E-Commerce Fulfillment and Last Mile Delivery

The impact of technology and distance on last mile delivery

Let’s try a little experiment.  If I said the words “e-commerce fulfillment” to you, what comes to mind first?  For me, those words make me immediately think of delivery to consumers, last mile delivery, in fact.  This is probably because when surveyed about their overall impression of a brand, consumers’ experience with delivery is usually the determining factor in forming an overall impression and determining brand loyalty. 

What is last mile delivery?  It is the process during which good are moved from a warehouse or transportation hub to their final destination, often a consumer’s home. 

Today, consumers have become spoiled by the “Amazon effect”.  With its growth in popularity, Amazon has become a pervasive force in D2C transactions.  Consumers have become spoiled by Amazon Prime’s rapid delivery to consumers’ doors and now fast, free delivery is what consumers demand. 

Over the past few years, Amazon has invested heavily and altered its strategy, raising the stakes with other retailers to fulfill e-commerce orders within a day, now often the same day.  As a matter of fact, Amazon now provides same day delivery for nearly 3 million items in categories including baby, beauty and health, pet supplies, electronics, kitchen, and dining and more.  This applies to Amazon Prime members in Baltimore, Charlotte, Chicago, Detroit, Houston, Tampa, Dallas, Nashville, Philadelphia, Orlando, Phoenix and Washington D.C.

During the COVID pandemic, there was a tremendous surge of online shopping, more than had been anticipated or even for which many fulfillment centers or warehouses were prepared.  As consumers clicked on tablets, phones, and computers, they expected immediate service with fast, free delivery.  Consumers expect and depend upon fast, accurate, efficient order fulfillment especially during periods of lockdown when in -person shopping is ill advised for health and safety reasons.

In the order fulfillment business, however, this expectation of rapid delivery often presents enormous challenges. Last mile delivery is the most costly leg of the journey that an order takes along its way to its final destination. Why is this?  Although goods are transported to warehouses in large quantities, orders are delivered to individuals, each at a specific address.   Getting each order to its individual destination requires route planning, labor, fleet management, warehousing, route optimization, software to manage fleet costs and more. It is a costly, cumbersome effort to be sure.

Delivering a package to a customer can be done in numerous ways:

Using

Independent shipping carrier or courier service
Delivery service provided through a third party logistics provider
Gig service (crowdsourcing)
Company-owned fleet and delivery drivers

The Gig Delivery Economy

During the pandemic, many Americans embraced the gig economy, working for companies to facilitate deliveries to end customers, initially in the food delivery sector.  This trend extended to fulfillment and delivery of online orders of all types of goods.  Individuals who owned vehicles took on work delivering orders in specific geographic areas.  At that time, significant advancements had been made in technology, reducing, or eliminating capital investment. Technology platforms were developed and began to be used for crowdsourcing deliveries.

Crowdsourced delivery provided new flexibility for both workers and fulfillment companies so that deliveries could use a technology platform to outsource deliveries to a network of available drivers.  This enabled companies that did not have delivery vehicle fleets or labor to meet order fulfillment demand, even when this fluctuated. 

A major part of the crowdsourced delivery deals with the technology platform itself.  This technology generates algorithms which are used to help enhance operations, enabling companies to match the demand for deliveries to the supply of drivers.  As crowdsourced drivers expect to have flexibility over their work schedule, having the technology to help achieve the balance between the supply of drivers and the demand for deliveries is critical to last mile delivery operations.

It is important to note that crowdsourced drivers are not employees or professional drivers with experience in dealing with parking challenges, GPS inaccuracies, access to buildings, etc.  The crowdsourced labor model is dependent upon using technology to standardize deliveries, leveling the proficiency of tasks performed by both crowdsourced drivers and professional drivers.

Crowdsourcing may not always be the most cost-effective delivery solution, however when hourly labor rates are compared with those of independent contractors driving for local and regional transportation carriers.  In addition, crowdsourced drivers tend to have higher turnover.

