Mario Gamboa
Expert Contributor

Digital Routes Cut Costs on Last-Mile Delivery Planning

By Mario Gamboa | Tue, 07/27/2021 - 12:56

The term “last mile” is often used in supply chain and transportation planning to describe the last part of the process where the product is delivered to a final destination. This field is increasingly being studied since business deliveries have soared due to e-commerce and companies trying to find ways to improve efficiencies and cut costs on their shipping logistics.

This is the most critical step in the delivery process and one that businesses need to control and make sure is as quick and efficient as possible, especially in the food and retail sectors.

The traditional last-mile process is experiencing major disruptions. Customers demand swifter delivery as logistics departments struggle with high volumes, longer routes and less flexibility in delivery time slots. Today, with the help of artificial intelligence, algorithms collect and analyze key business data to provide the most efficient, convenient and quickest delivery route.

Last-mile delivery can comprise up to 28 percent of a good’s total cost, much of which is passed onto the consumer. Automating the last mile can substantially reduce costs and drive efficiencies in the delivery of goods for retailers, according to research from CB Insights.

Big data has a real impact on last-mile delivery. Analyzing it can help identify weaknesses in delivery operations, such as truck weight and height-restricted areas, traffic and changes in fuel prices. Businesses need to evaluate these factors when making decisions.

As new logistics technology is developed, venture capitalists have also taken notice. According to McKinsey, venture capital funds in the logistics arena favor the last mile. Most funding, around US$11.1 billion, was raised by startups offering last-mile delivery services to retailers and individuals. This suggests investors see opportunity for growth on the last mile as companies cope and transform for the “new normal.”

As major consumer changes took place because of the COVID-19 pandemic and foreseeing the “new normal” at their doorstep, one of Intelimetrica’s Top 10 clients, a consumer goods company, was struggling with major disruptions on last-mile delivery logistics. Economic shutdowns, selected store closings and shifts in consumer preferences due to shortages presented challenges with a major impact on last-mile delivery costs.

The company’s main problem was to design a route-planning process focused on prioritizing costs and delivery time. At Intelimetrica, we know distribution and logistics generate billions of structured and unstructured data every day. Artificial intelligence can harness this data to provide significant competitive advantages.

For this project, the Intelimetrica team analyzed key factors, including client orders, in-warehouse merchandise, route distance, traffic predictions, the delivery truck model (based on weight and height per city’s legal restrictions), client delivery schedules, crew members’ experience and availability, and interaction time per client.

Our team delivered a new planning platform that streamlines operations and significantly reduces costs through the automation of route planning for the last-mile delivery process, with special focus on cost optimization.

Today, in 40 minutes, and with the help of artificial intelligence, the company’s last-mile delivery team is able to design — on its own — an efficient route-planning process, through a back-to-back automated route-planning web platform. The main dashboard displays in-warehouse merchandise, client orders, drop-off addresses, delivery truck models, available crews and key route information with delivery recommendations and an overall focus on savings.

Artificial Intelligence algorithms provide much better solutions compared to the statistical models used in the past for last-mile planning, which were based on rule-based solutions. AI algorithms are faster and dynamic and can cater to last-minute changes or demand fluctuations from one point to another.

As more businesses turn to technology to optimize delivery operations, constant innovation will drive efficiency and profitability in route planning. Staff will be able to focus on different tasks such as face-to-face interactions with clients, which also provides valuable data to be further analyzed.

The project’s first phase has presented extraordinary results: the company registered 75 percent gas savings on last-mile delivery routes based on an in-depth data analysis of both the delivery truck’s equipment and the merchandise’s weight and volume. It has also achieved a significant 25-minute reduction time per route to market, and 75 percent less time on route delivery planning and delivery fleet optimization by using low-cost trucks more frequently. All these results add up to provide an overall 14 percent savings on the last-mile route-delivery planning.

By combining the company’s commercial and distribution and logistics data and providing it with back-to-back transparency, the organization discovered key business insights to boost innovation and its competitive advantage. This, in a nutshell, is the power of data.

Photo by:   Mario Gamboa