Last-Mile Delivery

In our previous report on warehousing, we explored how automation optimizes the flow of goods in order fulfillment—from picking and packing to staging items for shipment. But once products leave the warehouse, they encounter a different set of challenges. Known as last-mile delivery, this final step in the logistics chain—connecting items from transportation hubs directly to the final destination—is the most challenging and expensive segment, often accounting for more than half of total shipping costs.

Efficient last-mile logistics have become essential for customer satisfaction, retailer loyalty, and profitability, largely due to rapid e-commerce growth and consumers' rising expectations for fast, affordable deliveries.

While automation within warehouses often relies on a Warehouse Management System (WMS), order fulfillment similarly depends on robust software platforms known as Order Management Systems (OMSs). These systems digitize and streamline supply chain operations, providing a crucial foundation for the successful deployment of technology-based solutions—like automation—across the fulfillment process.

Unlike warehousing, where robotic automation is enabled by repeatable environments and strictly-defined tasks, last-mile delivery struggles with changing environments, task complexity, and variable fulfillment costs.

Reducing cost per delivery demands companies tackle key operational factors such as delivery density, efficient routing, strategic fulfillment network placement, and emerging automation solutions. The status quo is changing as new technologies and business models emerge, promising to reshape the last leg of logistics.

In this report, we'll explore several common forms of delivery, moving from low to high-cost options and examining how technology might reshape the most expensive part of logistics.

Business-to-Business (B2B) Delivery

Lowest Cost, High Volume

B2B (bulk) delivery is characterized by large-scale, cost-efficient shipments designed to minimize per-unit logistics expenses. It leverages economies of scale by consolidating goods into palletized freight, full truckload (FTL), partial truckload (PTL), or less-than-truckload (LTL) shipments, making it ideal for businesses focused on high-volume, low-margin operations.

Rather than prioritizing speed, bulk delivery emphasizes predictability and stability, operating on fixed replenishment cycles and centralized inventory management. Goods typically move from fulfillment centers to wholesalers, retail stores, or micro-fulfillment hubs. If customers don't pick up products directly from the business, these local retailers can make their inventory available for Direct-to-Customer (DTC) delivery—a process typically managed by third-party logistics providers (3PLs).

Advantages	Trade-offs
+ Low per-unit delivery cost	- Longer lead times
+ Reduced logistics complexity	- Inventory risk (overstock/stockouts)
+ Centralized inventory management simplifies oversight	- Limited flexibility to adapt to demand fluctuations
+ Highly scalable for high-volume operations	- Higher exposure to supply chain disruptions

Technology is shaking up B2B distribution similar to warehousing, with software leading the way while automation extends from warehousing into transportation:

• Real-Time Visibility Platforms: These platforms provide comprehensive tracking of goods throughout the supply chain, enabling proactive issue resolution and accurate delivery estimates.
• Warehouse Automation: Robotics (AGVs, palletizers) streamline bulk storage and handling, increasing throughput while reducing labor costs. See our report on warehousing.
• Autonomous Electric Trucking: Autonomous electric freight vehicles complement traditional trucking while cutting operational costs up to 30% through reduced labor and fuel expenses.

Semi-Decentralized Fulfillment

Mid-Cost, Medium Volume

Semi-decentralized fulfillment occupies the midpoint between B2B delivery and DTC models, balancing efficiency with speed. It involves deploying smaller, strategically located fulfillment nodes closer to consumers, shortening the last-mile delivery distance while preserving some cost efficiencies.

This model is ideal for high-density urban areas where rapid fulfillment provides a competitive advantage but fully decentralized, door-to-door logistics remain cost-prohibitive.

These nodes come in a variety of flavors:

• Dark Stores: Retail locations converted exclusively for rapid e-commerce fulfillment, closed to in-person shopping (popularized during COVID).
• Micro-Fulfillment Centers (MFCs): Compact, automated facilities strategically placed near urban population clusters.
• Regional Delivery Hubs: Intermediate warehouses positioned between centralized distribution centers and final customers.
• Hybrid Retail-Fulfillment Stores: Stores serving dual purposes—traditional shopping and rapid order processing; a popular form of omni-channel fulfillment.

Inventory is strategically limited to high-demand products, reducing storage costs while maximizing availability.

Advantages	Trade-offs
+ Faster delivery (same-day or next-day possible)	- Higher per-unit operational costs compared to bulk
+ Optimized inventory placement reduces stockouts	- Complex inventory forecasting requirements
+ Increased efficiency through proximity to customers	- Regulatory and zoning challenges
+ Improved scalability in dense urban environments	- Network coordination complexity

Technology-based solutions are essential when dealing with the added complexity of semi-decentralized fulfillment:

• Predictive Inventory Management: AI-driven platforms predict demand to dynamically adjust inventory across multiple urban fulfillment nodes.
• Automated Micro-Fulfillment: Robotic picking and packing solutions accelerate order processing in small, space-efficient locations.
• Flexible Warehousing Models: On-demand warehousing networks enable rapid expansion or contraction without large fixed costs.

