Last Mile Delivery: From Cost Center to Revenue Driver

Do a Google search on “strategies to increase revenue.”

You’ll get lots and lots of ideas – from pricing changes to channel expansion. But delivering products faster and more reliably won’t be on this list.

Why? Because last mile delivery, and logistics in general, has historically been regarded as a cost to be managed, not a growth agent to be leveraged.

But hold on tight, that’s changing. In a big way. And B2B companies need to re-evaluate how they manage the last mile. (Are you listening distributors?)

Direct-to-consumer deliveries are a bellwether for changes in last-mile management in the B2B space. Take Target’s surprising announcement at the beginning of the 2018 holiday shopping frenzy that it would offer free two-day shipping with no minimum purchase (unlike Walmart) and no membership fee (unlike Amazon’s requirement for Prime status). Just free, two-day shipping on eCommerce orders – for anyone.

That decision cost Target a boatload of money, and there was only one justification for the move: that it would attract sufficient new customers to warrant the investment.

In this one bold move, last mile delivery operations went from a costly post-sales requirement to a strategic revenue driver. And it happened because, in justifying its investment in faster fulfilment, Target looked for benefits beyond distribution operations. It looked to its top line.

Sadly, in the B2B world that kind of thinking is rare.

Take truck routing software, for example. By removing the guesswork from delivery route planning, the software helps distributors or shippers get products to customers faster, more predictably, at a lower cost, and with visibility of progress for both customer and distributor.

These are the precise outcomes that lead to superior customer retention and revenue growth. But these “top line” factors are still frequently ignored when distributors and other private fleet owners compute the ROI on fleet-related investments. Instead, they focus too often on truck mile reduction and improved asset utilization.

This approach to expense justification makes no sense in a business environment where delivering a superior customer experience will determine tomorrow’s winners and losers.

To say it requires a shift in thinking is an understatement. In the B2B space, we need the equivalent of “electrodes-to-the-brain” shock therapy to stop thinking about last mile delivery as a cost center and recognize it as a growth and market share accelerator.

B2B customers are the very same people who want their home-delivered groceries to get there faster and exactly as scheduled. You think that, when they hit their desks in the morning, they don’t expect the same performance from distributors and other suppliers?

You need to create a world-class route planning and delivery capability – not because it will save you money, but because it will save your company.

Finding the money to fund improved routing and last mile delivery performance

There’s no doubt that truck routing software can save you money. To learn more, read our recent blog: How Fast Will You See an ROI on Route Optimization Software.

But your biggest financial benefits from better-planned, predictable delivery routes will relate more to top line revenue growth. Don’t ignore the following advantages when determining if and when to invest in fleet management tools like routing software.

• Extend cut-off times. A faster, more predictable delivery cycle lets you extend the ordering window for next-day delivery – an enticing benefit for your customers, and a revenue boost for your company as, like Target, you leverage the advantage to gain market share.
• Reduce customer churn. Final mile delivery is at the heart of the customer experience, particularly for distributors. Companies that offer the best customer experience grow 17 percent faster than those that don’t, according to a Forrester report. That’s because, one, their customers are more likely to stay and, two, according to this Harvard Business Review article, these customers spend 140% more than those who’ve had a poor experience. Bain and Company (the inventors of Net Promoter Score) found that a 5% increase in customer retention produces more than a 25% increase in profit.
• Ensure profitable revenue. While routing software positions your company and its customers to generate more revenue, it also can make sure that this revenue is profitable. For instance, Paragon’s powerful business modelling tools let you predict the cost to serve a new customer, or new customer location. This data can impact your pricing or prompt a decision to forego the opportunity to preserve profits.
• Minimize spoilage and dumping of food products. One in seven truckloads of fresh food delivered to supermarkets is thrown away – a huge profit drain. Food distributors and manufacturers that can support a reliable flow of short-shelf-life products become business-critical (and very sticky) partners for food retailers.

Delivery routing software delivers a rapid ROI, even if you only look at the costs saved from reductions in truck miles, fuel, maintenance costs and labor hours. When you combine these expense reductions with the revenue-driving benefits noted above, it offers a pretty compelling case for adoption.

Product delivery operations: will you lead or follow?

In its report on the future of the customer experience, consulting company Walker wrote that, by 2020, Customer Experience will overtake Product and Price as the key brand differentiator.

Far from a necessary cost center, last mile delivery operations are becoming the linchpin for competitive advantage. You, as a business or transportation leader, are at the heart of this sea change. And you need to lead, not follow.

Superior truck routing is not just about miles saved; it’s about market share gains. If you’re not capitalizing on advanced tools and technology to make your private fleet the competitive lever it needs to be, you’re fighting a war against a better-armed enemy.