E-commerce and re-commerce are growing fast, and the success of any last-mile carrier now hinges on being able to develop commercially tenable and customer-centric out-of-home (OOH) operations due to their cost, operational efficiency (lack of alternative methods to offer tenable capacity) and green last-mile benefits. This is a big deal and markets without developed OOH capability, such as North and South America, have suffered at peak times due to lack of labor and operational capacity.
Companies may ponder how they choose the right smart locker for their business. Accordingly, Last Mile Experts has created a series of four white papers covering key areas including:
- Selecting the right hardware
- Selecting the right software
- Creating the right network (current analysis)
- Perfecting your PUDO
The following analysis aims to cover all the key elements to consider when setting up an optimal network.
Step 1: Preparation and understanding the market
As with military operations, nine-tenths of success comes with preparation. Only too often, this step is glossed over and even left out altogether, due to the need for fast action or lack of available resources or knowledge, and this almost always comes with considerable risk.
So what are the key things to look at in this first, critical step of our OOH parcel network journey? Above all, it is important to understand the market environment, looking at things like:
- How is the parcel market developing? Who is generating the (B2C and C2X) parcels? Are any changes likely to influence this picture in the short and medium term?
- Who are the key players critical to any OOH project? Typically, this will include:
- Large e-commerce (and increasingly re-commerce) players who are needed to ‘educate’ the consumer and help ensure they click the OOH delivery option. They are also usually important generators of parcels in their own right (both outbound and returns);
- Carriers who will have complementary (or competitive) infrastructure and existing parcel volumes;
- Retailers (or other entities) with a large physical footprint, which is critical if your network is to be able to offer a minimum density of points and be up and running fast;
- Local and central government, which not only creates legislation that can promote OOH but can also help with access to locations or the financial costs or opportunities related to such an initiative;
- OOH intelligence and location finding – location selection tools and product design expertise are currently in short supply, and experts able to roll out a financially and operationally efficient network are few and far between. The business consequences can be an incremental one- to two-year delay in reaching your expected ROI. That’s why this has become one of our key focus areas;
- Last but not least, the consumer, whose attitudes and buying habits will be fundamental to the success of your project.
- What are the local geographical, legal, social (including security of the parcels but also of the consignee) and other factors that can affect your network?
- Are there incumbent players with a local presence who can offer the software, hardware, post-implementation servicing or operational support for your network?
Once we have a fair view of exogenous factors, we need to understand what our own capabilities are:
- What is our in-house experience with OOH?
- If needed, do we have enough external advisory support to avoid making costly and time-consuming mistakes?
- Do we have the shared service resources (purchasing, finance, commercial, HR, etc) available to support this project?
- Is top management on board, and do we have the minimum necessary financing?
This process should end with a SWOT analysis (or some similar exercise), allowing you to appreciate your business’s situation with respect to this specific initiative.
Step 2: Understanding your needs and opportunities
Once you have done your preparatory work and have a good understanding of the market environment today and expectations for tomorrow, as well as your company’s SWOT in this regard, it is time to decide what you really want from the OOH project.
This will, of course, vary by business but generally we can assume that it will be some or all of these things:
- Capacity increase;
- Better (reduced) use of first- and last-mile labor;
- Improved customer experience that may translate to incremental business acquisition;
- Cost optimization;
- Ability to serve low-cost e-commerce and re-commerce;
- Improvement of green credentials or erasing barriers to growth in restricted areas (zero CO2 emission zones, noise control in residential areas);
- Ensuring that your network is fully inclusive and that people with disabilities and/or senior citizens can fully benefit from it.
Step 3: What type of network?
Before any final decision can be made on hardware and software supplier selection, we have several issues still to decide upon:
- Open/closed: Will you opt for a closed network that offers the perceived value of ‘not providing’ know-how and service to your competitors? Alternatively, do you leverage competitor volumes to strengthen your network (if you are the first mover) and make it less likely that others will set up competitive networks? If you are a follower, do you invest time and effort in what is a ‘me too’ network, or do you focus on customer experience and IT, leveraging a competitor’s network as supporting infrastructure? Here we have summarized the key benefits of open networks. There are also many challenges to overcome, such as solving capacity, parcel security and income optimization issues;
- PUDO/APM/mixed: While some players have historically been successful with either just PUDOs or APMs, we believe that the best option is for a mixed network. There are many reasons for this. First, PUDOs allow much faster and cheaper expansion and the ability to reach minimum proximity or capacity goals. On the other hand, lockers tend to have better customer experience and cost per parcel if they are well utilized. Moreover, any locker network that is effectively utilized in the eight to nine non-peak months of the year will require additional capacity at peak. PUDOs, used well, can help solve this via temporary capacity increase at existing points or via ‘pop-up’ PUDO locations, which are cheap and easy to set up. Unfortunately, few players have a complete solution able to deal with customer preference toward lockers versus PUDOs. In our next article, we will cover PUDOperfect, an innovative solution to this key issue.
