliver them from a warehouse to a client located on the next street.

Problem #3: Organization of the Technical Process

One might get the impression that, across all the weak points found in the last mile, non-digital processes, couriers and city carriers are to blame - people who voluntarily inflate prices and utilize non-customer-oriented employees for contact with the recipient.

Last Mile Logistics

However, this is a reductive analysis: logistics companies, carriers and shippers, especially distance selling companies, all reap the benefits of inadequate organization of the last mile.

Firstly, there is an unbridled desire for high speed delivery, and this is not always dictated by the client. Too often, this is driven by an aspiration to get ahead of competitors.

Secondly, there is a willingness to delegate implementation of last mile services to crowdsourcing services, which have mediocre scoring and no direct contractual responsibility. This approach hits SLA in terms of safety, customer focus, timing and security of delivery.

Part of the solution to this problem is a transparent approach to the formation of a pool of providers and a process that distributes orders, as well as a general reassessment of the value of the last mile in transport logistics.

After analyzing the problem of technical organization, it seems there are two non-mutually exclusive solutions. The first is to create conditions that allow for complete transparency between all parties to a transaction. This is ideal if they are permanent partners bound by a multilateral agreement that specifies the extent and boundaries of responsibility by analogy with the terms of Incoterms.

The property of immutability - a feature of blockchain data storage technology, which implies the impossibility of making changes to an event/object after its creation - is an excellent example of how to distribute responsibility between participants in a chain.

For example, let’s say a mistake was made in the delivery process. This technology could help to quickly and accurately identify the culprit, including the place, time and participants of any errors. This seems to be especially relevant in multimodal transport and routes with transit points.

The second method to solving the technical organization problem is to change the principles laid down in the contractual relationship. The order cannot be considered complete until the final recipient signs a document confirming receipt, with no claims. It is at this moment that the addressee decides whether he/she will return to a company for a second order.

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A similar approach is possible if the responsibility between participants in the chain is delineated, for example, by blocking the entire payment amount until the recipient accepts delivery. If acceptance is received, the amount is distributed in certain shares between the participants in the chain. In this case, it is most logical to use the contract holder as the guarantor of the transaction.

Customers Retention After Delivery

Customers expect delivery to be inexpensive, punctual and courteous, in both B2B and B2C. This can be achieved in several ways:

  • Algorithms make delivery inexpensive and accurate. Instead of three logisticians with Excel and Google Maps, it is better to have one algorithm that will calculate the ideal route, taking into account traffic jams, parcel dimensions and delivery windows.
  • Automation (or digitalization) also makes predictive delivery possible. Let the system send a message to the buyer detailing who will deliver the package and when.
    Then, an hour in advance of delivery, send a new notification. If the courier is late, the system will send a new time and explain the reason for the delay.
  • An app can make couriers more friendly. For example, there are cheat sheets detailing how the client needs change from $2000, and how the money needs to be taken.
    In the app, the courier reports to the logistician, uploads their photos, and demonstrates the neatness and punctuality of his work. The system downloads all the data from the courier and provides a daily report on the quality of his work.
  • Making the process more transparent. Have a system where everybody can see shipping details from order to delivery, so every part of the chain can stay informed and flexible if something goes wrong.

The market currently has an available niche for the development of innovations that ensure proper implementation of the last mile. But, as with many problems in transport logistics, promising solutions are stymied by the conservative mentality of market players.

The market requires an evolutionary step, and the result would be a significant increase in the efficiency of the entire chain. It is difficult to imagine a more promising growth point in traditional transport logistics.

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