With eCommerce being more commonplace than ever and expected to grow significantly in the near future, manufacturers and retailers see an ever-increasing need to adapt and gain a competitive advantage or risk falling behind. Last-mile delivery can be defined as the movement of goods from a transportation hub to its final delivery destination. In the majority of cases, this destination is a personal residence.
The focus of final mile logistics is to deliver these goods to the end-user as quickly and as efficiently as possible. The evolving omnichannel demands have forced retailers to evaluate their current transportation needs and supply chain operations to make the necessary adjustments required to stay competitive. In most cases, the focus has been placed on last-mile logistics as a key differentiator.
Today’s consumers demand speed, transparency, and exceptional service. If not, they will quickly shop elsewhere. It’s because of this steady rise in online sales that retailers need to continuously improve upon their transport management. Traditional transportation providers in North America, such as FedEx, UPS, or USPS are not always ideally suited for all regions. As such, many retailers have been looking elsewhere to satisfy their needs.
The Statistics of the Last-Mile Delivery Market
In 2018, the global freight and last-mile delivery markets have surpassed $3 trillion. By 2025, it’s expected to go over $5.5 trillion. In a period of just 18 months, spanning 2017 to 2018, the last-mile delivery demand for B2B organizations increased by 33%. For B2Cs in that same period, the demand increased by 67%.
These figures are directly correlated with consumer expectations. Namely, that nearly half (48%) expect to receive next-day delivery, while 23% demand same-day deliveries. Over a quarter of consumers will also be willing to pay extra for instant or same-day deliveries. And if in 2012, they were willing to wait on average a maximum of 5.5 days for their packages to be delivered, in 2018 they are only willing to wait for 4.1 days.
Similarly, 36% of online shoppers will abandon their carts if they believe that their orders will take too long to ship. Also, 63% do the same due to high shipping costs. And unless companies figure out ways to minimize their last-mile delivery costs and optimize their logistics management, it’s expected that their profits could decline by as much as 26% over the coming years.
Businesses will need to make a decision about whether they will operate in-house or outsource their parcel delivery to a third-party logistics provider (3PL). Picking the best choice will ultimately boil down to your company’s size, scope, and strategy for the future. This ultimate guide to insourcing versus outsourcing will help you assess which one of these two eCommerce logistics strategies will help you strike a balance between low logistics costs, speedy and efficient deliveries, and a positive customer experience.
Owning Your Transportation and Logistics
In this scenario, you will own the entire order fulfillment from end-to-end. This includes inventory management, warehousing, delivery to the customer, and, optionally, reverse logistics (returns). Owning the order fulfillment and having control over the entire last-mile delivery process will tend to provide better turn around rates. You would also be in a better position to control customer-facing interactions, thus boosting your brand reputation.
All of these will, however, come at a cost. Owning everything also means that you need to invest and maintain the entire infrastructure. Below are the pros and cons of in-house shipping.
The Pros of In-House Last-Mile Logistics
- Having Complete Control – If you decide to handle all of the logistics operations yourself, you will also have complete control over the entire process. This will offer you the opportunity to ensure that the level of customer service will be high. Trends in last-mile delivery services indicate that the majority of online shoppers will make a repeat purchase if they had a pleasant shipping experience. It’s always important to remember that the final mile is often the face of your business and if something goes wrong here, your customers’ opinion of your entire organization will likely drop.
If you’re outsourcing your logistics operations to third parties, you should make sure that you trust them enough to uphold their end on your agreed-upon SLAs. When you’re dealing with a reliable and professional 3PL, you won’t have to worry about the customer experience. But if not, you may experience a shrinking customer base. In addition, you will need to make sure that all customer and other sensitive data you share with your logistics partner is safe.
- Streamlined Communication – An in-house team will be in a far better position to understand your company’s goals, values, systems, and expected levels of communication. With in-house logistics, it’s less likely that information gets lost or that there are cases of miscommunication. The fewer people involved in the passing of information, the better. This applies to both an in-house team as well as an outsourced one. To increase efficiency in communication when dealing with third party suppliers, it’s best that they have a dedicated account manager that handles everything related to your business.
The Cons of In-House Last-Mile Logistics
- Costs – While having complete control over all business processes will give you peace of mind, it will also come at a cost. Among these costs, we can include things like:
- Owning in-house fleets
- Maintaining that private fleet
- Warehousing costs
- Hiring, training, and paying warehouse, shipping, and supply chain personnel
- Buying, implementing and maintaining all information technologies and logistics solutions needed to run the operation.
Some of these costs can also fluctuate throughout the year. Shipping volumes may increase during peak seasons, meaning that your supply chain will need to be flexible enough to withstand these regular changes as well as other supply chain trends impacting last-mile logistics on a regional, national, or global level.
- Accountability – In addition to costs, having complete control over your supply chain will also imply that you will assume complete responsibility for any issues that may arise. Even if you conclude that an in-house operation is more cost-effective for you than outsourcing, this once cost-effective strategy can turn into huge expenses if there’s a recovery needed and there’s nobody else there to share in the expense. Keep in mind that over 97% of consumers use online ratings and reviews when making a purchase decision. Several bad reviews and you begin seeing your customer base starting to shrink.
- Logistics – Every effective supply chain strategy requires a team of logistics experts to oversee the operation. They need to understand the ins and outs of the process and manage it effectively. In addition, eCommerce businesses will also need to take into account reverse logistics. Just because an item was sold and sent to the end-user, that doesn’t necessarily mean that the sale is complete. If the item is defective or there are other similar concerns, most customers will demand the item be returned.
