Supply chain managers are facing unprecedented challenges, including volatile market conditions, sudden logistics disruptions, scarce labor, and spiraling costs.
Autonomous vehicles (AVs) are emerging as a new and significant source of relief for these issues. The vehicles are poised to play a major role in improving both middle- and last-mile logistics.
Middle-mile covers the movement of inventory between distribution centers (DCs) and retail locations or micro-DCs, positioning products for the final leg of delivery. Last-mile is the direct delivery of goods to consumer homes and businesses.
When the demand for same- or next-day delivery exploded with the onset of the pandemic, businesses scrambled to patch together solutions. In many ways, the scramble continues. Traditional inventory management systems weren’t built for today’s reality. Instead, businesses have adopted on-the-fly tactics that have disrupted operations. This has resulted in negative impacts on both financial performance and customer satisfaction.
Following are five opportunities for corporate managers to consider as they examine how AVs can play a role in meeting the demand for fast and predictable delivery while optimizing financial performance.
Scaling supply operations while facing driver shortages and rising labor costs. The pandemic fueled a surge in e-commerce sales that include direct-to-door delivery. According to the Annual Retail Trade Survey, e-commerce sales grew 43% in the first year of the pandemic, hitting $815 billion in 2020 compared with $571 billion in 2019.
That explosive growth put tremendous pressure on retailers and logistics providers, who were dealing with stretched supply chains as they attempted to keep up with demand. On top of that, driver shortages are putting greater pressure on shippers. More than one-third of logistics companies report that their biggest problem is finding qualified drivers, which impacts costs for both shippers and customers. Increased shipping costs can eat into business margins and lead to inflated costs for consumers.
AVs give businesses, such as retailers and logistics providers, flexibility and additional capacity to better balance supply and demand. They can supplement human driver workforces and allow them to focus on higher-value tasks, like packing, sorting, or customer service, which ultimately enables businesses to more effectively scale their supply chain operations.
Solving urban middle-mile use cases as the supply chain becomes increasingly complex. Logistics providers and retailers are decentralizing their supply chains, placing goods closer to consumers for inventory optimization and faster delivery. Businesses are moving inventory out of traditional DCs to micro-fulfillment locations and even individual stores, which is creating a new subset of middle-mile use cases in urban environments.
The emergence of urban middle-mile deliveries can add logistical complexities — introducing more routes and on-demand dispatching requirements — at a time when the supply chain is already at capacity. In some cases, businesses are pulling sales associates off the brick-and-mortar sales floor to move inventory in their own vehicles to a nearby location that has a shortage. Such short-term fixes may address an immediate need, but they are not sustainable or scalable.
AVs are ready to fill in gaps here because they can be deployed on-demand across urban middle-mile areas, enabling flexible delivery options without disrupting business operations. Automating repetitive middle-mile routes could increase operational efficiency, allowing retailers and shippers to scale delivery operations and meet rising demand.
Meeting consumer expectations for delivery speed and predictability. The traditional retail maxim continues to apply: the customer is always right. A key point to remember is that as consumers’ requirements evolve, shipping is no longer viewed as an afterthought. Rather, it becomes a deciding factor for consumers and a differentiator for retailers. Many consumers now make buying decisions based on available shipping options. They might avoid any offer that doesn’t include free shipping, and they’ll even abandon in-process purchases if the delivery options aren’t satisfactory.
To satisfy consumer requirements, retailers need to turn upstream: putting effective middle-mile solutions into place could eliminate much of the chaos now associated with last-mile services. This is where the use of AVs becomes attractive, because they can increase predictability and speed.
Predictability improves with the consistent performance of AVs, leading to better route planning and more accurate ETAs. Businesses can develop reliable operating plans around this dependability. In addition, AVs offer fleet-wide control without the variations that can be caused by individual drivers. For example, AVs have the flexibility to operate on the same route all day, or to go on standby to be dispatched on-demand. It’s difficult to do this as effectively with a workforce of human drivers, who have individual preferences, constraints, etc.
Speed improves with AVs operating around the clock in middle-mile use, rebalancing inventory, and shuffling products closer to the consumer in support of faster and more efficient last-mile deliveries. People continue to play an important role, loading/unloading vehicles, sorting goods and dealing with exceptions. By shaving even just a small amount of time off of every trip, more efficient delivery operations result.
Improving transparency and traceability across the supply chain. Though the drive to digitize most enterprise activities has been strong, the movement of goods in the middle- and last-miles lags significantly. When expectations are built around quick delivery, products must always be in place according to plan. Otherwise, it can be nearly impossible to get them to the right place at the time they’re needed. As currently structured, segments of the middle- and last-mile delivery models incorporate little or no tracking of what happens to products once they’re in the delivery vehicle. This is especially true for retail deliveries performed by drivers using their own vehicles.
AVs effectively support middle- and last-mile logistics because they incorporate accurate, real-time data about the location of products in transit. This is important for any retailer, and even more so for providers of perishable goods, such as grocery stores. AV technology is inherently designed to close this data gap. AVs are fully connected in real time and — due to the need to navigate safely on public roads — they have highly precise positioning data. Not only does this allow for accurate package tracking, it also provides important analytical data that enables optimization of vehicle utilization, route planning and overall system performance. AV service providers can play a critical role in integrating this information into enterprise resource planning (ERP) systems to provide businesses with more actionable data.
Increasing safety leads to fewer delivery disruptions. Safety isn’t just important to the people in the vehicle, but also to the range of actors on the road including other drivers, pedestrians, and bicyclists. The results of highway crashes can be devastating, and there is a continued need to reduce the incident rate. Safety also impacts many aspects of supply chain operations where failures can result in delays, downtime, and unplanned maintenance costs. Certain products are particularly vulnerable, such as food, both from spoilage and the risks of package tampering.
A key advantage of AVs is their promise of greater road safety. AVs never get tired, are not subject to distraction, and their skills will not deteriorate with age. In fact, with experience, the safety performance of AVs is continuously improving as the technology accumulates more data and the machine learning and AI algorithms strengthen. As safety performance improves for AV road operations, that naturally supports fewer delivery disruptions and a better customer experience.
Bringing Automated Vehicle Technology to Market Today
Using sophisticated sensors and advanced machine learning, technology from Argo AI enables vehicles to safely navigate through cities and on highways without a human driver. Together with its commercial partners, Argo AI is operating fleets of AVs in multiple cities across the US and Europe. The Argo Autonomy Platform is currently integrated into the Ford Escape Hybrid and the all-electric Volkswagen ID Buzz van, offering flexibility to support a variety of applications.
Argo AI is bringing together the technology, the operational footprint and the commercial partners to build a scalable autonomy business that has the potential to serve a broad array of customer needs.
In Miami, FL, and Austin, TX, Argo AI operates AVs for last-mile grocery delivery in conjunction with a leading retailer. The service encompasses a large part of each metro area, with AVs successfully navigating the cities’ wide variety of expressways, arterial roads, and city streets in traffic conditions that can be quite challenging.
Argo AI has a commitment to make the world’s streets and roadways safer, more useful, and accessible to all. With its partners, Argo AI has begun implementing AVs across the supply chain today and is paving the way for the future of logistics. The prospects for wide adoption of safe, efficient AV systems are bright.
Timely, incisive articles delivered directly to your inbox.