Ways to think about Last Mile Delivery

Last mile delivery is going to change significantly over the next few decades. A sea-change is upon the Logistics industry and as is often the case when an industry is about to be turned upside-down, there are a number of converging factors, both societal and technological, that are accelerating the pace of change.

The Rise of Consumer-Centric Supply Chains

Quite simply, eCommerce has made it easier and faster to get stuff. Speed and ease has largely been innovated by Amazon, who has been able to drastically change consumer expectations because of their focus on a customer-centric retail supply chain. Amazon could have adopted the same logistics practices used by their competitors, but instead they put the focus on the customer which has led to enormous innovation. Speed, ease, and low cost shipping has put customer convenience at the top of Amazon's priorities and by focusing on the customer, Amazon not only strengthens their brand, but also put enormous pressure on incumbent brick and mortar retailers and pure play eCommerce retailers to keep up. Amazon pioneered free shipping in 2005, began offering Sunday deliveries in 2014, and introduced

Amazon Prime which guarantees subscribers unlimited free two-day shipping. The program has not only generated 63 million memberships worldwide, but has also substantially increased customer spending.

Incumbent retailers have had to cannibalise their own brick and mortar retail stores sales while pure play eCommerce retailers simply don’t have the scale to compete with Amazon. But fear not incumbent retailers and startups, there are technological innovations on the horizon that can afford you the opportunity to compete even with Amazon.

Crowd-Based Parcel Delivery

Last mile delivery no longer needs to be constrained by postal services and large players who define inflexible delivery times and locations that suit their networks but not the needs of the customers. New on-demand delivery models can leverage the power of the ‘human cloud’ to tap into a network of flexible couriers to enable consumers to receive deliveries when and where they need them. Amazon Flex operates similar to on-demand ride-hailing service Uber. Drivers use the app to pick up packages at Amazon’s urban warehouses and deliver them to Amazon’s customers for Prime Now one or two-hour deliveries. Uber has their own on-demand delivery service, Uber Rush, which connects consumers and small businesses with a courier who picks up and delivers packages.

Deliv, a Silicon Valley startup, facilitates omni-channel retail on a single delivery platform. Deliv integrates with retailers to provide same-day delivery services from brick and mortar stores which allows retailers to deliver faster, cheaper, and in a more convenient way than most pure play eCommerce retailers. In addition, Deliv partners with shopping malls which allows for a single delivery from multiple retailers. For example, you buy some pet food, some clothes, and a handbag from multiple retailers in the same mall and Deliv can arrange for a single delivery in less than two hours.

Crowd-based delivery can enable any retailer to offer fast and convenient shipping and enables customers to take package deliveries when and where they need it. Want something delivered to your office, the trunk of your car, a local shop or to the park? Flexible crowd-based parcel delivery could be the answer. And with advancements in real-time location, routing, re-routing of packages in transit, and analytics, expect significant changes to parcel delivery networks in the coming years.

Autonomous Vehicles, Drones and Robots

Drones: Drones offer enormous long term potential, but in reality, are probably at least several years away. There are a combination of regulatory barriers, technological barriers, safety issues, and challenges in regards to public acceptance. While drones clearly have the potential to significantly improve delivery times and reduce costs in the long run, there is no clear short term path to delivering packages at scale via drones. More on drones here.

Robots: Ground-based robots can drive autonomously on sidewalks and deliver multiple packages for home deliveries within a few mile radius. The robots have an on-board GPS, video camera, and have the ability to detect obstacles and safely cross streets. When the robot arrives, users unlock their package from the robot via their phone. The robots offer a convenient and cost effective delivery option as the user can order the delivery at a time that is convenient to them. The robots are inexpensive, so even just a few package deliveries a day would be cost effective. Dispatch and Starship are two companies working on ground based robot delivery. Robots could also serve in a collaborative role in the last last mile delivery process by sorting packages inside delivery vehicles or delivering heavy packages alongside a delivery person.

