ARC BRIEF

JUNE 25, 2018

TMS and the Current State of
Last Mile Deliveries

By Chris Cunnane

Summary
Last mile has become a hot topic in supply chain management. The final
opportunity for a brand to connect with the customer, it is also the most
difficult and costly portion of the product journey
Last mile deliveries are the most
to manage. One of the most overlooked aspects of
important and costly portion of the
fulfillment process. A TMS is a mission- last mile delivery is the journey to get there.
critical component for companies with
private fleets to meet and exceed Last mile is a small component of the overall sup-
customer expectations of efficient, on- ply chain strategy. Transportation management
time deliveries. The new generation of systems (TMS) have proven effective in managing
TMS offers new optimization capabilities the first and middle miles, both critical for ensur-
to improve service and drive higher ROI. ing effective and efficient last mile deliveries. A
TMS can help companies move freight from origin to destination efficiently,
reliably, and cost effectively; but many do not provide adequate visibility
across the entire process. Failure to get goods to and from a destination on
time can lead to significant losses in revenues as well as lost customers.

During the first and middle miles of the product journey, ARC Advisory
Group research indicates that many companies still struggle with order vis-
ibility long before the last mile. Many companies lack visibility of
merchandise across the network, leading to poor customer satisfaction and
service levels. However, TMS can help companies prepare for and manage
shipments from the first to the last miles. TMS enable precise route optimi-
zation, allowing companies to provide their customers with more visibility
into delivery timeframes and enabling them to track their orders. The next
generation of TMS provide improved optimization capabilities to continue
to drive higher ROI, while utilizing a cloud strategy to make TMS available
to and cost-effective for companies of all sizes.

This paper was written by ARC Advisory Group on behalf of MercuryGate. The opinions and
observations stated are those of ARC Advisory Group. For further information or to provide feed-
back on this paper, please contact the author at ccunnane@arcweb.com.

VISION, EXPERIENCE, ANSWERS FOR INDUSTRY

 TMS’ Role in Last Mile Delivery

Visibility Matters for Last Mile

Order visibility is a critical piece of the omni-channel experience. This ap-
plies to visibility into whether your inventory resides in warehouses or
stores. It also applies to your entire distribution network. Visibility encom-
passes both inbound and outbound shipments. For inbound shipments,
inventory is sent from a supplier to either the warehouse or a brick-and-
mortar store. Obtaining visibility into inbound shipments tends to be more
problematic for many businesses, especially as it applies to store deliveries,
since this requires real-time updates from internal and external systems,
While most retailers demand specific appointment deliveries and impose
strict fines for non-compliance, often this is true at a central DC, long before
goods are sent to individual stores. Reasons for these complications include
access to parking, the need for liftgates on trucks, and proper store staffing
levels to unload trucks. A TMS can provide end-to-end visibility both in-
bound and outbound. Some tools allow simultaneous optimization of
inbound and outbound shipments as well as across all modes of transporta-
tion.

ARC Survey Respondents Indicated Fulfillment Areas for Which They

Have Real-Time Visibility

For outbound shipments, 77.8 percent of survey respondents indicated they

have visibility from the warehouse to the customer and 51.7 percent have
visibility into outbound shipments from store to customer. Considering that

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 TMS’ Role in Last Mile Delivery

customers generally need tracking information to see where their order is

and when it will arrive, this percentage seems a little low. This is especially
true for the store, historically the weak link in the omni-channel experience.
Visibility is a critical feature of a robust TMS, and can help play a much
bigger role in last mile delivery, especially within specific retail segments.

Fifty-eight percent of survey respondents indicated they have visibility into

outbound shipments from supplier to customer (drop shipments). When
incorporating shipments direct from the manufacturer to the customer, a
TMS can be used TMS to build better routes, improve service times, and
provide a better overall experience. This is especially true for large items
and white glove service items. The fact that only 58 percent of respondents
have this visibility suggests an obvious gap in performance.

