How Last Mile Delivery Works (+ How to Optimize It For Your Store)

Last mile delivery

Last mile delivery services remain one of the most expensive parts of retail logistics, but also have the most visible impact on the customer journey and consumer satisfaction. 

As consumers turn to ecommerce for more and more of their shopping needs, last mile delivery causes more trouble in urban areas around the globe. Increasing parcel volumes means an increase in delivery vans entering cities, and adds to an already staggering array of logistical and environmental nightmares. 

What can a retailer do to deliver items as fast as possible, and provide an excellent customer experience, while staying profitable? This article will walk you through final mile delivery and how to optimize it for your retail business.

What is last mile delivery?

Last mile delivery includes everything associated with getting a product from the closest hub or warehouse to the customer. It’s not really only the last mile; it is a broad term used to describe the last leg of the delivery journey. 

How much does last mile delivery cost?

Multiple delivery routes, packing requirements, waiting times at dispatch, and low load sizes are factors that influence both cost and speed of delivery.

Last mile costs around $10 per package delivered on average, but can be higher for heavy items.

Last mile delivery process

According to the latest Pitney Bowes Parcel Shipping Index, US parcel volume grew 6% in 2021, reaching a record high of 21.5 billion packages valued at $188 billion. Carriers and delivery partners cannot handle all these packages without a sound process in place. 

The last mile delivery process is simple in theory, but challenging to execute. Here are the main five steps in the process:

  1. The customer places an order, which is sent to a centralized order system. 
  2. Products from suppliers or manufacturers arrive at your warehouse or distribution center for delivery. 
  3. Staff designates the order to delivery personnel.
  4. Items are scanned onto the delivery vehicle.
  5. The courier receives Proof of Delivery from the customer. 

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Challenges of last mile delivery

  • Slower travel speeds
  • Lost deliveries
  • Returns
  • Environmental factors

Reducing the cost of last-mile delivery is a prime objective of retailers.

A successful last-mile experience makes up 53% of total supply chain costs, and comes with its own set of challenges.

Slower travel speeds

Delivery points vary greatly in distance and drop size. Customers may be spread several miles apart, with only one or two items being delivered at each location. In urban areas, drop-off points may be closer together, but more subject to traffic congestion and delays.

As ecommerce has grown, the volume of deliveries has gone up at an exponential rate, this has compounded the complexity and amplified the inefficiencies.

💡 PRO TIP: Shopify local delivery is a set of flexible tools that let you offer shoppers local delivery options at checkout. Set delivery zones, add pricing conditions for each zone, manage and prepare orders for delivery, and create optimized delivery routes for drivers from Shopify.

Lost deliveries

Deliveries fail when people are not at home or at the final destination to accept delivery. Failed deliveries are expensive: time, energy and resources are wasted. Business customers are not always able to accept delivery outside agreed time windows or without appointments. 

When deliveries arrive late, customers complain and are likely to take their business elsewhere. When deliveries do arrive on time as promised, consumers are rarely notified of when to expect their package, creating frustration.

Returns

Reverse logistics is a major contributor to last-mile costs; the number of product returns is growing, especially in apparel, books and electronics. 

The probability of a customer returning an item bought online is around 30% compared to 8-9% in brick-and-mortar stores. The last mile logistics will still take place as usual, but then be repeated in reverse order, doubling the cost. Many retailers are using third parties to aggregate and batch their returns to reduce the number of trips. 

💡 PRO TIP: With Shopify POS, you can accept exchanges for purchases made online or at another store location and your inventory will be updated instantly–no manual reconciliation required.

Environmental factors 

Environmental issues are becoming a major concern for conscious consumers. Operating a transport fleet means that there is pressure to reduce air pollution, noise emissions and traffic congestion. This applies equally to a retailer’s own fleets, courier companies, and third-party logistics partners (3PL).

Compliance with regulations and achieving sustainability goals is vital, but it costs money. The trend toward alternative modes of freight transport such as electric and hybrid vehicles and smaller transit vans is growing. This should positively impact fuel costs and efficiency.

Optimizing last mile delivery

One report found that last-mile delivery was the most inefficient process of the entire supply chain, according to 59% of US transportation and logistics companies. 

Let’s look at some ways to optimize last mile delivery for your store:

  • BOPIS
  • Route planning
  • Proof of delivery
  • Crowdsourced delivery
  • Local delivery services

BOPIS

BOPIS stands for Buy Online, Pick-Up In Store. Also known as ‘click and collect’, the BOPIS strategy is popular because it merges online shopping with in-person pickup. 

Rather than worry about last mile delivery costs and shipping times, shoppers can pick up their order for free on their own time. It’s also profitable for retailers. When athleisure brand Gym+Coffee implemented a click and collect program during the pandemic, they saw 350% year-over-year growth.

Read more: What is Buy Online, Pick-Up In Store (BOPIS) In Retail?

💡 PRO TIP: Set up local pickup in Shopify to start offering in-store pickup as a delivery option at checkout. Pay less on last-mile delivery, speed up fulfillment times on local orders, and drive more foot traffic to your stores.

Route planning

Route planning refers to creating cost-effective ways to get from one location to the next. Computing optimal routes manually is difficult, so route planning software solutions that combine multiple inputs are used to find the best delivery routes.

