Hyperlocal Delivery for Dummies

When you order your food from a local restaurant, the restaurant is usually within a few miles from your house. That delivery is hyperlocal.

If you have ordered food or grocery online, you would have definitely come across a hyperlocal delivery process. If you are looking to set up one for your own business, you should understand some key principles that are important to run this efficiently. In this episode, we'll go through the fundamentals of Hyperlocal delivery.

Hyperlocal delivery is sometimes known as last-mile logistics or last-mile delivery. It's simply the delivery process that has the delivery location closer to the pickup location. There is no standard criteria for the distance but it is typically within the same city.

When you order your food from a local restaurant, the restaurant is usually within a few miles from your house. That delivery is hyperlocal. So is your local grocery delivery or the local pharmacy that delivers your medicine.

The Root Question

Let's take an example. Let's say you are a local restaurant and want to deliver food to your customers. What does it take you to do that? The food is ordered and paid for. The extra service you provide is delivery and you want to minimize the cost of delivering the food.

The biggest cost factor in hyperlocal is the people (there are other smaller ones like platform cost, overheads). Let's call them runners. Now, in order to deliver an order, the runner needs to physically move from the pickup location to the customer's location and carry the order. So the time to pickup, travel and deliver are non-negotiable.

The delivery companies need to pay a fixed monthly charge to the runners. Meaning, they incur the cost whether the runner delivers 1 order or 20 orders in a day. So the objective of the operations manager here would be to use the runner to deliver maximum number of orders.

So, the key question when you run a hyperlocal operations is this: How many orders can a runner deliver in a given hour?

The more you deliver, the lesser the cost you incur per delivery and your overall profit margin increases (or reduce the cost for customer which should increase revenue).

How do I influence the number of orders delivered?

Now, all the new business models in this industry stem from the question above. Keeping the question in mind, there are the following variables that can be influenced to reduce the overall time.

Pickup Time - Time taken for the runner to pickup the order from source

Travel Time (or windshield time) - Amount of time spent in travelling

Delivery Time - Time taken to deliver the order after arriving at the destination.

Quantity - No of orders delivered in parallel

Idle Time - The time spent by the runner in between deliveries

So, the equation becomes something like this.

Now, you can change these variables in different ways to reduce the overall cost per delivery. Reducing pickup time, travel time, delivery time and/or salary of the runner and increasing the no of quantity carried together reduce the cost.

Some well known strategies are

Reducing Pickup Time

  • Optimise the pick up at the pickup location by placing them in a designated area
  • Synchronising the arrival of the runner to the readiness of the order so the runner doesn't waste time waiting. This is known as Just-in-time pickup
  • Picking up multiple products together to reduce the overall time. This is called batching. This works when the orders are delivered to locations that are nearby.

Reducing Travel Time

  • Route Optimization - Optimizing who picks up the order and the route they take can significantly reduce the time spent by the runners in travel. There are several companies just solving this process of routing through sophisticated ML models.
  • Placing the pickup location closer to the customer also significantly reduces the time taken to travel. Keeping the pickup location closer however might reduce the overall number of orders the runner can serve. So keeping them occupied becomes a key criteria.

Reducing Delivery Time

  • Geofencing the customer location so there is less effort in searching for the customer's house
  • Door step delivery can also reduce the time spent at the customer's location

Increasing Quantity

When multiple orders have pickup and delivery locations that are closer, the items can be batched together to be carried by the same person. This reduces the separate travel time needed.

This is notoriously difficult to achieve in on-demand but getting this at scale would be a significant improvement.

Batching is mostly used in e-commerce or other scheduled deliveries.

Reducing Idle Time

This is one of the most fundamental ways to improve your efficiency. Few strategies are

  • Capacity Planning - Make sure you have the right number of runners present at the right hour so they have enough orders to perform
  • Runner location optimization - Sometimes, even with good capacity planning, the utilisation of runners across different geographies might be different. So companies dynamically move the runners to locations where they expect higher number of orders
  • Using part time runners - Businesses attempt with managing both full-time and part-time runners. Full-time runners to manage most of the steady volume of orders and part-time runners for adhoc spikes.

Some known Hyperlocal Delivery business models

Scheduled Deliveries - These are typically deliveries that have a predefined delivery timing which is allocated at least a day or two before. This enables these companies to plan their route and pickup multiple items together. So, the runner picks all the items together, travels along the most efficient route to deliver all the items. A good example of this is amazon.com. Most e-commerce companies deliver this way for their last mile.

On-Demand Delivery (Fast Delivery) - This is the typical hyperlocal delivery where the product once ordered is delivered within 30-60 mins. They do this by limiting the travel distance to 5-8 miles max. So, the amount of time spent in travelling goes down compared to e-commerce where the runner travels across the city. Some examples are Dominos, DoorDash, Postmates etc

This model will only work if the runners always have orders to deliver. Means, within a 5-8 mile distance, there should be enough orders coming in. So, these companies focus a lot on optimizing the correct number of runners in each hour and within in area. That part is known as capacity planning.

Ultra-fast delivery - A lot of new players are changing the game by delivering within 10-20 mins. This is very similar to on-demand except that the delivery distance is typically 1-2 miles. So the travel distance really goes down. Examples are Gorillas, Flink.

These companies also focus a lot more on reducing the pickup and delivery times by typically managing their own store with inventory storage optimized for fast packaging and delivery.

We will see each of these models in a lot of detail in a later post. Hopefully this gave you a good understanding of how the Hyperlocal Delivery operations is setup.

All of these models need a strong technology platform to run efficiently because the margin of error is so low. At Zorp, we provide the technology infrastructure for businesses that want to run their Hyperlocal delivery. Check us out.