Driving Cost out of the First Mile
The value of end to end supply chain visibility is undeniable but for the majority of retail, wholesale, 3PL and manufacturing organisations today, the difference between the first and last mile could not be more stark. The last mile is fast, efficient, effective and transparent; leveraging real time optimisation, mobile devices and the cloud to deliver end to end visibility, enhanced customer service and cost control. The first mile is not optimised, invisible and inherently inefficient. Reliant on spreadsheets and a paper deluge, it is an operational black hole. One supply chain; two fundamentally different standards.
While to date failure to automate this aspect of the supply chain has been justifiable due to concerns regarding cost, difficulty and fear of disruption, next generation cloud based Transportation Management Systems (TMS) change the game. As Craig Sears-Black, Founder, Inolog, explains, with one day implementation, subscription based pricing and Facebook style intuitive interface, organisations can finally start to eliminate significant cost from the first mile and create a truly joined up supply chain.
Customer expectations have clearly played a part in the decision to prioritise the transformation of the last mile. The use of route optimisation tools and mobile apps to eradicate paper trails has been essential to achieve the next, even same, day delivery combined with real time tracking customers now demand. Coming hard on the heels of the overhaul within many warehouses and distribution centres, where fully automated centres and picking optimisation have significantly reduced errors and improved productivity, the ‘warehouse to customer’ end of the supply chain is now incredibly efficient. Organisations can deliver great service to customers, and with full visibility at every step of the process, the cost to serve is also well understood and managed.
In contrast, the inbound logistics model remains rooted firmly in the last decade – if not the one before. A combination of the sheer complexity and need to focus on customer experience has led to most organisations shelving any attempts to improve the first mile process. Replacing fixed long term carrier contracts with a more dynamic approach to carrier selection based on business rules has been the domain of the largest shippers and raised the spectre of multi million pound investments, years of upheaval and a significant risk of disruption. In essence: too difficult, too complex and too expensive.
Yet with increasingly economic uncertainty, global currency volatility and escalating competition, this lack of standardisation across the supply chain is becoming a serious operational concern. Not one of the now standard aspects of efficient last mile supply chain operations are being achieved in the first mile. One supply chain; two fundamentally different models.
End to End Risk
In contrast to streamlined last mile and warehouse operations, the inefficiency of the first mile is stark. Where is the control? The cost model management? Or ability to track carrier performance to Key Performance Indicators (KPI) ranging from cost to emissions, on time delivery to order completeness? How can organisations even attempt to address the huge environmental impact and operational cost associated with the empty miles created by running part-loaded trucks along inefficient routes?
Organisations cannot afford this lack of control or visibility. Not only are unnecessary costs being incurred but there are potential knock on effects on the last mile – especially for manufacturing companies and those with long lead times to get goods from the Far East, for example, into UK distribution centres. From potential short orders leading to out of stock situations which affect customer service, to a complete lack of visibility of inbound supplies, inefficient first mile logistics is not only adding cost but risks undermining performance across the rest of the optimised supply chain.
The first mile remains mired in paper. While last mile delivery drivers are armed with mobile apps, electronic information and proof of delivery, plus optimised route, in the first mile, carriers rely on reams of paper documentation that spans driver information and consignment details.
In addition to the errors and inefficiency inherent within this manual process, there is clearly no opportunity for real time tracking; no visibility of carrier performance; and limited insight into stock location. Efficiencies that are a given in one part of the supply chain are not even considered in the other and this lack of standardisation needs to be addressed. Rapid Implementation
With the focus now turning firmly towards squeezing cost out of the business, the onus is on organisations to embrace a far more dynamic, efficient model, using real time visibility to allocate work to the right carrier at the right time, based on criteria ranging from lowest cost to best service and opportunity to minimise empty miles. The key to achieving this transformation is ease and speed of implementation. A cloud based Transportation Management System (TMS) eradicates any need for complex, expensive and disruptive implementation. Combining Facebook style user interfaces to minimise training requirements with a subscription based investment, organisations can embrace an automated approach within days, rather than months or years.
