Sanakar Bora is an entrepreneur, techno-commercial senior management professional with 19+ years of multi-functional experience in scaling-up business profitably from inception. Has spent 4+ years as the COO of an EdTech start-up AEON Learning and was the co-founder & VP operations at Myntra (India’s #1 Fashion site) and setup its operations. Has built several businesses including a restaurant and another fashion site. Currently, he heads the operational setup & logistics, customer experience and HR functions for DealShare. He is a B.Tech of NIT Calicut.
As we all know, last-mile delivery is the last leg of the delivery process that starts from the distribution centre to the end user’s doorsteps. Cost optimization of last-mile logistic is important as in every e-commerce company, last-mile delivery costs consume over two-fifths of overall logistics costs. Also, customers expectation cost, especially on the delivery front, is increasing. The rising last-mile delivery costs are the primary challenge that e-commerce or logistic providers are facing these days. Therefore, businesses must take proactive measures to improve the efficiency of their last-mile delivery services to be profitable and grow.
Various Costs That Needs to be Optimized in Last-Mile Delivery
As the e-commerce companies are experiencing a rise in last-mile delivery costs because of rising delivery complexities especially after Covid-19. Therefore, the costs that are involved in last-mile delivery are.
Labor Cost: This is one cost that needs to be optimized as its one place that can easily be exploited. Companies should make sure that the delivery partners should not be under or overpaid. Because of this pandemic more and more people have come online and prefer buying from an app or website rather than a Kirana store. Therefore, companies should pay attention and monitor if the delivery executives are making the delivery on time, if they are delivering to the right address and how many deliveries they are making in a day.
Fuel Cost: This is the perfect starting point to understand the efficiency of the last mile delivery as it shared in the total operational cost and also adds to the overall cost. Thanks to rising fuel prices, companies should carefully scrutinize their fuel cost. The companies should analyze the fuel consumption, understanding fuel wastage and work on balancing the capacity utilization cost.
Maintenance Cost: When it comes to talking about an e-commerce company there are tons of maintenance cost that needs to be taken care of. None of them can be taken lightly as it might lead to delay in delivery, which is directly proportional to customers having a bad experience. The active operation and efficiency of fleets determine the maintenance cost. Hence, the cost of maintaining the delivery executive’s vehicle and other things needs to be borne by the company. Therefore, the increase in maintenance costs leads to an increase in overall last-mile delivery costs. Thus, all e-commerce companies must aim to minimize maintenance costs without compromising performance.
Reverse Logistic Cost: This cost occurs when the customer decides to return the product that they’d brought. While it takes a mere 5 seconds for the customer to return the product, the company has to pick the product from the customer, return it to the warehouse or the distribution centre, where one has to check if the product has been used or if the product is defective. When a customer returns a product it results in an enormous cost for any e-commerce company but it is something that cannot be eliminated as it is one component that builds trust among customers. According to a survey, almost 89% people who shopped online mentioned that it is because of the easy return policy they order a product from a company. Therefore, the companies must manage the reverse logistics cost as there are two costs involved when a consumer returns the product the refund cost and the replacement cost.
Replacement Cost: This is the cost that is incurred when consumers request for a replacement of the product that they had ordered. Therefore, when consumers return a product, there is a reverse logistic that is involved. After there is a request for the replacement from the consumer, there is a regular last-mile logistics cost that is involved. One has to deliver the replaced products to the consumer again. Therefore, it cost a company thrice; when a regular last-mile logistics cost twice and a reverse logistics cost once. Along with that the consumers today want free or low-cost shipping for reverse mile logistics and regular last-mile logistics. And as there is a lot of competition therefore every company is trying to provide as much as they can and this, in turn, has multiplied cost burdens on the last-mile delivery.
Storage Cost: All the e-commerce companies that are involved in the last mile delivery do incur storage cost and capacity utilization cost. Therefore, the companies should make sure that they are being used efficiently and that the products do not run out when in demand.
The last mile presents a brilliant opportunity for e-commerce businesses to make their administrations efficient, quicker, and transparent. By upgrading the last-mile cost, the e-commerce organizations can likewise reduce expenses, built their brand value, and improve the customer experience. The last mile will consistently remain a critical part of all the e-commerce. Thus, if these organizations need to succeed, grow, and defeat the difficulties of market rivalry and capriciousness then they should work creatively on reducing the cost of the last-mile logistic solutions.