A US based $2.0Bn E commerce gift retailer was facing increase in last mile logistics cost without any improvements in delivery speed. The distribution network consisted of 5 seasonal facilities, ~40 parcel hubs, ~4000 SKUs, 8 service methods, and 35K 5 zip customer locations. Last mile logistics cost was 75-80% of total logistics cost, primarily driven by parcels. Supply planning was done manually with limited use of Artificial intelligence resulting in sub-optimal allocation of inventory.
Client collaborated with Lambda SCS to ways to reduce logistics costs while maintaining or improving service. Lambda team used their proprietary supply chain design platform, Optiflow to create a digital twin of the existing supply chain. Optimization of inventory and transportation resulted in identification of 10-15% savings on last mile logistics cost without impacting service. Optimal supply plans were generated taking into account various capacity and product constraints and demand while minimizing logistics cost.
Cost per package reduced by 1% on Year on Year basis for the month of September, 2022. Accounting for 15% GRI increase by the parcel provider, a net savings of 16% in last mile logistics cost is observed. Brands can improve last mile performance, in terms of delivery speed and costs, by creating digital twins to optimize inventory and transportation in the networks.