by Ryan Purcell, Director of Global Impact at LLamasoft
At the beginning of the year, before COVID-19 had established a firm grip throughout the world, the World Economic Forum’s Center for the Fourth Industrial Revolution declared, “there has never been a time of greater change for the last mile’”. Among the predictions in a LLamasoft and Economist sponsored report titled The Future of the Last-Mile Ecosystem, were a 20% growth in online retail share by 2023, 10% yearly growth in instant delivery, and mainstream adoption of autonomous vehicles by 2024.
A source of hope for many throughout this crisis is that it is only temporary, but once infection rates slow and self-isolation guidelines are lifted, what will the world we return to look like? For the Last-Mile ecosystem, the decade had already promised to bring huge changes to the way products are delivered, and the pandemic is likely to greatly accelerate these changes.
Demand Changes: A Rapid Increase in e-commerce
Prior to the outbreak, e-commerce sales accounted for just 11% of all U.S. retail sales in 2019, according to the U.S. Census Bureau. Though grocery stores have remained open as millions self-isolate, many families are opting out of leaving their homes and are placing their orders online. This sudden shift is straining delivery capacity, specifically at the local level, since consumer products are often bulky and expensive to ship. To address these challenges, we expect to see increased adoption of newer last mile options like curbside pickup, parcel lockers, and delivery subscriptions.
A similar spike in e-grocery orders occurred in China just a few months earlier, with consumers turning to e-commerce companies such as JD.com, Alibaba Group, and MTDP to shop virtually for their household needs. These retailers were able to adapt quickly, but it is worth noting Chinese consumers had previously made more online purchases than Europeans or Americans. As of 2019, one estimate suggested 37% of Chinese retail sales were made online, over 3 times the e-commerce rates in the U.S. during the same time period.
The network changes in the U.S. and Europe will need to occur swiftly to meet demand and prove to consumers that e-commerce ordering and delivery is ready to take over as their primary purchasing method for groceries and household goods. If these online purchasing habits are sustained after the lock-downs end, the retailers who were able to win over customers will capture market share years ahead of schedule.
Distribution Changes: Accelerating the Adoption of New Technologies
As reliance increasingly shifts to e-commerce, delivery drivers are on the front lines of the crisis, reporting to work daily and driving in and out of hot zones. Along many delivery routes, there is limited access to food and rest stops. In addition to safety concerns, labor cost for deliveries (already the most expensive component of the last mile) are increasing. On March 16, Amazon announced it would be hiring over 100,000 new employees to keep up with the spike in their online orders and raise hourly pay 13 percent.
In response to the need to limit face-to-face contact during this time, China’s largest online retailer, JD.com, deployed its autonomous robot delivery technology to Wuhan in February. These land-based robots, which have been operating in the cities of Changsha and Hohhot since January 2019, were upgraded to handle larger-size packages for medical and grocery last-mile deliveries. Similarly, UPS announced plans to collaborate with German drone-maker Wingcopter to accelerate the adoption of aerial drones for contactless delivery. These tests are being conducted in both the U.S. and Europe for cargo up to 55 pounds.
Autonomous vehicles (AVs) and drones have massive potential in the last mile, delivering goods to consumers and lending support in this crisis, but in many markets, it can take years just to get a testing permit. Regulators should consider streamlining the development of these technologies by accelerating approval processes. The timing for these technologies could not be better as the now-empty roads in many cities offer an ideal testing ground. Further, life in self-isolation has the potential to sway customers previously wary about the use of robots in their daily lives to prefer this option over a possibly dangerous human interaction.
Supply Planning Changes: Opportunity for AI and Advanced Demand Sensing Algorithms
The introduction of COVID-19 in almost every community seemed to be synonymous with residents raiding their local grocery stores, and an infamous shortage of toilet paper. This apparent shortage is misleading, however, as there was plenty of stock in warehouses to go around. According to Forbes, the order replenishment period for toilet paper ranges from 10 to 20 days, and warehouses hold around 17 days of inventory. The issue was the lack of timely replenishment signaling. The erratic purchasing behavior during this crisis has shown that forecasting algorithms that rely on backward-looking historical data provide little help when an organization finds itself operating in a business environment with no historical precedent.
The pandemic has accelerated the adoption of technologies in last mile delivery and it will continue to do so in the aftermath, creating a competitive advantage among key players in the industry. Companies have already started to consider brick-and-mortar stores as warehouses in their distribution networks and use AI tech to digitize inventory data. Stores using this technology are able to adapt quickly to demand changes, as data is collected in real-time, and at the shelf-level, rather than manually placing daily orders based on historical demand estimates.
Last mile delivery will certainly not look the same after COVID-19 and smart companies should prepare for the innovation shift to come once restrictions are lifted to rapidly assess and adapt their supply chains.
