Technological transformation and COVID 19 have revolutionized last mile logistics. The World Economic forum expects this industry to grow 78% globally by 2030. Conventionally, possible solutions were thought of as restricted only to elements such as the type of transport or the location of the crossdocking points. Now the trend is to have an efficient, holistic, end-to-end and data-driven technological approach to decision making that is focused on consumer needs.
This approach encompasses logistics from planning the inventory in the warehouse, to placing the product at the customer’s door at its preferred time. The following diagram was constructed based on the insights found trough the calls with different actors in the ecosystem. This represents the main steps in the delivery of a product, and below we describe the main considerations within each step.
1. Inventory and warehouse management system
The revolution in last mile logistics has led to great advances impacting the following elements:
· Inventory control.
A big problem for companies is the lack of knowledge about the quantity and location of their inventory. Commercial solutions exist through WMS (Warehouse Management System), however their cost and need for operational discipline can be a great challenge. As an alternative, startups (e.g. Cosy) have developed technological applications that make the inventory known at its current point and its traceability throughout the warehouse. The technology used is diverse: computer vision, traceability sensors (e.g. GPS, RFID, Wi-fi, 4G, LTE) and robots or drones that go around the warehouse to carry out this task, among others.
· Layout.
An adequate and intelligent layout, based on predictive demand data, favors logistics efficiency. It even allows for optimal palletization, maximizing the use of space and minimizing time and movements. A clear example of this revolution is Ocado in England, an online retailer that has master logistics.
· Movement within the warehouse.
One of the trends is to automate the movement of products within the warehouse. This has been achieved by using robots, autonomous vehicles, among others. Some companies already have autonomous forklifts that perform the movements within the warehouse, these can be completely autonomous or operated remotely in a control center (e.g. Phantom auto). Other players have hydraulic robots that act as forklifts. (e.g. Caja Robotics)
· Micro-fulfillment centers.
Commonly known as cross-docking, these are storage spaces that companies establish within urban areas with the aim of being close to customers, minimize delivery times and make strategic use of space in central warehouses. The definition of the inventory is taken based on analysis of historical consumption data and predictive demand patterns. An example is Bed, Bath and Beyond, who closed traditional stores and converted them into dark stores to supply directly to their customers.
2. Dispatching optimization
The challenge for companies is to know when it is convenient to send the product to the customers, optimizing delivery times, minimizing routes and maximizing the volumetric capacity of the units.
· Delivery optimization.
Nowadays the consumer is the one who makes the delivery decisions, companies must adapt to the customer’s availability windows and to the places that are convenient to receive them. For example, some dark kitchens program delivery times according to the preparation time of each dish and the route that the delivery men will take.
· Space optimization.
The goal is to have fewer units and fewer routes. For this purpose, companies seek to optimize the space, complying with the regulation of the weight capacity, and the rationalization of the fleet. An example is FreightWeb, that uses special racks to optimize volume capacity within the trucks. On the other hand, there are technological platforms whose objective is to carry complete trips (full load round trip), like Moova in Argentina.
3. Route optimization
All types of optimization are a big challenge. But perhaps one of the most complex is route optimization, where it depends on the road infrastructure, driver behavior, vehicle condition and external incidents such as crashes or road closures. Some of the solutions that startups offer, either partially or integrally, are:
· Fixed and variable routes: Generated from historical data and connectivity with other applications such as Google Maps and Waze.
· Delivery time windows: Because it focuses on the consumer, it prioritizes delivery times despite the geographical location of the delivery points.
· Dynamic re-routing: Once the unit is in route, it must make decisions to modify it in case of external incidents, untraceable deliveries and order cancellations, among others.
· Mobile and active GPS, sensors: These technological devices are the ones that allow the route optimization control and give security on the delivery. For example, monitoring the driving conditions of the vehicle, the attention of the driver and validate the safety of the load through video cameras. In addition, the sensors allow a reduction in operating costs (e.g. gasoline) and the preservation of the vehicle.
· In route optimization a special case of dynamic re-routing is the optimization when a new order is scheduled, the delivery is within the route and there is an opportunity to make a stop at the micro-fulfillment center to pick-up the products of such new order.
4. Real-time customer service at every point. Customer service on point
It is one of the great challenges of last mile logistics, and among the main issues are:
· Delivery visibility: Customers want to be informed of the delivery status of their product, so applications such as Uber Eats shows the position of the order at each stage.
· Return process: In the last years and derived from COVID 19, e-commerce has taken a great relevance and the return process is one of the new elements fully integrated to the last mile logistics. The customer must have the possibility to return her product under certain parameters in a simple way. We believe this is one of the areas that will have a great revolution in the following years.
· Unattended delivery: Whether it is for security or convenience, some users prefer deliveries at different points to their homes. That is why there are companies like Amazon Hub that have designed lockers as delivery points or have established agreements with convenience stores that become collection points (e.g. PkgSpot).
· Real time assistance: During the entire trip, customers expect to be heard and to have their questions and comments answered. One example in LATAM that combines route optimization, delivery visibility and assitance in all the delivery journey is MapTag.
Conclusions
The revolution in last mile logistics is taking place using data, technological infrastructure (e.g. sensors, robots, drones, etc.) and automation along the logistics chain. Regardless of your business, brick and mortal or e-commerce, it is imperative that you consider these transformations and implement them to improve the user experience, optimize assets and improve business profitability.
Written by:
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Ana Maury Aguilar. Investment analyst at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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