Delivery Lockers as the Best Alternative for Last Mile Delivery in E-Commerce Logistics

An e-commerce firm can become successful in a few different ways.  Having a great selection of high-quality products at bargain prices certainly help.  So is having convenient payment methods and great customer service when things go awry.  But no part of e-commerce operations leaves a greater impression on potential customers than being able to deliver purchased products quickly, safely, and at exact times designated by the customers.  A previous article on Tech in Asia already made clear the importance of product delivery in overall customer satisfaction.  Similarly, several academic studies have shown the importance of logistics management and capacity to customer satisfaction and firm performance. Furthermore, a survey in the American and European markets showed that 38% of online shoppers will never shop with the e-commerce provider again after suffering a negative delivery experience.

As noted in the same previous Tech in Asia article, most e-commerce sites today strive to improve “last mile delivery,” i.e. moving the purchased products from the processing center directly to the customers’ doorsteps, in achieving customer satisfaction with their online purchases. Different surveys show that a major reason customers choose to shop online is the convenience and time-saving associated with being able to receive their purchased products directly in the comfort of their homes.  Satisfaction with the logistics of product delivery, then, becomes an essential part of the entire online shopping experience.

The Challenges of Last Mile Delivery

Yet, achieving last mile delivery that fits the expectations of e-commerce customers are facing certain challenges.  Naturally, e-commerce customers expect the best possible service.  In the context of last mile delivery, the best service means that the product purchased ought to be shipped at the lowest cost possible and delivered when the customer is at home to receive it.  Another survey showed that 83% expect a guaranteed delivery date, and 80% want a time slot of when to expect their delivery to arrive. However, existing constraints to “last mile delivery” makes it difficult to provide the best service possible.

Specifically, last mile delivery works with the prerequisite that the customer is at home when the deliveryman gets there. Systems that allow customers to choose preferred dates and times for delivery are still available only to selected customers and limited in geographical scope.  The inability to know when customers are home means that deliverymen are blind when seeking out what packages to deliver when, increasing the cases of not finding customers at home upon delivery.  The cost of having to take failed deliveries back to the fulfillment centers and redeliver at a later time can quickly add up.  Currently, last mile delivery providers have a couple of decidedly risky solutions to the problem.

The deliveryman can leave a “we missed you” notification on the door or in the mailbox of the customer, asking the customer to contact customer service for redelivery.  Yet, the very act of failing to deliver the first time has already damaged the e-commerce’s brand to current and future customers.  A survey shows that 40% of the customers complained, on social media, about delivery problems and 56% of customers mentioned that negative comments online affected their decision to shop at a particular e-commerce site.  Avoiding reputational damage means that the delivery provider must deliver right the first time, without missing the customer. 

Some firms, exemplified by Amazon in the US, get around the problem of not finding customers at home by leaving a package unattended outside the customer’s home.  The downsides of such a strategy are rather obvious.  Packages can be stolen or damaged by the elements, leading to complaints from customers and extra costs to the company in the form of having to replace and redeliver stolen and damaged goods. A 2017 article from CNBC, for instance, notes that one in five American homeowners had packages stolen from their porches.

Besides, leaving the package outside is not a real alternative, especially in emerging markets.  Lower trust in e-commerce sites and fewer people having bank accounts mean that fewer people can or are willing to use prepaid options, such as mobile payment or debit/credit cards.  Instead, customers are much more likely to prefer “Cash on Delivery,” or paying directly in cash to the deliverymen when the product is delivered to the door.   Data show that, for instance, close to half of all e-commerce orders in the Philippines are paid through Cash on Delivery.  Leaving package outside means no payment can be received.

Delivery Lockers as a Non-Last Mile Solution

Such preferences on the part of the customers beg for a solution that provides an experience to the customer of having directly received their products in hand and paid for the product then, while at the same time cutting down on the exorbitant costs of hiring hordes of delivery personnel to fulfill time-sensitive surges of just-in-time deliveries.  One solution to the problem is to completely forego the act of “last mile delivery” and swap into logistics based on delivery lockers placed strategically near big geographical concentrations of orders.  In the survey of European online shoppers, 31% of Germans expressed a preference for the delivery locker option.  And the solution is already very much present today, but only presented as a backup, Plan B solution to the traditional last mile delivery in major e-commerce firms such as Rakuten in Japan and Amazon in the US.  There are a couple of advantages of delivery lockers over last mile delivery.

