The last mile represents the final leg of the product’s journey that ends with a delivery to the customer. This last mile journey could start from:

• a local warehouse
• a distribution center
• a micro-fulfillment center
• a store

While retailers and brands have significantly optimized the different parts of the supply chain, the last mile simultaneously represents the most critical and the most challenging part in fulfilling an order and ensuring successful customer experience. The last mile accounts for nearly 50% of the total shipping costs and forces brands to balance the trade-offs involved: speed and cost. Brand’s success and profitability is in finding the right balance between speed and cost.

The Last-Mile Dilemma: The Trade-Off

E-commerce has reshaped customer expectations. Free delivery and two-day shipping are now baseline expectations, with 62% of shoppers expecting free shipping. At the same time, nearly 36% abandon carts if delivery is too slow, even as demand for same-day and next-hour delivery grows.

While speedy delivery drives sales and customer loyalty, it comes at a very high price. Slow deliveries risk alienating and losing customers. Also, about 56% of customers are willing to wait a little longer if the shipping is free, making free shipping almost a prerequisite.

Table 1 shown below outlines the focus, impact on cost and impact of speed on the strategy adopted

Neither extreme is sustainable. Too slow, you lose customers; too fast and expensive, you lose profit margin.

Finding the Sweet Spot: The Strategic Levers

Achieving the right balance between speed and cost requires a multifaceted approach, strategically leveraging technology and network design.

1. Network Density and Optimization

Instead of relying on distant, centralized fulfillment centers, strategic companies are bringing inventory closer to the customer:

• Micro-Fulfillment Centers (MFCs): These smaller, highly automated facilities are often located in urban or suburban areas (sometimes within existing retail stores). They stock the most ordered items that can be quickly replenished. MFCs reduce last-mile distance and costs, but add expenses for rent, equipment, and labor. Intelligent Order Management Software (OMS) can route orders to the best location for fulfillment based on criteria such as distance, cost and speed of fulfillment.
• Inventory Planning and Stock Levels: Using AI-driven forecasting to replenish the items in the right quantities and the right local nodes (warehouses, stores, dark stores) minimizes long-haul transfers and ensures a faster starting point for final delivery. Smart Warehouse Management System software can ensure the visibility of inventory across all the storage locations and give a centralized view of inventory.

2. Dynamic Routing and Aggregation

Technology is essential for making the delivery trip itself more cost-effective and faster:

• Order Aggregation: Where possible, deliveries are batched to nearby locations. Strategically delaying a non-urgent order by a few hours to combine it with others in the same neighborhood can yield significant cost savings without severely impacting the perceived delivery speed.
• Last-Mile Routing Software: Advanced algorithms consider real-time traffic, delivery time windows, and vehicle capacity to generate the most efficient routes. This maximizes the drops per hour for each driver, increasing speed while reducing per-delivery labor and fuel costs.

3. Diversified Delivery Modes (The Portfolio Approach)

Relying on a single carrier or vehicle type is inefficient. The sweet spot involves a tiered service model:

• Premium/Express: Use high-cost, high-speed options (couriers, dedicated vans) only for the highest-value or most urgent orders where the customer is willing to pay a premium that fully covers the additional delivery costs. Amazon spends about $84B (based on 2023 estimates) for Prime Delivery.
• Standard: Use established regional or national carriers for non-urgent, cost-sensitive shipments.
• Eco-Friendly/Hyper-Local: For densely packed urban areas, deploying e-cargo bikes or pedestrian delivery can be faster and cheaper than trucks due to avoiding traffic and parking issues. However, this does not always address the profitability question. Quick commerce companies such as Swiggy Instamart in India and Gopuff in the US emphasize customer growth over profit margins.
• Offer Click to Collect options: Offering options such as Buy Online and Pick up In Store (BOPIS) and Buy Online and Pick up Kerbside (BOPAK) offer the benefit of reduced shipping costs by directing all the deliveries to the store where the customer can pick up. Walmart uses its store network as a fulfillment hub to deliver items while offsetting the overall delivery costs.

4. Customer Choice and Transparency

The ultimate solution involves shifting the decision partly to the customer, but with full transparency:

• Tiered Pricing: A customer orders a $100 item and is presented with shipping charges to choose from
  • $5.00 for 5-day delivery
  • $15.00 for next-day delivery

By allowing the customer to choose their preferred Speed-Cost trade-off, you align the fulfillment strategy with the actual demand signal, reducing the need to default on the most expensive option for everyone. Zalando in Europe does this efficiently.

Communicating Value: Frame faster delivery as a premium service. For instance, offering free standard shipping but making the express option the only way to get a product by a specific date.

Conclusion

The sweet spot in last-mile delivery is achieved by balancing speed and cost and optimizing the relationship between them.

Companies often rely on intelligent Order Management System and Warehouse Management System and logistics platforms that can dynamically route orders based on chosen parameters, block and allocate inventory to an order, choose the optimal delivery mode, and plan the most efficient route based on real-time factors and customer willingness-to-pay. By making strategic, localized investments (like MFCs) and leveraging data to drive decision-making, businesses can satisfy the customer’s demand for rapid service while maintaining the sustainable cost structures necessary for long-term profitability. Achieving this balance requires a nuanced strategy tailored to specific business goals and customer demographics