When The Last Mile Is First
Have you noticed that for customers like you and me, the last two decades have been the golden era for receiving goods right to our doorstep, thanks to the growth of the online shopping industry! A golden era for the last mile of the supply chain – the delivery of goods from a distribution center in the city to the doorstep of a consumer. A significant event that propelled this event is the launch of Amazon Prime in 2005 with free 2-day deliveries on a variety of items. In 2007 Flipkart was launched in India with free delivery on books above a certain value. From then on, free and fast delivery has improved year on year from 2-day free delivery to next-day delivery to same-day delivery to deliveries in two hours and now quick commerce– delivery in 10 minutes. We could suggest for the delivery staff to wear blue paint like the Genie from Aladdin and the carry bag should be shaped like a magic lamp. Just imagine! 10-minute deliveries in the crowded cities of Mumbai or Delhi. Sheer magic. I guess a comical extension to fast deliveries would be for a food delivery company to deliver food from the kitchen in your house to the couch in the living room while you are watching cricket! That would be Instance Commerce, delivery in 10 seconds. Well Jokes apart, I hope that all of you realise that there is no such thing as free delivery! Free delivery is an illusion, and we are falling for it. The problem is that someone is paying for it and sooner or later it will be the customer who will pay for it.
This context raises two questions:
NO 1: In the future, will the online shopping industry have to charge the delivery cost on every product they sell? Sooner or later, they will run out of investor money to burn. Sooner or later, they will run out of manufacturer margin to squeeze. There is no third source of funding for free deliveries. Then they will have to load the actual delivery cost onto the product. At that moment will consumers still buy online the same way there are buying today?
NO 2: How should brick-and-mortar companies respond? In India, Online shopping is four per cent of retail sales in India and the remaining 96 per cent is with Brick-and-Mortar companies. Are they going to sit on the sideline and watch the growth of online shopping or are they going to disrupt themselves and enter the last mile delivery and supply directly to consumers?
Let us look at it differently. Why have brick-and-mortar companies not rushed into the delivery of goods to the customer’s doorstep? You are aware that brick-and-mortar companies have continuously improved their supply chain over the years with innovations like lean manufacturing, lean supply chain, barcoding, 3PL logistics, hub and spoke model and milk run to efficiently deliver goods from the factory to distributors and then to retail outlets in the fastest and most cost-effective manner. And yet they are not comfortable taking the additional step of delivering goods to the doorstep of the consumer. Why are they shy to knock on customers’ doors?
The reason is that the last mile delivery is a complex and cumbersome process. – in fact the brick-and-mortar companies fondly call home delivery a ‘last mile problem’. Data shows that the last mile, i.e, the travel from a distribution center in the city to the doorstep of the customer represents 30-50 per cent of the total supply cost. The last mile is actually a lot more than a mile. The delivery staff carries a large number of small packages with complex routes, more idle time and more time on the road, burning expensive fuel. The last mile remains expensive and a nightmare in supply chain management.
This raises another question. If the last mile is so expensive, then why are ecommerce and D2C companies competing on free deliveries – my delivery is faster and freer than his! The reason is very simple. The one thing that online shopping companies don’t ever want to see, the one thing that gets them all riled up and worried, is the image of an abandoned cart. Research shows that one of the key reasons customers abandon carts is the high time and cost of deliveries. And how are these companies achieving quick deliveries – by opening a lot of small depot outlets across the city and deploying a fleet of vehicles and drivers? And by using heavy cardboard cartons to ship even small containers. By worsening the last mile problem and making it more expensive.
You may wonder, why to bust this party with free and fast delivery. After all free is a powerful word. Let people enjoy the illusion. Well, think of it from the point of view of the next generation – the digitally native generation – those born with the internet and online shopping. They are used to ordering one small item at and time through online shopping. Imagine a situation when a 10-year-old gets up in the morning and finds out that he is out of toothpaste. He picks up the phone, orders a toothpaste and says, ‘Pops, OTP’. Then he realises he is out of a toothbrush as well. Picks up the phone orders a toothbrush and says ‘Pops, OTP’. Meanwhile, the dad is freaking out and says, “Dude what are you doing?” The kid says, “Chill dad, delivery is free and it comes in five minutes. By the time I go to the bathroom and open my mouth the brush will be here and I can start brushing.’ The point is, we should at least know the cost of free deliveries.
The good news is that many brick-and-mortar companies transformed themselves direct-to-retailer and direct-to-customer business models. I want to share two examples:
Hindustan Unilever is moving towards direct-to-retailer and direct-to-consumer models. They have launched an app called Shikar for their Kirana stores to place their orders directly on the company and sidestep the distributor. With this, the company has direct knowledge of the daily requirements. They are supporting this with the fulfillment program Samadhan which is a logistics system that delivers the kirana stores the next day with no minimum orders. HUL gets 20 per cent of their sale comes from digital channels and 80 per cent from the traditional distributor models. This hybrid model gives them control in having a direct relationship with 20 per cent of their customers and an in-depth understanding of their buying and stocking habits. They can also study the impact of promotions and marketing campaigns directly. This is valuable data to improve customer service and competitiveness.
I will share the example of Otis. Otis India was the first elevator company worldwide to launch online booking of elevators. Today you can book an entry-level passenger elevator from your mobile phone in three steps. You must appreciate that an elevator is a made-to-order product that is customised to the hoist way in every building. We standardised the product in order to bring it online. The advantage is that our market coverage expanded to all-India instantly. Today individual architects, builders and contractors from Tier 2/3 cities can order an elevator from the convenience of their houses, anywhere, anytime.
The online shopping industry has revolutionised the last mile of the supply chain. They started by making the last mile their first mile – ownership of customer relationships and delivery of goods to doorsteps. Is this last-mile supply chain efficient? Not yet! The Brick and Mortar companies are stepping into the last mile starting with direct-to-retailer and direct-to-customer initiatives. They will bring their well-established supply chain principles, robustness, and cost efficiencies to the last mile which will be a win-win for consumers. This will also bring transparency to the cost of last-mile deliveries. So that when a customer wants to buy something they can decide whether to exercise their fingers or their legs.
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