Where are the cost savings in last-mile delivery?
Photo: Getty Images/Willowpix

A survey finds retailers increasingly fixated on cost efficiencies around last-mile deliveries amid rising inflation and fuel costs.

The study by Bringg of 500 U.S.-based retail managers with responsibility for supply chain or digital functions delineated the top-six cost-related pain points for last mile operations as:

  • Working with carriers (42 percent)
  • Reliance on manual processes (41 percent)
  • Driver retention (41 percent)
  • Fuel costs (32 percent)
  • WISMO (“Where is my order?”) calls (28 percent)
  • Cost of returns (28 percent)

The study also found the lack of available vehicles to be the top challenge to delivering on time. Inflexibility is affecting both cost and capacity, with 49 percent of retailers still lacking flexibility during peak seasons, and 37 percent unable to scale up or down the number of drivers as necessary, resulting in reduced profits.

Overall, 89 percent indicated they were struggling with their last-mile delivery operations.

The top pain points overall were complexity of tech stacks (cited by 37 percent), followed by rising delivery costs (36 percent), lack of real-time visibility after order placement (35 percent), having multiple fulfillment channels managed by disparate technologies (34 percent), working with multiple delivery fleets (33 percent), and inefficient manual processes for planning/dispatching orders (also 33 percent).

The study found that retailers are looking to reduce costs via technology and automation while looking to further amplify convenience for consumers by adding real-time delivery tracking and services such as self-scheduling and delivery subscriptions.

Last-mile delivery on average costs $10.10 per package, but the customer only covers $8.08, according to an often-quoted study from Capgemini based on a survey of retailers in 2018.

A new report from Capgemini concludes that finding cost reductions across operations will be critical for retailers looking to serve inflation-fatigued customers. “Transforming the way organizations use labor, adopting a tech-led supply chain and automating warehouse operations can also go a long way in improving last mile delivery while also bringing down costs.”

BrainTrust

“The best opportunity to drive down last-mile delivery costs is, as it always has been, the store.”

Dave Bruno

Director, Retail Market Insights, Aptos


“The key is to convince the buyer that most of the things they order today do not need to be delivered within 24 hours.”

Mel Kleiman

President, Humetrics


“It seems as if we regularly talk about this. I wonder if the cost of the last mile drops each time we do.”

Gene Detroyer

Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.

Discussion Questions

DISCUSSION QUESTIONS: Where do you see the biggest opportunities to drive down costs in last-mile delivery? Do you see significant savings opportunities in processes or should technology and automation be the focus?

Poll

How likely is last-mile delivery to become a significant profit driver for retailers over the next five years?

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12 responses to “Where are the cost savings in last-mile delivery?”

  1. Dave Bruno Avatar
    Dave Bruno

    The best opportunity to drive down last-mile delivery costs is, as it always has been, the store. Many of the key delivery challenges cited in the Bringg study have very few solutions that actually reduce costs, no matter how much we invest. Investing in promos and offers that encourage store pick-ups can reduce home deliveries and give us a chance at those add-on sales while shoppers are in the store picking up their orders. I’d love to see more investments in efficient pick-up processes that maximize convenience, courtesy, and opportunities for add-on sales.

  2. Dion Kenney Avatar
    Dion Kenney

    For all of the brainpower dedicated to e-commerce business models, last-mile issues have yet to demonstrate a clever and workable solution. Between undesirable added costs, shortage of labor and delivery vehicles, package tracking reliability, impact on local traffic issues, and porch pirates, it may be the greatest pain point for retailers, outside of supply chain issues. If 89 percent are struggling with last-mile delivery operations, it would be worthwhile to hear what the other 11 percent are thinking.

    1. David Naumann Avatar
      David Naumann

      Great points Dave! Unless retailers are willing to pass on the actual costs of delivery services to consumers, the profitability of product delivery will always be a challenge. Free delivery services have spoiled consumers and now they are not interested in paying for delivery. We should be giving consumers the option to cover the real cost of delivery or choose to pick up products in the store or external lockers that are available 24/7.

  3. Gene Detroyer Avatar
    Gene Detroyer

    It seems as if we regularly talk about this. I wonder if the cost of the last mile drops each time we do.

