How Last-Mile Delivery Route Optimization Saves Money & Wins Customers

Can last-mile optimization really do that? The answer - as we’ll show in this blog - is a resounding “yes!”

That makes last-mile delivery route optimization an area that any business with a logistics component needs to pay attention to as a matter of urgency.

In what follows, we’ll spell out all the problems that poor routing causes for businesses and what you should be looking for in a solution.

TLDR

• Getting last-mile delivery operations wrong can be extremely expensive for businesses - in terms not only of direct costs but also of lost repeat customers
• Optimizing the routes your drivers take will save you money on fuel, staffing, and vehicle maintenance - and even help generate revenue, by ensuring that customers’ expectations are met and exceeded consistently
• The route is only part of what you should be looking at optimizing. Maximizing efficiency depends on combining routing with a whole host of other factors
• eLogii is the most comprehensive, up-to-date platform that offers all of this essential functionality and more on the market today

What Is Last-Mile Delivery Route Optimization?

“Last-mile delivery” is the final leg of the supply chain journey. It may be less than a mile or it may be hundreds of miles long: what’s important is that the last mile takes deliveries from the supplier’s distribution hub to the end customer.

This is a complex, expensive part of the supply chain. It will typically involve vehicles making multiple deliveries to different customers at different locations. To do otherwise (to make one journey per delivery) is rarely, if ever, going to be economic.

So route optimization - the matter of getting around all those destinations as quickly, cheaply, and reliably as possible - is very important.

The trouble is, it’s extremely complex. Mathematicians and computer scientists have wrestled with the Vehicle Routing Problem for years, and today a variety of algorithms and heuristics are used to solve it in practice.

Why Is Poor Last-Mile Delivery Route Optimization A Problem?

Companies that rely on their own or third-party logistics providers to manage their last-mile operations face a particularly tough environment in 2024:

• Fuel costs are at record levels
• National and local authorities are cracking down on vehicle emissions
• Customer expectations around the speed and quality of delivery service have never been higher
• Free delivery is increasingly viewed as the norm

It’s been shown that the last mile is by far the most expensive part of shipping: one study puts it as high as 53% of the total.

But in truth, many businesses don’t have any meaningful visibility over the cost of last-mile delivery because they rely on traditional logistics metrics only. The pressure to offer free shipping in particular often means that last-mile operations eat into profitability.

And that’s not the only problem that bad routing causes.

Problem #1: Fuel Costs

Logistics UK’s May 2022 Performance Tracker reported that:

• 71% of logistics businesses reported year-on-year cost increases in Q1 of 2022
• 40% said that costs had risen by 25% or more

While it’s true that there are well-publicized global supply chain problems and driver shortages feeding into those costs, the main factor is fuel. According to Statista:

• In the year to May 30, the price of diesel has risen from an average of 148.85p per liter to 182.37 (+22.5%)
• In the same period, the average price of a liter of petrol has risen by 145.04p to 170.44p (+17.5%)

The more miles they travel and the longer they spend idling, the more fuel delivery vehicles burn. So it’s vital to optimize delivery routes to minimize time on the road.

Problem #2: Inefficient Fleet Usage

It’s not just about fuel. It’s also expensive to buy or lease vehicles and to keep drivers employed. Poor route planning means either vehicle capacity standing idle while incurring costs, or customers frustrated by slower delivery times.

Many businesses try to reduce these issues by using 3PL, crowdsourced, or freelance capacity. While that does indeed have an impact, it doesn’t solve the matter of unnecessary hours on the road.

Problem #3: Unreliable Delivery Times

And bad routing doesn’t only increase costs today. It affects revenue tomorrow too.

A 2022 study found that:

• 70% of UK consumers are less likely to use a retailer where they’ve had a bad delivery experience again
• 60% of consumers have shared negative experiences with friends and family
• 22% have posted an online review after a single bad delivery experience

Late delivery is the number one cause of consumer complaints. And they increasingly demand defined time slots for delivery, rather than just dates. People are not willing to sit in all day waiting for a package to turn up anymore!