Using this approach an organisation can rapidly deploy a new TMS, set up customers, locations, shipment contracts and carrier contracts – even an inexperienced user can intuitively enter orders and allocate jobs to a carrier. One of the essential components of this solution is the eradication of paper documents. With a simple app downloaded onto each driver’s phone, including GPS tracking and optional signature capture for proof of delivery, the carrier can provide real time shipping information.
As soon as a delivery has been made, the invoice can be automatically generated by the carrier – reducing errors, improving cash flow and removing the need for expensive paper processing. For the organisation, with automatic invoicing matching against purchase orders, only exceptions need to be manually handled – the entire process is slicker and more efficient for both shipper and carrier.
This is the key to transforming this complex first mile process and creating an efficient, standardised supply chain - it is a win: win for everyone. The mobile app makes it incredibly easy for the carrier to provide the organisation with the information required – from departure time onwards – and radically reduces the carrier’s data processing costs. For the organisation, this real-time information completely changes the way in which the first mile process can be optimised to significantly reduce costs.
With real-time visibility of carrier performance, organisations can select the best carrier service based on specific KPIs – from reducing cost to minimising mileage and emissions and avoiding empty miles. This model enables organisations to move away from a reliance on a small subset of big carriers to embrace smaller, more nimble firms who may offer a better service in specific local areas.
By streamlining the order collaboration, communication and transportation management process, organisations have the ability to determine the most efficient and cost effective way of moving goods through that complex first mile of the supply chain. From an average 10% reduction in costs to meeting environmental targets for emissions reduction, the immediate benefits are clear; and the big picture value is unarguable, as the vision of end to end supply chain visibility, standardisation and optimisation – can become a reality.
Follow @SupplyChainD on Twitter.
DHL and UPS: How is 3PL Evolving in 2021?
To optimise their supply chains, many companies have turned to third-party logistics providers—3PLs—to outsource how they manage inventory, stock warehouses, fulfil customer orders, pack pallets, and handle returns. Especially in the midst of the pandemic, corporations have struggled to satisfy their customers, mitigate shipping delays, and react to rapid spikes in demand. In short: if logistics isn’t your core competency, rely on the experts.
To examine the current state of 3PL, we decided to have a quick roundtable with Philippe Gilbert, President of UPS Supply Chain Solutions, and Phil Roe, Chief Customer Officer and Strategy Director at DHL Supply Chain. Here’s what they have to say on the subject:
What are the fundamental benefits of partnering with a third-party logistics provider?
‘Proper supply chain visibility and planning is one of the key challenges facing modern supply chains’, says Phil. ‘Supply chains now cover multiple jurisdictions across significant distances. They’re also omnichannel, meaning that it’s now standard practice for there to be multiple routes to the customer’. Philippe adds that, ‘3PLs can deliver efficiencies and resources across the supply chain that are difficult for most businesses to replicate’.
According to a study from UPS Global Logistics, five major challenges drive companies to outsource:
- Limited Space
- Increased Customer Expectations
- Faster Order Fulfilment
- Reduced Labour Costs
- Multiple Fulfilment Channels
Now, the pandemic has accelerated 3PL adoption. In that same UPS survey, 29% of respondents indicated that they’d switch to outsourcing their logistics as a direct result of the past year. ‘One of the biggest issues impacting our current customers is the timing on inventory levels’, says Philippe. ‘Production delays out of APAC have pushed receipts and built back orders of products’.
How are 3PLs helping businesses cope with broader disruptions, such as Brexit, transport logjams, and driver shortages?
‘We can categorise supply chain disruptions into three broad areas’, explains Phil. ‘Demand-side, supply-side, and environmental. Some of these are easier to control than others, but all benefit from proper oversight and the ability to quickly adapt’. When the Brits finalised Brexit, for example, DHL scaled up areas that needed specialist support, such as customs processing. ‘We can leverage our network and redeploy on demand’, he explains.
As for UPS, the company developed a post-Brexit SCS solution that enabled its clients to keep inventory closer to their UK customers. ‘We can maintain a broad portfolio of carriers and providers to quickly adapt to supply chain disruptions’, Philippe says. ‘This allows customers to avoid service delays, added costs, and administrative burdens associated with customs clearance’.
Next, this conversation would be incomplete if we didn’t talk about how the boom in e-commerce has affected 3PL.
Do you anticipate that e-commerce growth will continue?
