Last Mile Delivery Levers: Formulating a Well-rounded and Customer Centric Strategy

Building further on from the previous editions of last mile hub operations, we will now deep dive into last mile delivery operations.

I, personally, hate the word 'rider'. In literal terms, a rider means a person riding so I feel that the term does not capture the essence of the work at hand and therefore, I like to refer to them as delivery agents (but for ease of reference, I will use the term 'rider' in brackets). In this day and age of electronic communications, technology and quick commerce, where most likely the only in person interaction that the customer ever has with the company is through its delivery agents (riders) makes them the most important part of the business.

To set some context, when a package is dispatched out for delivery, there are 4 possible outcomes; delivered, rescheduled, rejected and damaged/lost. Last mile delivery has 2 broad overarching topics; Delivery Agent (Rider) Experience & Customer Experience.

When we touch upon delivery agent (rider) experience, it is important to have a well thought out plan for their journey which would include induction and onboarding, daily interactions, performance and off boarding, where required. In a world where delivery businesses are increasing rapidly and every business is competing for the same pool of finite resources, retention becomes a key. A compensation package, which provides a sustainable level of income, is critical. On the other hand from the perspective of the business, productivity is key and therefore an appropriate mix of fixed plus variable compensation can help derive a win-win situation. Let's not forget to ensure that high performers are well rewarded to get the rest to aspire to be able to get there. Different countries and markets have varying pay structures due to regulations and competitive forces therefore there is no one model that works for everyone but rather it is an iterative process to work with low performers and continuously moving the needle on the average performance metric. Another important aspect from a delivery agent (rider) standpoint is the potential for growth opportunities within the company. A progression cycle for someone who joined as a delivery agent (rider) allows for long-term viability and contributes towards retention.

Customer experience, has to do with different aspects of the customer lifecycle journey. Which simply means, it does not just mean handing over the package to the customer but rather an end-to-end experience. This will start with relevant, simple and timely notifications for the customer, appropriate attire for the delivery agent (rider), compliance with communication protocols between the business, delivery agent (rider) and the customer (this might seem to be taken for granted because not all markets are the same), handling of payment if it is a COD (cash on delivery), swipe on delivery or an alternative payment method and last but not the least is the awareness of the delivery agent (rider) with the processes (return, rating etc) if the customers enquires. In markets where COD is a norm, cash management (ensuring correct change) is also something that requires attention. Turning up without the appropriate change would either mean an additional trip to arrange for it, expecting the customer to forego the amount, which is not an ideal situation or the customer rejecting or rescheduling the order.

Understanding the Economics

When we compare last mile deliveries (of non perishables) like for e-commerce companies (like Amazon and Alibaba) with that of food or grocery deliveries, a key difference is of stacking. 'Stacking' is where multiple orders can be allocated to a single delivery agent (rider) to deliver consequentially. For deliveries of food and groceries which run the risk of running cold, defrosting or deteriorating in quality, and therefore are time bounded, companies cannot apply stacking at last mile without setting up an end to end cold chain supply chain.

Not being able to apply stackability results in lower utilization of the fleet and delivery agents (rider). This directly impacts the business economics because the increase in orders is directly proportional to the requirement of fleet size and thereby costs. Whereas on the other hand, where stacking is possible there is a constant battle to draw a line in defining the ceiling of the numbers of packages delivered per delivery agent (rider) per hour without compromising the health and safety of the individual. Route optimization and demand density can significantly contribute to higher productivity which can be achieved through better network planning.

Productivity or delivered packages at the fleet and agent level is essential to ensure maximised productivity. Having the right performance metrics paired with the right incentives are key to achieving desired results. However, in countries with weaker or non-existent regulations, it is easier to get carried away by companies continuously pushing delivery agents (riders) to carry more than they can handle in their respective vehicle (breaching all health and safety regulations) in the greed to enhance the last mile economics. The key is to plan the network in a way that allows for multiple trips whilst minimising 'stem time'.

'Stem' time is the time it takes the delivery agent (rider) to reach the first customer from the last mile hub and the time back from the last customer to the last mile hub.

Key Metrics

An understanding of the key metrics is critical since that helps drive the business in the right direction. Different countries and regions can have different metrics based on varying market conditions and challenges. Below are some of the key metrics (related to performance and cost) widely used across the industry for e-commerce and q-commerce businesses. Keep in mind; these metrics will also vary with business models (full time vs part time delivery agents/riders). The fundamental idea behind a key metric remains the same; you cannot improve what you cannot measure.

Once you have the KPI's defined and the targets set, then starts the actual journey of continuous improvement. The beauty of last mile is, every effort will directly impact customers. As much as it sounds appealing, it is equally difficult to manage if something does not work in our favour.

With growing challenges of scalability pertaining to last mile deliveries, various alternative last mile opportunities have come into play which include last mile lockers, self pick-up, autonomous robots or drones and crowd sourced delivery platforms. Robots and drones at this point might seem like a good-to-have but are already being adopted on limited scales and in upcoming years, as more and more use cases and research hours go into it, they will become more widespread. To shed some light on the size of one of the opportunities, the global smart parcel locker market size was approximately $700 million+ in 2021 and is expected to grow up to approximately $1,800 million+ by 2029 (Source: https://www.statista.com/statistics/1225862/global-smart-parcel-locker-market-size/#statisticContainer)

Let's not forget, until a few years ago, self driving cars also seemed like a dream so everything is possible. Had I not witnessed Tesla's auto-drive feature first hand, I would not have developed such an appreciation for the impossible myself.