The last mile and the smashing of the power of centralised distribution

How to do the last mile in the direct to customer supply chain has been bothering people for a while now.  With the rapid growth in online sales, there has been a growing use of the workplace as a delivery point for personal purchases.  Whilst this may be fine for the odd delivery or two, it is obviously unsustainable if everybody is doing it, (it doesn’t scale).

I have always thought that the best person to do the last mile was the customer.  After all we are already used to doing it for our store purchases.  We stop for fuel, pick up food from the local supermarket, go shopping on weekends and carry all the stuff home ourselves.  We are now seeing the fight for commercialisation of the last mile hammering another nail in the coffin of retail stores, playing out as we speak.

After losing their pitch for providing parcel lockers to Australia Post Mark Bouris and TZ Ltd are going to pitch their lockers at the household level and lease the lockers to individual homes and apartment buildings.  This model provides a lock box on your doorstep where the carrier needs a PIN to unlock the box.  It ensures secure delivery to your door, but brings little efficiency to the distribution channel apart from eliminating missed deliveries and depot returns.  This strategy might be good for apartment buildings and medium density housing developments but has limited attraction compared to other developments described below.   

TZ also supply Coles their click and collect lockers that allow you to order online in the morning and pick up from a locker in the afternoon.  This is of course a great enabler for online grocery shopping.  But more than this, what if Woolworths were to build a pick up point for their online purchases across the road from my local Coles?  There isn’t a Woolworths within 30km of my home so they can now compete with my local Coles for a tiny investment, compared to building a new supermarket!  Even more so when planning permission for the big Supermarkets is denied to them by NIMBY residents and anti-development councils.  The large grocery retailers can now become ubiquitous where they may have previously been blocked.

Australia Post, which is the dominant freight provider in Australia for online parcel deliveries has followed Amazon’s lead in rolling out lockers at its stores to hold parcel deliveries waiting for pick up.  Still in free trial with limited availability we do not know what this will cost.

Parcel Point (who have also done a deal with TZ) seem to be way ahead of the game with hundreds of arrangements in place for local delivery points to convenience stores that you can use now for only $2.95.  The beauty of Parcel Point is that it does not currently require lockers or special carrier or seller relationships (although these will certainly come) and is scalable right now.  Sounds like a winning strategy to me as it will allow them to roll out quickly and add sophistication later.

Toll is developing its Nparcel service which, similar to Parcel Point, uses local businesses, in this case newsagents, as local hubs in its distribution channel for online deliveries.  They plan to go beyond where Parcel Point can go by making the newsagents two way agents for Toll.  If the dream is realized, then Newsagents will be:

• a primary delivery point,
• a local drop off point for failed deliveries instead of returning the stock to the depot,
• a drop off point for returning stock to sellers and
• a local parcel shipping agent as an alternative to Australia Post.

This is a clever strategy and if it is free or built into the freight cost at a competitive rate then Parcel Point will need a competitive response.  With Temando out there bringing carrier and freight service choice to the online shopper, will we really want to pay a premium for Parcel Point if a specific carrier has a cheaper option equally local?

The basic economics of freight indicates that a lot of time/money is spent making house hold deliveries down every street in a suburb.  One bulk drop off to a local store must save the carriers a lot of money which can be shared with the local agent.  This should at least keep the cost neutral if not lower it.  So Parcel Point really needs to develop its carrier relationships to make its costs invisible to the purchaser and potentially also develop a multicarrier freight agency to match Toll.

What we are in the middle of is the logical development and extension into the physical world of what the internet has done to information online.  Which is a smashing of the power of centralised distribution.  Just as newspapers are being smashed as the centralised distributors of news and publishers are no longer the main distributors of information and literature, so big retailers are being smashed as the centralised distributors of products.  Once global supply chains develop low cost networks to the local or household level then the consumer has a free choice to buy anything from anywhere and consume it wherever they want just like they do with information on the internet.

The next few years are going to be interesting for all of us!

See the links from this blog on my eCommerce Scoop.it! page

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