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Last Mile Carrier Procurement: Budgeting for Fluctuating Costs in the Changing Environment

July 5, 2022 | | Business Insights

With a fast-changing market and predictions of increased demand, lagging in adaptability and forethought will have you falling behind the pack in no time. You need to build a delivery strategy that accommodates and anticipates shifting conditions.


It’s no secret that the Covid-19 pandemic has placed shipping and supply chains under severe pressure. Last mile delivery now comprises 53% of overall shipping costs, and up to 41% of total supply chain costs! This has also become the most time-consuming part of the shipping process.

Unlike large-scale shipping, in which bulk product volumes are delivered to a single location, last mile shipping involves numerous individual packages destined to unique locations. Logistical planning therefore has to account for more trips, varied locations, complex routes, a larger fleet of delivery vehicles, more drivers (for fewer items), and individualized delivery scheduling—no small feat.

Considering the current supply chain crisis, strategic and operational changes are imperative in today's uncertain climate. Pre-pandemic strategies and budgets are no longer relevant, and need restructuring to retain relevance in the market. How can you plan ahead for the coming year, and remain flexible in an ever-changing environment?

First Things First, Analyze Your Data

Supply Chain

The growing popularity of e-commerce in 2017 and 2018 led to 67% and 33% increases in B2C and B2B last mile delivery demands, respectively. In 2020, at the onset of the pandemic, last mile delivery then increased a further 25%. This explosive growth posed many challenges for companies that were not logistically or technologically prepared for a sudden increase in demand.

Fifty-five percent of consumers say that they are likely to switch brands for faster delivery, and 24% are even willing to spend more to qualify for free delivery.

Considering these figures, it makes sense that 46.8% of retailers are investing in improved delivery logistics. Tracking data to identify trends and inefficient methods will help you implement effective strategies to eliminate profit-eroding costs.

There are a number of key performance indicators to track in your business operations. For example, you need to assess the rate at which you meet consumers’ delivery demands relative to the options you provide. Timing, flexibility, and speed is also crucial. Meeting consumer needs before they opt for another supplier (at the click of a button) is imperative to your success.

To improve your service and reduce costs, you also need to analyze delivery route efficiency, length, and traffic volume. Consider how much time is wasted dispatching drivers, assigning deliveries, and re-running deliveries. Auto-dispatch technology, route optimization software, and digital proof of delivery can all save you a significant amount of time and money.

Supply Chain

Rethink Your Last Mile Carrier Methods in This Changing Environment

So, you’ve analyzed the data and identified where in the delivery process your time, resources, and funds could do with optimization. Consider whether there is a different last mile carrier that can help you maximize your resources.

Adapting to current trends can position you as an industry leader. Assess different popular or up-and-coming models, and how each might benefit your delivery service and bottom line. Are you current with some of the following trends?

Step-By-Step Tracking
This not only allows your customer to track their package in the pipeline, but allows you to monitor successful deliveries.

In-House Delivery Service
As opposed to outsourcing delivery, an in-house department allows you to expand your services and maintain control over costs, delivery times, and customer service.

Gig Economy / Crowdsourcing
Employing freelance workers and contractors for delivery, using their own vehicles, allows last-minute scheduling and increased options. Venture capitalists are currently investing heavily in the technology to make this model more streamlined and efficient.

Autonomous Delivery
Labor accounts for 60% of last mile carrier costs. If you can cut labor costs, you can make a big dent in your expenditure. Robotic delivery such as self-driving vehicles or drones not only relieve labor costs, but also solve availability and scheduling issues and minimize downtime. Autonomous delivery bots and vehicles are not yet fully available, but eventually may be an industry game-changer.

This only requires only a few smart tweaks on your part. With smart and predictive intelligence technology and data analytics, you can offer free shipping with larger orders, make strategic suggestions, and grow a loyal customer base with benefits. Your business will benefit by selling more without increasing delivery costs.

Weigh Costs with Benefits

It may be tempting to go with the cheapest option for last mile delivery. But in the long run, this can sometimes do more damage than good. When choosing a delivery service partner or method, remember that the delivery service will be perceived as a representation of your business—whether this is truly the case or not. If there is a problem with delivery, the client will most likely contact you first.

How can you avoid this scenario? Check customer ratings, real-time tracking capabilities, and service areas and compare this with the cost savings. Is a lower delivery cost going to result in an unhappy client that will switch providers? If the delivery service is excellent, customers will pay again assuming they will receive that same outstanding service. If not, you may lose a customer for life.

Supply Chain

Look and Plan Ahead

With a fast-changing market and predictions of increased demand, lagging in adaptability and forethought will have you falling behind the pack in no time. You need to build a delivery strategy that accommodates and anticipates shifting conditions. For example, in this environment, a decentralized approach with a network of mini-warehouses can offer faster delivery times, support seasonal surges, and lower costs.

Two important tech solutions to consider are inventory management software and cloud multi-carrier shipping software. These solutions set you up for future success by tracking inventory in real time, meeting customer expectations for visibility, improving warehouse efficiency, and providing analytics to respond to market shifts. In addition, you can automate multi-carrier, omnichannel shipping according to point of origin, destination, and carrier contracts.

Next Steps: Reach Out to a Financial Partner

Having a financial partner with deep industry expertise can help you strategically navigate the changes during these uncertain times. Illinois Bank & Trust, a division of HTLF Bank’s experts can help you grow your business while adapting to changing trends.

Illinois Bank & Trust, a division of HTLF Bank is here to support your financial needs so you can focus on the business, knowing that you’re in good hands. Contact a financial partner today to align your financial and business strategy with your growth goals.