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Retail Margins are Shrinking

In addition, several external factors are also making last-mile delivery costs more expensive, such as global inflation, an unpredictable supply chain and increasing consumer demands.

With these issues combined, there is no wonder that retailers are battling with shrinking margins in the face of inflation. And with a global recession on the way, consumers have less disposable income to spend, leading to even more fierce competition among retailers.

Staying Competitive is Key

Retailers who want to stay relevant in the marketplace, not only need a way to survive but must also grow their businesses during these challenging times. Leveraging the latest technologies to increase efficiency is the key to making this happen.

When analyzing supply chain efficiencies, it is important to know that last-mile delivery accounts for 53% of the total shipping cost. For example, when breaking down the $100 cost of a package that is sent 7000 miles from Shanghai to Chicago, the first 6999 miles cost $47 while the last mile costs $53.

While it might seem counterintuitive at first, last-mile delivery involves finding dependable local drivers, dealing with traffic, changing weather conditions – and the more recent challenge of ensuring the customer’s expectations are satisfied.

As a result, most delivery bottlenecks occur in the last mile and therefore managing deliveries and returns efficiently has become an immediate must-have for most online retailers.

It’s All About Optimization

One key area to focus on is Optimization.  VRP ( Vehicle Routing Problem) is one of the main problems businesses encounter throughout the delivery process, especially while managing last-mile deliveries. This problem stems from a poor combination of several components of deliveries.  First, there are delivery requests that have a very strict time frame. Many items delivered can differ in size ( weight and volume) and that's something businesses forget to bear in mind. A second issue is the drivers. Many of them use different vehicles and have different schedules and their scheduled breaks may change. In addition, not all drivers have the essential permits, nor are they allowed to unload and load the items.

When synchronizing the data between the type of delivery request on behalf of the delivery providers, businesses can receive multiple delivery routes. An innovative, cutting-edge technology platform becomes the key to solving these issues.

It is strongly recommended to use an algorithmic strategy that makes the best optimal choice at each small stage. The one that consists of optional routes and is capable of calculating the overall costs. The variables affecting this may be the cost of labour, cost of kph, cost per driver, and more. Iterative algorithms could help reach an adequate solution. It may reach a minimal estimation of overall costs, depending on clients and their preferences.  In addition, one could implement pre-stage optimization processes, in order to plan a route which leaves drivers in designated areas. One can split the optimization request into subsections to leave the right amount of tasks per driver. Then, one can transform the distance matrix (the input of the algorithm) and thus reduce travel costs between dots based in the same area, and ultimately have the driver's route stay in one area, and one area only.

Businesses that choose to implement and integrate AI platforms will be able to optimize dozens of deliveries effortlessly. Ultimately, this can reduce the number of miles driven per day as well as the time it takes to deliver them.  Another huge benefit is enabling companies to minimize their carbon dioxide footprints, making their deliveries significantly more sustainable.

Making Last-Mile Delivery More Efficient

Here is where a delivery management platform (DMP) comes into play. A DMP is the best way to manage and orchestrate last-mile delivery, fulfillment and returns, all from one place. By using a DMP, retailers provide all delivery options from one place and address key challenges such as route optimization, reducing carbon dioxide footprint, and synchronizing data across the entire last-mile delivery process.

DMP is Key

To summarize, surging online sales have made last-mile delivery management solutions absolutely critical for retailers. With global economic pressure, supply chain disruption, shrinking margins, and increasing customer demands, retailers have to find ways to become more efficient both in cost and operations.

Written by Yoni Arviv (Optimization Team Lead), Asher Bengin (Senior Product Manager) and Ephrat Peled (Customer Success Director) at Bringg