• Miebach India

The question of Last Mile Delivery

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At one time, the last mile was a problem relevant only to the communication companies. It pertained to the complexity of laying that last bit of wire that takes the TV, internet, telephony to each and every home. Now, as that technology has come to our homes and brought with it the rapid advent of eCommerce, last mile is no longer only a communications problems, but also a supply chain problem. How do I ensure that I reach my customers, sitting across millions of addresses today in a fast and effective manner, without spending a fortune? The jury is still out on the one ‘Bull’s eye’ solution, but here are a few thoughts that might be useful.

To begin with, let’s start with a background on how last mile is structured currently. Most e-commerce companies either outsource their last mile delivery to courier companies, or set up their own networks, at least in cities where they have enough volumes. The network usually consists of multiple delivery centers in a city, roughly about 50-200 sqm each in size. All packages come from the main warehouses to these delivery centers, where they are given to delivery agents for delivery. Delivery agents usually go out on a bike or a bicycle with 20-80 packages and deliver them door to door.

So what are the drivers of cost in this operation? The fixed costs are the cost of delivery centers and the salaries of distribution agents. The variable costs are the mileage you pay to the delivery agent to cover the cost of fuel & maintenance of his bike/bicycle.

Let us look at the variable cost first. This is clearly the function of the kilometer that has to be traveled by the delivery agent. Therefore, if we can reduce the number of kilometer traveled per successful delivery,  we can directly reduce this cost. A few examples of how to do this:

Ensure successful delivery in the first attempt, so that the agent does not have to spend idle kilometers for the same delivery. This can be done by calling the customers in advance, or seeking mobile/email confirmation of their presence at the address.

Higher order density per trip: If you are delivering for a single company, the only way you can increase order density is by combining orders over days (only do certain routes on certain days of the week for instance). The flip side – you may not meet customer expectations of delivering as fast as you can. The other solution is consolidate orders with other companies. This is one of the reasons the Amazons & the Flipkarts are advocating a marketplace model. They get to deliver more items through the same network, thus gaining synergies.

Go Closer to the customer: Your kilometer decreases if the delivery agent has to travel less. At much smaller distance, he might even be able to trade a bike for a bicycle, significantly reducing costs.  The flip side – more fixed costs for delivery centers (you cannot be close to everywhere without opening as many centers). Having said that, if you have set up a single delivery center in the far end of the city to save costs, re-look at your model. You might be over compensating in high kilometers traveled, not to mention wasting your other asset – the delivery agent’s time.

Watch out for the next post where we will discuss the drivers for fixed costs of last mile delivery.

Miebach Consulting has worked successfully with retail and eCommerce companies in reducing their supply chain costs while streamlining operations. For knowing more about this service and our success stories in supply chain consulting, please write to mcindia-mkt@miebach.com

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