What’s Hurting the Last Mile of Your Supply Chain?
Managing the last mile can be costly, accounting for up to one-third of the total cost of a product, according to a report from Business Insider. In some cases, it can account for more than half of overall shipping costs. It can also be the most inefficient part of the entire delivery process, and can make the difference between a profitable venture or a money-losing business.
In a recent survey we conducted, 72% of 11,246 last-mile delivery businesses reported they are still planning the routes for their delivery drivers manually. In addition to being incredibly inefficient, using tools like Google Maps or spreadsheets to plan routes adds to supply chain cost inflation.
The good news is that there is a growing trend to stop this kind of waste. Many businesses are realizing how manual route planning is hurting their bottom line, and hurting the environment on an egregious level.
What Does Manual Route Planning Look Like?
When delivery businesses report using “manual” methods to plan delivery routes, they often admit to using tools like spreadsheets, pen and paper, and Google Maps.
The problem with these tools is that they require a great deal of time and effort (and an awful lot of hair pulling) to get the final results you need. Delivery businesses report spending hours — and sometimes days — planning efficient delivery routes with these tools.
Poorly planned routes — or worse, not planned at all — can lead to a lot of wasted drive time and fuel, resulting in extremely thin margins and potentially even a money-losing business. Here’s an image to illustrate the importance of good route planning:
How Bad Route Planning Impacts Your Team
When a business plans delivery routes manually, the impact can be felt by every team member in your company, from management to drivers to your end-customers.
Logistics Managers: As your business grows, many last-mile delivery businesses will hire a logistics manager. This person is often accountable for everything from warehousing to transportation to customer service. Though route planning may fall under their job description, having your logistics manager spend all their time tinkering with delivery routes is not the best use of talent and your company’s resources.
Logistics managers will need to roll up their sleeves and get their hands dirty, but they also need the time and headspace to be strategic about their work. Manually planning routes is a time sucker that prevents logistics managers from being truly effective.
Delivery Drivers: Sending delivery drivers criss-crossing around town or circling back to complete their delivery routes are bad for your bottom line, often in the form of too many vehicles in your fleet, wasted fuel and driver wages for longer-than-necessary routes. It’s also bad for driver morale.
Businesses often overlook how unhappy drivers reflect poorly on your brand. For any delivery business, your drivers are literally the face of your brand and the only real face-to-face touchpoint your customers have with your company. You want to make sure your delivery drivers are leaving a good impression, and you want to avoid the cost of employee turnover. Just replacing your drivers can cost somewhere between 16% to 20% of their annual salaries, but that doesn’t even include all the indirect costs: ramp-up time, lost productivity, wider impact on the morale of your team and more.
Customers: While end-customers aren’t technically part of your internal team, aligning your business goals with customer happiness is key to growing your business. But inefficient routes prohibit you from promising on-time deliveries. This kind of experience alone is enough to cause a customer to churn. Not to mention that inflated delivery costs can turn up to 38% of potential customers away.
How Can I Lower My Last-Mile Supply Chain Costs?
First and foremost, you’ll need to pay attention to your cost per delivery. Your production cost aside, your cost per delivery is often the largest cost driver in your unit economics. It’s also one you can improve upon significantly by paying attention to something called your route density.
To calculate your route density, you’ll need to ask yourself the following questions:
- Delivery volume: How many orders do I need to deliver per day?
- Delivery area: What geographic areas do I deliver to?
- Delivery days: What days of the week do I offer home delivery?
- Delivery time windows: What time of the day do I offer home delivery?
Optimizing these four factors will help you run your business more efficiently and profitably.
It’s also important to think about the impact your business is having on the environment. Delivery vehicles are essential to your work, but the same vehicles account for nearly one out of every 4 pounds of carbon dioxide produced in the United States alone, according to a report by the Union of Concerned Scientists. The report notes that delivery vehicles, with their larger engines and extended driving hours, contribute carbon dioxide more than other vehicles.
As a business directly in control of these vehicles and local supply chains, it is your responsibility to find ways to reduce waste in this space. Luckily, taking steps to reduce inefficiencies in your supply chain will result in a smaller carbon footprint. That’s a win-win for both your business and the planet.
Adopting route optimization software is also critical to your success. As your business grows, route planning will inevitably become too complex to manage using tools like Google Maps. No human can factor in things like customer time windows, vehicle capacities, driver schedules, without some mental gymnastics. It’s the kind of mathematical challenge that is best left to algorithms to figure out.
Suzanne Ma is co-founder at Routific, a route optimization solution that helps businesses plan and optimize delivery routes in minutes.