This gap results in a lack of understanding about where an order is, when it
will arrive, when the customer will receive it, and reduced customer satis-
faction. When done right, TMS can improve visibility significantly for both
inbound and outbound shipments.

Last Mile Deliveries

As industry experts and organizations continue to examine the significance
of last mile in the supply chain, there appears to be a debate as to whether
it is a differentiator or just a common nuisance. Last mile encompasses the
final stage of fulfillment – when the customer receives the merchandise.
This can be applied to both B2B and B2C, even though most people tradi-
tionally think of last mile as a B2C issue.

According to ARC data, the most commonly used methods are couri-
er/parcel delivery services (87 percent), 3PL delivery partners (54.9
percent), and drop shipments by partners (50 percent). Courier delivery
services (FedEx, UPS, etc.) were built to deliver small packages to your
doorstep in a short timeframe. They are affordable for both small business-
es and retail behemoths, but managing these carriers can be tricky. So how
can companies manage parcel deliveries? Transportation management sys-
tems with the ability to manage across all modes, including parcel, can
provide companies with visibility and control throughout the supply chain.

Most survey respondents rely upon a single carrier to deliver all their pack-
ages. Each carrier has different service types that must be considered.
Nearly half of respondents actively compare service levels (ground versus

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 TMS’ Role in Last Mile Delivery

air, etc.) from their single carrier to determine the most efficient and cost-
effective way to ship packages to their customers. In this scenario, compa-
nies need to know which customers are paying for expedited delivery,
which are receiving free shipping, and which are fine with a longer
timeframe for delivery. A TMS with business intelligence (BI) capabilities
can provide this level of granularity.

Approximately one-quarter of respondents put all their volume into a sin-

gle carrier to achieve maximum discounts. The savings can be passed on to
the customer (not likely) or used to drive up margins. For many companies,
shipping costs have become a profit center, and finding the most efficient
way to ship products is critical. A TMS with native parcel capabilities al-
lows a company to navigate through these complexities, while ensuring
that last mile is a core component of the overall supply chain strategy.

Currently Use Plan to Use

Courier 87% 1.8%

3PL delivery partner 54.9% 13.7%

Drop ship 50% 12%

Store fleet 32% 6%

Crowdsourced delivery 8.2% 26.5%

Store staff 6.1% 16.3%

Drones 0% 16.3%

Last Mile Delivery Adoption

Many companies outsource their last mile deliveries to a 3PL delivery part-
ner that may control a private fleet and also handle the company’s freight.
3PLs can also be parcel carriers; the two largest parcel carriers also offer
supply chain or 3PL divisions, or services.

Retailers use drop shipments to reduce their inventory carrying costs. Here,
the order is sent directly to the manufacturer for delivery; a common prac-
tice for large appliances and shipments. Drop shipments are generally part
of the middle mile to help offset the high costs of last mile deliveries. Many
3PLs rely on TMS providers like MercuryGate to help manage this process.
Often, the TMS represents a fundamental element of those providers’ offer-
ings.

Crowdsourced deliveries are gaining momentum in many places. While

the survey respondents do not currently use crowdsourcing for deliveries,

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 TMS’ Role in Last Mile Delivery

26.5 percent indicated they are considering doing so in the future. In certain
places and at certain times, crowdsourced last mile deliveries have their
place, but do not necessarily apply to last mile deliveries as a whole. The
restaurant and grocery space and the apparel and fast-moving consumer
goods spaces have proven that crowdsourced deliveries can work. Howev-
er, for more complex and integrated supply chains – as well as for
electronics, breakables, and white glove service items – crowdsourcing is
not a good fit.

The transportation industry is incredibly complex and regulated, some-

thing that last mile startups often overlook. One issue that comes up is
insurance. If an item is damaged on delivery, who is responsible? The driv-
er? The retailer? The last mile company that connected the two? With parcel
services, insurance is in place so the customer does not have to worry about
these issues. The crowdsourced last mile market is not nearly as regulated.

