E-commerce growth to lead to investments in final-mile operations, whitepaper shows

Consumers continue to buy goods online, and retailers must strengthen their last-mile delivery operations to keep pace with this demand, according to a recent white paper.

The whitepaper by UPS company Roadie shows that consumers who purchased less than 25% of their goods online before the pandemic have increased online purchases by 343%.

“E-commerce is not slowing down,” said Sean Whitehouse, managing director of strategy and consulting, supply chain and operations, retail lead at Accenture. “We’ve talked about this for a while now, and it was accelerated by COVID. As we get back to more traditional work settings, where that order is delivered may change from home to work and other places — it might become more flexible as we start traveling and moving, but they’re still going to want delivery.”

In January, rising retail sales and factory output contributed to increased truck tonnage, said Bob Costello, chief economist for American Trucking Associations. The trade group’s For-Hire Truck Tonnage Index rose 0.6% in January and was up 1.2% from the same month in 2021.

“January’s gain was the sixth straight totaling 4.4%,” Costello said. “The index, which is dominated by contract freight with only small amounts of spot market truck freight, is off 3.9% from the all-time high in August 2019 and only 1.5% below March 2020 when the pandemic hit.”

According to crowdsourced delivery platform Roadie, retailers should develop a strategy and adapt their last-mile shipping operations to meet short- and long-term e-commerce demand. Retailers should have accurate, transparent operations to manage demand spikes. They must maintain fast, efficient deliveries across their operations, including the suppliers, warehouses, third-party partners and internally. With data, they can narrow delivery windows and build efficient routes. Artificial intelligence and machine learning can ensure operations run smoothly, the whitepaper shows.

According to Convey, investments into last-mile operations are rising, with 81% of retailers planning to spend more on complex last-mile initiatives over the next 12 months. Also, 57% of retailers have added at least one delivery partner or carrier in the past year. But, on-time deliveries have yet to return to pre-pandemic levels of 89%. In 2021, on-time deliveries increased to 82%, from 77% in 2020.

According to Roadie, e-commerce demand is expected to “remain permanently elevated to some degree. That means capacity will likely be stretched to its limit for the second year in a row as the labor crunch adds additional challenges, and this time retailers won’t have pandemic conditions to blame if packages start turning up late.”

Retailers should determine their delivery speeds and whether they can offer free shipping, the whitepaper shows. It also shows that offering longer but cheaper and more accurate delivery windows is preferred to two-day shipping guarantees that are unprofitable.

“There’s nothing worse than thinking you’re going to get [a product] on day two, and it turns up on day three,” said Tom Enright, vice president in the Gartner Supply Chain practice. “That feels like you’ve been let down. I think the important thing here is that there’s a big difference between the speeds that retailers make available and the speeds that consumers choose. For many years now we’ve seen, in whatever survey you look at, north of 70% of consumers say that they want to avoid shipping charges and take action to do so. That typically means that they’re going to be waiting three days or longer.”

According to the whitepaper, meeting shipping expectations requires coordination across retailers’ last-mile operations.

“The first thing you can do at the point of order creation is set customer expectations as to when the product is going to be there,” said Jerry Sheldon, an analyst at IHL Group. “I think we live in a day and age when that almost feels like table stakes. It’s not always, and it’s very complicated.”

Sheldon noted the importance of an order management system to ensure tools are working, deliveries are made on time and shoppers are informed.

“Delivery optimization is not some new term — it’s been around forever,” Whitehouse said. “But what the actual solution needs to do is super complex. It has to take all those different potential carriers, all the inputs of orders that are constantly flowing in. It’s not like you can say, ‘I’m going to queue it. Here’s all our orders for today.’ You’ve got today’s orders, you’ve got some expedited orders coming and all that stuff, and then to manage all that, communicate with the consumer and tie it back to the other aspects of your organization — that’s super hard to do.”

According to Enright, retailers that use third-party partners in their delivery operations have a better understanding of which providers have available capacity in a specific area and during certain times to account for demand spikes.

Retailers that can better determine where orders are coming from can make more deliveries using less capacity, the whitepaper shows. They can stretch their resources by reducing the delivery distance and increasing the number of orders delivered together. Retailers can offer incentives to consumers willing to wait so the orders can be combined.

“We’re already going to be in your area next Thursday but not next Wednesday, so why don’t you choose Thursday shipping. And we’ll make sure we get it to you in the afternoon,” Enright said. “Turn the choice that the consumer has to make into something that’s less static and a bit more dynamic. It’s based on principles around order consolidation and reducing the number of trucks on the road, reducing packaging and reducing CO2. There’s a growing band of conscious consumers who are interested in that sort of dialogue.”

According to the whitepaper, consumers can look to expand delivery density by using micro-fulfillment centers like dark stores or reformatting less successful stores to increase shipping capabilities.

“I think over the next two to five years, the growth of micro-fulfillment centers is going to be explosive,” Sheldon said. “You’re going to see it in grocery, and you’re going to see it in general retail to an even greater extent. You don’t have the freshness issues, you don’t have the spoilage issues and you don’t have the refrigeration issues in general merchandise that you might have in the grocery space, so we expect much activity in the general merchandise micro-fulfillment space. I think that’s going to help alleviate some of the challenges with the massive volumes that we’re getting.”

According to the whitepaper, artificial intelligence and machine learning can be used to tie the various aspects of last-mile operations. Whitehouse said technology can help to understand which neighborhoods are seeing order spikes, leading retailers to optimize routes and align more orders into that delivery window. Technology also can help to reduce returns, which affects capacity, by providing customers with relevant recommendations and accurate sizing.

“Delivery puts pressure on the last-mile supply chain, but returns also put pressure on the last-mile supply chain,” Sheldon said. “There are a lot of great AI tools for that. If I could do a better job of getting the right size product match to the customer’s specific stylistic or fit and finish requirements, then I can also reduce a lot of the stress on the supply chain.”

According to the whitepaper, retailers should try to keep delivery times to less than five days and provide free shipping as often as possible without affecting profitability.

“You’re getting to the point now where you can’t get outside that four- to five-day window at peak,” Whitehouse said. “Outside of peak, really the norm is two to three days.”