According to a 2019 CapGemini study, as many as 41% supply chain costs are consumed by last-mile delivery. Meanwhile, the door-to-door delivery sector is growing in strength and popularity. With the pace of development of the delivery industry, it is worth taking a closer look at the last-mile problem and finding solutions that will allow for a significant reduction in the costs of the last leg of transport.

The Last Mile – What is it?

Last-mile delivery is the final stage in a supply chain. But don't be fooled into thinking it's exactly one mile—especially since a mile in the metric system doesn't mean much to us. The last-mile problem can actually be as much as a few dozen miles or kilometers, and the name is just a common one. The last-mile problem is the final stretch of the route from the moment a product leaves the warehouse to the moment it reaches the end customer. 

It may seem surprising, but the cost of transporting a product, which is sometimes manufactured and transported from a completely different country or even continent, is the most expensive on the last leg of the route. This is related to a mathematical and programming problem called the traveling salesman problem. However, in this article we will consider how to actually influence the solution of the last mile problem and reduce fleet costs in this area, and not just on theory.

Why is the last mile the most expensive section of the route?

Imagine a company delivering boxed diets with its own fleet of vehicles. The route of each vehicle changes daily - new customers arrive, others temporarily suspend their diet, and others give up. Delivery addresses per vehicle number in dozens or even hundreds. With such dynamically changing delivery points, all you need to do is add one-way roads, changes in traffic organization, lack of parking spaces, and traffic jams. 

All of these elements contribute to the extension of the time required for delivery and generate costs in the form of fuel, wages, and wear and tear. However you look at it, a large container of products flowing from China to Europe has a much more predictable route, while also carrying huge quantities of goods. As a result, larger and less complicated delivery routes are indeed much cheaper than the last mile. So let's focus on reducing supply chain costs.

Which industries should pay particular attention to last mile costs?

The last mile problem affects all industries that deal with direct delivery to the end customer, including:

  • courier companies dealing primarily with the transport of goods ordered online (DPD, UPS),
  • couriers delivering goods on demand (UberEats, Pyszne.pl),
  • couriers operating locally (Goniec, FalconX),
  • companies offering their own delivery (restaurants, box diets, clothing, furniture, florists, grocery stores, etc.).

This is a problem that affects both companies with very large fleets of vehicles and smaller businesses with just a few vehicles. Last mile costs are high for everyone equally.

However, it’s not just delivery companies that need to pay attention to the last mile. The problem indirectly affects industries that travel in urban areas—in cities themselves or between them. Optimally planning the routes of mobile salespeople or service technicians whose schedules change daily can help reduce fleet costs.

Reducing last-mile supply chain costs

The Capgemini study also shows that suppliers recover only 80% from the total supply chain costs, meanwhile as much as 99% customers do not want to take on the entire cost of delivery. This would mean that delivery and logistics companies will always be losing money on trips… but it does not have to be that way. Reducing supply chain costs is possible thanks to route optimization systems. Mathematical algorithms used in such software allow for more effective routing and reduction of costs incurred for delivery and the fleet itself. 

The last mile challenges that route optimization systems address include:

  • deliveries within the time frame — the software can select a route to complete the delivery at the right time and without making any detours,
  • vehicle capacity and type — costs increase when you have to wait for a vehicle with the appropriate capacity or function (e.g. a freezer), which is why the route optimizer selects routes for vehicle types already at the planning stage,
  • communication and problem solving on the road — unexpected situations often occur during journeys — a car breaks down or has an accident — the route optimization program allows for real-time monitoring of vehicles and quick reporting of problems,
  • reducing supply chain costs — route planners were created to reduce travel costs. Routes planned automatically are optimal and therefore cheaper. Less fuel is used during travel, shorter routes are made, thanks to which tires and car parts are less worn, and at the same time the driver can complete more orders in the same time. 

Reducing supply chain costs at the last mile stage is entirely possible. Customers will not change their minds about not wanting to pay for deliveries, but carriers can reduce their costs. Without drastic cuts and without adding funds to the fleet management budget. 

Route optimization systems such as Routimo not only reduce costs, but even allow you to complete more tasks thanks to better route planning. Our customers enjoy not only savings, but also additional profit. Want to learn more about the possibilities of Routimo? Order a free and non-binding software test: routimo.com/#contact