How last-mile strategy could be your biggest competitive advantage

As consumer buying behavior trends toward shorter delivery times, companies can build an advantage by strengthening their last-mile strategy.

As consumer buying behavior trends toward shorter delivery times, companies can build a competitive advantage by strengthening their last-mile strategy. In the US alone, e-commerce retail sales revenue increased by 27% in 2020 from 2019. Additionally, 57% of retail customers are visiting stores less frequently, and 38% of customers plan to shop online for products previously bought in stores. It is important that supply chain and other C-level executives in strategy, e-commerce and marketing consider last-mile strategy as a critical factor in capital and operational decisions as companies look to adjust their business and operating model.

As companies navigate continuously evolving customer expectations, many may look to buy, build or partner through an informed asset strategy to develop a competitive advantage across last-mile capabilities.

Potential risks from lack of last-mile investment

Failing to address last-mile delivery considerations can expose companies to a number of adverse effects:

• Margin erosion to support flexibility and increased service level
• Loss of customer base driven by not meeting required service levels
• Risk of pure play e-commerce players by passing intermediaries and going direct to consumer
• Risk of not building the direct relationship with the end consumer (e.g., consumer packaged goods (CPG) companies)
• Lack of available assets to support future growth (drivers, vehicles, real estate, etc.)

Last-mile delivery sector-specific considerations

Last-mile, within this context, is focused on delivery directly to end customers or consumers for each industry.

Based on a company’s fulfillment strategy, companies may want to develop or enhance capabilities in the following ways:

Partner

Engage in alliances or other asset-light operating models that result in more efficient operation of non-core capabilities and allow the company to focus on core areas. Partnering can allow a company to leverage the built-out capabilities of another organization and quickly enhance service offerings with limited capital investment. However, it could also result in a reliance on the others’ ability to innovate and remain relevant, which can lead to performance and competitive issues down the line.

Buy

Consider strategic acquisitions of niche capabilities or assets platforms. Being able to meet the delivery demands of customers may only continue to grow in importance regardless of the industry. In addition, acquisitions can allow companies to quickly expand access to customers and/or assets while maintaining complete control. Acquisition strategies can be considered to help keep service offerings relevant and to employ the latest capabilities.

Build

With companies looking to specialize, building supply chain capabilities that align with customer and product requirements may require innovative solutions that are unique to a company’s product or service offering. Companies may need to invest in distribution and logistics assets that can support higher service levels while also enhancing asset utilization. While this may require a higher up-front capex investment and longer time to market, it can also improve margins in the long run and enable the company to control the build-out of its capabilities.

Last-mile capability framework

Based on a company’s capital agenda, leadership may leverage various strategies to support growth and capability development. This capability framework can help assess overall last-mile strategy to address sector and company dynamics, including product profile, order profile and seasonality/peaks, and how they impact capital deployment (buy/build) or strategic partnerships.

As customers and markets demand relentless innovation, companies need to also understand the risks associated with not developing robust last-mile capabilities to support changes in customer preference. Companies across the value chain are experiencing various pressures to remain competitive and may run the risk of becoming irrelevant as others invest and expand direct-to-consumer models and take advantage of their existing assets to support fulfillment and transport. Failure to develop a comprehensive and effective last-mile strategy may impact the overall operating model and limit ability to support growth and other critical objectives.