A badly-optimized route will make your ETAs unreliable, risking customer annoyance when deliveries turn up outside the agreed time window.

Problem #4: Failed Deliveries

If your driver turns up late or early, the customer may not be available to take receipt of the delivery.

That’s bad for you, because a failed delivery wastes time, fuel, and staff costs - which have to be paid all over again when it’s sent back out on a future date.

Put the customer’s annoyance at getting a “We called while you were out” note through the door aside. Loqate found that:

• The average cost of a failed delivery to UK businesses is £11.60
• 6% of all deliveries fail on the first attempt
• Chargebacks on card payments for failed deliveries impose more costs on 55% of UK businesses

Problem #5: Inflexibility to Unexpected Events

Traffic is just the most obvious reason why any vehicle may not turn up at a location at the time predicted when it set off.

Weather conditions, road closures, accidents, etc can all affect the efficiency of a route and the reliability of ETAs. Customers may also need to change their availability after a route has already been planned.

Static route planning is unable to take these kinds of unexpected events into account, leading to all of the problems listed above.

How Can Last-Mile Delivery Route Optimization Save You Money?

Last-mile delivery route optimization affects each of the problems outlined above, either directly or indirectly:

• Shorter, more efficient journeys mean less fuel cost, less wear and tear on vehicles, fewer driver hours, lower emissions, etc
• Better ETA planning and communication means higher customer satisfaction and reduced failed delivery costs
• Dynamic route planning enables routes to be changed in response to events, even after drivers have set off

Another way in which businesses are addressing the last-mile delivery challenge is by moving distribution hubs closer to customers.

Growing numbers of businesses are switching from large out-of-town facilities to networks of smaller “dark stores” in urban areas. That changes the nature of the standard Vehicle Routing Problem, by shifting the depot to a point that’s optimized for delivering to the area it serves.

A recent report by Capgemini found that businesses taking this approach have cut their delivery costs by 23%.

How Can Last-Mile Delivery Route Optimization Win You Customers?

Bad deliveries lose customers.

But a growing number of forward-looking businesses are seeing last-mile delivery as a revenue driver as well as a cost center:

• Customers increasingly demand flexibility in delivery options - from “white glove” service, to click-and-collect, kerbside delivery, contactless delivery, and more
• Service excellence is a differentiator in a commodified market. More and more shoppers value a choice of carrier (eg DPD’s use of electric vehicles as a selling point)
• Great delivery experiences offer drivers opportunities to upsell and cross-sell on the doorstep, especially in sectors like groceries

Of course, the biggest single factor is undoubtedly repeat business It has been shown that it’s anywhere between five and twenty-five times more expensive to win a new customer than to keep an old one.

What To Look For When Choosing A Route Optimization Solution

We’ve seen in the foregoing that optimizing a route is about a lot more than just minimizing the distance traveled.

So when you choose a last-mile delivery route optimization solution, there is a lot of other functionality you should be looking for alongside route planning.

#1 Task List Import

A good solution needs to collate all tasks (pickups, deliveries, etc) from all sources in one central location. The main ways this is done are:

• By file import - usually a spreadsheet or CSV file
• Via API connection

Without the ability to import tasks at scale, your route planners and dispatchers’ workload will still involve massive amounts of repetitive, manual work.

#2 Exception and Failure Workflows

We’ve already shown how costly failed deliveries can be.

The best last-mile platforms allow you to define workflows for drivers to follow when a package can’t be delivered (eg by rearranging the route to allow further attempts, by rules for leaving deliveries in a safe, alternative location, etc).

It’s also key to accommodate other kinds of exceptions to the normal rules:

• Allowing extra time for deliveries to high-rise buildings or packages that need careful unloading
• Priority deliveries
• Drivers being unable to complete tasks along the delivery process (eg because of damage to packing labels)
• Traffic and weather conditions, etc

#3 Real-Time Driver and Vehicle Locations

Maximizing efficiency requires knowing where all your assets are, what they are doing, and being able to redeploy them immediately when circumstances change.