It’s also important to mention that most shoppers are against the idea of paying for this service. And while the process of reverse logistics does present shippers with plenty of benefits, it may be hard to quantify the costs of maintenance and implementation.
Outsourcing Your Transportation and Logistics
Outsourcing your last-mile logistics to a 3PL can provide you with several advantages. Depending on the size and reliability of the logistics provider, you may benefit from a broader reach and greater coverage than you could have achieved with your private fleet.
However, the biggest issue with outsourcing lies in the overall reliability and professionalism of the company in question. It may, again, feel tempting to go for the cheapest option simply because it exists. But a good price doesn’t always equate to good quality and value, meaning that you may end up paying more than previously anticipated. That said, there is a 3PL provider available for every type of business, from a small eCommerce site to a multinational retailer.
The Pros of Outsourcing Your Last-Mile Logistics
- Reduce Cost – When comparing outsourcing vs in-house, the upfront costs of outsourcing will almost always be lower. For starters, you won’t have to invest in staffing or owning warehouses, nor will you have to buy and maintain a private fleet. All of these will be provided by the 3PL.
In addition, most will also have transportation management systems, warehouse management systems, and other managed transportation and supply chain technologies at their disposal. These will help ship products, streamline processes, reduce costs, and enhance customer satisfaction. It’s worth noting that over 75% of businesses that have partnered with a 3PL have reported a reduction in overall costs.
- Scalability – One of the biggest advantages of working with reliable third parties is the possibility to scale your business more easily. Depending on the circumstances, you can adjust the scale of your shipping higher or lower at a moment’s notice, ensuring no wasted resources or disruptions. For businesses looking to grow over time, scalability is essential, especially considering that as your sales may not be consistent every year, making adjustments to your supply chain won’t be as costly or time-consuming.
- Expertise – Professional logistics providers will also be able to provide your organization with a depth of experience that you may not possess within your in-house team. It’s important to realize that supply chain logistics can be quite complex. Be it freight management, faster fulfillment, warehousing, inventory management, or shipping, each of them come with their own unique set of challenges and best practices. 3PLs will help you better streamline your logistics processes and can even provide you with useful insights and recommendations on cutting costs, doing your regulatory paperwork, and more.
- Resource Networks – 3PLs will typically have a vast distribution network of shippers that will allow them to provide you with a highly-customizable solution. If, for instance, you have a single item that needs to be shipped to a remote location, you will need to use a vehicle from your in-house fleet to get it there. This is, obviously, highly inefficient but needs to be done nonetheless. By leveraging their resource network, 3PLs will be able to consolidate freight and generate volume discounts. By using cross-docking, they will also be able to lower the overall logistics costs and improve the on-time delivery service. This is one of the main reasons why 3PLs represent a sizable chunk of the less-than-truckload (LTL) sector.
- Forming A Long-Term Relationship – It would be in every logistics provider’s best interest to see your business succeed. To that end, professional 3PLs will go out of their way to design, create, and implement a mutually-beneficial shipping strategy. With their connections, you may even benefit from discounts on certain resources that you may need to implement that strategy. Statistically, 91% of 3PL users and 97% of 3PL providers have said that they have a positive and beneficial relationship with each other.
The Cons of Outsourcing Your Last-Mile Logistics
- Ongoing Expenses – While there is no denying that a 3PL partnership can be a more cost-effective option than handling everything in-house, there may also be external elements that can sometimes result in higher charges than usual, such as shipping to remote locations, poor weather conditions, and over-regulations. Your expenses may also go up if you decide to use additional service offers and accessorials.
- Representation – This point ties back to what we talked about earlier regarding control and accountability. If something were to go wrong during the shipping process, regardless of whose fault it is, many shoppers will be less inclined to buy from you again. When you are outsourcing your last-mile logistics, you are placing your faith in your 3PL provider to represent your business. Choosing value over cost is highly recommended when evaluating choices through this lens.
- Communication – While professional 3PLs will have solid and reliable communication channels put in place to handle all situations, they are still an extra step in the process. This can increase the likelihood of miscommunication, if only marginally.
- Misaligned Goals – When logistics providers and their customers don’t have the same vision and strategic goals, there’s very little chance that their relationship will survive over the long-term. When both are headed in different directions, it’s plausible that most aforementioned benefits will be negated.
- Technological Discrepancy – Being able to integrate your in-house systems with that of the 3PL is one of the most important aspects of an outsourced relationship. When fully integrated and working properly, you can expect things to be running smoothly and without a hitch. But if your systems are incompatible the results will not be what you were hoping for. Make sure that their systems will integrate with yours in terms of inventory management, CRM, TMS, WMS, accounting, order routing, and all others. Usually 3PLs are accustomed to working with their clients’ unique logistics requirements. Having state-of-the-art automated systems will allow for better integration and provide you with a better overall experience.
As with many business decisions, choosing between in-house and outsourced logistics boils down to the cost-to-value ratio. Those that have the necessary resources to implement and maintain their own internal last-mile logistics process, may be better off doing just that. As for the companies deciding to outsource, their biggest question is how to choose a professional and reliable 3PL provider that will satisfy their needs.
Redbird Logistics Services will work with you, no matter your requirements. This ultimate guide about your last-mile logistics strategy is only the start. Our logistic services and supply chain solutions will be sure to cater to all of your needs. With our real-time technology, we will provide you with complete visibility of your products every step of the way.
If you’re looking for a top logistics company, look no further than Redbird Logistics Services and Contact us today!