LOGIQUEST TOPIC- Last Mile Delivery and its challenges in India. … · [Last Mile Delivery :...

[Last Mile Delivery : challenges & opportunities in India.] NITIE, Mumbai

LOGIQUEST TOPIC-

Last Mile Delivery and its challenges in India. How can

the challenges be Converted in possibilities and be

differentiator for LSP’s

Oct 2018

Kodali Sai Prasad Tarun, PGDIE-47

Ruchita Namdeo, PGDIE-47

Sashil Dath, PGDIE-47


EXECUTIVE SUMMARY This work illustrates the current challenges that plague last mile delivery of distribution networks and probable solutions to address them. After giving an initial perspective of the current landscape in the domain the work briefly gives an overall perspective of the various challenges that can be witnessed in making last mile deliveries to the customer successful. Then the particular challenge of failure of first time deliveries is picked up and analyzed for opportunities to overcome it. The work recommends two solutions for overcoming the challenge of failure rate of first attempt of delivery and addresses the challenge of Reverse logistics to an extent.

INTRODUCTION The online retail advertises in India has developed significantly as of late with current market of USD 19.5 billion worth of transactions at a gross level before returns and dismissals. The Indian online business retail industry has been on an upward growth trajectory with a ton of development potential and logistics seen as a key empowering agent in its development. The online business retail logistics showcase is valued at USD1.35 billion out of 2018 and is anticipated to observe the development of ~36 % in the coming five years. A market which has around 80-100 million online customers, is developing organically with the expanding business system and new customers who are as of now among the 450 million+ web clients in India predominantly from the level II and underneath urban communities and towns in India. Potential clients of tier II are as of now untapped essentially because of low web infiltration, poor logistics, delivery infrastructure and lack of regional language. Further, these clients are uninformed of innovations and live in remote districts, thus making logistics for a single order a challenge. Taking advantage of this market will the differentiator for any logistics service provider in the coming years. The paper will start by exploring the growth trends in the current Indian market and explains the flow of retail logistics. Then the challenges faced by the logistics service providers in last mile delivery are discussed. Finally, we address the probable solutions and relevant analysis required with it. Following are some growing trends observed in retail logistics

GROWTH TRENDS

a. Internet penetration is on the rise Web penetration in the nation is developing quickly, crossing 481 million in 2017 and is expected to hit 500 million clients by June 2018. AIMIA report features that urban India's web penetration was 64.84 % in December 2017, in contrast with just 20.26% for rural India. With a rural population representing around 66% of the Indian population, combined with the


affordability of smart mobile phones and data plans, internet penetration is probably going to pick up steam in India more than ever.

b. Mobile to be the game changer Mobile is not anymore, a device used only for communicating; it now assists the Indian web customer with amusement choices and shopping encounters. Shoppers are getting open to purchasing items and administrations through various mobile applications that are accessible, along these lines making mobile commerce feasible business opportunity for retailers. These trends are further fueled by factors such as growth in disposable income by ~55 per cent by 2020 increase in use of credit card transactions by 39% over the last year , increase in usage of debit card transactions by 98% for a 12 month period ending October 2017, mobile tariffs dropping ~96% in just 3 months in 2016 by ~530 million Indians.06 The rising comfort with digital payments and the internet, on the whole, have eventually proven to be strong growth drivers for online commerce.

FLOW OF RETAIL LOGISTICS

E-commerce retail logistics activities

Products bought online undergo a range of processes before they finally reach customers. Starting with first mile logistics, which involves pick-up of goods from the sellers and transporting it to the e-retailers’ fulfillment center or directly to the mother warehouse. After fulfillment, products are sent for processing/ sorting based on the delivery location at the processing center of 3PLs and connected further in the supply chain through line haul depending upon the final delivery location. Line haul involves connecting the main supply center with the main demand center. This is followed by last mile delivery which involves dispatch and shipping of products from the mother hubs to the delivery hubs, from where they are shipped out to the customers. This leg is dependent on the manpower and infrastructure in terms of number of delivery hubs, delivery vans and bikes. As shown in the cost breakup the line haul and last mile delivery comprises a major chunk of the transportation cost. Return

Last mile delivery

Line HaulProcessing/ Sorting

FulfilmentFirst mile logistics


charges are additional to forward charges. Logistics cost is further a function of being local, regional or national deliveries.

