So now let's discuss about the problems with last mile delivery.
So in this video, we will first discuss about the problems that a company will face if they are doing
the last mile delivery.
And then we will discuss about the solution.
And in that part, we will understand how exactly can you solve the problem.
Now, the first problem that a company will face is the per unit cost.
So as a business, you wanted to reduce down the per unit logistic cost of a product.
But the problem is that last mile delivery accounts for 53% of the total shipping cost.
That means in the first and the second stage, which is the first and the middle mile delivery, both
will account for just 47% cost.
And the simple reason is if you look at the first and the middle mile delivery, you will realize that
products are getting shipped in bulk quantity using sea route or rail route.
But in the last mile, a person is literally carrying these individual boxes using a van or a two wheeler.
And that's why last mile delivery is expensive.
Now, if you wanted to solve this problem, you have to bring network effect in your business so that
you can achieve economies of scale.
Let me oversimplify these two complex term for you.
At first, let's understand about network effect.
So I made a video about network effect in this course.
In that video, we had a discussion about how Amazon.
Is reducing the price on their platform so that more and more people will place the order.
If you have more number of people placing the order, then automatically the delivery guy who is delivering
these parcel at your doorstep will carry more number of parcel.
So let's say yesterday if that delivery guy was carrying 30 different parcel and today if he has around
60 different parcel, in that case the per unit cost will be less.
And that's why Amazon will always try to make sure that all of their products on their platform are
at the most affordable rate so that they can reduce down the per unit cost.
The second problem with the last mile delivery is the road infrastructure.
Now, if you look at few developed countries, they don't really have this problem.
But if you look at some developing countries, especially in Southeast Asia, then you will realise
that this is a big problem because 70% of our logistic still happens through road.
And if a country is having a bad infrastructure in that case, it will take more time to deliver a product
and the vehicle requires a little more maintenance and that's why that's a problem.
Now, one of the ways by which a company can solve this problem is by separating the logistic based
on the margin.
So if you order a smartphone using Amazon, you will realize that they end up delivering that product
within like a day or two.
But on the other side, if you order a low margin product from this platform, they sometime won't be
able to deliver that product even after a week.
And the reason behind that is that these companies use a different supply chain based on the margin
or the ticket size of the product.
Third problem with the last mile is handling peak demand.
And this is they are especially in case of Uber and a Foodtech platform.
And this is also there in case of Marketplace.
So if you look at a platform like Amazon, you will see that these platform have a peak demand, especially
on weekend and on festival season.
Now, let's understand how exactly Amazon solves the problem of peak demand that happens at the time
of weekend or at the time of festival season.
Well, if you closely observe Amazon, you may find this option.
Just subscribe and save 10% on this product.
And their main motivation behind that strategy is that if you subscribe for this product, we will ship
the product every single month so that we can maintain a uniform demand of a product on the platform.
And you are also saving a 10% cost on this product, and you don't really have to order every single
month.
So that's their strategy.
They are flattening out the peak demand curve.
So majority of people get their salary in the first week of the month and that's why they start placing
order for all of these different product.
And that's why Amazon tried to stabilize the peak demand so that they can ship the product in the last
week of month or maybe in the second week of month.
And that's how they handle peak demand.
Now other companies like Ubereats or Uber Cab, handle the peak demand with a strategy called surcharge.
So they put an additional $1 surcharge.
If you open the Ubereats app, especially at the time of dinner, or if you book a cab, especially
in the evening, you will see a surcharge of around a dollar in both of these app.
Now let's understand about quick commerce.
Now quick Commerce is the new trend in the last mile delivery.
And let's understand from last two decade how the market has evolved from the first generation commerce,
then to e commerce and finally to quick commerce in 2023.
So let's understand about that with the help of this diagram.
So if you go back almost 15 years back, you saw that back in 2005 for in early 2000, one of our family
members, especially our dad, used to go out to buy all of these products from the nearby grocery store.
And that was the first generation commerce that was self service and where all the products were available
in small grocery store.
And we used to go out to purchase those product.
And back then, discount was super important for us.
We used to go from one grocery store to a different grocery store to make sure that we are getting the
best price.
Then somewhere around 2010 or 2015, we started getting second generation e commerce where we need a
product at our doorstep within like two or three days and we can buy all of these products using a mobile
app or a website sitting on our couch and a delivery truck will come to our doorstep and they will deliver
that product.
So platforms like Amazon and few other apps started getting popular at this point of time, especially
in the second generation e commerce.
And these companies used to have mega warehouses in the outskirts of a city, and that's how they were
able to fulfill the product faster to the customer's doorstep.
And that was the second generation e commerce that was used by companies like Amazon, eBay, or even
by Walmart.
And even in those second generation e commerce discount was important.
And that's why we keep browsing across different website to make sure that we are getting the best price.
And that was the second generation e commerce.
Now we have third generation Q commerce that is quick commerce.
So now we need a delivery of our product in less than an hour, but we have a small selection available
because obviously it is super difficult to maintain these mega warehouse in different parts of our city,
and that's why we have small selection available in these dark store.
And these dark stores are available in every 5 to 10 mile.
Then we have third generation Q Commerce, also known as Quick Commerce.
So if you look at all the grocery app, these are the really good example of quick commerce.
Now they have a very small selection because they have the small doc store in every five or ten mile
and they are able to deliver these product in less than an hour because these people have a lot more
delivery guys with two wheeled vehicle.
And the reason quick commerce is there and people want all of these products in less than an hour is
because they are not really concerned about discount.
And these quick commerce companies are often present in areas where you have high density of population
working in these corporate offices who have a lot more disposable income, but they don't really have
a lot more time.
And that's why the main focus of these quick commerce companies is time and not the cost, because majority
of people who are placing the order in these quick commerce app are often single person household.
Who is staying in a densely populated area because so many corporate offices are there.
So now let's understand how exactly last mile delivery work in case of commerce so quick commerce are
using the software.
I'm giving you an example of a software named Locus.
Now, locus is a last mile delivery.
Logistic software and multiple companies are using this software so that they can track every single
order.
So at first, let's discuss about the store type.
So in quick commerce, they will normally have these dark store that are present in every 2 to 5 mile
or kilometers.
And these dark store are comparatively very small.
They have around 1000 SKUs.
And these store keeping unit can cover almost 90% of your kitchen.
And that's why these companies have started opening all of these small dark store in every 2 to 5 mile
or kilometers.
So that's their store type, their North Star matrix, which is a matrix that will decide the ultimate
success of a business, is that if a customer is placing a second order, they will have a retention
of more than 90%.
If you're able to deliver the order within like 15 to 20 minutes.
And that's their Northstar matrix, An all star matrix is used by multiple businesses to determine whether
they are succeeding in their business or not.
And North Star Matrix is the primary matrix where business will focus.
And this matrix will help them understand whether they are succeeding in the process or not.
Now, quick commerce work really well.
If you have a high population cluster with high disposable income and you can find these clusters,
especially where you have a lot more corporate offices, then you have delivery time and these quick
commerce app, let's say a grocery app or a food platform will normally deliver the product within like
10 to 30 minutes, depending on the service area.
And the service area can go anywhere from 2 to 5 km or miles.
If you are living in the United States.