Autonomous Vehicles: In just the last few weeks it seems that everyone is working on autonomous vehicles. Ford, Tesla, Uber, and Google have all made recent announcements on their self-driving car aspirations. Otto, the Uber-owned self-driving vehicle operation, made their first commercial delivery without human intervention - a 120 mile beer run for Budweiser. Technology for self-driving trucks is already good enough for trucks that drive mainly on highways as recognising obstacles on highways is an easier problem for algorithms to solve than dealing with obstacles in an unpredictable urban environment. Fully autonomous vehicles for last mile deliveries is likely many years or even decades away.

While the value and convenience of each of these is nice independently, the real value is when you combine autonomous vehicles, ground robots, and drones into a single delivery solution. Mercedes-Benz and Matternet, a drone technology startup, recently collaborated on a concept delivery van that includes drones attached to a cargo van that make package deliveries autonomously. The Matternet M2 drones make the deliveries, drops off and reloads packages, and swap batteries all without any human intervention. Drivers no longer need to spend time searching for packages and walking to drop off packages. The drones can track the van as it moves along the delivery route and the van acts as a launch and landing pad for the drones. While the collaboration includes just two drones, it's not a stretch to imagine a “swarm” of drones launching from a single truck. Imagine the efficiency gain in a scenario where 25 drones are launched from one truck. Ground-based robots could be deployed from the trucks to make deliveries of heavier packages. Last mile delivery costs could be cut by at least 80% while at the same time improving service levels and opening all sorts of new business models that have not even been thought of yet.

Urban and Flexible Warehousing

Urban warehouses located closer to customers are rapidly growing in importance as they provide a way to facilitate the drive for convenience and faster delivery times. Demand for small urban warehouses will rise as proximity to the customer plays an increasingly important role in the last mile delivery process. Flexibility in warehousing is also a key factor to manage seasonality, demand variability, and trends driven by social media. FLEXE, a logistics startup, is a cloud-based peer-to-peer warehouse marketplace for sharing excess warehouse capacity; the airbnb for warehouses. FLEXE connects partial or temporary warehouse space with companies that need short term storage and provides order fulfilment services. A warehousing marketplace has the potential to greatly impact same-day shipping and could be a major game-changer for retailers that are trying to compete with Amazon without building out a costly logistics network.

Logistics Platform

In the Internet and Mobile eras large tech companies have increasingly become platform companies controlling the full end to end experience, akin to a utility. Amazon is where you go to buy stuff, Uber is how you get around, and Google is where you go for search. Consumers that use these services likely do not use a competing service. I predict that last mile delivery will gradually evolve into a similar style platform controlled by one or a small number of players. In the future, does it make sense to drive to a Walmart or a shopping mall that has massive selection when I already have access to infinite selection from my computer and phone? Assuming the delivery costs and convenience can be optimised, it simply will not make sense in the future.

Let's say that tonight I need some laundry detergent, a phone charger, some coffee beans from my favourite coffee shop, and take-out dinner for four from a local restaurant delivered at 6 pm. Why can’t this be delivered to me cost effectively in a single delivery at the time I need it? To do this requires:

  • A logistics platform with huge critical mass of both consumers, deliverers, and businesses that any business small or large can tap into to manage their deliveries.
  • An incredibly complex routing algorithm which optimises the route that the courier, robot, or drone takes to do multiple pick-ups and deliveries.

No one can pull this off yet, but of the major tech players, Uber, Amazon, and Google are probably best place to succeed due to their investments in autonomous vehicles, mapping, drones, and data. Uber probably holds the edge as they are already solving for a similar routing problem with UberPool and have a dominant share of riders and drivers (in the U.S.). While there are many converging factors that will play a part in the disruption of last mile delivery, a consumer-focused platform that allows you to connect supply with demand and optimise both will likely be the winning platform. It will be an extraordinarily challenging technical pursuit which will require the highest level of execution and innovation coupled with an obsessive focus on the customer. In building the platform, companies should consider Amazon’s approach to customer service; customer obsession is first on their leadership principles:

Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

Ultimately, the customer will determine the winner of the last mile.

I cover forward-looking topics that are relevant for everyone that will be part of the future logistics industry. You can read more articles here or sign-up for a free monthly newsletter here.