CHALLENGES While we saw that the e-commerce retail logistics industry is blossoming, there are a few difficulties even at this time that remain unaddressed.

a. Cost Pressures India faces high logistics cost as compared to developed countries like USA, Japan and many of the European countries. In addition to the infrastructural inefficiencies, cost of deliveries is driven up by factors like high return rate, high share of Cash on Delivery (COD) orders. Cost pressures are driving e-commerce retail logistics firms to switch to surface transit for deliveries.

b. High Rate of Returns Currently, return shipments constitute roughly 20% of total shipments. Return shipments come with their own set of challenges and drive up logistics cost.

8%2%

45%

45%

E-commerce retail transportation cost split

First Mile

Processing

Line Haul

Last Mile


Internet business platform is taking measures to contain the percentage of returns. Returns are required to descend, driven by a change in operational procedures, technological development, analytics, in addition to other things. Further, change in category mix, shift to consumption-driven categories and execution of stricter merchandise exchanges may decrease client-initiated returns. At long last, the increment in nearby and zonal shipments will build speed to the client, which thus reduces the returns due to the reduction in delivery failures.

c. Poor Infrastructure The Indian logistics industry is tormented by the absence of appropriate infrastructure for both air and surface travel. Poor infrastructure has prompted inefficiencies, longer travel times, higher logistics costs and higher returns. Since a larger part of the demand is relied upon to originate from level II and underneath urban areas, infrastructure will assume a unique role in e-commerce retail. Great infrastructure is required to enhance operational proficiency, diminish travel time, control expenses and result in better usage of assets

d. Preparation for Rapidly Growing Cross-Border E-

Commerce Industry Universally, there has been an ascent in global shipments driven by the increment in online retail locations and developing cross outskirt web-based business showcase. India fills in as an exchange center point for different intercontinental courses like Europe-Australia and Europe-South East. Asia. Even though Indian airplane terminals have a geological suitable location, they do not have the expected infrastructure to oblige developing worldwide volumes. Further, this segment is as yet divided. There are deficient facilities at smaller air terminals and absence of connectivity for Tier II and III with urban communities for air transportation. A need of great importance is the improvement of transshipment center points to oblige developing the intercontinental activity, upgradation of existing air terminals and enhancing the provincial network.

SOLUTIONS: We confine our paper to addressing the failure rate of first attempt of delivery and reverse logistics to an extent The following are the root causes for the challenges:


> 3PL returns (delivery failure on first endeavor) > Customer initiated returns after acceptance due to dissatisfaction > Returns due to order cancellation before first delivery attempt

Proposal 1 (Short Term):

Continuous tracking of Key parcel information such as parcel contents, parcel location in the supply chain and parcel arrival. It will facilitate faster flow of information in the supply chain, thus improving customer satisfaction levels. Once the customer is aware of the location of its package and ETA for its package, it will give freedom to plan the day accordingly and sharing information to the driver of his/her availability, thus it will reduce: >3PL returns (delivery failure on 1st attempt) > Returns due to order cancellation before first delivery attempt Currently industry has the three major visibility solutions - “Tracking,” “Real-Time Tracking,” and “Monitoring” TRACKING - Track and Trace is equal to following a shipment or an asset, but there is no indication on whether it is followed when it is in-transit or after it is completed – it could be while the shipment is in transit or the asset in operation or at a later time leading to some ambiguity on whether it is live information or not.

