OPINION: Automated parcel lockers – do it right!

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Parcel lockers have become an everyday part of online shopping in some countries, such as Finland and Estonia, with close to nine machines per 10,000 inhabitants. In many others, they are gaining popularity very slowly, and the actual use of machines is only a fraction of their real possibilities e.g. in the UK there are only 0.6 machines per 10,000 people. What is behind their success or failure, and will parcel lockers prove to solve problems with e-commerce deliveries?

Recipient’s perspective
In the case of parcel machines or PUDO points, there is a fundamental change in who the person is that decides on sending the parcel. From the perspective of a company with a network of parcel machines, it is not the shipper with whom we have an agreement that decides about sending the parcel, but the recipient who chooses this delivery method when shopping online. He or she must be convinced of this service and consider it more attractive than home or work delivery. Convincing people who shop online to choose a parcel locker is not easy because the machine is not only a new delivery method, it is a new technology requiring abandoning old habits (such as, for example, physical control over the condition in which the package is handed over) and learning new skills (such as operating the selection interface or the machine interface).

Moreover, the scale of our network geographically limits the influx of new users. The phenomenon of adapting to new technology also occurs in mature markets where parcel machines are used every day. Newly set up machines do not initially reach the target filling, which usually takes about three years. It also does not work to set up parcel machines near or inside current outlets, or pick-up and drop-off (PUDO) points, because it does not provide an incentive to change habits. So how can you increase interest in parcel machines?

Processes perspective
The mistake we can make at the outset is treating the processes, whether customer service or logistics, the same as traditional door-to-door delivery. Yes, the package will reach its destination using traditional processes, but whether the recipient will be satisfied and whether the process will be cheaper is an entirely different matter. All processes must be redesigned.

Let’s start with a customer journey in which the user interface experience (UIX) will be of crucial importance. The parcel recipient has contact with UIX at all times, whether it is during the selection of the place of delivery, information about the shipment’s progress, or upon receipt. From the point of view of logistics processes, there are new processes for planning delivery routes, managing the available capacity of machines, or many exceptions, as in the case of overcrowded parcel machines. Due to the physical limitations of a machine, greater standardization of the volume directed to parcel machines is needed, and the choice of technology will impact what we can and should not to send this way.

Technology perspective
There is no standardization in the market among the available technology. Each manufacturer has different machines; although they do not differ fundamentally in their essential functions, they do with regard to such things as, for example, the size of the lockers or the way they interact with the machine. We have a choice of internal and external machines, with or without a cooling system. The availability of our network and the types of goods that can be shipped in it will depend on what we choose. Parcel lockers with minimal ways of interacting with the recipient appear more and more often. Cheaper machines are not equipped with touchscreens, and the only way to collect or send a shipment is via a phone application. For experienced users, it will not be a barrier. Still, where parcel lockers are not yet popular, such a limitation can effectively limit the popularization of picking up from the machine. So, the decision on what technology to choose is a strategic one at the beginning, and then an operational and financial one.

Network perspective
The parcel locker has a limited geographical scope, the so-called catchment area. The appropriate size of such an area depends on: the town’s size, as smaller more remote areas will be willing to travel further to reach a parcel locker compared to city dwellers; the nature of the urban development; the method of communication with users; and weather conditions. Observing the increase in the volume of parcel machines in Poland in the last eight years, you can notice a specific point in time, around 2018, when the visible acceleration correlated with the increase in the number of machines. From this point, volume started to double every year. This fact shows that the scale of the network matters. There is a level from which the parcel lockers become popular and available on an appropriate scale.

On the other hand, the construction of an extensive network will be associated with significant investment costs. A network occupied on the level of, say, 10%, can quickly lead to the investor’s bankruptcy. The solution to this problem is the location of machines using geospatial analytics, taking into account many demographic factors. Depending on the availability of data, you can, for example, select places where there are clusters of people with a specific profile or using specific e-commerce applications such as Amazon or Ali Express on their smartphones.

Financial perspective
Finally, the most crucial question is whether it will pay off. In most cases, companies building parcel machines networks are in the phase of high investments, gaining market share in terms of taking over the volume from traditional courier companies and geographical expansion. It isn’t easy to judge what the financial future of the entire industry will be. Still, it is necessary to emphasize a few facts that affect the profitability of the investment.

Building a delivery network based only on parcel machines will be more expensive than a mixed network consisting mainly of PUDO and supplemented with parcel machines. The latter will, in turn, mean a slower increase in the popularity of parcel machines and higher running costs. The costs of the machines themselves vary widely. For the price of the simplest machine from one manufacturer, you can get a very advanced device from another. The question of maintenance costs and durability remains. The depreciation of such a machine is 10 years on average. A good redesign of the delivery processes should result in significant savings on delivery costs as one driver can deliver 3-5 times more packages than door-to-door delivery. It will also alleviate the problem of shortages of drivers, which is a frequent and growing problem that will affect delivery costs. Finally, many business models are emerging aimed at reducing costs, primarily in terms of space rental.

The above points pay attention to many aspects that should be considered when investing in a network of parcel machines but do not endorse one ready-made solution because the market situation in different countries differs significantly. Still, there are already many examples of successful and unsuccessful investments, from which you can conclude for yourself.

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About Author

Greg has 15+ years of experience in the parcel and postal sectors and 10+ years of management consulting experience. He has deep expertise in strategy development and operational excellence in the postal and logistics space and has worked extensively with clients on parcel lockers development in Europe and Asia.

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