‘The growth of the past 18 months shows no sign of slowing down’, Phil says. ‘Consumer habits have altered, in some cases, permanently. Over the last eight months, DHL has seen a 150% increase in its fulfilment division—reflecting the soaring demand’. To keep up, the company has focused on data and automation, as well as deploying robotics solutions alongside its employees. ‘Whether that’s automated pallet systems or pick-and-pack robots’, Phil explains, ‘we’ve coupled technology and data to manage demand, meet customer expectations, and smooth out labour requirements’.
Fundamentally, e-commerce is driving demand for additional labour and space. ‘This presents a unique opportunity for 3PL’, Philippe says. ‘New entrants in retail platforms, though currently small, will look to disrupt the giant retail players. They’ll be closer to their customers in the city. And they’ll try to unify and digitalise SME brick-and-mortar retailers’.
How are shifting customer expectations - such as the next-day “Amazon Effect” - impacting 3PL?
‘We see 3PLs expanding their networks to be closer to consumers and integrating fulfilment with last-mile delivery’, says Philippe. ‘They have to expand their reverse logistics, including investments in warehouse space’. He suggests that data analytics can enhance visibility and help 3PL companies address inefficiencies. ‘With the right technology’, he says, ‘businesses can access accurate, connected data and derive actionable insights’.
Predictive and prescriptive analytics, when coupled with artificial intelligence and machine learning, can help companies understand when, why, and how supply chain disruptions occur. ‘This way’, Philippe adds, ‘they can prepare for them—or better yet, sidestep them completely’.
In addition, customers now expect companies to follow through on their social commitments...
Can 3PLs help organisations deliver on their ESG objectives, such as reducing carbon emissions?
Absolutely. Through UPS’s Eco-Responsible Packaging Programme, for instance, the company evaluates its clients’ packaging processes to determine the best way to protect their products and the planet. In addition, the corporation works with carriers on creative, lower-emissions solutions. ‘By 2025, we plan to source 40% of all ground fuel from sources other than conventional gasoline and diesel’, Philippe explains. ‘That’s nearly double what we used in 2016’. By then, 25% of UPS’s total electricity will come from renewable sources.
As for DHL, the company offers a portfolio of GoGreen solutions, which offers its customers a range of ways to minimise their impact on the environment. ‘This includes everything from carbon reporting and analytics solutions to investments in internationally-recognised climate protection projects’, says Phil. ‘Sustainability provides us an opportunity to collaborate with our customers’.
Yet, it’s often challenging to serve customers in highly regulated industries. How can companies overcome those hurdles?
‘Companies operating in highly regulated industries such as pharmaceuticals and life science face extra pressure on their supply chains’, Phil explains. ‘Dealing with rapidly growing changes then requires depth and breadth, which is something a global business such as DHL can offer’. To overcome regulatory challenges, DHL offers its clients dedicated sector specialists who understand niche industries but still have access to its global network.
At the end of the day, Philippe comments, 3PLs must take responsibility for running compliant programmes and services. ‘Licensed or not’, he says, ‘they’ll need to work with their highly regulated customers to ensure that SOPs (Standard Operating Procedures) and audit processes are in place’.
What do the next 12 months hold for 3PL providers?
‘Providers will focus on mastering omnichannel e-commerce’, says Philippe. ‘You’ll see faster last-mile delivery, more sustainable logistics and packaging, and better forecasting for risk management’. Overall, he notes, 3PL providers will invest in data analytics and new warehouse technologies to provide greater visibility into their supply chains.
For example, UPS is rolling out a new suite of digital engagement tools. According to Philippe, the company introduced a new UPS Forwarding Hub, UPS Customs Brokerage, and CoyoteGo portals to help their supply chain solution clients. In addition, its e-Fulfilment and Ware2Go products help small- and medium-sized businesses outsource with ease. ‘We’ve focused on adopting technologies to improve our operations’, Philippe says.
Finally, UPS’s Advanced Technology Group (ATG) has implemented robotics, drones, artificial intelligence, autonomous vehicles, new software platforms, and sensor technologies to increase its 2021 revenues and cut bottom-line costs. Says Philippe: ‘With these tools, we can meet customer expectations for real-time tracking, end-to-end visibility, and personalised service’.
And there you have it: the future of 3PL.