This video of a kid unpacking a bag of toys has received over 290 million views in less than two years. Just to put that in perspective, think of the song “My heart will go on” by Celine Dion. This song, which was absolutely all over the place in its heyday, has only had about 69 million views to date on Celine Dion’s official channel.
That’s right—this is the world of “unboxing” videos where products get unwrapped, opened and torn from their packages to the evident delight of millions of viewers. These videos routinely feature in the Top 10 spot of most watched YouTube video lists.
So what does all of this have to do with my post on last-mile services (the end-stage logistics involved in getting ordered goods to the consumer and other associated services such as returns)? Well, all of these videos drive home one undeniable fact— that the moment of truth when it comes to buying a product is when you get the package in your hand and can interact with it. This is the stage at which the most powerful brand experiences are being created. For retailers, this is the stage where customer relationships are made or broken. If the road to getting that package into your consumers’ hands is not smooth, if it makes them wait too long, or has them chasing after you, you have already created a powerful negative experience—one that is likely to be remembered.
As mentioned in the report Rethinking the Value Chain: New Realities in Collaborative Business, the path to purchase is no longer linear and could involve social media, an app, web-based research, an in-store visit, an online purchase or any combination of these. A large part of this evolving behavior is facilitated by technology and driven by a growing desire for convenience. After all, the whole point of being able to shop from anywhere is the promise of convenience it carries. And it is the physical delivery of the order which completes the transaction and actually fulfills this promise. A delivery experience that negates this implicit promise can therefore be extremely off-putting for consumers.
These two factors, i.e., this desire for convenience and the disproportionate importance of the moment of delivery both serve to make the last-mile very important for consumers as well as retailers. As the Capgemini Making the Last Mile Pay whitepaper states, “the last mile is where consumer relationships are made or broken”. Last-mile services have become pivotal to brand choice.
And societal trends are only reinforcing this importance. According to the UN, urban-based economic activities account for up to 56 per cent of gross national product (GNP) in low-income countries, 73 per cent in middle-income countries and 85 per cent in high-income countries. More than half of the world’s population lives in urban areas today.
These densely populated urban spaces offer huge potential for the long-term growth of Retail and Consumer Product companies. However, the hurdle to unlocking this potential is the last mile. At present, companies struggle with a number of challenges in this area.
One of the biggest challenges they struggle with is the cost of servicing the last mile. Driven by the twin forces of increasing competition and rising customer expectations, companies today are being forced to offer more for less. Think about overnight deliveries, which were once the pride of online retailers. Today, this option is expected as a given. Any retailer that does not offer this stands to lose customers to retailers that do.
To quote directly from the Capgemini Last Mile whitepaper:
“To differentiate anew, leaders have had to up their game with same-day or on-demand’ services—from drone deliveries to advanced “click and collect” options using nearby convenience stores, intelligent lockers in underground train networks, and even drop-offs to consumers’ cars.
But all of this responsiveness and customer-centricity comes at a high price. Consumer research suggests that although customers expect their increasingly demanding needs to be met, they are not prepared to pay more for the improved level of service.”
The rising cost of meeting customer expectations is not the only challenge these companies face. Other challenges that disrupt global last-mile operations include:
- Operational challenges: Most of the growth in urban areas has taken place in the developing world and this trend will continue in the future. This throws up unique challenges for last-mile operations. The pre-dominance of mom-and-pop stores and small retail outlets in these countries means that retailers are forced to replenish inventory more frequently as such stores can typically hold only a couple of days’ worth of inventory. Other issues particularly prevalent in urban areas include things like inadequate infrastructure, traffic congestion, and complex city planning and regulations.
- Supply Chain planning challenges: In trying to be responsive to customer needs, companies today are struggling with capacity planning and utilization. The traditional, linear supply chain of yesteryear is no longer able to adequately cope with rising customer expectations for speed, customization, and flexibility in delivery.
- Demand fragmentation: The dramatic growth of ecommerce and more consumer segments with varying needs has led to increasing competition and the consequent fragmentation of demand. Companies now need to be ready to meet the demand for “mass customization”.
Last-mile services are a huge area of opportunity as well as a challenge for Retail and Consumer Products companies and their importance is only going to grow in the future. As companies come to grips with this challenge, a number of different innovative approaches are being tried across the industry.
Let’s take a look at some of the ways companies and the industry are addressing last-mile challenges in a global marketplace:
- Innovations driven by technology: New and emerging technologies are already transforming the industry and creating new models for last-mile service. A host of new and upcoming technologies hold game-changing promise for the future, especially when it comes to last-mile services. Some of these up-and-coming trends as pointed out in the Rethinking the Value Chain report are:
o The Internet of Things
o New means of autonomous transport such as driverless cars
o Smart, mobile and wearable devices
o Social networks
o Virtual, augmented reality
o 3D printing, robotics, etc.
One can easily see how the Internet of Things with its major implications for digital tracking and tagging of parcels, vehicles, sorting equipment, collection points and even humans, can lead to radical innovation in the field of last-mile services. Similarly, at Capgemini, we can clearly see a future where 3D printing might allow customers to create on-demand products within the last-mile itself.
Such innovations are not just the stuff of science fiction. The future is already here and a number of innovations driven by technology are making the last mile smarter, faster and more agile even as we speak, or type, or read, or….but you get the idea!
For instance, players like Amazon and Walmart have sought permission to deploy drones for faster delivery while Google has plans for driverless delivery trucks. Each of these companies have their sights set on the last mile, not only because of the potential to strengthen customer relationships, but also due to the opportunity to capture rich data about consumers’ purchasing habits and personal preferences.
