Thursday, May 17, 2012

Engineering and The Last Mile Problem

Engineering faces a host of "last mile" issues and problems that will grow as energy costs increase in the coming years and decades.  The term "last mile" historically has been associated with communication - - the final leg of delivering connectivity from a communications provider to a customer.  It is typically seen as an expensive challenge because "fanning out" wires and cables is a considerable physical understanding.

But the "last mile" problem impacts a whole host of industries and behaviors in the context of cost and efficiency.  The issue becomes one of economies of scale - - where economy of scale makes an increase in capacity of a conduit or logistical network less expensive as the capacity is increased.  Our current global logistical supply-chain is basically the movement of goods and information from high capacity, long distance paths to one of lower capacity, short distance paths.  There is an overhead associated with the creation of any logistical system or conduit.  This overhead is not repeated as capacity is increased within the potential of the technology being utilized.

In the context of the high capacity, long distance path - - larger ships and huge economies of scale (the new 1,312-foot EEE class ship is designed to hold 18,000 containers, some 2,500 more than the largest vessels today can hold) are the norm with ocean transport.  Typical amounts paid for goods to reach Europe or the United States via ocean transport are (Source - - May 21, 2012 Fortune, The Chartist/The Shipping News):
  • Television Set - - $10
  • 100 Pounds of Coffee - - $6.80
  • DVD Player - - $1.50
  • Vacuum Cleaner - - $1
  • Six Bottles of Whisky - - $0.90
  • Barrel of Oil - - $0.80
  • Six-Pack of Beer - - $0.06
A six-pack of foreign brewed beer is a good example of the last mile or so problem and the disruptive nature of logistical economies of scale.  Assuming my trip to the local grocery store is four miles, at 14-miles to the gallon, and $4.00 per gallon of gasoline - - the $8.00 six-pack will have a final logistics cost of $1.14.  This is close to 20 times the cost of the first thousand or so miles across the ocean. 

Public transportation is another example of the last mile problem.  Huge economies of scale in transporting the public in mass - - but in lower density areas and neighborhoods, you still have the problem of the last mile (or five or ten).  How do you travel the last mile home and what is the cost?

Online retailer Amazon has been a major force in challenging the economics of the last mile.  Need a new pair of shoes?  They probably came to the U.S. for pennies from China - - yet you have to drive the last 10-miles to pick them up.  Amazon and UPS have basically built a higher capacity, longer distance conduit directly into your closet.  The next challenge for Amazon and UPS is the logistical conduit directly to my cooler and frig.

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