Greater Flexibility: Existing delivery locker technology allows the customer can select a desired delivery locker location when a purchase is made and is automatically notified when the product is delivered to the designated locker.  The customer can pick up the product from the locker at any time using a passcode.  For customers who are unsure when they are at home or have no time to contact customer service about redeliveries, delivery lockers allow them, rather than the delivery providers, to choose when and where they get their goods.  Indeed, they might appreciate the fact that they can pick up their products anytime as sudden changes in personal schedules may render designated delivery times unsuitable.  By giving the customers the choice, flexibility is introduced into the delivery process.

The flexibility of the lockers can even be extended to the technology itself to enable more comprehensive usage.  In emerging markets, where Cash on Delivery is important, delivery lockers can be amended with technology for vending machines to pay in cash before receiving their products from the lockers. 

Lower Long-Term Cost: It is understandable that the initial upfront cost of developing and installing the lockers may be significant, as they can cost somewhere between 1500 to 5000 USD per unit.  Their installation requires the acquisition of real estate and surrounding infrastructure in terms of electricity, accessibility, and anti-tampering measures.  But last mile delivery can be even costlier.  Data shows that in the US, product transport costs of retailers is close to 5% of sales, with the figure doubling for some sellers on Amazon.  Of the transport cost, last mile delivery costs make up somewhere between 28% to 50%.  That means that an online shopping site can easily spend upwards of 50 USD every time a 1000-USD iPhone is delivered to the customer.  The upfront purchase cost of even the high-end delivery locker can be recouped in a mere 100 orders by this simple calculation.  The potential savings of operating the lockers over last mile delivery, should the lockers be put in widespread use over many years, justify high initial purchase costs in dense urban areas with large numbers of orders. 

The costs and scalability of operating the lockers can be even further reduced if they are modified to be powered by solar panels.  In more remote non-urban locations, solar paneling can reduce electricity costs, making delivery lockers financially viable even with fewer orders.

The Alternatives to Adopting Delivery Lockers

Of course, there are limitations to the delivery lockers.  Certain items sold online are too bulky or heavy so that either cannot fit in the lockers or cannot be carried by the customers themselves.  These items should be exempted from the delivery locker option and continued to be handled by the last mile delivery team with a much reduction in staff number and frequency in deliveries.  Furthermore, getting people accustomed to delivery lockers will also take time.  For people who are used to having products shipped to their doors, incentivizing them to shift to the lockers will be needed to stem the inevitable dissatisfaction of having to walk somewhere to get their orders.  Offering such incentives, in turn, increase logistics costs for the e-commerce firm.

As such, it is worthy to note alternative options e-commerce firms can take to circumvent the challenges associated with both last mile deliveries and delivery lockers.  One option is workplace delivery.  20% of European online shoppers expressed the preference for having their purchased products delivered during work hours to their offices.  However, the fact that 80% do not want their orders delivered to the workplace underlines the constraints associated with receiving deliveries in the workplace.  Many workplaces simply may not be equipped to handle personal deliveries for individual employees, ranging in reasons from workplace culture that frowns upon handling private matters so personally to not having proper processes to receiving personal parcels.

The same survey showed that a majority of British and French online shoppers are willing to pick up their products from their local shops or manned pickup points.  While the solution resolves the difficulties of handling unfamiliar technology that is the delivery locker while enabling Cash on Delivery, its geographic and time constraints may be even more significant than those for delivery lockers.  While delivery lockers can operate 24/7, manned pickup point would incur large labor costs to achieve the same.  Setting up a manned pickup point in more remote areas may be even more time-consuming than setting up lockers. 

The individual home lockers conceptualized by Alibaba is another idea that comes to mind.  On one hand, it does solve the problem of packages being stolen from front porches and can even be modified to handle Cash on Delivery.  But the cost of installing millions of such devices would prove to be costly, especially if the customer is not a frequent online shopper. 

Essentially, there is no perfect solution for e-commerce delivery today that can satisfy all customers.  But instead of purely relying on last mile delivery, with its defects that damage the reputation of the e-commerce firm, it is better to diversify options for customers to receive their orders.  Delivery lockers stand out as a system in which customers can get their products whenever they want, but not directly in their homes.  If customers are presented with the option of both picking up and paying for their purchased products at locations a few minutes’ walks from where they live, customers who are not purchasing extremely heavy products may not mind the extra hassle.  By shifting the customers’ expectations of what is considered satisfactory logistics, e-commerce firms can introduce delivery lockers as a long-term low-cost alternative to last mile delivery.