Getting purchases from warehouses to customers’ doors is the final and often most challenging leg of ecommerce. As online shopping explodes, customers want ever-faster and more flexible delivery. Retailers are scrambling to innovate last mile solutions balancing costs, service levels and even environmental impact.

Traditional fleets, third party logistics (3PL), gig-economy contractors, robots – many models exist, but which is right for your business? This guide examines the importance, difficulties, and options for last-mile fulfillment so you can tailor the perfect strategy.

What is Last Mile Delivery and Why Does it Matter?

Last mile is the final stretch of bringing goods from a transportation hub to the buyer’s door. For ecommerce, it means getting online orders from a store or warehouse to individual homes and offices spread across neighborhoods.

This stage accounts for the biggest chunk of shipping costs since personalized deliveries are inefficient. It’s also the make-or-break moment that determines if customers feel delighted or disappointed.

Getting the last mile right matters because:

• Happy customers translate to repeat purchases and loyalty
• Efficient routes and operations cut costs and raise profit margins
• Faster fulfillment provides competitive edge
• Sustainability is improved by reducing carbon footprints through better logistics planning
• More control and flexibility allows adapting to volatile demand swings

For these reasons, retailers pour tremendous resources into perfecting last mile delivery.

Importance of Last Mile Delivery

Getting last mile delivery right is crucial for many reasons:

– Customer experience – Smooth, on-time last mile delivery is essential for providing a seamless post-purchase experience. According to a survey, 73% of customers consider delivery experience a major factor for repurchasing from a retailer.

– Operational efficiency – Last mile legs are expensive to fulfill due to high costs of transportation and labor over large service areas. Optimizing routes, delivery density, and logistics planning can help maximize efficiency.

– Profitability – Improving last mile delivery metrics like reduced mileage, faster delivery times, lower labor costs directly impact fulfillment costs and overall profit margins.

– Competitive differentiation – In today’s omni-channel retail environment, unique and superior delivery services can be a key differentiator, especially for pure ecommerce retailers.

– Sustainability – Last mile deliveries account for significant CO2 emissions due to high mileage. Adopting practices like route optimization, electric vehicles, containerization can reduce environmental impact.

– Flexibility & control – Adapting quickly to changing customer expectations, order volumes, and locations requires flexible last mile solutions and real-time tracking.

As last mile gains increasing prominence, retailers need strategies to balance customer service, cost efficiency and sustainability when managing the last mile.

Challenges of Last Mile Delivery

Despite its importance, last mile delivery also comes with several inherent challenges:

– Fragmented destinations – Online orders are spread out geographically leading to inefficient routes and higher mileage. Delivery to lower density areas is especially cost-prohibitive.

– Narrow delivery windows – Customers increasingly expect same-day or next-day delivery, requiring rapid fulfillment and logistics.

– Returns & reverse logistics – Processing returns adds more costs and inefficiencies like extra transportation legs and warehouse processing.  

– Volatility & unpredictability – Online shopping behavior can fluctuate dramatically impacting order volumes. Seasonal peaks like holidays also strain last mile networks.

– Labor shortages – Recruiting and retaining delivery drivers is difficult amid current labor shortages, leading to higher costs.

– Lack of real-time visibility – Limited transparency into driver location, order status and inventory hampers coordination and responsiveness.

– Environmental impact – Vans making multiple stops emit more greenhouse gases and air pollutants per package.

Managing last mile delivery sustainably and profitably requires strategic thinking, advanced analytics and flexible planning. Retailers must find the right partners, resources and solutions to tackle these inter-connected challenges.

Options for Last Mile Delivery

There are five major options for retailers to handle last mile delivery:

In-house Fleet

Retailers can develop and operate a proprietary fleet of delivery vehicles and personnel to manage last mile logistics.

Pros

– Full control & customization – From training to routing, branding and customer experience can be tailored and optimized.

– Operational integration – Aligns directly with warehouse management and inventory systems for smoother coordination.

– Cost savings at scale – Lower per unit costs can be achieved at high volumes by owning assets versus renting.

Cons

– High fixed costs – Significant upfront and ongoing investments in real estate, vehicles, labor, tech, and training.

– Administrative burdens – Managing drivers, vehicles, licensing, maintenance, insurance and compliance in-house leads to complexities. 

– Lack of flexibility – It’s harder to scale up or down to meet fluctuations in demand.

– Limited service area – Fulfilling last mile across a wider geography can be challenging.

In-house fleet works best for large retailers with sufficient order volumes in concentrated service areas. Significant capital and capability is needed to develop logistics expertise and optimize routing. It also leads to loss of flexibility.

Third Party Logistics Providers

3PLs can provide outsourced transportation, warehousing and fulfillment as an end-to-end logistics solution. Many 3PLs now offer dedicated last mile delivery services.

Pros

– Existing infrastructure & expertise – No need to build capabilities, networks or technology from scratch.

– Asset-light – Eliminates large capital investments by paying only for services utilized.

– Flexibility & scalability – Can expand geographies and scale to demand fluctuations easily.  

– Focus on core competencies – Allows retailers to focus on their direct customer experience and brand.

Cons

– Loss of control – Lesser visibility and control over driver hiring, training, branding services.

– Lack of customization – Solutions may not be tailored exactly to a retailer’s requirements.