So any route optimization solution needs to include real-time location data for both vehicles and drivers. Most provide this either by a hard-wired GPS device in the vehicle or via an app on the driver’s phone.

This kind of information enables you to:

• Minimize unaccounted for down-time
• Adapt routes in progress in response to events
• Provide up-to-the-minute ETA information to customers
• Reduce the chances of deliveries failing
• Analyse performance to achieve continuous improvement

#4 Performance Analytics

That last point brings us to another requirement: the ability to create dashboards for analyzing key data. If you’re not comparing the plan to what actually happened on the ground, you’re not making the most of route optimization’s possibilities.

A good solution will collect and report on:

• Driver performance - whether it’s deviations from the planned route, adherence to ETAs, speeding infractions, etc
• Vehicle performance - many route optimization solutions incorporate telematics elements that can keep you abreast of vehicle faults and maintenance schedules
• Customer satisfaction - given the importance of this factor in revenue generation and retention, it’s very helpful to be able to collect reviews and feedback from customers and feed it directly in alongside these other KPIs

#5 Dynamic ETA Calculations and Customer Notifications

Customers need to be kept in the loop about where their deliveries are. A recent study found that 93% expect to be proactively notified about their orders’ whereabouts - and for 75%, this is an integral part of the overall delivery experience, not a “nice to have”.

These should be provided to customers via their preferred channel, whether that’s text, email, web portal, or anything else.

And if there’s a change to plans (for any of the reasons we’ve already talked about), customers need to be notified proactively, automatically about the new ETAs.

Without dynamic ETA calculation and customer notifications, your route optimization cannot be complete.

#6 Proof Of Delivery Collection

When a single driver may be dealing with hundreds of deliveries per day, it’s easy for things to get overlooked.

That’s why a robust Proof Of Delivery (POD) system is critical for making sure that nothing goes astray - and that if there ever is a dispute about where a package ended up, a comprehensive paper trail exists to show where it went.

In the past, drivers would collect signatures on paper as POD, but today technology allows photos, esignatures, barcode scans, and other methods to be collated via a smartphone app and logged in a centralized system.

#7 Customizability

Not all delivery types have the same requirements. A first-class route optimization platform will allow you to:

• Match particular deliveries to vehicle types (eg refrigerated units for frozen produce, cycle couriers for congested city centers)
• Allow you to optimize each vehicle’s load, whether by weight, volume, pallet number, etc
• Provide the flexibility to permit vehicles to return to the depot mid-journey, undertake multi-day, long-distance routes, and share deliveries where multiple vehicles are needed
• Assign the best drivers to jobs based on location, skills, performance record, etc

There are so many variables that can be optimized across a diverse range of products, drivers, vehicles, and customers. A great last-mile delivery route optimization solution will incorporate as many of these as possible.

#8 Easy Integration with Other Technologies

Finally, truly optimizing performance depends on bringing in data from a whole range of different applications to ensure maximum responsiveness.

It’s vital to look at the ease and speed with which a route planning platform can be integrated with the other tools you use - for example, order processing, inventory, and supply chain management.

Be on the lookout for well-documented APIs and webhooks as well as native integrations when selecting the ideal platform.

The Bottom Line

It may sound like a lot to ask, but there is one last-mile delivery route optimization platform that ticks all of these boxes: eLogii.

As well as providing a state-of-the-art route planning algorithm, eLogii enables you to upload tasks, program exception and failure workflows, track driver locations, analyze performance data, generate dynamic ETAs and automatically send customer notifications, customize by way of a market-leading set of variables, and integrate alongside other tools with ease.

Don’t just take our word for it. Here’s what our client Ananas said:

“We looked at a number of last-mile platforms on the market and few had the capabilities to handle the level of scale we require and provide the level of experience we are looking to give our shoppers.”

And here’s what Crocus had to say:

“Really difficult to say, as making the switch from RouteXL to eLogii felt like “leaving behind a Renault Twingo and jumping to a Ferrari”. There are many features that have made planning much simpler and more scalable”