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McKinsey Illustrates How Customer Demands are Reshaping Last-Mile Delivery

Posted by Rachel Carollo on Nov 9, 2017 1:40:04 PM

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Providing last mile delivery to consumers is a complex undertaking in today’s market, receiving a great deal of attention in the media and from investors. Not surprisingly, e-commerce is the biggest driver of the changes that are already in motion to drastically improve options for consumers. From large retailers to local businesses, everyone can agree on one thing: that last-mile services have become a key differentiator.

“The variety of delivery options and the perceived quality of the delivery service are major decision-making criteria for online customers and hence directly affect e-commerce players’ success in the marketplace,” the article states. “With this in mind, vendors are working hard to offer the best customer experience possible, especially by improving delivery times.”

McKinsey conducted a survey to get a better understanding of what customers actually prefer. The results illustrate how customer demand is reshaping last-mile delivery: nearly 25% of consumers are willing to pay significant premiums for same-day or instant delivery today. And this number is likely to increase, given that younger consumers are the biggest proponents of same-day and instant delivery options versus regular delivery options.

Related: Millennials and Same-Day Delivery

Same-day delivery is receiving considerable attention, spurring high start-up activity and attracting significant funding from venture capital firms. McKinsey’s analysis of startup activity shows that, “among the new business models emerging, ventures dealing with the integration of local commerce and delivery of prepared food are receiving the greatest support in the form of seed investment. In addition, the companies active in this field are among the youngest in the industry, signaling an acceleration of activity. Over the past five years, these companies have attracted funding just short of $10 billion.”

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Related: Improving Inefficiencies in Last Mile Delivery

The last mile is also seeing new business models that address customer demand for faster delivery, including new technologies that are likely to reach market readiness over the next ten years, such as drones and autonomous ground vehicles (AGVs).

“Somewhat surprisingly, unattended delivery, e.g., to parcel lockers, does not really appeal to consumers despite the possibility of picking up their parcel 24/7. As costs for parcel-locker delivery are often not significantly below regular parcel delivery costs, due to high real estate prices, it is reasonable to assume that this form of delivery is unlikely to take off or have much of an impact in the market.”

Surprisingly, drones were found to be a cost-competitive solution in rural areas, at only approximately 10 percent higher than the cost of today’s delivery model. And with their higher speeds, they are more suitable for same-day and time-specific delivery windows. But they do have two significant disadvantages: firstly, they can only currently transport lightweight parcels; secondly, they would need spacious landing areas since the drones designed to fly long distances are quite large.

“As fulfillment centers are simply too far away from recipients – ~ 75 percent of all recipients in the US live in cities with less than 50,000 inhabitants – and all other delivery models are far too expensive or not feasible. So drones may be the only solution to offer same-day and time-window services in rural areas, and we are certain consumers in these areas would appreciate the offering. To capture a significant slice of this pie, companies will need powerful IT capabilities to control all of these drones, a few thousand supervisors and technicians, as well as a large number of starting bases to reduce the flight time.”

Clearly, last-mile logistics has potential for significant change and will involve new regulations and environmental factors as well over the next ten years. For now, we see the rising demand for same-day delivery in consumers, and the future of the industry evolving to meet these demands. Dropoff works with businesses in a variety of industries to carry out the last-mile professionally, reliably, and efficiently. Contact us today to find out how we can be your last-mile partner.

Topics: Last Mile Logistics

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