In the midst of economic pressures such as inflation and a potential recession, retail has continued to flourish. The National Retail Federation projects that 2022 retail sales will expand 6-8% over last year’s figure of $4.61 trillion.
With this expansion comes increasing last-mile logistics challenges. Each day, enterprises need to make strategic decisions about how they’re completing the last leg of such an important journey: How many vehicles are needed, and of what size? Which drivers should be assigned to those routes based on factors like familiarity and experience? Will traffic or natural occurrences cause trouble for shipments? And these decisions revolve around a function that’s anything but cheap. The last-mile segment account for 53% of the total shipping equation, so it’s imperative to get it right.
One of the most challenging elements is precision. Last mile is all about time-definite deliveries. There might be a 90-minute slot for the consumer to be at home, but any variable can upset that planning. When that happens, it can hurt the bottom line for enterprises. Research from Shopify found that 32% of shoppers abandoned their carts because the estimated shipping time was too long. Another report showed that 66% of Americans would stop ordering from a company or app due to a late delivery, while 73% would order more frequently if the seller were early or on time.
With all this in mind, it becomes essential to deploy advanced software to drive operational efficiencies and improve customer experience. But companies looking to acquire technology must first ask themselves one key question: Do we buy the software, or build it ourselves?
It’s important that companies carefully weigh the pros and cons of each approach. Following are some considerations to keep in mind.
Building From the Inside
Every organization has its own nuances — unique requirements for customers or certain things about the product they’re shipping — so bespoke software might be a more viable option to solve problems that software-as-a-service (SaaS) vendors might have left untouched.
Building a solution from scratch involves finding the right talent, bringing those developers up to speed on operations, and betting on a successful deployment. Many companies already have a well-rounded in-house team that can tackle this without issue. By managing the process themselves, they can help empower the company to own that specific domain, providing a strong competitive edge in the marketplace.
On the flipside, these projects essentially require an organization to become a software company for a time, despite a lack of detailed knowledge, experience and dedicated resources needed to drive such efforts. This includes not only building a base solution, but investing heavily in redundant applications that back up their operations, should the sub-systems fail.
Between initial buildout, ongoing support, bug fixes, upgrades, platform migrations, and compliance requirements, the cost can easily add up to hundreds of thousands if not millions of dollars. Given that many enterprise IT projects typically take up to 12 months to finalize, and two-thirds run over budget by up to 100%, this approach might not realize the hoped-for return on investment.
Relying on Out-of-the-Box
SaaS innovation is advancing so quickly that if companies build their own systems, they could very well become obsolete by the time they complete development. SaaS vendors, on the other hand, have built tools with subject-matter experts that have learned from previous deployments, and can therefore more easily adopt new features and go to market at a breakneck pace on systems that would take years for in-house teams to master.
Since SaaS platforms are built with functionality and compatibility in mind, most have simple application programming interfaces (APIs) that can easily integrate with other business systems. New commercial models help organizations pay for precisely the features they need, so they’re not wasting money on unused capabilities. These trends have led to a growth in SaaS adoption, with SaaS product spend per company up 50% from two years ago, and overall SaaS spending projected to hit $145.3 billion this year.
If a company were to go with an out-of-the-box application, the SaaS provider would own all of the costs associated with building and maintaining it, and the subscription would cover the use of the platform and any forthcoming updates. The provider can deliver industry-leading features and performance while absorbing the risk of tech debt and redundancies that executives would be saddled with if they tried to do it on their own.
SaaS vendors also have a wider understanding of compliance requirements and methods for specific sectors, and most have heavily invested in ensuring their systems abide by privacy and data-processing standards. Buying a SaaS platform shrinks the time to value drastically and enables them to action goals sooner.
As leaders evaluate the pros and cons of either building an internal last-mile software platform or choosing one that’s already available on the SaaS market, they should keep a few things in mind.
First, to remain competitive they need a tech stack that can scale to meet today’s growing demand, and is in line with industry best practices for ensuring on-time deliveries and managing escalations for special-case shipments. Second, they’ll want to identify their specific needs and evaluate accordingly. If they’re especially unique, that may help answer whether the homegrown or out-of-the-box route is the right approach.
Whichever direction is chosen, the bottom line is that technology is essential to filling delivery gaps, driving operational efficiencies, and ensuring a positive customer experience today.
With 88% of customers willing to pay more for same-day delivery, companies need last-mile logistics software platforms that can easily assimilate with their existing systems, make operations as precise as possible, and utilize aggregate data and predictions while addressing hidden inefficiencies across the fulfillment cycle.
As demand grows, they can’t afford to be left behind.
Walter Heil is senior vice president of developed markets with Locus.
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