Lockers‘ impact on profitability

Today we propose a hot topic among the e-commerce community: lockers and their impact on profitability. Given that transportation and last mile are fairly broad and can comprise multiple modalities to achieve the same goal (reach the end customer) this discussion will solely focus on the cost advantages proposed by PUDO smart lockers.

Even though the technology has been around for at least 10 years, smart lockers started to gain more demand in recent years. The proposed technology solution is fairly simple, and it’s an improvement from the so famous mailbox. No wonder that the traditional mailboxes needed an automatic upgrade, since our intake of letters has dropped considerably with the proliferation of direct messages on various digital platforms and the increase in parcel shipping as of ecommerce advancements. Thus, the old mailbox concept needed a state of the art revamp in the form of smart lockers. The advantages proposed by this new system are numerous and actually can impact a business profitability model if implemented correctly. This type of PUDO delivery differs considerably from to-door delivery in terms of operational fluxes, giving it a particular cost structure that could prove highly advantageous for retailers and couriers alike.

Normally, when a customer places an online order with to-door delivery (home, office with receiving confirmation) his order is processed by the IT infrastructure of the retailer, sent for processing at the retailer’s warehouse, processed and handled towards the delivery partner which, in turn, stores the order at his regional hub and further allocates it a delivery slot within the following days according to his van/truck load schedules and routing. If we are to add international shipments, this whole process becomes more complex and costlier to manage. So, for the sake of simplicity, we will only focus on domestic deliveries.

The steps in the previous exemplified process are cost generators for any retailer that sells online. Given that couriers are companies that generate profit from transportation of goods, most of the costs incurred from last mile will be supported by the online retailer, making this delivery segment the most costly part of any logistical ecosystem.

How does flux for parcel lockers differ from to-door deliveries?

‍Let’s say a customer places an online order with delivery at a PUDO smart locker.  In the same manner as to-door delivery, his order is being processed by the retailer’s IT infrastructure and dispatched to the retailer’s warehouse for processing and handling. Following, we are starting to get a different operational outlook. If the retailer has negotiated parcel locker delivery with his 3rd party transporter, one way of achieving this could mean that the carrier loads the truck or the van straight for locker delivery. This method bypasses the warehouse of the carrier, reducing in such a way the cost of transportation towards and from the retailer’s and carrier’s warehouse, handling of the parcel at both storing facilities and the transportation towards the end customers.

Let’s assume that a courier loads 100 parcels towards end deliveries and by using route optimizations and convenient vehicle stocking, he manages to deliver all to-door parcels in 5 journeys, if we count out the journey towards his local hub. In this situation, our carrier will have to take 5 trips to complete all end client deliveries and 2 additional trips, to take into account the road towards the retailer’s warehouse and towards the carriers’ local hub.

When using this analogy for the PUDO lockers, the carrier will only take 2 roads towards the end destination, bypassing his own warehouse journey and 5 of the additional trips towards the final customers. In such a way, PUDO delivery could be as cheap as 350% times than to-door delivery, not having factored in extra costs stemmed from carrier warehousing, personnel wages and other direct variables incurred in the to-door handling operations: stocking and restocking of parcels, delivery drivers‘ wages, time spent in traffic, time spent walking towards the destination address and failed deliveries. However this impressive percentage is brought down when factoring in the acquisition cost of lockers and their land rent, setting up the lockers as well as other maintenance costs such as electricity and internet. Overall lockers are generally thought to be up to 30% more cost effective than traditional to-door deliveries. For smart lockers to break even on the initial investment it’s necessary to refill and restock each locker at least twice a day, which might seem unlikely in the current macroeconomic context. However, in the future, those initial setup costs are expected to drop, further increasing cost efficiencies of this delivery method.

Extra Advantages

Beyond the high convenience of cost efficiency proposed by smart lockers, this PUDO system brings other benefits for retailers and customers alike. One of the main other benefits of smart lockers is a high first pickup rate. When discussing to-door delivery, the carrier needs to synchronise with the client for the order to be delivered and sometimes this means the parcel will have to be delivered on a second attempt. Having said this, the transportation cost of the parcel for the last segment of the last mile will have doubled. In the case of lockers, this cost could be wiped out completely, or even covered by extra fees incurred by the end-client as he extends his locker allocation time.

Another secondary advantage offered by this system is the convenience provided towards the end customer, who can sometimes benefit from same day delivery at the price of normal delivery. Locker allocation and stocking happen quite rapidly thus providing a timely alternative to usual parcel delivery. Furthermore, the automation behind this system provides the end customer with accurate status details on his orders. Order tracking systems, such a Parcely by Postis launched on the Romanian market for the time being, provide end customers with real time updates of their order status.

On top of that, if we couple locker deliveries with online payments for orders, we see a dramatic drop in parcel refusal rates, which could only mean increased advantages for retailers.

Smart lockers propose similar efficiencies even for returns when retailers have their PUDO lockers enrolled in their return system architecture. Thus, the process would imply the client generating the return barcode from the retailer’s mobile or desktop application, scanning the barcode at the locker premise and placing the parcel in the allocated space for the return. As such, when the carrier comes to restock the lockers they could retrieve the returns at improved cost efficiencies.

‍Want to try this delivery method for your store? Postis platform has an inbuilt functionality that helps place order deliveries at lockers based on the carriers you already employ. Not sure where to start? Check our website at www.postis.eu/en or write to us at sales@postis.eu.

Quelle: www.postis.eu