    Now, consolidation and volume are the keys. In that sense, Amazon, UPS, FedEx, and USPS have a huge advantage and will continue to generate more efficiencies. Technology and automation are likely the current focus as well as the future. It has surprised me the progress USPS has made in communicating with me about deliveries. Their ability is only second to Amazon.

  4. Shep Hyken Avatar
    Shep Hyken

    What jumped out at me in this article was this: Last-mile delivery on average costs $10.10 per package, but the customer only covers $8.08. That is not a sustainable business model. The $2.02 difference has to be made up somewhere. Does it come in higher prices, delivery fees, membership dues (Amazon, Walmart, etc.)? Or maybe it is made up by a more efficient process. Who is doing it right? What are they doing that other retailers could be doing?

    1. Natalie Walkley Avatar
      Natalie Walkley

      And that data on costs was from 2018. I can’t imagine it hasn’t grown.

  5. Gary Sankary Avatar
    Gary Sankary

    Retailers have to leverage efficiencies of scale to make this viable. That means thinking about the last mile, not from a store perspective but from the perspective of a logistics company. This means being able to stack orders efficiently, being able to manage routing and delivery centrally, and only providing these services where it makes the most sense from a customer-density standpoint.

  6. jlietsch Avatar
    jlietsch

    You can’t do everything at once or, at least, not very well so if I had to guess, route optimization and returns could offer some quick wins given there are proven processes and technologies available to address both (albeit neither is an easy fix). However tech rarely bails people out of bad processes. After all, complex tech stacks and disparate channels don’t make themselves. Without evaluating and understanding the underlying business processes and problems, no amount of tech is going to bail anyone out especially as quick commerce becomes more prevalent. Define the problems (processes). Fix the problems (processes, tech, both). Repeat.

  7. Andrew Blatherwick Avatar
    Andrew Blatherwick

    The issue of last-mile cost is closely associated with volume and density within a given area, as well as the speed of delivery promised by the retailer. Technology can certainly help and will enable them to organize better but if retailers just offered slightly longer delivery lead times they could schedule deliveries, plan and stack the vehicles more efficiently and reduce the cost of the whole process. How long will it be before we see retailers offering better prices for longer lead times? Most consumers do not need the item that day or even the next day. If they get a better service and possibly a discount for two or three day deliveries they may be able to solve many of their problems.

  8. Mel Kleiman Avatar
    Mel Kleiman

    The most significant opportunity to drive down last-mile costs is to reduce the number of deliveries to a specific address. The key is to convince the buyer that most of the things they order today do not need to be delivered within 24 hours.

  9. Craig Sundstrom Avatar
    Craig Sundstrom

    “…Concludes that finding cost reductions across operations will be critical for retailers…”

    Well now, easier said than done, isn’t it? In fact the lack of any real ideas in this article seems to beg the question: if delivery can’t be made to pay — or at least break even — by reducing the cost side, will it ultimately have to raise the revenue side instead?

  10. Brad Halverson Avatar
    Brad Halverson

    Predictable replenishment of frequently ordered products as a business can be profitable in the last-mile model for grocers, and retailers. Replenium, as an example, is making strides in this area.

    But one-off ordering of a few groceries and food just flat out isn’t efficient or profitable. Unless drones are deployed, or many more small neighborhood customer pick up points are built, I don’t see how operational costs will drop enough to make a profit AND keep customers happy with price points. Seems more like a niche business for the foreseeable future.

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Dave Bruno
Dave Bruno
Member
7 months ago

The best opportunity to drive down last-mile delivery costs is, as it always has been, the store. Many of the key delivery challenges cited in the Bringg study have very few solutions that actually reduce costs, no matter how much we invest. Investing in promos and offers that encourage store pick-ups can reduce home deliveries and give us a chance at those add-on sales while shoppers are in the store picking up their orders. I’d love to see more investments in efficient pick-up processes that maximize convenience, courtesy, and opportunities for add-on sales.

4
Dion Kenney
Dion Kenney
7 months ago

For all of the brainpower dedicated to e-commerce business models, last-mile issues have yet to demonstrate a clever and workable solution. Between undesirable added costs, shortage of labor and delivery vehicles, package tracking reliability, impact on local traffic issues, and porch pirates, it may be the greatest pain point for retailers, outside of supply chain issues. If 89 percent are struggling with last-mile delivery operations, it would be worthwhile to hear what the other 11 percent are thinking.