TMS can support crowdsourced models through APIs. However, TMS also
support freight forwarders, key players in last mile delivery. Freight for-
warders, like 3PLs, can assist in positioning freight for local, last mile
delivery. When looking for low-cost providers, many startup retail-
ers/manufacturers/re-sellers often make the mistake of viewing a freight
forwarder as if it was a travel agent, or a 3PL as a Travelocity. Both views
miss the significant value these providers play in supporting the middle
mile between an order moving directly from the manufacturer to the cus-
tomer. This can include the use of courier services to pick up the item direct
from the manufacturer by creating efficient routes and reducing fulfillment
times. These factors all help improve customer service.

Technology’s Role in Last Mile

Technology has taken on a bigger role in last mile deliveries, especially as
customer expectations have changed. The “Amazon Effect” has created a
ripple through the industry, as consumers now expect fast (and free) deliv-
ery options. TMS has a very specific role to play in meeting these
expectations.

Shippers, 3PLs, freight forwarders, brokers, and carriers rely on a TMS to

create dynamic routes to deliver merchandise in the most cost-efficient and
timely manner possible. While the crowdsourced delivery model is evolv-
ing, it is important to look at how those delivery agents connect with the
shipper and its supply chain. For retailers and wholesalers that keep last

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 TMS’ Role in Last Mile Delivery

mile in-house, a TMS with integration capabilities and robust APIs can help
improve service levels and ensure more timely deliveries. Route density is
key to driving higher service levels. By utilizing a TMS, retailers can create
route density, which allows for optimal route planning to provide the cus-
tomer with a more accurate timeframe for when goods will be delivered.

Technology has also becoming increasingly important in the 3PL market.

According to ARC’s recent survey, nearly 55 percent of survey respondents
use a 3PL for last mile delivery and an additional 14 percent plan to do so
within the next 12 to 18 months. 3PLs, major purchasers of TMS, use the
technology to manage route deliveries efficiently. Retailers, in turn, use
3PLs as they know their orders will be routed efficiently and delivered
within the customer’s expected timeframes.

Predictive Analytics for Last Mile Delivery

Predictive analytics employ predictive modeling and machine learning to
determine patterns and predict the future outcome within a given scenario.
Predictive analytics in a TMS can drive improvements in last mile deliveries
that contribute to both customer experience and efficiency. While predictive
analytics cannot tell the future outcome, it does support better decisions.

For example, early in the shipping process, shippers can predict zone skip
opportunities to ease the financial burden of the shipment. Companies can
also use predictive analytics to get a better idea of actual supply and de-
mand, with an emphasis on seasonal products. This allows the inventory to
be in the right place at the right time to make deliveries more efficient. For
those companies using a TMS to plan last mile deliveries, predictive analyt-
ics can help minimize delivery timeframe windows, which bolsters the
customer experience, while making the deliveries more efficient.

Conclusion
Clearly, last mile delivery has emerged as a hot area within the overall
supply chain and logistics market. While a host of options are available,
most successful last mile deliveries begin with a solid supply chain strate-
gy, supported by solutions like a TMS. This mission-critical technology
helps companies move merchandise from origin to destination efficiently,
reliably, and cost effectively, while providing a strong ROI. TMS is a major
component of the first and middle miles of the delivery process, and sets
companies up for last mile success.

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 TMS’ Role in Last Mile Delivery

A TMS also helps close the visibility gap on both inbound and outbound
shipments. The inbound side of things tends to be more difficult, as com-
panies have trouble tracking items between suppliers to stores and
warehouses. A TMS can help eliminate this gap and provide better visibil-
ity, allowing for more accurate estimates of timeframes for consumer
deliveries to improve overall service levels and customer satisfaction.

This paper was written by ARC Advisory Group on behalf of MercuryGate. The
opinions and observations stated are those of ARC Advisory Group. For further
information or to provide feedback on this paper, please contact the author at ccun-
nane ARC Briefs are published and copyrighted by ARC Advisory Group. The
information is proprietary to ARC and no part of it may be reproduced without
prior permission from ARC Advisory Group.

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