Traditional last mile delivery operations

Movements of parcels between last parcel sorting/collection hub and final consignee location – usually an industrial area (B2B) or a residential area (B2C and B2B) Traditionally, a low efficiency process comprising sizeable chunk of cost of the overall parcel logistic process

Customer pick-up Logistic companies and e-commerce retailers are investing in near door delivery points (manual or automated) from where customers can collect parcels

Crowdsourcing Web/ mobile-based application to leverage groups of geographically dispersed people to match demand with supply digitally

Third-party logistics Logistics companies outsource last mile delivery partially or completely to 3PLs players to improve reach and in some cases better service levels

Delivery through retailers In some areas, logistics companies are tying up with local retail stores to finally deliver parcels to customers’ residences

Last mile delivery Business Models


REAL-TIME TRACKING - It is the actual time during which an event takes place. So, following a shipment in “real time” means following it when it is actually taking place or when it is “live.” “Real-time” data is more actionable than “track and trace” data for several reasons such as Awareness of issue, reaction time is lesser, drawing insight from action taken. MONITORING - “real-time tracking” is typically used when there is only one parameter that is being tracked in real-time, while “monitoring” can be used to indicate one or more parameters simultaneously that are simultaneously monitored in real-time.

Technological stand point- The Commonly Used Visibility Technologies – Barcode, RFID, GPS, GSM, and BL. Bluetooth Low Energy (BLE) beacons (also referred to as BLE tags) in line with GPS/GSM Trackers technology is recommended. BLE works in a way like RFID, however has vital points of interest including cost, long battery-life of beacons/tags, and the capacity to utilize a cell phone as a reader. The greatest favorable position is regularly thought to be the low-vitality information transmission convention which permits BLE reference points to store and transmit condition information alongside its its unique beacon identity. This gives reference points the capacity to "follow" numerous parameters for shipments, assets, inventory, packages, and more. All BLEs require a hotspot gateway, for example, a cell phone or a GSM/W-Fi empowered Bluetooth gadget. These GPS vehicle trackers log the GPS information shot from the satellite and transmit them progressively over the web using a GSM SIM based information designs or through Wi-Fi. Except if, there are large patches of cellular network absence, this technology is always “real-time tracking." In the event that BLE beacon doesn't have hotspot portal is inaccessible to log information then it gather the information at another area where a hotspot ends up as accessible, (for example, temperature trails that were recorded and stored in the beacon and sense when it reaches the final destination), it turns into a restricted "Track and Trace" arrangement – like a temperature data logger. This is less ideal than a continuous checking arrangement where you have hotspot doors up and down your production network on the grounds that a change is temperature in-

Real Time Visibility

Monitoring


travel for example turns out to be less significant – putting your merchandise in danger of contamination.

Financial Modelling: The cost of serving the cities of Pune and Mumbai is taken up as a business case and the potential cost savings for the same are determined. The total pin codes in Mumbai and Pune are 946, it is assumed that orders are placed by customers from 200 different pin codes. An average no. of orders from each pin code of these 200 pin codes is randomly generated between 5 to 20. It is expected that each vehicle can cover 8 pin codes in a day, therefore the 200 pin codes can be covered by 25 vehicles. A Roambee equipment is installed in each vehicle, a single Raombee equipment costs ₹ 1455 /- It in turn costs ₹ 36,375 /- to install a Roambee device in each vehicle, this is the cost incurred for Real Time Visibility of the shipment. It is assumed that an average tempo truck gives a mileage of 35 Kmpl and the current selling price of diesel is 77.8, since we own a fleet of vehicles and consume fuels regularly there is a chance to negotiate this fuel price with the fuel retail outlet. However, this is not factored into the financial modelling. It is assumed that nearly 15 KM is travelled by the vehicle in each pin code to deliver the shipments and the failure rate of first attempt of delivery is assumed to be 20% because of the following reasons

Financials (Cost Analysis)

Roam Bee 1455

Number of pin codes in cities (Mumbai &Pune) 946

Number of pin codes that have orders 200

Vehicles Needed 20

Total cost ₹ 29,100

Average orders per pin code 15


Unavailability of the customer

Lack of visibility of the shipment

Customer is not updated with ETA (Estimated Time of Arrival)

It is expected that to deliver this 20% of the shipments, a 20% of the total distance travelled in serving the 200 pin codes is travelled again twice, once from the customer to the warehouse and again from the warehouse to the customer. The total fuel cost involved in re-delivering the product is calculated as Fuel cost of second attempt of delivery = (no of pin codes served × average distance travelled in each pin code × 0.2) ÷ avg. mileage of vehicle

