Coordinating the Last Mile in Urban Logistics: A Management Challenge

The instant gratification promise of e-commerce is quickly running into a real world challenge staring people in the face – gridlocked streets, exploding emissions and mounting costs. The last mile is now nothing short of an operations management conundrum. How can cities, businesses and innovators coordinate, pool data and re-invent logistics to avoid the choke-hold on profitability and liveability by congestion?

Cities, for long have subsisted unobtrusively on a delicate ballet of goods flows. But e-commerce, geared on the notion of expedited delivery and instant gratification, has contributed to turn that dance into a nervewracking commuter gridlock every day. Hiding between the convenience of door-delivery is a growing crisis: congested roads, deteriorating air quality and increasing safety threats.

Putting the speed and efficacy of that system in context of operations management, supply chain strategy and the art of negotiation between the public and the private, this is more than a municipal headache, but an evolving case study. Individuals who seek to manage a complex distribution network or design policy-sensitive business models must analyze deeply the conflict that exists between evolving demand patterns and infrastructure limits.

Innovation in Silos

Some of the statistics are shocking. Traffic emissions from urban deliveries could rise 60% by 2030, the World Economic Forum reports, with delivery vehicles also multiplying by the same margin. Cities like Bengaluru are expected to see an especially massive proliferation of on-road vehicles, with the count expected to grow over 60% to 8.9 million by 2030, according to a study by the Center for Study of Science, Technology and Policy. London operators could be looking at penalties of over a billion dollars at the end of the decade in addition to hefty congestion charges.

This is a textbook case of market failure. A majority of shoppers claim to care about sustainable delivery, but not many will pay extra because of this feature. The after affects: obsolete road networks incapable of matching modern consumption habits.

Some companies are responding. Amazon and IKEA are electrifying their fleets and experimenting with cargo bikes in busy locations. Others are constructing dark stores to fulfil groceries quickly, launching parcel locker systems, even trying river transportation.

But the biggest issue is that these attempts tend to exist in a vacuum. Cities regulate and firms innovate – rarely in sync. What emerges is a quilt of regulations and trials which make long-term planning notoriously difficult. Devoid of integration, we run the risk of institutionalising a system that is overwhelming liveability and business viability.

This is what economists might call a lesson in coordination failure, with the incompatibility between the alignment of stakeholders presenting both risk and prospect to future business leaders. The ability to create business models that operate under diverse regulatory environments – and yet achieve economies of scale – is a huge competitive advantage.

Towards a Shared Paradigm

For true transformation, we need data sharing and a shared infrastructure. Consider a system of public transport where all bus companies construct their own stops and routes: the absence of a common infrastructure would make the system unworkable. Yet that is how several logistics systems currently work.

Shared infrastructure such as multi-tenant microhubs and open networks of parcel lockers can have a tremendous effect. The KoMoDo project in Berlin, which is deployed by five operators, saved more than 11 tons of carbon dioxide emissions in a year. A white-label delivery scheme, in which a single courier distributes the deliveries of several retailers in a particular region, can reduce trips by 30% and delivery expenses by half when combined with zero-emitting cars.

Data sharing is as critical. Sometimes cities do not have visibility into the volume and pattern of deliveries and this is why they cannot make smart decisions on kerbside management or zoning. In such cases, the benefits of cooperation between governments and the private sector is truly highlighted in programs like France’s ColisActiv rollout, substituting bike and foot deliveries with subsidies in return; in exchange, acquiring route information to go about a better planning.

Naturally, challenges exist: investment in new EV hubs and charging points is expensive, and collaboration over the data requires stakeholder trust. But rewards are too great to disregard.

A New City-Business Compact

Cities must stop being passive regulators and become active conveners. That means:

• Densification of logistics within master plans, including microhubs and charging points.
• Normalising last-mile regulation and kerbside usage.
• Providing incentives to zero-emission fleets either through the reduction of fees, subsidies, or financing.
• Implementing smart kerbside management to reduce idling, double-parking (as in a pilot programme in London, which increased delivery efficiency by 21%).
• Exploring less conventional transport solutions, including river transportation and trams.

Businesses too must think systematically instead of just about compliance:

• Committing to retire combustion fleets.
• Investing in shared, as opposed to proprietary, networks.
• Partner with cities for infrastructure and data integration.
• Push consumers towards the use of slower, consolidated or out of home delivery and reward them for it.

The wider ecosystem has a key role here too. Vehicle manufacturers need to design more urban-delivery oriented vehicles, with a keen eye on reducing emissions both in the product and the production process. Real-time traffic and kerbside solutions can also be developed by tech firms. The transition can be accelerated by green bonds, favorable loans and infrastructure financing both through public-private partnerships as well as financial institutions.

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Last-mile delivery is a web of consumer demand, urban capacity and ecological price. Yet it offers, too, the rich prospect of remaking cities into cleaner, more efficient and better places to live. That imperative requires abandoning ad-hoc solutions in favour of a collaborative plan based on common resources, open data, and meaningful inter-sector trust. Future managers, consultants and entrepreneurs must find a way to position themselves as integrators to achieve value where any single actor would have been unable to get on their own. The alternative is a decade of increasingly worse congestion, increasing costs and degraded urban life. The decision ought to be quite clear.