3
David Naumann
David Naumann
Member
Reply to  Dion Kenney
7 months ago

Great points Dave! Unless retailers are willing to pass on the actual costs of delivery services to consumers, the profitability of product delivery will always be a challenge. Free delivery services have spoiled consumers and now they are not interested in paying for delivery. We should be giving consumers the option to cover the real cost of delivery or choose to pick up products in the store or external lockers that are available 24/7.

2
Gene Detroyer
Gene Detroyer
Trusted Member
7 months ago

It seems as if we regularly talk about this. I wonder if the cost of the last mile drops each time we do.

Now, consolidation and volume are the keys. In that sense, Amazon, UPS, FedEx, and USPS have a huge advantage and will continue to generate more efficiencies. Technology and automation are likely the current focus as well as the future. It has surprised me the progress USPS has made in communicating with me about deliveries. Their ability is only second to Amazon.

3
Shep Hyken
Shep Hyken
Active Member
7 months ago

What jumped out at me in this article was this: Last-mile delivery on average costs $10.10 per package, but the customer only covers $8.08. That is not a sustainable business model. The $2.02 difference has to be made up somewhere. Does it come in higher prices, delivery fees, membership dues (Amazon, Walmart, etc.)? Or maybe it is made up by a more efficient process. Who is doing it right? What are they doing that other retailers could be doing?

3
Natalie Walkley
Natalie Walkley
Reply to  Shep Hyken
7 months ago

And that data on costs was from 2018. I can’t imagine it hasn’t grown.

3
Gary Sankary
Gary Sankary
Active Member
7 months ago

Retailers have to leverage efficiencies of scale to make this viable. That means thinking about the last mile, not from a store perspective but from the perspective of a logistics company. This means being able to stack orders efficiently, being able to manage routing and delivery centrally, and only providing these services where it makes the most sense from a customer-density standpoint.

4
jlietsch
jlietsch
Member
7 months ago

You can’t do everything at once or, at least, not very well so if I had to guess, route optimization and returns could offer some quick wins given there are proven processes and technologies available to address both (albeit neither is an easy fix). However tech rarely bails people out of bad processes. After all, complex tech stacks and disparate channels don’t make themselves. Without evaluating and understanding the underlying business processes and problems, no amount of tech is going to bail anyone out especially as quick commerce becomes more prevalent. Define the problems (processes). Fix the problems (processes, tech, both). Repeat.

3
Andrew Blatherwick
Andrew Blatherwick
Member
7 months ago

The issue of last-mile cost is closely associated with volume and density within a given area, as well as the speed of delivery promised by the retailer. Technology can certainly help and will enable them to organize better but if retailers just offered slightly longer delivery lead times they could schedule deliveries, plan and stack the vehicles more efficiently and reduce the cost of the whole process. How long will it be before we see retailers offering better prices for longer lead times? Most consumers do not need the item that day or even the next day. If they get a better service and possibly a discount for two or three day deliveries they may be able to solve many of their problems.

1
Mel Kleiman
Mel Kleiman
Member
7 months ago

The most significant opportunity to drive down last-mile costs is to reduce the number of deliveries to a specific address. The key is to convince the buyer that most of the things they order today do not need to be delivered within 24 hours.

2
Craig Sundstrom
Craig Sundstrom
Active Member
7 months ago

“…Concludes that finding cost reductions across operations will be critical for retailers…”

Well now, easier said than done, isn’t it? In fact the lack of any real ideas in this article seems to beg the question: if delivery can’t be made to pay — or at least break even — by reducing the cost side, will it ultimately have to raise the revenue side instead?

0
Brad Halverson
Brad Halverson
Member
7 months ago

Predictable replenishment of frequently ordered products as a business can be profitable in the last-mile model for grocers, and retailers. Replenium, as an example, is making strides in this area.

But one-off ordering of a few groceries and food just flat out isn’t efficient or profitable. Unless drones are deployed, or many more small neighborhood customer pick up points are built, I don’t see how operational costs will drop enough to make a profit AND keep customers happy with price points. Seems more like a niche business for the foreseeable future.

0