What Is Last Mile Delivery? Challenges And Solutions For Businesses In 2023

E-commerce was booming even before 2020, but the pandemic and its aftermath shifted the growth into overdrive. By 2026, e-commerce is expected to account for 24% of all retail sales worldwide — compared to 18% in 2021. This growth is driving the need for fast, efficient, and cost-effective delivery of goods to consumers. 

In this post we’ll walk you through the basics of last mile delivery (sometimes called final mile delivery). We’ll consider the major challenges that businesses face when it comes to last mile processes, and suggest ways to solve them. Let’s start at the beginning!

What is last mile delivery?

The last mile is the final link in the supply chain, when goods are taken from a warehouse, distribution center, factory or other hub and delivered to a final destination. This final destination could be a consumer, or a retail business that will sell the goods.  

The last mile isn’t actually a mile, of course — it typically includes an approximately 30-mile or 50 kilometer delivery radius. Last-mile delivery vehicles include cars, pickup trucks, specially designed cargo vans, medium-duty trucks, bicycles, and scooters. 

Some companies, especially those who make the products they sell, don’t even realize they are involved in the last-mile delivery business. But  the last mile almost certainly matters to your business: 

• Do you use a third-party logistics provider or courier service like Fedex or USPS to get products to your customer?
• Do you deliver your product directly to your customer?

If you answered yes to either, then your business success depends on efficient order fulfillment and an excellent last-mile process!

💡Routific’s delivery management and route optimization platform makes managing the last mile easy, even for small businesses. Try it for free for 7 days — no credit card needed!

How last mile delivery works 

So, how does last mile delivery work? As soon as a consumer buys something, the delivery clock starts ticking. The business gets the order and packages up the items for shipment. Then it either hires delivery drivers to get the order to the customer, or contracts a third party logistics company (3PL) to manage the delivery process. Whichever they choose, a dispatcher will use route optimization software to plan efficient delivery routes and send them to a driver’s mobile app.

When the driver is on the road, the dispatcher may send automated notifications to let the customer know when to expect their delivery. When the driver drops off the package, they will usually get some kind of proof of delivery, either a signature or a photograph. They’ll also log the delivery as completed so the dispatcher knows it was done on time. 

Finally, if the customer has a problem with their order, they may decide to return or exchange it. This is one of the hazards of online shopping! Many retailers and delivery companies now offer a return service where a driver will pick up the item and bring it back to a warehouse or fulfillment center.

The last mile delivery problem in 2023

The increasing demand for efficient, fast deliveries has put significant pressure on last-mile companies. Here are some of the key problems facing online retailers and last mile services right now, along with some ideas for how to solve them. 

1. Cost

Last mile delivery is (still) the most expensive part of the supply chain. Depending on who you ask, it accounts for 40-50% of total shipping costs! That’s because it’s often not possible to handle things in bulk — there are no economies of scale. A company might handle hundreds of packages in a day, and every single one of them has to go to a different address. 

The major components of last mile delivery costs are:

• Delivery driver wages
• Fuel 
• Delivery vehicle maintenance 

All these costs increase with time and distance driven. They are also higher when there are inefficiencies in delivery operations. Examples would be failed deliveries that have to be rescheduled, traffic congestion and idling, or lack of information leading to longer time at each stop. That’s why any efficiency gain from route optimization is a major advantage.  

2. Failed and late deliveries

There are many reasons why a delivery might fail or be late. Inaccessible apartment buildings, lack of parking, customers not at home to receive package drop-offs – all of them can contribute to a poor last mile delivery experience. In fact, a massive 75% of consumers say they’ve had delivery problems when shopping online!

It’s interesting to see how many of these consumer problems are directly related to inefficient supply chain management systems or lack of accurate, timely information. Deliveries too late, at the wrong time or missed entirely? That means ETAs are being calculated incorrectly, or the customer isn’t getting the notifications they need. Drivers not being able to find the location? That means addresses weren’t being checked properly at the route planning and dispatch stage.

💡Last mile delivery logistics are much easier to manage with the right software. Routific’s accurate ETA calculations and automated customer notifications can help to improve the customer experience and lower the total costs of delivery.  Try it for free for 7 days — no credit card needed!

3. Competition

The shipping process is also a critical component of the overall customer experience – especially when expectations have been set by giant providers like Amazon Prime and Walmart who can offer free and same-day delivery. A small online retailer may not be able to match the speed of Amazon Prime, but there are plenty of other ways to create a five-star delivery experience. If you can’t compete with the cost of shipping, make sure you can compete with transparency and flexibility:

• Apparently, 83% of customers now expect a guaranteed delivery date and 80% a specified delivery time slot. Delivery management software can enable you to offer convenient delivery time windows.
• Use notifications and real-time tracking to give your customers insight into their delivery.
• Photo proof of delivery gives customers peace of mind that their deliveries have been completed according to their instructions, even if they aren’t home to receive them. It also gives shippers and retailers an audit trail in case there is a dispute. 

“Where is my  package now?” is the customer’s most important question throughout the last mile delivery process. If you communicate effectively, set and handle delivery expectations well, and are courteous with your customer service, you’ll stand out from the big box stores. 

