Published Oct 2024
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In supply chain management, transportation costs can be broken down into three distinct segments: First Mile, Middle Mile, and Last Mile. Understanding these segments and their associated costs is critical for businesses that want to optimize their logistics operations and reduce transportation expenses. Each of these stages involves different logistics activities, distances, and complexities, and they contribute differently to the overall cost structure. Let’s dive into the key differences between the costs associated with these segments, using an example of a food and gift e-commerce retailer that manufactures and ships its products across the U.S.
The first mile refers to the initial phase of the supply chain, where goods are moved from the point of origin (manufacturer, supplier, or producer) to a fulfilment centre or warehouse. This stage typically involves transporting large quantities of goods, often in bulk, to central locations for further processing or storage.
Characteristics of First Mile:
Key Cost Drivers:
The middle mile is the phase where goods are moved from the fulfilment centre to distribution hubs or regional warehouses. This is essentially the bridge between the first mile and the last mile. The middle mile plays a crucial role in ensuring that goods are positioned closer to the end customer before the final leg of delivery
Characteristics of Middle Mile:
Key Cost Drivers:
Key Cost Drivers:
Using the example of the food and gift e-commerce retailer, each transportation leg—first mile, middle mile, and last mile—differs in terms of distances, volumes, and complexities.
| Aspect | First Mile | Middle Mile | Last Mile |
|---|---|---|---|
| Example | Moving gift baskets from the Kansas City production facility to the Chicago fulfilment centre | Shipping from Chicago to regional hubs in New York and Dallas | Delivering from regional hubs to customer homes or businesses |
| Distance | Long distances, within the U.S. | Medium distances, regional | Short distances, local |
| Volume | Large bulk shipments | Consolidated regional loads | Smaller, individual shipments |
| Cost per Mile | Lower due to economies of scale | Moderate | High due to smaller loads |
| Primary Costs | Transportation, fuel, packaging | Transportation, handling | Fuel, labour, technology |
| Challenges | Coordinating long-haul domestic logistics | Consolidation, cross-docking | Traffic, failed deliveries, time windows |
Understanding the differences in first mile, middle mile, and last mile costs is crucial for businesses aiming to optimize their supply chain. In our example of the food and gift e-commerce retailer, the first mile involves moving goods domestically in bulk at a relatively lower cost per mile, the middle mile bridges regions with moderate costs, and the last mile is the most expensive and complex due to individualized deliveries and high customer expectations. By focusing on optimizing each segment and leveraging technology like Network design tool and automated warehousing, businesses can find ways to balance these costs and deliver goods to customers efficiently and cost-effectively.
Our proprietary network design tool, Optiflow, is designed to help businesses optimize transportation costs across the entire supply chain—whether focusing on the first mile, middle mile, or last mile. With advanced modelling capabilities and data-driven insights, Optiflow can be used to optimize each of these legs individually or as a combined network.
How Optiflow Optimizes Each Mile:
In addition to optimizing individual segments, Optiflow can model the entire end-to-end supply chain network, including global networks where the first mile involves ocean/air routes across countries. By considering the interdependencies between the first, middle, and last miles, Optiflow identifies opportunities for cost savings, optimizes production locations, transportation modes, and delivery strategies, and maximizes efficiency across the entire supply chain.
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We’re excited to discuss what problems you are facing and how can you make your existing supply chain more efficient by continuously designing it.