Companies such as Parcelhome are already offering smart mailbox, locker and pod solutions (with built-in sensors and Internet connections) – giving customers more remote control as well as real-time information about deliveries made to their homes. These technologies not only allow consumers to avoid the hassle of missed deliveries and prevent the mounting costs of return visits by the shippers but they are also being used to ease returns. In addition, companies are also exploring the possibilities of using such smart mailboxes to enable utility and service companies to receive parts quickly and closer to the point of need.
Open-source technology and commercial augmented reality tools allow creation of more intuitive delivery simulation models which can be used as powerful management and training tools. Similarly, collaborative plug and play technology also allows agile response to rapidly changing urban consumer demands. For instance, crowdsourcing of last-mile services are becoming increasingly popular in the US and growing in other global markets. These on-demand, socially networked services, such as UberRUSH, are made possible by the convergence and prevalence of online, mobile and social technologies.
- Innovative Partnerships and Collaborations: It is clear that future success will increasingly require a shift from traditional, linear value chains towards more collaborative, agile and responsive value networks. These networks will be made up of dynamically connected “plug and play” business technology and relationships between retailers, brand manufacturers, logistics providers, suppliers and organizations from other sectors, including government and civic bodies.
To meet growing consumer demands for availability, convenience and choice without incurring prohibitive costs, companies clearly need to be flexible about partnering with other key players when necessary. We are already seeing this across the industry in the form of a number of innovative partnerships.
For instance, in Germany, DHL Parcel recently joined forces with Amazon and Audi to enable items to be delivered quickly and securely to customers’ cars.
Meanwhile, Google Shopping Express will be partnering with Uber for same-day deliveries, with Google maintaining pricing, the storefront and merchant partnerships while Uber provides the drivers through their UberRUSH offering.
Similarly, Ocado, a UK-based grocery retailer which operates solely online, now licenses its warehouse infrastructure and technology to other retail chains such as Morrisons. In this way, Ocado is able to monetize its operational efficiencies while Morrisons has been able to launch a best-practice online fulfillment service at speed and for a fraction of the cost of starting from scratch.
Companies are also partnering with civic and governmental bodies to provide community services, with The Coca-Cola Company being a case in point. It is partnering with the Global Fund, USAID and The Bill & Melinda Gates Foundation, on a “Project Last Mile” initiative to deliver vital medicines and medical supplies to hard-to-reach communities in Africa.
All of these partnerships acknowledge the simple fact that it’s simply not cost-effective or efficient (in the operational sense) for companies to try and meet the rising demands of all their consumers by going it alone. Companies across the retail and consumer products sectors must address the question of which areas they need to collaborate in and which areas they tackle proprietarily, for competitive advantage.
- Innovations in operational processes and completely new models and companies: Basic operational processes are also evolving. Today, the boundaries between physical and virtual stores are increasingly blurred and the expectation among customers is that they should be able to glide seamlessly between physical store, mobile and website with access to the same information, inventory, offers and services.
In response to such demands, models such as “click and collect”, “pick and deliver” and “click and deliver” are all becoming increasingly popular.
For instance, consider the case of French retail giant Auchan, which was one of the pioneers in “click and drive”. Its innovations include a hybrid model that allows grocery customers to scan products in the store , add them to a virtual shopping cart and collect them at the supermarket’s “Drive” point. Such innovations have proven to be increasingly popular with French consumers while in Singapore, busy consumers have come to prefer the convenience of being able to collect their goods from pre-designated locations.
This mixing of online and offline channels is just one example of innovations in operational processes. Many companies are investing in multi-tier distribution systems where distribution facilities and options are located within urban city limits to add flexibility and speed to their operations. Such in-town distribution options could include mobile warehouses at strategic locations throughout cities or bigger trucks designed to rapidly offload to smaller, more agile delivery vehicles at designated points within cities.
Mining and modeling of enterprise wide data is also leading to better and more efficient operations. Companies already routinely collect a wealth of data on factors such as vehicle movement, time spent on route and product sales which can be married with other available data derived from sources such as GPS locational data, and transactional and census data to build highly detailed and useful urban delivery operations models.
Meanwhile, the boom in mobile and online businesses has also brought forth a host of companies offering unique models that target specific parts of the last-mile challenge. Such examples include two US-based companies, Deliv and Doorman, which address specific pain points for customers. Deliv offers advanced flexibility in delivery, while Doorman targets office goers by providing midnight deliveries.
We live in exciting times. The world is changing and last mile reinvention is absolutely essential if companies are to keep up with consumer demand in high-growth urban markets. As referenced in the Capgemini whitepaper Making the Last Mile Pay, companies must develop capabilities in the following areas in order to survive and thrive:
- Integration and co-ordination across partners, within and outside the industry
- Plug and play adaptability and modularity in business applications
- Distributed order management
- Orchestrated returns
In today’s blog post, I have covered some of the current innovations and trends which are relevant to all companies in the last mile. To get a better idea of the bigger industry picture and a clear outline of what companies need to do to succeed, I would strongly suggest checking out the following:
a) Collaborative Consumer Goods Forum and Capgemini report Rethinking the Value Chain: New Realities in Collaborative Business
b) Capgemini whitepaper on Making the Last Mile Pay
This article was written by Kees Jacobs from CapGemini: Capping IT Off and was legally licensed through the NewsCred publisher network.