Extra Cost for failure of return

Mileage of vehicle 35

Rate of 1 Litre of Diesel 77.8

Distance travelled per pin code 15

Number of orders 200

% failure of first attempt delivery 20%

Total extra distance travelled for first delivery 1200

Total Extra Cost Incurred(monthly) ₹ 4,00,114

It was analyzed that only 20% of the entire cost in Last mile delivery accounts to fuel costs and 80% accounts to non-fuel costs. Therefore, the total cost of second attempt of delivery is calculated as

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑠𝑒𝑐𝑜𝑛𝑑 𝑎𝑡𝑡𝑒𝑚𝑝𝑡 𝑜𝑓 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 = 𝐹𝑢𝑒𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑠𝑒𝑐𝑜𝑛𝑑 𝑎𝑡𝑡𝑒𝑚𝑝𝑡 𝑜𝑓 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 ÷ 0.2

Henceforth, it is calculated from the business case that, given the scale of operation there is a potential cost savings of ₹ 3,63,739 /- Though it can be challenged whether the total failure rate of first attempt of delivery can be solved by this technological solution, the analysis shows a benefit to the business which can outweigh the flipside.

Proposal 2: (Mid Term)

Collection and delivery point A collection-and-delivery point (CDP) is place that has an alternate location from the habitation of buyers. It very well may be near the living arrangement and clients can get and return online buys. Somebody may contend that along these lines, the comfort of home shopping is deducted since you need to lift the package up yourself. But the inconvenience can be solved by customer choosing a collection point that during the trip they already make, a “trip chaining” as explained by Weltevreden (2008). 3PLs are tying up with nearby retailers like ‘mom and pop’ stores and kirana stores to act as pick up and drop of points for shipments.


There are two sorts of CDPs: locker points (unattended) are fundamentally a bank of canny lockers where clients can gather and return packages; and service points (attended) is an idea of shop-in-shop, of which the bundle is sent to a store, post office or petroleum station where clients can get also. The tier II urban areas and rural India which is difficult to access and involves significantly higher included expense if there should arise a case of failure in 1st attempt of delivery, this solution of developing close by single pickup center is extremely viable solution.

Conclusion Technology turns out to be the solution for the challenges faced by logistics service providers. A Real Time Visibility of the shipment for both the customer and LSP is a game changer for the following reasons

Reduces the failure rate of first attempt of delivery

Opportunity of cost savings for Logistics Service Provider

Improved efficiency of operations


However, a medium-term solution to the challenges of last mile delivery can be to establish pick-up towers at retail stores at all the pin codes being served. As the local retailers are onboarded into the system, it will help in solving for the problem of reverse logistics and failure rate of first attempt of delivery. Going forward, technological solutions like drone delivery can be a game changer giving a competitive edge to any LSP that adopts it. However, this solution can be looked at once the Governments ease the regulations on drones flying.

References 1) RTS Financial: How to Calculate Cost per Mile for Your Trucking Company(2017):

https://www.rtsfinancial.com/guides/trucking-calculations-formulas

2) Julia Edwards, Alan McKinnon: THE CO2 BENEFITS OF USING COLLECTION-DELIVERY POINTS 2 FOR FAILED HOME DELIVERIES (2009)

3) Roambee: Demystifying “Track & Trace” vs “Real-Time Tracking” vs “Monitoring”(2017)

4) KPMG: E-commerce retail logistics in India (2018)

5) McKinsey & Co.: Fast forwarding last-mile delivery – implications for the ecosystem (2018)

6) Gartner: How to Choose the Right Supply Chain Operational Visibility Software for Your Organization(2017)

7) ResearchGate, Narath Bhusiri, Mark Goh: ON-TRIP FREIGHT CONSOLIDATION IN LAST-MILE LOGISTICS(2014)

8) McKinsey &Co.: Parcel delivery the future of last mile (2016)

9) McKinsey & Co.: Parcel Delivery The Future of Last Mile (2018)

10) https://www.roambee.com/how-it-works

https://www.rtsfinancial.com/guides/trucking-calculations-formulas

https://www.roambee.com/how-it-works


Annexure – 1

Quotation from Roambee for the equipment obtained from the vendor

LOGIQUEST TOPIC- Last Mile Delivery and its challenges in India. … · [Last Mile Delivery :...

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