Customer Pickup

Shifting the Last Mile to Customers

Customer pickup solutions offer an alternative to direct-to-door deliveries by shifting the final logistics step directly to customers. Instead of individual home deliveries, orders are consolidated at convenient, designated pickup points, reducing delivery costs, improving efficiency, and increasing consumer flexibility.

Particularly suited to densely populated areas, this approach has expanded rapidly, and comes in a variety of forms:

• Parcel Lockers: Secure, self-service kiosks allowing 24/7 package retrieval.
• Retail Pickup (BOPIS): Customers order online and retrieve purchases at physical retail locations.
• Curbside & Drive-Thru Pickup: Consumers collect pre-packed orders directly outside retail locations without store entry.
• Crowdsourced Pickup Locations: Small businesses or independent individuals host decentralized pickup points.

Advantages	Trade-offs
+ Lower per-package delivery costs (up to 30% savings)	- Requires consumer willingness to travel
+ Higher first-attempt delivery success rates	- Initial infrastructure and network investment
+ Increased flexibility and control for consumers	- Security concerns and theft risks
+ Scalable logistics, especially in urban markets	- Product limitations (e.g., bulky or perishable goods)

Direct-to-Customer (DTC) Delivery

Convenient but Costly: The Dominant Model

Direct-to-Customer (DTC) delivery is the predominant last-mile fulfillment model. While highly convenient and popular, it is also the most expensive and operationally challenging approach. As consumer expectations around speed, accuracy, and convenience continue to rise, companies face pressure to innovate and optimize their DTC logistics operations to remain competitive.

DTC requires individual package handling and doorstep delivery:

• Dedicated Individual Deliveries: Each package requires a dedicated courier, increasing operational costs.
• Real-time Route Optimization: AI-powered routing software dynamically adjusts delivery paths for speed and efficiency.
• Delivery Coordination & Tracking: Consumers receive real-time tracking updates and precise delivery windows, significantly enhancing customer experience.
• Returns & Redelivery Management: Companies manage returns, failed delivery attempts, and customer interactions—adding further complexity and expense.

Advantages	Trade-offs
+ High consumer convenience	- Highest cost per delivery
+ Precise tracking and real-time updates	- High rate of failed deliveries & costly returns
+ Competitive advantage in customer retention	- Operational complexity and logistics coordination
+ Flexibility in delivery speed (same-day, next-day)	- Significant labor reliance and wage volatility

Technology Shaping the Future of DTC Delivery

Crowdsourced Delivery

Crowdsourced delivery models, powered by gig workers using their own vehicles, have become a flexible and scalable alternative for DTC delivery. Platforms like Amazon Flex, Uber Eats, and Instacart enable rapid on-demand fulfillment, but they introduce variable costs, driver availability challenges, and inconsistent service quality. While automation promises long-term efficiency gains, hybrid models—where gig drivers handle bulk transport while robots or drones manage final deliveries—are emerging as a practical balance between human adaptability and technological precision.

Fleet Electrification

Fleet electrification is reshaping last-mile logistics as major retailers and carriers transition to electric delivery vehicles to cut emissions and operating costs. By optimizing delivery routes and batching orders, companies can extend vehicle range and improve efficiency while balancing charging schedules with demand. Although the transition requires significant upfront investment, long-term savings on fuel and maintenance make electrification an increasingly strategic move for logistics operators.

Autonomous Delivery Vehicles (ADVs)

ADVs are emerging as a key technology in DTC delivery by reducing labor costs and extending service hours. These vehicles promise operational efficiency by handling predictable, repetitive routes—such as package drop-offs, grocery runs, or pharmacy deliveries—without human intervention. While challenges remain in terms of regulatory approval, urban navigation, and public acceptance, pilot programs are already demonstrating how automation can complement traditional delivery networks.

• Self-Driving Delivery Vans: Several companies are deploying autonomous vans to navigate urban and suburban streets for parcel and food deliveries. These vehicles operate at low speeds for safety and can perform continuous loops, allowing for unattended deliveries even during off-peak hours.

• Sidewalk Delivery Robots: Compact, autonomous ground robots are being deployed in cities and on college campuses to deliver food, small parcels, and groceries. These small, battery-powered vehicles navigate sidewalks at walking speed, using AI and sensors to avoid obstacles. While these robots provide an efficient alternative to gig workers for hyper-local deliveries, they face challenges such as city regulations, limited carrying capacity, and slow speeds compared to human couriers.

• Delivery Drones: Aerial drone delivery is gaining traction for time-sensitive, lightweight packages, particularly in suburban and rural areas. Drones offer fast, emission-free deliveries, bypassing road congestion, but they remain limited by regulatory hurdles, noise concerns, and payload restrictions (typically under 5 lbs). As airspace management frameworks evolve, drone delivery is expected to expand into more mainstream logistics networks.

Conclusion

Last-mile delivery is evolving rapidly as companies seek to balance cost, efficiency, and customer expectations. Automation and electrification are leading the way as fulfillment networks adapt, ensuring businesses remain competitive in an increasingly complex and high-demand market.