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Area Development - Site Selection, Facility Planning and Workforce Development

Last Mile Delivery: Forgotten, But Not Gone

Although last-mile logistics is only one small link in the supply chain, it's the only one that directly touches the customer - an important point to remember when considering your site options.

LDW: Logistics, Distribution & Warehousing 2009
If supply chain functions were named after popular television shows, Lost might be the last-mile industry's most obvious choice. Ten years ago, it dominated logistics headlines, as many aspiring e-tailers tried to figure out how to ship products to individual consumers without sending dollars out the door. Today it's virtually disappeared from the public eye - and many corporate agendas.

But don't make the mistake of assuming it's gone. Conservative estimates place the value of large product last-mile delivery at well over $8 billion annually. And the numbers are even bigger for smaller shipments. All of which begs the question: If last mile's still alive and kicking at many companies, why has it dropped off the strategic radar screen? More importantly, can companies really afford to overlook it when making site selection decisions?

Where has last-mile delivery been?
This question is fairly easy to answer. Last-mile's media heyday was strongly linked to the dotcom bubble. When that boom went bust, so did much of the media interest. Additionally, the past 10 years have been full of an unprecedented number of highly urgent logistics challenges - such as post-9/11 security, the shift to more global manufacturing, and transportation congestion - all of which diverted logistics managers' energy away from the last-mile question.

But even in light of these developments, companies can't afford to back burner their last-mile logistics indefinitely. For one thing, experts are predicting a record number of home delivery requests. Online sales - all of which must be fulfilled through last-mile delivery - are on the rise. According to government statistics, they grew by 19 percent in 2007 alone, and they're close to 30 times higher than they were in 1999.

Plus, there are some products sold in brick-and-mortar establishments that will almost always require delivery because they're simply too large or heavy for most consumers to handle. These include many appliances, home furnishings, electronic items, and large pieces of exercise equipment. In a world of razor-thin margins, the ability to manage these shipments more cost-effectively could wind up being the difference between profit and loss.

It's also important to note that last mile can't take advantage of the same modal flexibility as other links in the supply chain. Companies can't opt to deliver products to customers' doorsteps via train or ship, even though those modes are usually more fuel-efficient and economical than trucks. As a result, it's critical for them to find other ways to conserve gas and contain costs - especially in light of today's volatile fuel prices.

Where should last-mile considerations fit into your site selection scenario?
That's where location and facility selection come in. Just as traditional distribution centers (DCs) can make or break the success of a company's supply chain, last-mile DCs play an instrumental role in determining how well a company's last-mile fleet performs - regardless of whether that fleet is operated in-house or by a third-party logistics provider (3PL). With that in mind, here are six more key questions your company should consider as it maps out its optimal last-mile DC strategy:

Is there such a thing as an ideal number of last-mile DCs?
There's no magic number that works for everyone because companies' business models and delivery chains vary so dramatically. However, on average, domestic last-mile DC networks include more facilities - eight to 12 - than their traditional counterparts' typical network size of three to five facilities. The reason for this is simple: Last-mile efficiency is all about being closer to consumers, and more facilities mean greater proximity. The result is usually greater delivery speed and cost savings.

Are there ideal last-mile DC venues?
Unfortunately there's no such thing as a universally acceptable last-mile venue or collection of venues because companies' high-population customer clusters can, quite literally, be all over the place. For example, if your company manufactures or sells ski gear, more of your last-mile DCs may be located near mountain areas with cold-weather climates. By contrast, if you're selling swimwear, more of your key DC venues may be located in the South and Southwest. That said, most companies would be wise to pay close attention to the Northeast and Eastern seaboards, because these highly populous areas tend to be where the highest concentration of home-delivery customers are located.

Exactly how close should a company's last-mile facilities be to its customers?
It's perfectly reasonable to expect your company's last-mile delivery trucks to cover a bit of ground between the time they leave your DCs and the moment they reach their first customers for delivery, because most DCs are located in industrial rather than residential areas. In fact, this is so common that the last-mile industry even has a name for it - stem time. However, if a DC's location would cause your delivery trucks' stem time to extend beyond 45 minutes to an hour, that's a huge red flag, because that could diminish each truck's productivity by two or three stops per day.  

How important are traffic patterns?
Contrary to how they might appear, all miles aren't created equal. For example, a truck could easily travel 10 miles in parts of Montana, New Mexico, or Missouri in no time flat. By contrast, covering 10 miles in a place such as Atlanta, Chicago, or Los Angeles could take an hour or more depending on traffic conditions. In fact, this explains why the last-mile industry speaks in terms of stem time rather than stem distance.

The moral of the story is this: Congestion isn't just a global supply chain management challenge; it's a last-mile challenge as well. Remember this when your company's last-mile site selection gets to the point of comparing a facility in one part of a town versus another.

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