The Ti Blog: E-Retail and the Last Mile: 3 times the risk, half the profit

It’s hard not to be struck by the enormity of the challenge that last mile providers face in 2015. There was a time not too long ago when delivering a parcel to the place someone wanted it (or would be willing to wait for it, at least) was a relatively straightforward and profitable thing to do. Broadly speaking, a package, or a consignment of packages, was delivered to a business – a location which holds a great and predictable feature for a last mile provider; during business hours, they’re open and someone is in. When things got more complicated and problems needed solving, solutions meant added value and that, in turn, could mean a more profitable service.

This isn’t the case anymore, though, as the last mile and those providers offering delivery of goods to end-users have been bullied and beaten into a corner by e-commerce. It may seem odd to describe online shopping in this way, but for many in the logistics industry, it’s unrelenting and uncompromising fulfilment requirements probably feel quite similar to a schoolyard beat down. Not willing to provide a free deferred service? Unable to pick up returns if we don’t pay extra? Can’t provide us with a 30-minute window so we know when you’ll deliver to exactly where we tell you? Back luck, those are you problems to solve if you want any volumes. And guess what, we’re still taking your lunch money.

It was, then, against this backdrop that industry experts and delegates met at Ti’s Future of Logistics Conference in Singapore to discuss the state of last mile delivery and the forces driving complexity up and profitability down in a session examining e-Retail and the Last Mile. Moderated by Joel Ray, Ti’s Head of Consulting, the panel discussion wasted little time in asserting the uncomfortable truth – delivering products to the locations people want in a profitable way is the key challenge facing last mile providers. The discussion accurately characterised the last mile as an element of the supply chain under immense stress and one struggling to fully come to terms with the pace of change and flux it’s experiencing. In just a few years, for example, Black Friday has gone from a US cultural artefact to global retail phenomenon, exported in part by Amazon, which also now has its own Prime Day. With Alibaba’s response – Single’s Day – mixed in, the events now represent volume peaks similar to the traditional Holiday Season. Last mile providers, therefore, need to recognise this and deploy resources that are flexible year-round, with panellist Jerome Charlez calling for all operational elements to be movable, scalable and adaptable in pursuit of such responsiveness. Indeed, it may well be fair to describe the panel’s discussion as a call for the industry to recognise that greater responsiveness is needed.

But responsiveness to what, exactly? So far, last mile providers have responded to the demands of shippers – returns are generally offered free because retailers, fairly, cannot stomach the notion of asking their customers to pay for the service, but the cost is the same both ways for the provider. So how about last mile providers think of responsiveness a different way, and think of the end-users, those of us shopping online, as the market they serve. Such a change in thinking may allow for last mile providers to re-characterise their services as driven by reliability, rather than speed, with the flexibility to choose delivery options that suit a retailer’s customers as the key performance measure. An enhanced level of responsiveness would also allow for greater recognition that geographic, cultural and service level demands place limits on how exportable a solution can be.

This is not a quick fix, however, and reorienting operations to respond flexibly to changes in volume by rapidly adding or subtracting capacity, or to the fluctuations in consumer demands for delivery options, will require significant investment as well as agile thinking and leadership. Big Data can help, though, by allowing providers to focus on the creation of more appropriate delivery options for those who need them, the end-users. Moreover, better use of data can help to strip away some of the complexities of last mile operations.

In closing, what had been an optimistic and solutions oriented panel returned to present challenges to sound a warning to last mile providers. On a global scale, e-retail might just be the fastest growing logistics market and the industry’s most significant opportunity, but a failure to adapt business models and respond to the demands of end-users will mean players risk falling out of the market.

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