How will you reinvent the last mile?
Blog: Capgemini CTO Blog
The pandemic is a global crisis causing severe disruption, changing the way we live forever. Its impact on retail is profound with lockdown and isolation, followed by travel limitations and social distancing, rapidly accelerating the demand for e-commerce. This explosion of demand revealed huge disparities in retailer performance and capability.
Retailers must now excel at e-commerce, turning a crisis into an unprecedented opportunity. They cannot wait any longer. This must be a fast and forced transition. The key challenge for most retailers is solving the logistics cost equation, ramping up their last mile capabilities with speed.
East looking West
In the West, pre-pandemic, e-commerce had limited appeal, suffering from inefficiency and low agility. E-commerce sales are currently estimated at 18% of total sales in EU (Statista, 2019). Now, levels of online demand forecast for 2025 will be reached as soon as 2022. In China, e-commerce sales share rose from 12.4% of total retail sales in 2014, to an estimated 36.6% in 2019. In 2023, e-commerce in China is forecast to represent around 64% of total retail sales market (Statista, 2019).
Advanced technologies and partnerships are key to sustainable profit, with most innovations coming from Asia. It’s crucial for Western retailers to catch up and scale, first to satisfy their customers, and second to anticipate their Asian competitors’ global expansion. The West introduced hypermarkets to China in the 1990s. Will Chinese retailers now bring sophisticated e-commerce to Europe, 30 years later?
Solving the logistics equation
To solve the logistics equation, retailers must face three crucial questions. How to optimize stock to satisfy orders? How to organize order preparation? And how to orchestrate delivery to the end customer?
Optimizing your inventory strategy
First, retailers must decide if stock is dedicated to online, or common to both online and physical stores. Common stock is certainly more synergetic, as it’s assigned at the last minute. Stock synergies mean reduced safety stock levels, shared location, common inbound processes, and an easier returns process. However, common stock also increases complexity in range management, inventory management and order orchestration (OMS), requiring advanced systems and processes.
Quick picking essential
The COVID-19 reality will only increase complexity, especially as customers come to expect within-the-hour delivery, already common in large cities in China which were the first to emerge out of the initial phase of lockdown. Trends are emerging in the race to deliver quicker. Many retailers choose the pick-in-store model, using store stock for e-commerce. Dark stores are another option, where low traffic stores are closed, becoming city center, automated distribution centers, dedicated to e-commerce. The impact of COVID-19 on store traffic will only increase the number of available stores. Simultaneously, some giant retailers, like Amazon in the EU and JD logistics in China, are building huge, highly automated, e-commerce warehouses on the edge of megacities.
Whatever the choice, advanced systems functionalities are mandatory to the equation. Most software vendors have developed advanced functionalities to cover this, including S4/HANA from SAP, Blue Yonder (formerly JDA software), and other leading vendors in this space.
Streamlining your order preparation strategy
Seamless order preparation is critical and is dependent on choosing the optimum equipment and levels of automation. There are three basic processes to consider.
The human touch
The first option is the traditional, purely manual order picking process. However, human beings often slow down the process, increasing bottlenecks, errors and costs. This option will lose viability as e-commerce accelerates.
Alternatively, the fully automated distribution center delivers competitive advantage to players like Ocado, JD Logistics and Walmart. Technologies already in large scale operation include robotics, conveyors and auto retrieving and sorting systems, automated guided vehicles (AGVs), advanced preparation algorithms and item level identification through traditional barcodes or radio frequency identification (RFID).
Man and machine together
The third route is the semi-automated order picking process, employing both man and machine. Certainly, the race for automation will intensify, with huge investments and solid e-commerce acceleration plans, as pioneered by giants like Amazon and Walmart. The merger between Capgemini and Altran creates a global leader in Intelligent Industry, addressing this fundamental logistics transformation.
Accelerating your order delivery strategy
Retailers also need to focus on choosing the optimum delivery concept, how they organize it, and what role is played by technology. Of course, on top of speed, the critical challenge of last mile distribution is cost.
How close is close enough?
Collection point networks are cheaper than home delivery and, for many customers, are perfectly acceptable. For others, especially in Asia, doorstep delivery is essential. An intermediate solution is the delivery box system currently rolling out across China, which brings the delivery to the building, if not the front door. Clearly, the global trend is towards convenience delivery, fast and direct to the customer.
Who physically delivers?
Who makes the delivery is critical, as demonstrated in the recent growth of food techs like Deliveroo, UberEats, and Ele.Me. Some specialize in food, while others operate across category. Some are independent, while others are retailer owned, like Alibaba’s Ele.me. Of course, advances in software technologies accelerate the possibilities. Recent innovations include delivery tracking functionalities and modules, often associated with real time geo-localization and artificial intelligence (AI).
A mechanized revolution
During the COVID-19 crisis, AGVs were used in public for the first time, and deployment is increasing, particularly in Chinese megacities. Meanwhile, the much anticipated use of drones will depend on acceptance by users and local authorities. The crisis is certainly acting as a catalyst, with local internet giants already deploying drones across China.
Reinventing the last mile for growth
There’s little doubt that those retailers able to react quickly online were better at managing the first wave of the crisis. Those with click and collect, omnichannel solutions, pick-in-store models, and touchless retail weathered the storm best.
For sustained success in the COVD-19 reality, retailers must focus on the e-commerce equation of inventory, order preparation, and delivery. Especially if they are going to succeed at delivering ‘anything, anywhere, at high speed’. It seems the use of robots, AGVs and drones will finally make last mile delivery cost-efficient. It will take time for this to become a universal reality, but there’s no doubt that excellence in last mile delivery is critical to sustained business growth.