Last-mile delivery

Moving products for "the last mile"—that is, to the customer's location—can be the costliest and most challenging part of an ecommerce fulfillment operation. By improving efficiency and embracing modern technology, businesses can cut last-mile delivery costs and improve profit margins.

What is last-mile delivery?

Last-mile delivery is the final step to delivering an item to a customer at their specified location. The term is often used in logistics to refer to the shipping and tracking of a product from the fulfillment center to the purchaser.

The importance of last-mile delivery

Last-mile delivery is arguably the most important aspect of the shipping process because it’s when the product actually reaches the consumer. It comes as no surprise that customers expect to receive their goods quickly and efficiently, at a low cost, and in good condition. These factors can be considered the minimum customer expectation as companies like Amazon have raised the bar for ecommerce delivery.


Last-mile delivery process

The last-mile delivery process appears straightforward, but there’s a lot more than meets the eye. During order fulfillment, the process begins when an order is placed. At this point, an eccomerce platform, like Shopify, sends the order details to a centralized system where the  order is picked and packed to be delivered to the customer.

At this point—when the order is ready to go out the door—the last-mile delivery process begins. 

Step 1: Orders are sorted and assigned to a shipping carrier based on routes and destinations

Once an order is ready for last-mile delivery and to leave the warehouse, it’s assigned a shipping carrier and affixed a shipping label. 

In order to determine the carrier, the most efficient routes are selected to meet demand and mitigate costs. For those who use a multi-warehouse shipping strategy, orders will be fulfilled and shipped from the warehouse with the most cost-effective shipping zone in relation to the package’s final destination.

Step 2: Items are scanned before loading delivery vehicles

Once the most efficient route and carrier are selected, orders are scanned before loading into delivery vehicles, generating a tracking number for the customer, and providing shipping updates so that all parties are aware of the delivery details.

Step 3: Delivery and satisfaction

The order arrives at its final destination and proof of delivery is provided. The recipient is notified and may be asked to provide feedback.


Strategies for optimizing last-mile delivery

The last-mile delivery process is the most expensive leg of the shipping process. However, there are many ways to streamline fulfillment.

Here are some ways you can optimize last-mile delivery:

  • Route optimization
  • Real-time tracking
  • Lockers and smart boxes
  • Partnering with local delivery companies
  • Building or partnering a strong operations team

Route optimization

Choosing the best routes will reduce delivery times and fuel costs. You’ll need to account for the package’s size and dimensional weight, the number of stops, unexpected delays, and the drivers’ skills and experience too.

Real-time tracking

There’s an obvious benefit of real-time tracking to the consumer, who anxiously awaits their order. The value-added benefit to the company shows through improved efficiency, logistical data collection, reduction in losses, lower insurance costs, and transparency that adds to the customer experience.

Lockers and smart boxes

Versatility and convenience are the key drivers behind lockers and smart boxes, which also reduce the likelihood of theft. Customers collect their orders on their schedule at a predetermined place close to them. These also improve your route optimization and simplify the management of the shipping process.

Partnering with local delivery companies

Managing multiple fleets expands your reach and improves shipping efficiency. Building relationships with these companies can lead to more favorable rates while their expertise can help you understand the market nuances. You want carriers you trust since customers will blame your company, not the delivery service, for poor experiences.

Building or partnering with a strong operations team

From fleet managers to delivery drivers, you need professionals who can deliver customer satisfaction while following the plan. Experienced teams handle the complexities in the last-mile delivery process with skill and help you cut costs and save time. Communicating with your team in the field allows for flexibility during unforeseen difficulties while a strong team also provides insight that may not be obvious in other data.


What does last-mile delivery cost?

How much does last-mile delivery cost, and why is last-mile delivery so expensive? The rise of ecommerce has led to customers expecting two-day shipping as the new norm. Businesses that can offer free shipping gain a competitive edge for customers but have to eat the shipping costs. Considering that last-mile delivery accounts for 53% of the overall shipping costs and 41% of supply chain costs worldwide, optimizing this process is vital to success.

Costs for last-mile delivery are broken down into labor, fuel, equipment, software, reverse deliveries, and other miscellaneous expenses.

  • Labor accounts for half of the last-mile delivery costs, as vehicle drivers and local couriers are needed to place the orders at their final destinations. Additionally, larger products like appliances (that often provide setup and disposal services) could require extra hands.
  • Fuel and delivery equipment add to the overall cost for last-mile delivery. Since fuel prices are volatile, some companies may add a surcharge when prices remain high for a while. Equipment varies from hand trucks to refrigeration units. These costs largely remain consistent, but some orders may require special needs that must be accounted for in tracking your costs.
  • Management software, which is crucial for efficiency and accuracy, represents another portion of the costs. While buying and integrating new software may be costly at first, it will prove invaluable when implemented.
  • Reverse deliveries are an unfortunate part of business, but they must also be considered as your company will absorb the costs for returns and failed shipments. Your company ends up delivering products twice and risks negative customer experiences. While it’s difficult to place a specific cost on reverse deliveries, the goal should be to reduce these to zero.

3PLs that use a-la-carte fulfillment pricing models include the costs of fuel, labor, and other surcharges into each orders fulfillment receipt—greatly reducing ambiguity and increasing the ability to appropriately forecast delivery costs.

Technology solutions for last-mile delivery

Consumer demand and labor costs drive the need to automate. Just as technology expanded the demand and complications of last-mile delivery, so will it help manage and provide cost-saving options associated with running your business.

Last-mile delivery management software

Customers are already familiar with many of the technological options available at their fingertips. But what they won’t see is the backend of your operation, which needs to handle every step from placing the order to delivering it as promised. Software that optimizes routes and provides real-time tracking will improve delivery times and customer satisfaction while reducing returns and failed deliveries. The software allows you to plan ahead as well as reroute and adjust quickly to the unexpected.

Drones and autonomous vehicles

Labor costs remain the most expensive part of last-mile delivery. Some of the reasons for this are time spent on the road, dwell time, and distances traveled between stops. Drones and autonomous vehicles overcome these setbacks while allowing for round-the-clock delivery and access to remote areas. They also provide environmental benefits by significantly reducing a company’s carbon footprint.

AI and machine learning

Artificial intelligence handles massive amounts of data quickly, making the shipping process faster and more accurate. Machine learning predicts and even discovers new consumer habits and can forecast seasonal demand. Automated intelligent operations can work longer, smarter, and without human oversight-led error.

The Internet of Things

The Internet of Things (IoT) is a network of devices monitored through sensors. They collect and exchange information with other devices through the internet in real-time without any human interference. This technology is widely used for any kind of tracking device, including vehicles and packages. IoT saves time, and the data it collects allows for better decision-making and predictive vehicle and equipment maintenance.




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Airhouse has a deep network of partners and shipping carriers to help you optimize last-mile delivery. To learn more about how Airhouse can cut costs and improve customer satisfaction, get in touch with one of our fulfillment experts.

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