Advantages of Using Crowdsourced Delivery Drivers

Provides companies with added flexibility
Simplifies obtaining needed labor to meet delivery needs
Enables scaling of operations to meet variable order fulfillment demand
Helpful in meeting times of peak demand
Can be used temporarily, as an add-on to current delivery options or permanently

Insourcing Deliveries and Use of Hybrid Fleets

While there are e-commerce businesses that leverage their own fleet of vehicles to deliver orders, most outsource.  3PLs often offer last mile delivery alternatives.  Companies that insource often use their shared vehicles to accomplish last mile delivery or to collaborate with competitors or other companies in their area to share transportation assets. This helps to keep costs under control. 

A new model has evolved in use by retailers, that of the hybrid model. This is a combination of multiple delivery options including insourcing, gig and crowdsourced drivers and third party logistics provider last mile delivery services.  To manage this myriad of options, retailers use a transportation management system (TMS), route planning tools to map routes to final destinations and avoid traffic congestion as well as other software functionality.  Although using multiple options can provide flexibility, it can be challenging to manage all the various options efficiently and effectively to ensure that all delivery needs are adequately met to customer satisfaction.

Usage of Smart Technology to Provide Visibility

It is amazing the problems that technology can solve with minimal effort.  For example, consumers are eager to know the exact location of their order while in transit as well as its anticipated time of delivery.  To do this, a means of tracking each order is needed.  Companies are exploring the world beyond the barcode.  Most shippers and logistics service providers leverage barcodes on parcels which must be scanned periodically at each stage of the package’s journey to update tracking details of the delivery process.  Today, many companies are exploring alternative means of providing tracking and visibility including GPS and RFID tags, sensors, and other smart technologies, however cost remains a factor in adoption.

Smart technology has applications in other areas as well such as to monitor and optimize routes, check on vehicle capacities, facilitate contactless delivery to the final delivery destination as well as information needed in customer communications, for example providing notification of a failed delivery.

Micro Fulfillment Centers and Urban Warehouses Near Major Population Centers

According to CBRE’s 2021 Global E-Commerce Outlook, an addition of approximately 330 million square feet of warehouse space will be needed by 2025, strictly for e-commerce fulfillment. The report indicates that e-commerce will continue to grow in already established markets.

Historically, fulfillment centers, warehouses and distribution centers tend to be positioned outside of populated areas, in suburbs or even more rural areas.   Now, as the incidence of e-commerce has rapidly escalated, and high expectations of consumers for rapid delivery have increased, goods need to be positioned closer to their final destinations.  Today, as shopping malls and strip centers have failed, there has been renewed interest in these real estate assets to improve the timing of deliveries.

New businesses are springing up to take up this space for micro warehouses or micro fulfillment centers, a base of operations close to where consumers live and work.  Operating multiple facilities that are devoted to order fulfillment provides companies with added flexibility.  For example, positioning the most popular items ordered close to urban centers can mean a faster, easier delivery experience and higher customer satisfaction.

Positioning warehouse operations in major cities close to the maximum number of customers has been proven to be a winning strategy, first pioneered by Amazon in developing their two-hour delivery service.

Conclusion

When dealing with order fulfillment for last mile delivery, technology can be a game changer.  It is amazing how much has changed in such a short time.  The market has evolved to incorporate tools such as smart technology, route planning software to prevent entanglement in traffic congestion, fleet management software, TMS, RFID, sensors for tracking and much more.  It’s a whole new world for delivery drivers, those participating in the Gig economy and e-commerce fulfillment.

The stress of meeting customer expectations for fast delivery, providing tracking information as well as proof of delivery all while balancing the need to cut costs, ensure brand loyalty and resolve logistical challenges seems overwhelming.

What are ecommerce businesses doing to solve the last mile delivery problem as well as others among the biggest challenges in fulfillment? From investments in technology that provide the visibility designed to delight customers and build brand loyalty to embracing hybrid fleet models and outsourcing to 3PLs, ecommerce businesses are pursuing a wide variety of solutions. Warehouse management systems can help keep inventory under control, optimize the fulfillment process and streamline shipping costs. Transportation management systems assist with delivery routes to customers’ doorsteps, management of transportation hubs and tracking information. E-commerce order fulfillment and last mile delivery are complex, costly problems to solve and need technology, delivery drivers and patience.