They take into account customers’ delivery windows, truck capacity, traffic congestion, and even weather, to minimize driving time and fuel spend. Drivers are directed to take the most efficient route possible, using real-time alerts.

EasyRoute route planning app
Source

Route planning software uses historical data including the number of successful and failed deliveries, idle time, distance covered, time per delivery, and fuel used to identify inefficiencies and waste. Routes planned in advance can decrease the number of dispatchers needed, and reduce the number of necessary drivers; both are cost savers. 

Top route planning apps include:

  • EasyRoutes by Roundtrip (for Shopify): The best routing app for Shopify merchants. This app connects right into your Shopify admin and lets you create routes, dispatch routes, and keep customers informed about their orders. EasyRoutes is free for up to 50 orders per month. The Lite plan starts at $15 per driver, per month.
  • Routific: Great route planning software for beginners. Features automated planning, live tracking, and route customization. Starts at $33 per vehicle per month.
  • Route4Me: A good route management system for teams. It offers easy collaboration between members, real time tracking, and route optimization. Starts at $199 per month.

Proof of delivery

No matter how good your supply chain is, there’s always the chance a package won’t make it to the customer. Proof of Delivery (POD) confirms that the customer received the package in good condition. 

POD can be done two ways:

  • Digital. Where customers provide an electronic signature upon receiving an order.
  • Paper. Where customers sign a physical document after getting the package. 

Digital PODs are evolving and go beyond the standard e-signature. Today, customers can “sign” for a packaging using:

  • Barcodes 
  • Photo signatures
  • Contactless signatures
  • Digital ID verification 

Implementing Proof of Delivery options is a good way to reduce returns and save money. It also upholds your legal requirements as a retailer and ensures piece of mind for your delivery partner and the customer. 

Crowdsourced delivery

Crowdsourcing is a new method of last mile delivery. Stores who crowdsource delivery services hire contractors to deliver packages. Using their own vehicles, drivers pick up and deliver packages to your customers from your warehouse or order fulfillment center. 

The benefits of crowdsourcing delivery services include:

  • It offers a quick and easy way to offer same-day or on demand delivery.
  • You can scale up or down as needed.
  • You don’t need to build a delivery operation.
  • It satisfies shoppers' desire for quick and convenient service. 

Data shows that 8% of retailers already use crowdsourced delivery partners, and one-in-four plan to use them in the future. You can start by sourcing delivery service providers through apps like Postmates or TaskRabbit and test crowdsourcing for yourself. 

Local delivery services 

Another way to optimize last mile delivery is by offering local delivery services. When customers place an order on your website, someone from your store will bring it to their doorstep. It’s become a popular alternative to working with 3PLs or traditional couriers like Fedex or USPS. 

Retailers from fashion stores to ice cream shops can offer local delivery, setting their own times and minimums to keep deliveries profitable. 

Chris's Ice Cream free local delivery
Retailer Chris’s Ice Cream offers free delivery in Ottawa with a minimum order of $30.

The Local Delivery feature in Shopify makes it easy for you to offer local delivery at checkout. You can set your own delivery zones with separate pricing conditions, manage orders for delivery, and create optimized routes for drivers.

Learn more: How to Add Local Delivery Service to Your Store to Increase Sales

Last mile delivery trends

  • Opening retail locations
  • Robots and drones
  • Micro warehousing

Opening retail locations

As shipping costs continue to rise, online retailers are moving toward opening up pop-up shops or space in other stores. Traditionally online brands, like Allbirds and Warby Parker, have been experimenting with traditional retail for years. 

The New York Times reports that smaller, direct-to-consumer brands are taking advantage of the trend, securing short-term leases and building brand awareness in specific neighborhoods. A retail store gives you more opportunities to cut back on last mile supply costs by offering flexible purchasing options like BOPIS. 

💡 PRO TIP: Avoid lengthy application processes, paperwork, and credit checks, and get funding within days with Shopify Capital. Get the funds you need to open a retail store, invest in staff, inventory, and marketing, and pay it off as a flexible percentage of your sales.

Robots and drones

Automation is one last mile trend that everyone is thinking about, particularly the use of robots and drones. Last mile drone delivery is expected to be worth $9.8 billion by 2030, with retail goods delivery as the most common use case. In the future, 16% of retailers anticipate using drones for delivery.

Economies of scale will lower costs compared to hiring human delivery drivers, and increase efficiency. Work with logistics partners that are thinking seriously about how to integrate autonomous vehicles and robots into their distribution networks.

Micro warehousing

Micro-warehousing, or micro-fulfillment, refers to using a network of small fulfillment centers in densely populated areas to reduce delivery times and improve sustainability. A multi-billion dollar industry, micro-fulfillment is poised to change the supply chain landscape, making it easy for retailers to offer ultra-fast delivery and simple store replenishment. 

Whether that’s delivering from stores, building out your own network, or partnering with a 3PL that specializes in micro-warehousing, you’ll be able to reduce costs while enhancing customer satisfaction.

Improve costs of your last mile delivery

Customer expectations for same-day deliveries are at an all-time high, thanks to services like Amazon Prime. While businesses and individuals are enjoying fast-paced service, fulfillment and logistics companies are feeling the pressure.

There is a constant push to make the increased volumes of “last-mile” deliveries both practical and profitable. By following the strategies in this article, you’ll be well on your way to improving the delivery experience and customer satisfaction in your store.

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