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Five effective ways to reduce last-mile delivery costs

Roxana

Last-mile delivery is one of the major costs that companies have if you break down the costs of the supply chain as a whole. One of the most efficient ways to deal with this and reduce last-mile delivery costs would be to implement a last-mile delivery platform. We’ll get there in a bit.

Last-mile delivery logistics can cost a small business a small fortune over time as it bears over 35% of the total supply chain costs. The growth of e-commerce has led to a 33% increase in B2B last-mile delivery demand and an over 60% boost for B2C businesses in the last two years. Knowing this, companies need to make any adjustments to reduce their costs. Now that the increased volume of last-mile deliveries made keeping costs and efficiency under control, brands need to pay extra attention to delivery options. Customers are increasingly demanding with delivery times. But are more willing to pay extra if their order’s delivery can be faster.

As a business owner, you should spend time understanding the delivery mechanics and systems to improve efficiency and reduce the costs that are shrinking your profit margins. This is a factor that will determine if customers will go to find another seller with better options.

What’s driving up last-mile delivery costs?

Labor costs

In 2020, the estimated average hourly rate for drivers is around $18. Industries are very different with specific needs, and a good route will aim to deliver around three or four deliveries per hour. On a busy day, deliveries can be closer. Hence, labor costs for $10 deliveries make up to 60% of the costs.

Fuel

Last-mile deliveries are both urban and rural, and customers living in the suburban areas are increasingly demanding. Taking into consideration the average distance drivers need to drive and assuming a $2 per gallon of gas and about 20 miles driven per gallon, the fuel costs account for about 10%.

Packaging

Products have to be delivered safely to customers and for this, specialized packaging is required. They can range from coolers, pizza boxes, crates, to different size boxes. Regardless of the industry, packaging will be needed, which takes about 10% of the costs.

Software platforms

Businesses are becoming more and more aware of the necessity of using digital products to increase the efficiency of the processes. These tools can be for internal communication, ERP, payroll, sales, analytics, or delivery management software 😉

Others

Deliveries are full of the unexpected, so having a buffer is recommended. These costs can include repairings, warehouses, sorting, refunds, and many more.


Two-thirds of online buyers abandon the cart due to high shipping costs. 36% of them do so because “shipping takes forever”. Finding the balance between customer expectations and keeping a healthy profit margin is on every business owner’s mind because an astounding 26% of the profits could decline if companies don’t find ways to optimize their processes and costs.

Here are five ways to minimize last-mile delivery costs without reducing customer satisfaction:

  1. Plan & prepare the delivery the right way
  2. Optimized routing and mapping
  3. Automation of the dispatch process
  4. Live tracking
  5. Reports and Analytics

Plan & prepare the delivery the right way

Doing your planning and being industrious with your resources is one major step forward in making your last-mile delivery process more efficient. This results in better ETA, faster deliveries, and better vehicle utilization. Every minute you save has a compounding effect over time which yields lower costs. Make sure not to run empty vans. There are too many vans returning empty from delivery, so combining deliveries and pick-ups it’s good.

When you are managing deliveries by assigning tasks to the best available drivers, you cut costs and get better control of the fleet.

Optimized routing and mapping

Using a route planner to optimize routes is one of the most efficient ways to reduce last-mile delivery costs. Route optimization software determines the most optimal routes and will assign tasks based on constraints like delivery time windows, number of drivers, and more. The best delivery routes will reduce operational costs and fuel consumption by allocating your resources most efficiently.

Automation of the dispatch process

If multiple drivers are present near the same customers, it’s difficult to decide who needs to pick up the orders manually. Special algorithms should be incorporated in the route planning process to figure it out efficiently. The algorithm checks many parameters to make sure the costs are at the minimum possible, known as delivery dispatch. Send off the right drivers to the right address with each delivery, without any manual intervention.

Live tracking

Today, transparency is key to reduce rejected deliveries and any misunderstandings. Excellent businesses offer real-time updates on each delivery, which comes with the benefit of taking the customer experience to a higher level. The administrators of the logistics software should be able to easily send customized notifications about the packages. Some notifications can be automatic, like the ones about the estimated time of delivery. Customers can check the status of each of their orders, ETA, and real-time location. When customers are aware of their delivery status, they are able to correctly receive the packages, reducing the number of failed deliveries.

Reports and Analytics

Any business should measure the results against key performance indicators. Administrators of the delivery software can consult a list of reports to analyze. This makes it easier to make decisions to reduce costs even further, in the short and long term. Reports in Logistia can show data about orders, deliveries, or products. They can be viewed by the week or monthly.

Bonus: More delivery options decreases last-mile delivery costs

You may be thinking offering more delivery options only increases the costs, but reality shows it can actually reduce last-mile delivery costs. Allowing customers to choose between speed, convenience, and price, increases customer satisfaction.

The same-day delivery model, although popular, is not a good choice all the time. For example, customers who work most of the day and only return at night will not benefit from the feature. In this case, the driver will rush to the destination during working hours only to not find the recipient.

Statistics revealed the following are the experiences customers would like to have in the delivery process: 

  • More than 73% of people preferred convenient time slots rather than a faster delivery service
  • 51% of people wanted real-time visibility of the packages
  • 65% of people wanted the delivery agent to be more flexible
  • 61% of people wanted more speed in the delivery process

Final takeaways

Last-mile delivery is a complicated, but necessary system that is responsible for the efficient delivery of packages. Because it is complicated, people do not understand what are all the costs in the system. Even if you follow each of the techniques mentioned here you will still have some unexpected last-minute contingencies that might slow your supply chain process.

You cannot ever predict what is going to happen and 2020 is the best example!
However, these techniques help when put in place because they help you influence and control your operations. Start looking at your own operations and see if there are ways to make improvements. Every little bit counts.

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