Challenges with The Last Mile of Consumer Goods Delivery

April 27, 2022

Meet Alan Amling, a distinguished fellow at the University of Tennessee, Knoxville’s Global Supply Chain Institute, whose expertise lies in harnessing digital disruption for success. Amling is a A TED speaker, member of the Executive Advisory Board for the Georgia Tech Manufacturing Institute and the CEO of advisory firm Thrive and Advance LLC. Prior to joining UT’s Global Supply Chain Institute, Amling’s 27-year career at UPS saw him hold a number of roles, including VP of Corporate Strategy, where he helped revitalize innovation and venture capital programs for the digital economy.

Can you describe what supply chain experts see as the “last mile” of delivery? 

For e-commerce, the last mile is what ends up at your doorstep. Traditionally, the last mile started at a large, remote regional distribution center. One of the most fascinating things to me is the recent disruption that’s happened with last mile delivery and where it originates. During COVID, there were capacity restrictions. One big trend we saw was the prominence of ship-from-store; most of the Retail-500 embraced ship-to-store by the end of 2020. Even a company like Target saw 90% of online sales shipped from a store. They’re actually dual-utilizing this inventory to compete with the 800-pound-gorilla Amazon.

Last mile delivery—where you’ve got local pickups and these last mile deliveries starting from stores—is also forcing e-commerce providers to find local and suburban distribution services. Pushing products closer to the consumer is a big trend, and that’s allowing a whole new group of delivery providers to enter the scene, like Shipt and DoorDash, and even Uber, who got into the game by purchasing Postmates. 

Most people still think “DoorDash? Oh yeah, that’s the company that delivers burritos to college students at 2 AM.” Well, they do that. But they’re also delivering for Petsmart. Last year, DoorDash had a market value similar to FedEx. That blows people away, but it also puts things into perspective, regarding how much the shipping landscape has changed.

What are some inefficiencies Supply Chain Managers usually face at this stage?

The biggest inefficiency for last mile delivery is what we call “density.” In this context, density is the number of packages per delivery stop, and the distance between stops. Prior to the pandemic and the huge run-up in business-to-consumer deliveries, the most volume for FedEx or UPS shipping was business-to-business. For a typical business delivery, you tend to see eight packages or more per stop. For personal or residential deliveries, the average is a little over one package per stop. This requires more labor and more trucks to deliver the same number of packages. 

Another inefficiency involves gig workers who are responsible for executing the ship-from-store. Big carriers use routes where they leave their distribution centers full and they come back full of packages from pick-ups. For gig workers, in contrast, there’s a lot of back and forth and a lot of drive time.

Then there’s this question: as people start to get comfortable going back to the store, are we going to see ship-to-store go away? So far, we’re not seeing that. Instead, we’re actually seeing companies leaning into it. Companies like Target are putting up urban consolidation centers. Instead of each individual Target store in an area doing their own ship-from-store, they’re actually conducting movements between the Target stores and a consolidation facility. Now, their deliveries have a higher density and a lower distance between stops. All of that is beginning to make this type of operation more efficient. However, we’re still in the early innings, so there’s still a lot of work that needs to be done.

Other than the staffing shortages, how has COVID-19 affected the consumer end of the supply chain?

With capacity strained thanks to staffing shortages, companies that invested in supplier relationship management before the pandemic—the ones who spent a lot of time to develop good relationships up and down their supply chain through really good communication—have tended to do better. We’re seeing some innovative actions from companies to combat all the backlogs at the various shipping ports. 

We need infrastructure improvements across the supply chain, and the ports are part of that. But it’s not just the ports. The question is: can you get the chassis and containers and the trucks and drivers lined up? 

One thing people aren’t talking about is that the major issue is not supply, it’s demand. And lately, the US has had historical demand. Production is up over pre-pandemic levels, but the problem is that demand is up so much more now, and that’s clogging up the supply chain. That’s why you see companies diversifying their supply base, adding automation and increasing their buying capacity. Companies like Amazon, Costco and Walmart are leasing their own container ships that are smaller and can go into different ports.

“One thing people aren’t talking about is that the major issue is not supply, it’s demand. And lately, the US has had historical demand. Production is up over pre-pandemic levels, but the problem is that demand is up so much more now, and that’s clogging up the supply chain. That’s why you see companies diversifying their supply base, adding automation and increasing their buying capacity.”

What industries are facing the steepest uphill battle at the moment? 

The industry that is under the most pressure right now is the auto industry. Whenever you’re purchasing a vehicle, there are always add-ons. You can get extra lumbar support or you get blind spot monitoring, right? All those things require chips, of which there is currently a serious lack. So, automakers are doing some interesting things to offset the chip shortage, scaling back and only offering these features on anything but the highest end models. That, or they’re working on promoting more low-end options. The reality remains, there’s no quick end in sight.

After 18 months of supply chain interruption, what are companies doing to adjust to the upstream challenges that cause delays in the last mile?

Take the chip shortage in the auto industry: that’s an issue that you can’t fix overnight. It’s not going to take a couple months to solve, but a couple of years. In the meantime, what you’re seeing is companies doing two things: first, they’re focusing on higher end products. There are a limited number of chips, right? So companies are putting those chips in their higher end products that they make more margin on. The second adjustment involves taking the opposite strategy: companies are going back to previous versions of products that didn’t use as many chips–typically their low end offerings–and producing more of those. One of the approaches the auto industry is taking is continuing to produce new vehicles and just parking them. Rather than selling them hot off the line, the new cars just sit there, waiting for their requisite chips to arrive. Over the summer, I read that thousands of Ford trucks were parked at the Kentucky Speedway, just waiting for the chips to come. What that means to a consumer right now is, if you want to buy a car, new or used, you have to pay a higher price. Once those chips become available, you’ll see a lot of supply again, but we’re not likely to see that until the latter half of next year.

As you consider the ways in which COVID has impacted and transformed supply chain management, are there any resounding observations or takeaways you’d like to call out? 

The pandemic has shined light on certain issues within existing supply chains. But one thing I just love to see is the innovation and ingenuity throughout the industry. We’re still getting goods on the shelf, despite all of the issues. There are people making Herculean efforts to get those goods on the shelves, and they’re doing things that they’ve never done before, better than before, that will change the supply chain forever. This movement towards local pickup and local delivery, pushing goods closer to the consumer really benefits consumers in the end. Retailers could have done that 10 years ago, but it just wasn’t in their wheelhouse then. And COVID forced them out of their comfort zone to do some new things. And once certain changes are implemented, you get the feeling that it’s never going to go back to its former shape.

Listen to the Amling’s episode of the Tennessee on Supply Chain Management Podcast to catch up on his latest research on last-mile delivery and learn about his new book that came out this spring.

Driving institutional value through enabling supply chain leaders to better understand nuanced concepts within the broader landscape of SCM is one of the ways the Global Supply Chain Institute educates the next generation of supply chain leaders. If you are interested in gaining the skills and insights to set yourself apart from other supply chain professionals, here’s how UT’s Executive MBA – Global Supply Chain can help advance your career goals.