Last Mile Delivery: The Indian context

Rightly said by the Great Chinese philosopher Lao-Tzu, “A journey of a thousand miles begins with a single-step” but in this context, we feel, the real journey begins after the 999th step.

Even if we undertake the painstaking journey of 999 miles, the journey holds no value without the ‘last’ step.

In the business scenario; the journey begins with an idea and travels its way through the production, marketing, distribution and the several intricacies of the supply chain. However, where the supply chain ensures the supply till the last point in the distribution channel, the further step that remains the penultimate is to reach the final customer, to travel that ‘last mile’…

Last mile delivery refers to the distributor/retailer delivering the product to the customer’s home instead of using a package carrier. For example Web van, Peapod and Albertsons have used last-mile delivery in the grocery industry.

The supply chain models mainly concentrated on distributing to the vendors as the end node. But, as the competition has increased, so has the idea of reaching out to the customers. Now, the business houses are travelling till the “last-mile” to cater their customers by filling the gap in this area of logistics and distribution. It has emerged as an extension the model of supply-chain.

There has been a shift from ‘caveat emptor’ to ‘caveat vendor’. The consumers are now not just more literate but also have a high level of expectations. The timely services with adherence to the customer satisfaction and accurate delivery are the need of the hour.

The “last mile” or “last kilometer” is the final leg of delivering from a goods/service provider to a customer. It is typically seen as an ‘expensive challenge’. The reports say 28% of the cost is incurred in the “last-mile” delivery.

In the Indian context, a consumption economy with a population of 1.2 billion, where it is predicted that by  2030, around 590 million people will be living in cities and around 200 million in rural areas in the proximity of cities and will depend on cities for their growth. As India grows, its cities will expand and new cities will emerge. It is believed that the per capita disposable income in urban India is expected to grow four-fold by 2030. This will add to the network complexities. In such context, the last mile delivery becomes all the more important.

Primary Categories of contextual factors

Implication on the last mile delivery extension model

Particularly in India, to overcome the challenge of the last mile, two major issues have to be taken care of: linguistic diversity and geographical distance.

The mainland of India has large geographical variance with terrains ranging from mountains to plateaus, plains and even coastal areas. This makes accessibility a major concern.

To add to that, transportation is yet another hindrance. According to the report by Government of India – Ministry of Road Transport and Highways, the road length is 4.69 million kilometers as on 31st March 2011, of which, the length of surfaced roads is 2.23 million kilometers (only 53.83 per cent of total road length)!

But, roughly, only 20% are in good condition. Approximately, 40% of all villages are not connected to the all-weather road network. Apart from being narrow, the roads are poorly maintained. Even the main roads outside of urban areas are typically two-lane roads, and congestion is a common phenomenon.

Mr. Tim Cook from Apple, when asked about the market for its goods in India, had remarked that while he loves India, the multilayer distribution structure of the company’s markets “really adds cost to getting product to market, In India, for any business, whether it is a new venture or existing one, distribution is a major bottleneck.

India’s multi-layered distribution is a big fallacy in the distribution system. Modern distribution networks are rare. For making your product to travel all through the channel to reach your customer, you either have to create your own network or have to work with several small and sometimes unreliable players.

The layers of agents, wholesalers, sub-distributors, retailers and various small vendors make up the delivery chain.

Distribution System with Last Mile Delivery

Unlike package carrier deliver, last-mile delivery requires the distributor warehouse to be much closer to the customer. Given the limited radius that can be served with the last mile-delivery, more warehouses are required compared to package deliveries.

Distributor storage with the last-mile delivery requires higher levels of inventory than the other options (except for retail stores) because of its lower level of aggregation. From inventory perspective, warehouse storage with last-mile delivery is suitable for the FMCG items, as they are needed quickly and some level of aggregation is beneficial for them.

When looking at all the distribution networks, transportation costs are the highest in last-mile delivery, especially when delivering to individuals.  This is because package carriers aggregate delivery across many retailers and are able to obtain better economies of scale than are available to a distributor/retailer attempting last-mile delivery.

Last-mile delivery may be somewhat less expensive in large, dense cities. Transportation costs are also best justified where large quantities are purchased. This is rare for individual customers. Processing costs are much higher than for a network of retail stores because all customer participation is eliminated.

The information structure, although being similar to the distributor storage with package carrier delivery; it requires the additional capacity of scheduling deliveries. Response times need to be faster. The cost of providing product availability is higher than for every option other than the retail stores. Time to market is even higher because the product has to penetrate deeper before it is available to the customer. Returns are again expensive to handle.

Last-mile delivery may be justifiable when the customers are large enough to provide the economies of scale and are willing to pay for this convenience.

Cost Factor	Performance
Inventory	Higher than distributor storage with package delivery
Transportation	Very high cost as there are minimum scale economies
Facilities & handling	Costs higher than manufacturer storage or distributor storage with package carrier delivery
Information	Similar to other options of delivery
Service Factor	Performance
Response Time	Very quick.
Product variety	Less than distributor storage
Product availability	More expensive to provide availability
Customer Experience	Very good
Time to market	Slightly higher
Order visibility	Easy to implement
Return ability	Harder and expensive than a retail network

Another major problem is the ‘last-mile freight system’. It is termed as the movement of deliveries destined for local businesses and homes. This constitutes a chunk of the urban freight activity. The ‘last-mile freight’ in urban areas, competes for limited public space and causes a number of negative externalities for the livability in those areas. Thus, proving to be a challenge for the shippers, for they want to minimize logistics costs without compromising on customer services.

Another issue associated with it is- the fragmented goods flow. The receiver related difficulties (like special delivery time requests, waiting in line to make deliveries/collections, or trouble finding the receiver), and a lack of coordination among urban last-mile freight actors.

This leads to the declining efficiency of load factors, i.e., more empty trucks on road. The circulation traffic- referring to the round trips, distribution, or pick-up trips hamper the Load factor efficiency.

Trucks constitute 80% of the flow due to the last-mile delivery. A truck in a traffic flow accounts for two to three passenger car units on flat, straight road sections; two to five at intersections. A study says, in India, on an average, there is a toll at a distance of every 220 km; where, every truck has to stop at an average of around 10 minutes at each toll. This leads to wastage of the Load-time. When accounted for the entire distribution mechanism, this causes huge losses annually in terms of time and money.

In India, where the bad traffic system complicates the transport services, the size of the trucks appears to be a concern. To add to the woes, are the entry rules and the illegal occupancy in the city areas.

Conclusion

When the E-commerce is growing at a pace of about 25% annually, ’last mile delivery’ is gaining high importance. In today’s business scenario, the meaning of the term ‘product’ is no longer restricted only to ‘goods’ or ‘services’. Rather it has a larger context now, it is the complete ‘buying experience’. The success of supply chain in any business is determined by meeting the expectations of the consumers as well as all the stake holders involved in the distribution mode.

In the Indian context, to harness the complete potential of the ‘last mile’ delivery system, it is essential to resolve all these issues. This can be done only by following a holistic approach which requires the involvement of the private sector as well as the government. Although, several steps have been taken in this regard, but still, there are miles to go ahead…

Authors: Dishank Wadhwa and Shilpa Kevlani (Great Lakes Institute of Management, Chennai)

References:

• Report by GOVERNMENT OF INDIA-MINISTRY OF ROAD TRANSPORT AND HIGHWAYS
• ‘In India, Distribution is God’ by Harvard Business Review
• The Hindu article , “Last-mile delivery of goods becoming more important: Report “
• “ Supply Chain Management “  by Sunil Chopra and D.V. Kalra