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Automation crucial as last mile erodes profits, says report

last mile

Current last mile delivery models are struggling to keep up with demand but automation could provide a solution, according to a new study.

A survey by Capgemini of consumers and supply chain professionals found that 97% of organisations felt current last mile delivery models would not be sustainable to be implemented across their entire footprint. It also found that last mile delivery was accounting for 41% of supply chain costs.

Meanwhile, it found that customer expectations of delivery services remain high, with the delivery sector generally suffering from a poor net promoter scores (NPS). In the UK, France, Germany and the Netherlands the NPS figures were 0, -29, -13 and -13 respectively, although in the US it was +9.

The main reason for the figures was the price of delivery being too high, cited by 59% of respondents, the lack of same-day delivery cited by 47% and late deliveries cited by 45%.

There were troubling signs that retailer and consumer priorities were not aligned. 73% of consumers said a convenient time slot was more important than speed of delivery but only 19% of firms considered this a top priority. In addition, 55% of consumers said two-hour deliveries would increase loyalty but 19% of firms currently provided this.

The high expectations were matched with a lack of appetite for paying more. 99% of customers said they would be unwilling to absorb the full cost of delivery. A membership-based model which offers a premium delivery service in exchange for a subscription fee had fairly limited appeal amongst respondents, with only a small majority of 53% saying they would be willing to pay for it.

“To be successful, retailers must find a balance between customers’ delivery aspirations and maintaining their own profitability,” the report summarised.

The report indicated that automation could be a way to achieve this balance, especially for retailers with large store footprints, with automation of the back room in stores reducing the cost of click and collect and delivery from the store by 14%. Automating warehouses could potentially increase margins by 8% through higher throughput and lower fulfilment costs, while autonomous vehicles could increase profit margins up to 14%.

There were some signs of industry awareness, with 89% of organisations investing in mechanisation and automation of store back-rooms to expedite fulfilment and deliveries. However, only 7% of firms had launched autonomous vehicle projects.

Interviewed for the report, Ruud Limmen, VP of value chain development at Ahold Delhaize, said: “We view the last mile delivery as a fundamental part of our service to the customer as it greatly contributes to the overall purchase experience.

“With changing customer demands, and increasing online purchases of food and grocery items, we are experimenting with new services to be able to continue providing a better customer experience.”

Tim Bridges, global sector lead for consumer products and retail distribution at Capgemini said: “Today customers are neither satisfied with the quality of delivery services, nor willing to bear the total cost of last-mile delivery.

“Therefore, the dilemma facing retailers is to provide last-mile delivery services that customers value, without damaging their own profitability. If done right, and their last-mile experience can win over customer satisfaction, retailers stand to gain loyalty, increased purchase value and frequency, while mitigating profitability risk through automation and optimisation of fulfilment locations.”

The report surveyed over 2870 consumers as well as 500 supply chain executives and business leaders.

Image credit: Fotolia

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