4. Geography

Deliveries can be made anywhere, from major box stores to small businesses, or direct to a customer’s home. This means multiple location-related challenges. In urban areas, they include traffic congestion, limited parking, no-idle zones and stricter emissions regulations. In more rural areas, long driving distances, poor roads and hard-to find addresses are often an issue.

What can you do? Take a good look at the vehicles you are using for your deliveries (or the vehicles your courier service is using) and make sure they are right for the job. Overloading a vehicle wastes fuel and increases wear and tear, while consistently underloading a vehicle means you probably could have bought a smaller unit to do the same job. Cargo bikes are an increasingly popular option in urban areas.

5. Inefficient route planning

As we’ve already noted, with last mile delivery it’s not a matter of massive trucks moving goods between distribution centers. Rather, it’s many single items going to many single locations, often spread across a city. That means delivery route planning becomes a critical element of the overall last mile logistics process. Inefficient routing can add many miles and hours to every day’s deliveries. Fortunately, route optimization software like Routific makes automation of the route planning process much easier.

6. More orders

More orders are a sign of growth, and growth is a good thing, right? But more orders also means more deliveries to plan, and many small businesses really struggle to scale their delivery operations.  This is an area of business where speed and efficiency really matter. Manually planning routes that change day-to-day — or even hour-by-hour, depending on delivery promises — is a never-ending task. Delivery delays due to wrong addresses, road construction, traffic, or driver error are problems that can be solved before they occur by using an efficient route planning program. This can not only save driver and operator time, but also reduce fuel expense and overall vehicle wear and tear. 

7. Environmental impact 

Two thirds of consumers say they consider environmental and sustainability issues when they make purchases. This is one of the big challenges of last-mile delivery: packaging and transportation can contribute to increased emissions, noise and plastic pollution, and traffic congestion. But there are ways to reduce the impact:

• Switch to electric or hybrid vehicles, or bicycle delivery where it’s feasible. 
• Find ways to minimize packaging waste. Many businesses now offer reusable packaging or accept waste for recycling. As customer expectations evolve, this may become an essential feature of your business. 
• Use route optimization software to reduce fuel consumption and emissions.

8. Returns

Returns are an unfortunate cost of doing online business. On the one hand, customers are more willing to buy when they know an item can be easily returned if they change their mind, or are unhappy with their purchase for any reason. On the other hand, when up to a quarter of all consumers are returning at least some of the items they buy online, it becomes very expensive to the business. The costs are especially high when the retailer is the one paying for the return to be picked up and processed. 

Since returns are hard to avoid — especially for footwear and clothing — the best an online retailer can do is budget for the cost, and make the returns process as efficient as possible. This is one of the cases where it might make sense to use a third-party logistics provider or courier to hand pickups.

Last mile delivery trends to watch

Curbside pickup became a common option during the pandemic, and it’s helped to focus attention on the diverse ways to manage the final mile. Right now the last-mile landscape is changing fast, with a lot of new options for pickup and delivery becoming available. That means there are more ways to get products to customer than ever. Here’s our pick of the most promising:

1. Crowdsourced delivery

Last mile delivery services using independent drivers and gig apps like Amazon Flex, Doordash, Taskrabbit and Postmates are becoming popular. This is a convenient, flexible option that allows for on-demand delivery, but can be expensive. For businesses where speed counts, like restaurants, delivery apps may be the right long-term solutions. For others, it’s a way to try out home deliveries before committing to more long-term options.

2. Buy online, pick up in store (BOPIS)

When it works, this can be a best-of-both-worlds option: customers can browse and pay online, then come in to the store and pick up their purchase whenever it’s ready. This is cheaper for the retailer and often faster for the customer, so it’s an option that is rapidly growing in popularity. 

The key to a successful BOPIS strategy is to make it as easy as possible for the customer. Send email or text notifications when their order is ready for pickup, keep orders in a secure and easy-to-access location, set aside dedicated parking bays, and make sure a staff member is available to help when the customer arrives.

3. Parcel lockers

Parcel lockers and other pickup points are increasingly popular. A parcel locker can be located in an apartment building, at a central point in a busy neighborhood or at a community hub like a library or shopping center. It gives customers the option of picking their parcel up at a time that’s most convenient to them, while also cutting last-mile delivery times and costs. 

4. Autonomous vehicles, drones, and robots

Autonomous delivery robots drones have got to be the most-hyped technology in last mile logistics, with pilot projects launched in many cities around the world. We’re not convinced we’re going to see widespread adoption anytime soon, though. Robots still struggle to handle even mildly uneven terrain, and human operators are still needed to help them out if they get stuck. We’re not betting on them becoming the last-mile carrier of choice in this decade. 

5. Urban warehousing and micro-fulfillment

Urban warehouses and micro-fulfillment centers aim to shorten the last mile. These small-scale facilities, strategically placed in urban areas, businesses to store products closer to their customers. This can reduce delivery times and transportation costs, as well as the environmental impact of last mile delivery. 

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In conclusion, the last mile delivery challenge is a permanent part of the online retail world, and solutions are constantly evolving. For now, the best option for small and medium-sized business is to use all the technology available, especially delivery management software and route planning solutions like Routific. By staying informed about the latest trends and meeting the challenges head-on, businesses can not improve their bottom line and their customer satisfaction at the same time.