- End-to-end/partial: Most OOH networks today, even the largest one, Hive Box, are partial, ‘cell rental’ types of solutions, which don’t allow you to leverage all the economic benefits of this model. Because, for example, InPost operates an end-to-end model, it can harness these benefits and make over 40% EBITDA margin in its strongest market versus considerably less than that for most partial solutions. But of course, this phenomenal result also comes from generally optimized network locations, maintenance and much more.
- RPL or CPL: Residential parcel lockers (RPLs) are very customer-centric but fail to offer all of the efficiency benefits of communal parcel lockers (CPLs). This is because most RPLs are in closed, gated areas, tend to be smaller and are rarely part of an end-to-end model.
- Owned/partnered: In some situations, due to strong legacy infrastructure, one player can conceivably create a dominant network alone. In most markets, especially larger ones, it is expected that partnerships will be needed to create a dense and economically viable network. A good example would be Germany, where the only realistic option to challenge Deutsche Post’s dominant OOH network would be for the key remaining carriers to create a partnered alternative network, ideally in partnership with a strong e-commerce player such as Amazon, Vinted or, perhaps, Zalando.
Step 4: Selection of suppliers (smart buy)
The supplier decision relates to two obvious key areas of hardware and software, which are covered at a very high level here. For a detailed discussion of these areas, please read the first and second white papers in this series.
Hardware:
Only too often we are contacted by organizations who have bought a pilot batch of 20 or 30 machines and suddenly realize that the cost of their integration and commissioning is at the point at which they are not economically viable (usually APMs become profitable at about 50% utilization).
Before holding any discussions with manufacturers, it’s critical to clarify how the lockers fit into your overall OOH plan and what your exact requirements for them are. To do this, it is essential that discussions take place with all stakeholders including users, landlords, municipalities and developers, and a detailed list of requirements for the lockers needs to be made.
Things to bear in mind will include:
- Indoor or outdoor;
- Locker size (number of cells and relevant sizes);
- Classic (powered from the grid, connected to the internet) or next-gen (battery/solar), Bluetooth operation;
- With screen or no screen (app-based interaction);
- Any key peripherals or functions that are legally and/or commercially required, e.g. cameras, keypads, screens, payment modules, printers (beware, this is the peripheral that fails most often), and whether the APM anchoring meets wind safety norms;
- Does the machine address the needs of customers with disabilities, senior citizens or those who need special support?
Software:
While we stress that software is the ‘secret sauce’ that will make any OOH network successful, in practice this is often relegated to only one of the secondary elements in parcel locker selection.
Out-of-home software comprises the firmware that makes the parcel locker or PUDO hardware work (generally supplied by the producer) and the operating software that allows you to manage your network and the IDM (interactive delivery management) software that allows you to communicate with the consignee.
Before holding any discussions with parcel locker (APM) manufacturers and/or PUDO partners, it is important to clarify whether they (or you) have the software to make your OOH network successful. To do this, it is essential that discussions take place with all stakeholders, including users, local communities, NGOs and your tech team, to create a detailed list of requirements for your software.
Step 5: Pilot, test and implement
Once you have decided on the type of network and have selected suppliers, the next step is to prepare a detailed implementation plan and budget.
The final stage before going live will be to pilot and test the model in a relatively small and controlled environment to ensure that any final issues are fine-tuned and assumptions are verified. Once this final hurdle is passed, you are good to implement.
It is also crucial to define the speed at which you want to grow your key enablers: size of the network, business customer base, end-user adoption. Once decided, a live pilot is needed to review your KPIs and make the final rollout more secure. Our experience proves that some processes go much faster while some become more complicated and additional challenges arise during the pilot.
Make sure to test things like time from first contact with the location’s owner to a signed contract or (when you are a logistics operator) time from reaching the ‘go’ decision to integrate, to the first parcel dispatch with the e-shop partner. OOH network integration is not as well developed as home delivery on most of the e-commerce platforms, which may affect service visibility and therefore adoption.
As per our earlier white papers, you will have already addressed the key issues listed in the summary chart below.
Step 6: Monitor and improve
This ongoing, post-implementation step is sometimes minimized or even missed completely. We cannot, however, overstress its importance both in terms of learning from any shortcomings in the process but also in reacting to any unexpected future developments and improving the model. Leading OOH networks like that of Sameday (eMAG), InPost or Allegro do this on an ongoing basis, continually innovating and improving processes, software and hardware.
Concluding thoughts
Last Mile Experts’ six-step guide allows you to operate an objective and time-efficient evaluation process and will help you make the best choices. By following our structured approach, you will avoid the pitfalls that many OOH operators face and have a smoother and safer decision tree. As noted before, any project will have elements that are highly specific and will require modifications, sometimes quite significant, to any generic tool such as the one presented in this article.
