Last Mile Delivery vs Inventory Days of Supply: A Comprehensive Comparison

Introduction

The modern supply chain is driven by two critical imperatives: delivering products to customers quickly and managing inventory efficiently. Last Mile Delivery (LMD) and Inventory Days of Supply (IDS) address these goals but focus on distinct stages of the supply chain. Comparing them provides insights into optimizing logistics, reducing costs, and enhancing customer satisfaction.

What is Last Mile Delivery?

Definition: The final leg of delivery from a distribution center to the end customer, often involving complex routes, multiple stops, and real-time tracking.
Key Characteristics:

• Cost Intensive: Accounts for 53% of total shipping costs due to urban logistics challenges.
• Customer-Centric: Emphasizes speed (e.g., same-day delivery) and transparency through tracking technologies.
• Technological Integration: Uses GPS, AI route optimization, and drone delivery innovations.
  History: Grew with e-commerce, especially post-Amazon’s 2-day Prime shipments.
  Importance: Reduces shipping time errors by 98%, boosting customer loyalty (McKinsey).

What is Inventory Days of Supply?

Definition: The number of days an organization can operate using current inventory before restocking. Formula:
[ IDS = \left(\frac{\text{Total Inventory Value}}{\text{Average Daily Cost of Goods Sold}}\right) \times 100
]
Key Characteristics:

• Financial Metric: Balances cash flow and working capital by avoiding overstocking or stockouts.
• Demand Forecasting: Requires accurate data to prevent bullwhip effects.
• Sector-Specific: Retailers (e.g., apparel) may aim for 30–60 days, while tech companies prefer <10 days due to rapid obsolescence.
  History: Evolved from classical inventory control theories in the 20th century.
  Importance: Affects net working capital; reducing IDS by 1 day saves $3.5 million annually (CFO Magazine).

Key Differences

| Aspect | Last Mile Delivery | Inventory Days of Supply |
|-------------------------|--------------------------------------------------|---------------------------------------------|
| Focus | Final delivery stage | Inventory management across the supply chain|
| Scope | Customer-facing, localized | Enterprise-wide, inventory-level |
| Key Metrics | Cost per mile, delivery time, NPS | IDS formula, COGS, safety stock |
| Customer Impact | Direct (e.g., delivery delays) | Indirect (stockouts/overstocking) |
| Optimization Tools | Route planners, IoT sensors | Demand forecasting, ABC analysis |

Use Cases

• LMD: Critical for e-commerce during peak seasons or in dense urban areas. Example: Amazon’s 2-hour Prime Now service.
• IDS: Essential for seasonal businesses (e.g., holiday retail) or industries with perishable goods (grocery). Example: Walmart reducing IDS by 5 days to minimize markdowns.

Advantages and Disadvantages

Last Mile Delivery

Advantages:

• Boosts customer satisfaction via speed/transparency.
• Supports omnichannel strategies (BOPIS—Buy Online, Pick In-Store).
  Disadvantages:
• High costs due to fragmented delivery networks.
• Environmental concerns from increased vehicle emissions.

Inventory Days of Supply

Advantages:

• Improves cash flow by reducing excess inventory.
• Mitigates supply chain disruptions (e.g., COVID-19 shortages).
  Disadvantages:
• Requires accurate forecasting to avoid stockouts.
• May conflict with LMD goals if insufficient safety stock delays shipments.

Popular Examples

• LMD: Uber Eats’ real-time tracking; FedEx’s autonomous delivery robots.
• IDS: Apple managing 5–10 days of iPhone supply during product launches to meet demand without overstocking.

Making the Right Choice

1. Prioritize LMD if:

   • Your business competes on speed (e.g., food delivery, same-day retail).
   • Urban logistics are a bottleneck.

2. Focus on IDS if:

   • Inventory obsolescence is high (fashion, electronics).
   • Cash flow management is critical (SMBs).

Conclusion

LMD and IDS are not mutually exclusive but complementary strategies. Balancing them ensures timely delivery without financial strain. For instance, a retailer might optimize LMD routes while maintaining a 30-day IDS to handle fluctuating demand. Together, they form the backbone of a resilient, customer-centric supply chain.