– External dependence – Subject to risks like labor disputes, tech failures, or financial issues at the 3PL.

Leveraging an established 3PL as a strategic partner can provide retailers the convenience of outsourcing logistics without significant fixed investments. But it requires careful vendor evaluation and KPI monitoring.

Crowdsourced Delivery 

Also known as crowdshipping, this model utilizes excess capacity from private individuals to provide adhoc, on-demand last mile services. Orders can be assigned and tracked via an app-based platform.

Pros

– On-demand scalability – Pool of crowdshippers provides extensive capacity, especially for peaks.

– Flexibility – Mix of foot, bike and car couriers offers delivery options.

– Cost efficiency – Pay per delivery pricing beats the fixed costs of in-house or 3PL.

– Sustainability – Consolidates shipments reducing mileage versus point-to-point delivery.

Cons

– Lack of control – Shippers are independent contractors outside the core logistics operation.

– Inconsistent experience – Service levels and branding can vary across individual shippers.

– Security risks – Theft and fraud risks may be higher with unvetted crowd workers.

– Regulatory uncertainty – Labor classification and compliance issues are still evolving.

Crowdsourced models offer agility, sustainability and cost benefits but require robust screening, training and coordination for a smooth customer delivery experience.

Autonomous Vehicles

Self-driving vehicles and drones can automate last mile delivery by reducing reliance on human drivers. Autonomous vans and trucks are currently being piloted with some ramping to commercialization. 

Pros

– Lower labor costs – Reduces or eliminates driver wages which comprise about 30% of delivery costs.

– Increased efficiency & utilization – Automated driving and routing boosts productivity. Assets can operate nearly 24/7.

– Enhanced safety – Accident risks are reduced without manual driving errors that cause the majority of collisions.

– Sustainability – Features like platooning and electric drivetrains improve fuel efficiency and reduce emissions.

Cons

– High upfront costs – Developing or acquiring AV technology requires extensive R&D and investment.

– Regulatory uncertainty – Laws around safety, liability, licensing are still evolving to allow mainstream adoption.  

– Safety concerns – Public skepticism about risks and reliability may slow acceptance.

– IT & infrastructure requirements – Complex technical capabilities needed to coordinate and monitor vehicle fleets in real-time.  

Autonomous technology promises revolutionary change but remains costly and challenging to implement at scale for last mile logistics currently. Rapid ongoing innovation may make it viable in the near future.

Drone Delivery

Using unmanned aerial vehicles to deliver small packages over short distances is an emerging concept being tested. Amazon and UPS have active drone delivery development programs.

Pros

– Speed & agility – Direct linear routes can facilitate ultra-fast delivery in under 30 minutes.

– Low overhead – Minimal infrastructure needed compared to trucks and vans. 

– Accessibility – Can reach remote, hard-to-access destinations.

– Sustainability – Produce less noise and air pollution due to electric propulsion.

Cons

– Low capacity – Limited to small, lightweight packages typically under 5 lbs.

– Range constraints – Short battery life and remote navigation limits delivery radius.

– Regulatory hurdles – Approval for expanded drone operations faces restrictions around safety, airspace, noise and privacy.

– Public acceptance – Privacy and noise concerns may limit social acceptance.

– Weather risks – Wind, precipitation, severe weather can disrupt unmanned flights.

While drones provide agility and speed over very short routes, current models have limited practical application for broader last mile delivery due to regulatory constraints. Advancements in battery life, autonomy, payload capacity can open up possibilities.

Key Considerations for Choosing Delivery Options

Determining the optimal last mile delivery solution requires in-depth analysis of:

– Delivery volume – Number of daily/weekly orders and proximity density impacts fleet size and economics.

– Service areas – Delivery range, urban versus rural geographies affect needs.

– Delivery speed – Same day, next day capabilities required.

– Product characteristics – Size, weight, fragility determine assets needed to handle goods.

– Customer expectations – Service levels and branding expected during final delivery experience.  

– Cost – Balancing performance KPIs like speed and flexibility with per order/per mile fulfillment costs.

– Existing capabilities – Leveraging and enhancing current assets versus building new infrastructure.

– Technology – IT systems needed to enable tracking, routing, communication, automation.

– Sustainability – Carbon footprint and environmental impact of local delivery fleets.

– Risk appetite – Comfort with outsourcing versus in-house control of operations and branding.

Thoroughly evaluating order profiles, service requirements, and cost dynamics ensures retailers choose solutions tailored to their specific last mile delivery needs. A combination of options may provide the ideal balance across critical dimensions like cost, control and customer experience.

Conclusion

Last mile delivery is the tip of the spear when it comes to customer satisfaction and loyalty for online retailers. With rising consumer expectations and logistics complexities, retailers need smart strategies to optimize cost efficiency, sustainability and service levels. 

Traditional in-house fleet can provide control but faces challenges with flexibility, assets and capability development. 3PLs allow outsourcing logistics without capital investment but may lack customization. Crowdsourced models offer rapid scalability and cost savings but with lower reliability. AV and drones provide long-term potential through automation once technology and regulations mature. 

By understanding the trade-offs between different last mile fulfillment options and aligning them closely to service requirements, retailers can achieve their customer experience, operational and financial goals. With innovative thinking and strategic partnerships, the last mile can be transformed from a challenge to a competitive advantage.