6 Ways Logistics Optimization Boosts Delivery Excellence — and Profits

The last mile has always been expensive and that’s not going to change anytime soon, forcing shippers to look for ways to mitigate costs. Last mile shipping volumes are up, with the global last-mile market projected to increase from $161 billion USD in 2024 to a staggering $340 billion USD in 2032. For logistics operations, the implications are huge.Yes, there will be more business to be had, but also, that increase — 9.8% CAGR — is likely to aggravate the things that are already weighing on the bottom line: Customer expectations, warehouse and driver labor shortages, strains on infrastructure, fuel costs and profit margins to name just a few.

Whether you’re a business with a proprietary fleet, a 3PL or you contract your shipping, you can’t control most of those factors. One that you can control is optimization, and that’s a key to thriving in this hyper-scaled, hyper-competitive environment.  

What's Driving Last Mile Delivery Costs Up?

There are several reasons why last mile logistics cost so much.

• Customer expectations: Around half of consumers surveyed said they expect to get retail deliveries within two days. In a survey conducted by Digital Commerce 360, 98% of respondents said that delivery is one of the most important factors in their loyalty to a brand — and 44% said brands are not creating positive delivery experiences. Customers want it fast, they want it good, but they also want it cheap: Another study found that 61% of customers would change vendors to get lower shipping costs. These expectations put delivery organizations in a vice that can drive down profits if not managed.
• Return, claims, and damages: With e-commerce returns averaging 16-25 percent across industries, reverse logistics have become a major expense. Damaged goods, and the reverse logistics they require, are a significant burden too. Businesses utilizing LTLs instead of their own fleets for the last mile typically see more damages to goods, which require costly reverse logistics and processing—but this is a problem that exists even when you have your own fleet. Damage during shipping is a fact of life, but businesses can mitigate it by improving their visibility and efficiency in both the process and the shipments themselves.
• Wasted resources: If your last mile deliveries are chaotic and difficult to track, it becomes virtually impossible to maximize truck and driver capacity. If you can’t respond to new or changed orders quickly, you’re likely to wind up with higher costs per delivery (since you can’t maximize the number of deliveries per route), and a host of inbound calls from irate customers—taking time away from staff who could be adding value elsewhere.
• Failed deliveries: When delivery windows are long and imprecise—and when customers don’t know when to actually expect deliveries—the odds of a customer-not-at-home situation are much higher. When that happens, you either need to reroute that delivery to a later stop on the route, or deal with the costs of bringing the order back to the warehouse and storing the goods for another day.

Fuel costs and other expenses: Delivery operations are often the number one factor affecting costs cited by delivery operations. If your routes are inefficient, you’re driving more miles than necessary, not only burning more fuel but also adding to labor costs and fleet maintenance.

Logistics Optimization Best Practices for Last Mile Costs

Despite the severity of the challenges faced by last-mile operations, there are solutions. Optimization is the key, and there are proven steps you can take to better utilize the resources you have.

1. Provide customers with more delivery options

This might sound paradoxical—but the more you empower your customers, the more likely you are to get the delivery right on the first try. Customers have different needs. Some are willing to pay higher shipping fees to get their orders quickly, while others are willing to wait a couple of days to get either a discounted or free shipping.

Likewise, some customers have more—or less—flexible schedules. For example, a customer might have limited availability during the day to wait for an order. Sure, they’ll make time as best as they can for their scheduled delivery window, but it may mean that even a delay of five minutes could cause a failed delivery. If you are able to offer a set of options—optimized for your fleet, existing booked deliveries, and routes—for the customer to choose from, it’s more likely they will be there to receive the goods.

Offer more delivery options to help reduce last mile costs. Letting customers choose their delivery time windows can help cut the number of failed or missed deliveries.

2. Optimize routes

The cost of delivery goes up when drivers travel longer distances between stops. Better route optimization can reduce those distances and cut both fuel costs and labor. The right route optimization solution will find the best routes for each delivery run, taking into consideration time, distance, driver capacity, location, and traffic. The more factors the solution can consider—historical traffic patterns, the behavior of individual clients, availability and capacity of service units etc.—the more accurate the routes and ETAs will be.

Solutions that have robust AI capabilities produce the most accurate results in the shortest time.

Route optimization also is key in managing on-demand deliveries. This technology can empower dispatchers to change and re-assign delivery routes and inform drivers about the changes in real-time. The result is that capacity is better utilized and your fuel and labor costs per delivery go down. 

3. Get to know your customers better

It's essential to know your customers better, especially the unique aspects of their businesses and their homes. Do the customers' drop-off points have cramped staircases or tight corners? What about dogs that have to be corralled before the delivery driver shows up. These are some of the data points you can gather to plan last mile deliveries more efficiently.

4. Leverage real-time visibility

Knowing where packages, trucks and drivers are in real time is essential. It lets you provide customers with reliable and accurate expected time of arrivals (ETAs) as the delivery day unfolds.

Customers have escalating expectations here, too: In a recent survey 68% of respondents said they expect to have complete visibility into the shipping and delivery process, knowing where their order is at all times throughout the delivery process.

Tracking also provides real-time data, which customers can use to plan for their coming deliveries and dispatchers can use to spot exceptions

If you can send customers automatic updates indicating the real-time location of the driver, you can reduce failed deliveries. Plus, you can also reduce the number of customers calling your customer service teams asking for updates.

<< Learn how DispatchTrack helps businesses like yours to reduce last mile delivery costs and improve customer experience: read our case studies! >>

5. Auto dispatch

Manually assigning deliveries and dispatching drivers is time-consuming and prone to error. Dispatchers can’t account for the many factors affecting delivery times in determining the service unit and driver that’s best for each delivery.

Leveraging auto-dispatch technology allows dispatchers to almost instantly fit the right driver to each new assignment. Dispatching the right driver at the right time and place will help reduce operating costs.

6. Capture proof of delivery electronically

Capturing electronic proof of delivery gives you a clear record of who signed for the package, when and where it was delivered. Giving your drivers the ability to capture signatures, photos, notes, and more paves the way for better records management. This, in turn, will provide you with the data your company needs in identifying pain points, verifying delivery, and improving your last mile operations.

Last mile logistics is costly but there are best practices your company can adopt to reduce costs. Technology plays a crucial role in optimizing last mile costs, and the right solutions—those with robust AI embedded in their core functionality—have the power to give your business real-time visibility, optimize routes, capture proof of delivery, automate dispatching and assignment, and reduce paperwork. The result? True, end-to-end logistics optimization that reduces costs and enables profit.