Customer expectations of online delivery options are rising unstoppably. Real-time tracking of orders, same-day and free delivery are only a few of the demands on the list of the so-called ‘last-mile’ expectations of the consumer of today. The result? Increasing cost levels, growing service requirements and even greater supply chain complexity.
To address the increasing cost levels, service requirements and supply chain complexity, we see the following key actions for companies: an integrated network design, rigorous cost management and enhanced management of their network partners.
Integrated network design
Optimizing last-mile deliveries starts with designing a fit-for-purpose fulfillment network. This network should be based on relevant service requirements that have an impact on the online conversion. As such, it is essential that the design will be an integrated effort of both category management and supply chain management to balance the needs and the possibilities.
Since not all customers and products are created in identical manners, customers and assortment should be classified as segments based on distinctive delivery requirements such as lead-time, willingness to pay and shopping basket composition. For each of these segments, last-mile options should be identified and assessed on their attractiveness and their ability to meet customer and business requirements. Typically, the fit of a last-mile configuration can be weighed by its lead-time, cost-to-serve, technology complexity and supply-chain control. For example, low-value convenience products may not require same-day delivery, while high-value products might actually do.
What happens next? Once the viable last-mile options have been identified, the right partners should be selected to operate the network. Whereas traditional logistics service providers are more commoditized and evaluations are based on rates, the partners for executing the last-mile delivery network should also be assessed on capabilities to generate value and serve the customers. These capabilities could include, for instance:
- Network setup and structure
- Service portfolio
- Track & trace data exchange
- Delivery and fulfillment process maturity
- Data exchange security and options
- Customer service responsiveness
- Performance reporting
- Issue resolution
- Service mindset
- Continuous improvement
Rigorous cost management
What should you keep in mind when selecting your network partners? As a starting point, the network design should be based on the right balance between service requirements and service costs. This means that full transparency of service costs is necessary, and regular reviews on whether the offered service levels per customer and assortment segment are still balanced. We see this as a recurring challenge for quite a few companies. Typically, either there are limitations to the available data or analysis capabilities, or not all relevant cost elements are properly considered.
The network design should be based on the right balance between service requirements and service costs
For effective cost control and management, the e-commerce margin should be based on all relevant e-commerce cost to serve, the eCTS:
- Storing, picking & packing
- Customer support
These eCTS insights enable:
- Assortment optimization; assortment decisions based on e-commerce profitability per SKU while considering shopping basket composition.
- Review of the offered service levels to re-balance lead-time, delivery mode, and free-shipping threshold in line with margin requirements.
- Identification of focused cost improvement actions based on granular insights of logistics cost component developments.
Improving the eCTS can be realized throughout various levers, and can result in a 10-25 percent gain.
Third-party performance management
With a growing number of partners operating the last-mile network - and consumers expecting a seamless shopping experience – it is becoming more important to have strict control and monitoring of third-party performance installed. Even though we’re still a few years removed from a ‘logistics plug-and-play network,’ where logistics partners are continuously alternated based on available supply and offered service levels, we already see a larger number of logistics partners rotating with more frequency. This is illustrated by various local same-day crowdsourcing delivery specialists that can be used on a flexible basis.
The growing number of partners requires companies to re-think their operating model for logistics and take on more of an orchestrator role for their fulfillment function. For effective third-party performance management, it’s therefore instrumental to have enabling technology in place and the right set of KPIs and SLAs with the logistics partners.
Key aspects of enabling technology include:
- A centralized order management system that can capture and fulfill orders across channels and act as a single version of the truth.
- Inventory visibility across all locations (within organizations, and partner locations) regardless of channels.
- Real-time visibility of order status across the value chain ability to proactively respond to potential service disruptions.
Essential KPI’s to agree with partners and monitor include:
Optimize your last-mile delivery
The last-mile offering is increasingly becoming an enabler for growth and a competitive differentiator. However, to address the challenges that arise alongside, companies will have to focus on:
- Fit-for-purpose network design that balances costs and requirements based on customer segmentation.
Rigorous cost management that requires full visibility of all relevant supply chain cost components to enable:
- Assortment optimization.
- Review service levels.
- Identification of cost improvement actions.
- Strict control and monitoring of third-party performance, supported by enabling technology, as the number of partners is increasing and companies need to shift to an orchestrator role for their fulfillment function.
But which direction to go? Many retail and consumer goods clients struggle with their e-com supply chain challenges. From omnichannel logistics strategy development to implementation, there are many directions to take. Explore how you can optimize your last-mile delivery. Combine the expertise of Accenture Strategy, Javelin Group and Total Logistics Mobilize your company and your supply chain. Be a first mover.