Tech’s new Last-Mile/First-Mile conundrum – Part I

Tech’s new Last-Mile/First-Mile conundrum – Part I

Part I: Disruptions

Tech retailers are facing supply chain disruption issues in D2C last-mile fulfilment and first-mile reverse logistics for returns. Here’s what you need to know

That the supply chain crisis has had far-reaching and cascading implications for the entire world economy is now a fact known to all. Though stress lines existed prior, it was exacerbated initially by the COVID-19 pandemic and then by Russia’s war on Ukraine – playing an integral role in high inflationary pressures across the world.

As the world grapples to fight the effects of this high inflation, consulting giant ATKearney reports that tech retailers still face “particular supply chain disruption issues in direct-to-consumer last-mile fulfilment and first-mile reverse logistics for returns…pandemic, climate, and supply chain constraints have had an outsized impact on consumer electronics given the industry’s high product values, time to market requirements, trend sensitivity, and logistics complexity.”

Some of the major challenges, in this regard, include: (i) chip, material and component shortages owing to soaring demand across sectors, (ii) considerably higher fulfilment costs from a shift to direct-to-consumer (D2C) business models, (iii) tightened logistics capabilities and therefore, costs, owing to inhibited service and (iv) fierce competition leading to ballooning customer churn rates and retention/acquisition costs due to burgeoning consumer demand.

Interestingly, it isn’t just newer players in the industry facing the issue. Incumbents with well-established store and distribution networks are also under increasing pressure to align demand and supply, shorten delivery and production lead times, manage inflation as well as meet increased demand. “Returns add to the complexity, with stranded inventory in transit tying up working capital, triggering stockouts, and costing future sales,” opine Kearney.

The pressure of optimising Tech LM/FM

Logistics organisation FarEye defines LM/FM simply: “first-mile delivery is at the start of the delivery portion of the supply chain and last-mile delivery is at the end of the supply chain. First-mile operations get the product from the manufacturer via a courier to a carrier. Last-mile operations finish when the order is delivered.”

The importance of LM/FM has become especially crucial to industries with time-sensitive high-value products – such as in the computing and internet space – combining a mix of essential services and trend-sensitive retail products.

Image source: AT Kearney

There are some major challenges to be considered here as well. The time-to-market metric, for example, is crucial in meeting enterprise and consumer demand for high-resolution displays and imaging, longer battery life, increased processing power and greater network coverage. To meet these needs, longer and more complex supply chains often become a consequence – from the sourcing of intricate rare earth metals and composite materials from multiple countries right to the circuit assembly.

This, during an increasing trend for shorter product life cycles in both high-end as well as value-for-price down markets, places even more stress on supply chains, thereby often leading to thinner margins across product lines – thereby forcing device or accessory makers and service providers to “offer frequent upgrades and new value-added features–personal assistants, health and fitness monitoring, home security–to retain customers in a crowded field and boost average revenue per user.” According to a report from Kearney:

“…original equipment manufacturers (OEMs) including Apple and Samsung have announced about 10 percent production cuts as labour and component shortages, mainly in high-capacity chips, have produced delays and slowed demand. On the delivery side, higher throughput and fulfilment costs are expected as D2C eCommerce orders grow to 30 percent of total sales in 2023 from just 10 percent in 2021, and as parcel carriers raise rates to cover rising costs.”

Yet, as first-mile costs keep rising, return rates for consumer orders have now fallen below in the mid-tens, well below 20%. Redirecting defective products to manufacturers, ‘no-fault-found’ (NFF) products back to inventory and trade-ins to the recycling/reuse channels now matter increasingly to the bottom line in a high-inflation environment. Poor visibility at the two ends of the spectrum is really hampering forecasting capabilities.

This is leading to lower on-time in-full (OTIF) performances, lost packages, low net promoter scores (NPS) and more service level agreement (SLA) claims – all proving to be a deterrent to customer satisfaction and loyalty. Experts opine, CX is crucial – a high score can lead to up to 61% retention rates, while a bad experience leads to almost an 85% churn rate.

Kearney writes: “without clear forecasting visibility, retailers and suppliers are left without clear signals to help them prioritise the deployment of finite staff and resources. Reactive planning reduces inventory turns and on-shelf availability, creating inventory blind spots and dead spaces.”

So, how to get it right?

[Continue readingPart II: Solutions]

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