Last-Mile Delivery: The Most Expensive Part of the Supply Chain
Last-mile delivery refers to the final segment of the supply chain: the movement of goods from a distribution hub, warehouse, or fulfilment centre to the end customer or final destination. Despite covering only the last small fraction of total supply chain distance, last-mile delivery typically accounts for 40 to 50 per cent of total supply chain costs. It is also the part of the supply chain with the highest failure rate, the most customer-visible service quality issues, and the most complex optimisation challenge.
Why Last-Mile Delivery Is So Costly
Density and dispersion: Urban last-mile delivery requires vehicles to make many small deliveries across a dense geography, with frequent stops, traffic delays, and parking challenges. Rural last-mile delivery requires long distances between stops, often over difficult terrain, for small delivery volumes.
Failed delivery attempts: When a customer is not at home to receive a delivery, the item must be redelivered, held at a depot for pickup, or returned -- each of which adds cost. Failed first-attempt delivery rates are typically 10 to 20 per cent in residential delivery.
Time window expectations: Customers increasingly expect narrow delivery time windows (two-hour windows are now common) and same-day or next-day delivery options. Meeting these expectations requires more flexible, less optimised routing -- which increases cost.
Returns: Last-mile delivery is not just forward logistics; it also includes reverse logistics (handling customer returns), which adds cost and complexity.
Strategies for Managing Last-Mile Cost and Performance
Optimise routing. Route optimisation software reduces the distance, time, and fuel consumed per delivery by finding the most efficient sequence of stops. This is a significant lever in high-density urban delivery operations.
Consolidate deliveries. Delivering multiple orders to the same address or building in a single delivery trip reduces cost. In residential delivery, consolidation is limited by customer address distribution; in business-to-business delivery, it is more readily achievable.
Expand pickup options. Click-and-collect (where customers pick up from a store or locker) eliminates last-mile delivery cost entirely and eliminates failed delivery risk. Package lockers, parcel shops, and in-store pickup are all forms of this model.
Use crowdsourced or gig delivery. In urban markets, crowdsourced delivery (using independent contractors rather than employed drivers) can reduce cost and increase flexibility. However, it also introduces service quality variability and creates different labour and liability considerations.
Invest in visibility. Last-mile visibility -- real-time tracking of delivery status, proactive communication to customers about their delivery window, and immediate notification of failed delivery attempts -- reduces customer service contacts, reduces failed first attempts through customer preparation, and builds customer trust.
XNM provides supply chain advisory services to public-sector and capital-project organisations. Reach out to XNM's procurement, sourcing & contract management team to discuss supply chain strategy and logistics management for your organisation.