How AI Could Help Solve the Last Mile Delivery Problem
By: Jeff Meade
Tags: Delivery, AI, Machine Learning, Ecommerce, Marketing

Photo by Drew Beamer

E-commerce, which already accounts for nine percent of total retail sales, is growing at a double-digit clip according to the U.S. Census Bureau. What’s also growing at a rapid rate? The use of artificial intelligence in business. Here’s how AI could help solve e-commerce’s last mile delivery problem.

Strategy&, PwC’s strategy consulting business, estimates 11 billion packages will be delivered in 2018, and that number will jump to 16 billion by 2020. The consultants further expect e-commerce will represent two-thirds of that volume. After all, e-commerce provides:

Wider choice

Easier price comparison

Added convenience

Yet a challenge for retailers is that consumers are also expecting ever faster delivery of what they’ve ordered. The last mile delivery problem is that retailers need to efficiently distribute products to consumers globally, often relying on external partners (FedEx, UPS, mom-and-pop delivery service in random white vans) to get that package into the customers’ hands. And not everyone has the budget or tech to try out delivery drones or robots!

How AI Could Help

Amazon is obviously the behemoth player in this area, and it is going to have its own fleet of local vans (operated by independent companies) on the roads soon. This leaves other businesses looking for ways to compete while relying on a transportation system that was not built to meet the needs of rapidly evolving e-commerce. Obstacles include:

Current system’s cost efficiencies focused on long-distance travel

Inability to address fluctuating demand

Shortage of local delivery services

Little overlap between national and local transportation providers

Difficulty coordinating efforts on a smaller scale to remain profitable.

As, the Strategy& consultants observed, “Profitability remains highly dependent on two key factors: (1) route density — how many packages can be delivered on a given delivery run, and (2) the drop size — how many packages or items are delivered at each stop.”

At the same time, customers don’t want to pay much for shipping — even same day shipping. According to Small Business Trends, 28% of online shoppers will abandon their cart if the shipping price seems excessive.

Yet, having artificial intelligence doing the coordination and managing of last mile delivery can make a positive difference. With AI doing powerful computing and machine learning analyzing and observing historical trends and predicting patterns, options could be aggregated with the AI doing a quick cost-benefit analysis to determine how to get that package delivered.

AI could help route deliveries more efficiently, which is key to profitability. Along with streamlining processes, AI could help e-retailers and their transportation partners to better predict shipments based on historical data, which could help delivery services to plan ahead to ride out the fluctuations between a Black Friday shipping period and say a dead-zone in mid-February.

Along with AI impacting the last-mile delivery problem, blockchain too may come into play. For instance, it could provide the backbone for an exchange seeing last-mile delivery services bid on packages in real-time. Blockchain could also offer the security retailers and transportation companies seek on the back-end.

Studies show that the final mile can be at the root of one-third of shipping costs. With delivery and route management algorithms powered by AI driving logistics innovation, streamlining processes, and finding efficiencies, the last mile delivery problem could become a less daunting one.