Category: Digitalization

Optimizing the last mile deliveries

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You’ve probably heard plenty of predictions regarding the future of transportation: self-driving vehicles, leased instead of owned cars, your van making you money as a ride-share while you sleep, and so forth. That’s all old news. Well, old is a relative thing, considering it hasn’t happened yet.

This is how today’s visionaries see the future, and I tend to believe them. I don’t mean to accept that every forecast would realize, but the general landscape of transportation is moving towards these visions. “When” is a much more difficult question, and I don’t want to embarrass myself by making a bad guess. If someone insists on estimating a timescale, my answer usually is: “Not as soon as we hope, but sooner than we expect”. We, as a species, seem to always overestimate the short term and underestimate the long term. Let’s just agree it will happen.

Everyone is envisioning how this will affect our lives and how things will be different. I would like to highlight here the impact on the business end of the change. In the logistics industry, the change is already ongoing and visible. When discussing the ownership of vehicles, we usually imagine a truck company with big rigs transferring goods from one place to another. Arguably most of those rigs are owned by a bank until the loan has been paid up, but less and less of these companies own the vehicles themselves anymore. See how businesses are ahead of consumers here?

More modern logistics firms don’t own their vehicles, nor do they employ any drivers for them. Both are leased from companies providing this as a service. The work left for the logistics company is to find customers and keep those big wheels rolling as efficiently as possible. The only physical asset these companies might have is the paper contracts with their customers. These businesses do not need safety margins to protect them from the bad times since most of the assets are flexible and can be scaled back as soon as the demand dips.

Then we come to the last remaining asset, the actual contract. Big portion of supply chain is still managed by carrier companies transferring the bulk of the goods, which will then be distributed by a multitude of smaller companies. They are the last ones protected by contracts. The safeguard of agreements is quickly shrinking in the space where the smaller companies operate. The competition is fierce and margins are getting ever smaller. The contract periods become shorter and shorter as customers challenge the prices daily. Perhaps the biggest driver is the online shopping. Consumers are less and less willing to pay for the delivery. They want it for free. In this setting, the first victim is a long-term contract. The last mile companies will need to find a way to dramatically improve their efficiency in order to survive in such environment.

Many people talk about an “Uber of Logistics”. It is not a big secret that there are numerous companies developing such, including Uber themselves. This kind of an open marketplace, or several of those, is going to emerge sooner rather than later. It might or might not solve the problem. The level of difficulty, even in comparison to the original Uber, is huge: We are talking about trucks full of parcels, delivered to tens of locations with an accurate schedule, while on the way picking up tens of other items to be delivered. Who will plan the optimal routes for packages coming in from multiple carriers, with a price and in time that is satisfactory to both the sender and receiver? My prediction is that the question “who?” isn’t going to give a good answer.

A massive amount of computing, optimization and data is needed to create such a routing system. This is probably the reason why it does not exist yet. Only a very sophisticated artificial intelligence (AI) with state-of-the-art algorithms can operate such a web in real time, no less. This is also the reason why last mile companies are not going anywhere in the near future. We need reliable and predictable parts of the delivery chain in place to offer competitive logistics for goods.

Which kind of companies are those going to be? You can forget about the old-fashioned transportation company where a sales guy or owner is waiting for your call to make you an offer. The modern consumer, as well as business customer, wants a quote with a tap of a screen. The distributor must be able to quote almost in real time to stay in the game. Who answers the phone in the weekends when someone has ordered something important that he needs shipped right away? The answer is, of course, a machine. Some firms are already working on systems that automate the routing of their vehicles. More advanced ones are implementing AI to do it for them, and to manage the fleet. Do you need an extra driver tomorrow? A computer can request it from the company providing drivers. No human needed. Eventually, machines will talk to each other and re-route your rigs to pick up something on their way back, 3am in the Sunday morning. Your customer might request the parcel delivered on a specific minute, and you will have to adjust the truck’s route plan on the fly to make it happen. It’s close to impossible for us humans to cope with such change requests at scale, but a computer doesn’t complain.

Major changes are coming to the last mile distribution business, but it will take a while before the storm hits the shores, and you have time to prepare yourself. It starts with the automation of processes in the logistics companies. It means integrating your CRM and order tools to the customer systems to enable direct quotes and offers. Your back-end can be upgraded to handle all this. It takes some time and investment, but it will give an edge for those who see the future. The investments will also optimize the performance of the company. Whether or not you share this vision, you surely agree that there’s no way you can avoid improving your efficiency. The race for competitiveness is on, and those who stay put are bound to lose ground. Now it’s time to prepare yourself for the coming storm and make sure you come out as a winner.