As businesses evolve and grow their online presence, the shopping habits of their customers have also changed. Consumers today are presented with more options to make a purchase, such as one-click ordering and same-day delivery that make the process of shopping online easier than ever.
However, the demand that comes with faster shipping and the ease of e-Commerce is proving to be challenging for the supply chain. Current systems that are in place are being put to the test — most of which were in place prior to the e-Commerce boom. The solution to fulfilling customer needs in the age of e-Commerce is modernizing the last mile strategy.
What Is Last-Mile Delivery?
The “last mile” in a supply chain refers to the final step in delivery, from the distribution center or warehouse facility to the end user. The last mile is a figurative term, however, and doesn’t necessarily mean it is just a mile; it represents the distance between the final distribution centers to the final destination. As e-Commerce sales continue to rise year after year, consumers are becoming accustomed to speedier delivery timeframes, therefore the last mile in a retailer’s supply chain has to evolve as well.
As more businesses are expanding their online presence through social media and user-friendly hosting platforms, e-Commerce sales are on the rise. The U.S. Department of Commerce estimates consumers spent more than $500 billion online in 2018, and that e-Commerce represented 14.3% of total retail sales last year. The retail landscape has become increasingly competitive, and today’s supply chain practices are proving to be inefficient in a time when the fastest, most transparent delivery wins.
How Has Last Mile Evolved Since The E-Commerce Boom?
In years past, customers expected home delivery to be a convenient option that was available to purchase something you didn’t need right away, and were willing to wait 5-7 business days for. However, that is no longer the case. According to LaserShip, 63% of consumers expect their items to be delivered within three days, and 50% of customers will opt for in-store pickup to avoid a lengthy delivery wait.
Today, the typical home delivery involves the product being housed in a suburban warehouse, which is commonly used for both e-Commerce and store fulfillment. The products are then shipped either by ground transportation or by air. To increase efficiency and improve their final delivery strategy, many companies today are utilizing a secondary location, or an urban “hub,” which allows for faster delivery to the end user.
The urban warehouse serves as a supplement to the existing supply chain, which improves the efficiency of the last mile delivery by being in proximity to a high volume of customers within a short distance. Prior to the e-Commerce boom, the suburban warehouse strategy was sufficient, but as demand increases for faster delivery and streamlined shipping, sufficient is not enough.
In 2018, Amazon accounted for 40% of e-Commerce sales, and in April 2019 the company announced its Prime memberships would now include standard, free one-day shipping. Shortly thereafter, Walmart announced a similarly competitive one-day shipping offering, which is expected to span three quarters of the U.S. by the end of 2019, without the added cost of the Prime membership fee. To stay competitive, retailers must analyze their current supply chain strategies and make improvements. What worked 10 years ago is outmoded today, and will be outdone.
Home delivery is no longer an added convenience — it’s becoming second nature: 96% of Americans have made an online purchase in their life, 80% in the past month alone. The number of parcels distributed yearly via home delivery is over 9.8 billion worldwide, and the number is only expected to keep growing. Antiquated, suburban warehouse spaces with out-of-date technology are not equipped to handle the changing retail environment, and retailers must make the improvements in their supply chains now to future-proof their business.
Consumers are evolving and their needs have changed, but the e-Commerce market is just beginning, although different generations may have different shopping habits. Millennials and Gen Z consumers are tech-savvy, avid online shoppers who will make up 70% of the workforce by 2020, which means that they also will make up most of the wallet share. Retailers must take note of their shopping habits and adjust as needed to thrive. Gen Z’ers (born between 1995 and 2005) are growing up in the age of Amazon Prime, expecting shipping to be fast and free as a standard. Basing your company’s shipping strategy on older generations will not be a sustainable business model in the long term.
What Will The Future Of Last Mile Logistics Look Like?
As e-Commerce continues to evolve, the supply chain must follow suit. Retailers are making it easy for consumers to shop through different channels, whether it’s on a mobile phone app, desktop site or in-store. The sites and stores are continuously updated with friendlier interfaces and improved experiences, and yet the systems in place housing these products are still operating with outdated technology in old warehouse spaces. You wouldn’t go five years without rethinking your web site design or marketing strategy, so why not adapt the same mindset when it comes to your supply chain?
Updated warehouses with closer proximity to the urban core will allow retailers to improve the overall customer experience. This means faster in-store fulfillment and faster return processes. Accurate delivery dates and free, easy returns are equally as important as fast shipping when it comes to today’s online shopper. Quick access to an urban warehouse will improve end-to-end shipping as well as in store fulfillment, which is necessary to keep up with online and buy online, pick up-in-store orders.
When the shipping facility is in closer proximity to the end customer, the distance, and therefore the cost to ship lessens. As Marc Lore, U.S. e-commerce Chief of Walmart stated, “Anytime someone shops next day, it is guaranteed to cost us a lot less to ship. We are not paying the carriers any more. That’s in contrast to online orders that come in multiple boxes from multiple locations, which can be quite costly.”
Due to traffic, distance and road congestion, trucks driving from suburban warehouse locations are limited in the number of same-day and multi-hour deliveries they are able to complete on a given day. As urbanization continues to rise and tech-savvy Gen Z’ers are infiltrating the workforce in major cities, not being able to quickly deliver to these customers in a timely manner is a flaw in the supply chain strategy that can end up costing you those critical customers.
The time has come for our supply chains to improve and take advantage of the technology today. New, up-to-date modern warehouse facilities will provide retailers with the opportunity to better serve their customers and exceed expectations. The e-Commerce and traditional retail landscapes are transforming, and the last mile strategy is a critical piece in today’s retail environment that needs to be modernized to ensure success.
Andrew Chung is CEO of Innovo Property Group (“IPG”), which he founded in 2015. Prior to starting IPG, he was a Partner at The Carlyle Group in the U.S. Real Estate Fund. He served as head of the New York office for the Real Estate Fund for 10 years. Chung is currently a member of the Advisory Board for NYU Schack Institute of Real Estate. He was also honored by ranking in the New York Observer’s “Power 100: The Most Powerful People in NY Real Estate” in 2009, 2010, 2011, 2012, 2013 and 2014. Chung graduated from the Wharton School, University of Pennsylvania, with a B.S. in Economics.