Last Mile Supply Chain Challenges: A review of urban & congested transportation environment challenges

 

 

Last Mile Supply Chain Challenges: 

A review of urban & congested transportation environment challenges 

 

 

Hua, Li

Embry Riddle Aeronautical University Student

LGMT 683 Supply Chain Management

Piyabalo Padaro, Ph. D.

July 10, 2022

 

 

 

For Urban Freight within city boundaries traffic congestion, fuel efficiency concerns, apartment rules and labor shortages can greatly increase the price of last mile delivery. When a delivery firm utilizes a hybrid distribution center with multiple delivery nodes such as a “milk-run” prices can spike quickly if delivery delays occur (Chopra, 2019). City centers are lucrative as they contain a large customer base, but what drives growth also causes delivery problems (Bosona, 2020). In South Korea E-Commerce delivery companies have been growing at a steady pace and now one company stands out amongst the pack: Coupang. This company had several hurdles to overcome to maintain its dominance.

City traffic causes inefficiency of fuel and travel time for drivers and one city boundary may have several regions with different driving conditions which each have different impacts on this “last mile of the supply chain” (Tanco, 2021). For many companies’ drivers inside a city are performing short haul deliveries and are paid by the hour as opposed to by the mile. One technique is to conduct last mile deliveries in urban centers during Off-Peak Delivery hours (Novack et al., 2019).  To this end Coupang does utilize overnight delivery as a way to avoid busy rush hours along with a competitor Kurly (Kim, 2022).

Coupang has built multiple distribution centers near its customer base of urban centers. Now over 90% of its customers live within range of its “Rocket Delivery” service which gets items to customers in less than 24 hours (Kim, 2021). This increases costs to overall operations, but since the E-commerce sector is set to increase by 1,000% in 10 years the investment is critical (Kim, 2022).

High transportation costs are acceptable when customer responsiveness is required. Coupang faces competition for companies such as Kurly in terms of groceries (Kim, 2022). To keep this urban delivery specialist running Coupang maintains a great number of drivers and distribution center employees which total over 37,000 (Kim, 2021).  

In Korea, a city is organized by ‘Dong’, the suburb is organized by ‘Eup’.  Multiple small order deliveries are shipped for same house after being processed through a break bulk terminal and delivered by small trucks to get into smaller complexes. Despite this, not every apartment complex allows trucks inside for safety and privacy reasons (Jun, 2021). Drivers have to dolly deliveries into complexes as a result.  Accidents and lawsuits have been reduced, but the drivers are significantly less happy about this. This driver concern feeds into one rising challenge for the short delivery cycle, labor shortages (Kim, 2021). As fleets grow, drivers have explored unionization and subsequently might want to strike for relief from unpleasant work conditions caused by unrealistic delivery goals within city boundaries (Jun, 2021). To stay on top of this Coupang direct hires a robust fleet of delivery drivers and utilizes a day-by-day contract hire process.

One additional challenge posed to Coupang is a labor problem within its distribution center. In 2020 there was a high profile recorded worker death caused by heart attack in a young healthy individual, which spurred a desire to unionize by employees who are kept on payroll. Coupang continued to use day-by-day contracting techniques which avoid a “full time” hired status for a percentage of its employees (Kim, 2021). This allows for rapid adjustments to the labor force which controls costs in this pricey “customer responsiveness” focused operation.  In an effort to address employee morale, Coupang has begun to utilize automation to support employees and ease burden in certain areas of the supply chain within its distribution operations (Kim, 2021). 

Last mile deliveries through city centers presents many challenges to motor carriers. Coupang’s business focus has been highly centered around customer responsiveness.  By adjusting delivery policies to overnight deliveries to reduce the amount of fuel used, carefully managing its work force of delivery & distribution center employees and utilizing artificial intelligence/automation technologies Coupang has been able to address its greatest challenges supporting urban city centers.

 

 

 

WORKS CITED

Bosona, T. (2020). Urban Freight Last Mile Logistics—Challenges and Opportunities to Improve Sustainability: A Literature Review. Sustainability, 12(21), 8769. http://dx.doi.org/10.3390/su12218769

Chopra, S. (2019). Supply Chain Management: Strategy, Planning, and Operation (7th edition). Pearson.

Jun. J.-H. (2021). Delivery workers refuse door-to-door service following residents unilateral action. The Korea Times. https://www.koreatimes.co.kr/www/nation/2021/04/371_307247.html 

Kim, J., H. (2022 March 10). Kurly, Coupang face complaints about declining quality of overnight deliveries. Korea Times. https://www.koreatimes.co.kr/www/tech/2022/03/419_325282.html

Kim, S., M. (2021 June 09). This company delivers packages faster than Amazon, but workers pay the price. MIT Review. https://www.technologyreview.com/2021/06/09/1025884/coupang-amazon-labor-costs-worker-death/ 

Novack, R. A., Suzuki, Y., Gibson, B. J., Coyle, J. J.  (2019). Transportation: A Global Supply Chain Perspective. Cengage

Tanco, M., Escuder, M. (2021). A multi-perspective analysis for the better understanding of urban freight transport challenges and opportunities in Montevideo. Case Studies on Transport Policy, 9(2), 405-417. https://doi.org/10.1016/j.cstp.2020.11.005