The last year ended with multiple last-mile carriers and posts announcing investments in out-of-home (OOH) delivery networks, hoping to reach their planned parcel locker numbers. But with a decline in parcel volumes, rising operational costs, and reduced profits, they've been forced to reevaluate their strategies.
Due to the current economic downturn, most companies have put their network expansion plans on hold. Instead, they focus on cost reduction and achieving higher operational efficiency to retain a strong balance sheet.
Let’s explore how last-mile delivery companies can achieve more with their existing OOH delivery networks rather than resorting to costly expansions.
How to reduce costs and increase efficiency
First, you must identify the cost drivers and areas for improvement. To achieve this, you need to evaluate your current network’s performance. Quality data and adequate tools are prerequisites for this process.
The goal is to find low-performing points and discover the reasons for their poor performance. Here are some useful metrics and steps to help you pinpoint what’s causing a significant drain on resources.
Utilization rates analysis
The utilization rate is a ratio of the number of parcels delivered to the locker and the total capacity of the parcel locker. It measures how efficiently a parcel locker is being used and is the first indicator of inefficiencies, such as poor placement or a mismatch between demand and capacity.
Different factors can cause a continuously low utilization rate:
- Location issues - Location is one of the most important factors of parcel locker success. For example, a locker in an area with low parcel volume or population density may not perform well. Similarly, it might not be used frequently if the locker is situated too far from recipients or not along their regular commute route.
- Proximity of other lockers - If your parcel lockers are close to each other, they might end up competing for the same pool of recipients and parcels (in this case, we’re not talking about strategically clustered lockers). Recipients tend to choose the same locker every time out of habit, even if others are closer to their home or workplace. This leads to uneven distribution of parcels and varying utilization rates among lockers in one delivery area.
- Lack of awareness - Sometimes, the issue isn’t with only a few parcel lockers but the whole network. One of the answers could be the lack of recipients’ awareness of OOH delivery as an option. If online shoppers can’t choose OOH delivery during checkout, the utilization of the network won’t increase.
Pinpointing the reason (or reasons) behind a low utilization rate will help you decide between removing the parcel locker from the network, relocating it, or taking action to remove inefficiencies.
Removing a parcel locker from the network is the easiest way to reduce costs of ownership and delivery costs due to unconsolidated or low volume of deliveries. However, it isn’t always necessary. Strategic relocation of specific lockers can increase network coverage and utilization.
In other cases, you don’t necessarily need to change the location or remove points from the network. Suppose you are dealing with a problem related to the location of lockers and the habits of recipients. If you know that using a different locker won't negatively impact their experience, try suggesting it to them instead of the locker they would typically choose. This way, you can create a demand for a particular locker in an "artificial" way. You can find more methods for boosting OOH deliveries in our previous blog.
Dwell time analysis
Dwell time refers to the time a parcel spends in a locker before collection. Shorter dwell times indicate they can be filled more often, which increases the utilization rate.
On the other hand, longer dwell times can significantly increase costs. When a parcel remains in a locker for an extended period, it occupies valuable space that could be used for new deliveries. This can become an even bigger issue for companies with agnostic networks, as they often have to pay a fee to use a compartment based on the size and the duration of parcel storage.
Here are a few common reasons why longer dwell times happen and how to tackle them:
- Lack of urgency - Most last-mile professionals have said that recipients don’t have a sense of urgency when collecting their parcels. If the collection time is 72 hours, they may pick it up near the end of the storage period as it’s more convenient for them. To solve this, you can incentivize consumers to collect parcels quickly (e.g., offering discounts for quick pickups) or impose time-based storage fees.
- Urban vs. rural areas - Dwell times can vary significantly by area. Urban areas with a large concentration of people and network density typically have shorter dwell times. On the other hand, rural areas have longer dwell times because the population is smaller and more spread out. But it’s important not to overlook them, as alternative pickup options are often limited in these areas, and the nearest post office may be far away. In these cases, strategically relocating lockers can reduce dwell times.
- Location issues - You might notice that recipients choose to collect their parcels on weekends despite the option of doing this at all times and days of the week. This could indicate that parcel lockers are not located along their commute path or in easily accessible locations during their daily activities or work breaks. One possible solution could be to move some of the lockers to more convenient locations for commuters, like stations, where they are easily accessible.
What to do if you want to expand anyway
Maybe your company has already committed to expanding its parcel locker network to reach a certain level of coverage and can’t postpone. Or you’re preparing for an anticipated surge in demand during the peak season, which can put immense pressure on your existing network even if it’s not as big in volume as in previous years.
There are ways to expand your network in a smart and cost-effective way:
- Data-driven location scouting - When introducing new lockers, most companies use the pray and spray method to position OOH points, wait to see how they perform, and then try to figure out how to fix their performance. Instead, choose the right locations from the start and avoid the high costs of poor positioning. For this, you need to leverage multiple data layers with spatial context. You can find more on location scouting in our Comprehensive guide to building a successful OOH delivery network.
- Add agnostic parcel lockers to your network - Agnostic networks don't require a sizeable investment in infrastructure. While you must pay a fee to reserve lockers or compartments, this can still be a cheaper and quicker alternative to expanding independently.
- Incorporate PUDO points - The truth is that PUDOs are cheaper compared to parcel lockers. You can either open branded parcel shops or collaborate with existing businesses like convenience stores and turn them into PUDO points. Incorporation PUDOs can ensure widespread accessibility of OOH locations and service the additional demand surge.
Conclusion
If the challenges of economic uncertainties have hit your company, prioritizing efficiency over out-of-home network expansion should be your new strategy.
To trim costs and increase operational efficiency, you must truly understand how your network is performing and identify bottlenecks. Otherwise, you won’t make any progress.
Multiple factors can affect the network’s performance, making the analysis complicated. A good starting point is analyzing utilization rate and parcel dwell times. For this, you need quality data and a tool to help you gain insights from it.
Mily Tech’s OOH Delivery Analytics gives you an overview of the network’s performance and the ability to drill down on an individual point to gain high-impact and high-action metrics. With little to no manual work, get answers to
- what’s the reason behind low utilization;
- which points perform the worst and should be removed;
- where to relocate other points to increase their utilization and how it affects your network coverage.