WHO CAN HELP WITH YOUR AUDIT & SPEND MANAGEMENT? SEE PAGE 22
JANUARY-FEBRUARY 2022 PARCELindustry.com
CHANGES ARE COMING:
CAN YOUR PARCEL OPERATION KEEP UP? DEMYSTIFY THE SMALL PRINT IN YOUR CARRIER CONTRACT P. 20
TO RE HE RIBE ICK C CL SUBS
LABOR PAINS: HOW YOUR DC CAN SURVIVE THE LABOR SHORTAGE P. 28 THE FUTURE OF PARCEL: HOW REGIONALS AND RETAILERS ARE CHANGING THE MARKET P. 12
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CONTENTS /// Volume 29 | Issue 1
16 20 24 26 28 06 EDITOR’S NOTE Forging Ahead By Amanda Armendariz
08 SPEND PERSPECTIVES Retailers Take Charge of Their Supply Chains: What Does It Mean for Carriers? By John Haber
10 PARCEL COUNSEL A First Look at United States Postal Service Negotiated Service Agreements By Brent Wm. Primus, JD
11 REVERSE LOGISTICS The Returns Problem By Tony Sciarrotta
12 SUPPLY CHAIN SUCCESS The Future of Parcel: How Regionals and Retailers Are Changing the Market By Rickey DuBois
14 PRITHA MEHRA PRESENTED WITH FIRST MEGAN J. BRENNAN AWARD OF EXCELLENCE
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16 CREATIVELY NAVIGATING PARCEL CARRIER CAPACITY CONSTRAINTS TODAY By Justin Guthrie
18 ALTERNATIVE DELIVERY OPTIONS CONTINUE TO SHAPE THE E-COMMERCE EXPECTATION By Matt Kulp
20 DEMYSTIFY THE SMALL PRINT IN YOUR CARRIER CONTRACT By Matt Bohn
24 SUPPLY CHAIN SUSTAINABILITY EFFORTS Delay in progress amid COVID-19 By Vipul Kumar
26 3PL PROVIDER NEGOTIATIONS AND KEY PERFORMANCE INDICATORS Is it time to view your 3PL as less of a vendor and more of a partner? By Kimberly Cox and Matt Wyatt
28 LABOR PAINS: THE LABOR SHORTAGE AND HOW TO SURVIVE IT By Stephen T. Hopper, PE
SPONSORED CONTENT 09 BIG, BOLD RETURN FOR GUARANTEED SERVICE REFUNDS (GSRS) 13 SORT AND PICK FASTER THAN EVER WITH CARTON FLOW RACKS 22 8 COMPANIES WHO CAN HELP WITH YOUR PARCEL AUDIT & SPEND MANAGEMENT
SUBSCRIBE FOR FREE! PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITOR AMANDA ARMENDARIZ [ firstname.lastname@example.org ]
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CREATIVE DIRECTOR KELLI COOKE ADVERTISING KEN WADDELL (m) 608.235.2212 [ firstname.lastname@example.org ]
PARCEL (ISSN 1081-4035) is published 7 times a year by MadMen3. All material in this magazine is copyrighted 2022 © by MadMen3. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, MadMen3 or its staff becomes the property of MadMen3. The articles in this magazine represent the views of the authors and not those of MadMen3 or PARCEL. MadMen3 and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com. P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com
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EDITOR’S PICK EDITOR’SNOTE
By Amanda Armendariz
he past decade or so has been an exciting time to be a shipper, and that shows no signs of changing in 2022. E-commerce growth continues to flourish, with the most recent Pitney Bowes Parcel Shipping Index forecasting 226 billion parcels by 2026. That’s a lot of growth, but shippers are also presented with a myriad of challenges as they navigate this growth. Supply chain issues continue to plague the industry (although on a personal note, I was immensely relieved that these issues didn’t affect my holiday online ordering; everything from my kids’ wish lists arrived in a timely manner, despite the negative predictions. Santa — and the carriers — came through!) Customers are, to some extent, understanding of delays given the widespread publication of these supply chain issues, but their understanding can only go so far. Add in the fact that there are significant carrier capacity
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constraints occurring, with some shippers finding out only at the last minute that the carriers won’t be picking up their parcels that day, and many labor shortages in distribution centers across the country, and it’s clear that these issues won’t be slowing down any time soon. So, while it’s an exciting time to be a shipper, it can also be a frustrating one. Too many late or missed deliveries can lose a customer permanently, and trying to decrease the shipping times in an effort to keep customers happy can erode profits. But that doesn’t mean all is doom and gloom. Many shippers are exploring other options to retain customers, like ensuring their sustainability practices are up to date and creating customer-friendly return polices to take the hesitation out of buying products sight unseen. Still others are taking even greater control of their supply chains by expanding their carrier partnerships and implementing different delivery strategies, like parcel lockers, BOPIS, and ship-from-store. Creative thinking will indeed be the key to keeping up with the competition and maintaining customer satisfaction. I’d love to hear from our readers what their organizations are doing during this challenging time. As always, thanks for staying connected with PARCEL.
Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!
E-Commerce Conversion Funnel: 4 Not-So-Obvious Mistakes Most Online Retailers Do By Jake Rheude
What Dark Stores Can Learn from the Coworking Industry to Ensure Success By Kunal Lunawat
Improving Operations by Automating and Streamlining Returns as the ‘Great Disruption’ Affects Online Retailers By Gaurav Saran
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RETAILERS TAKE CHARGE OF THEIR SUPPLY CHAINS; WHAT DOES IT MEAN FOR CARRIERS? By John Haber
igher supply chain costs and delivery delays are causing retailers to rethink their supply chains. Retailers are taking charge of parts of their supply chains to mitigate costs and improve efficiencies to address these issues and other market uncertainties. In many cases, they are also creating a competitive advantage. The current trend can be traced back to 2017, when Target acquired a crowd-sourced platform, Shipt. “With Shipt’s network of local shoppers and their current market penetration, we will move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country,” said Target’s executive vice president and chief operating officer, John Mulligan, in the company’s press release announcing the acquisition. But the trend picked up in 2020 when Costco Wholesale acquired Innovel (renamed Costco Logistics) for big and bulky last-mile deliveries. “Overall, we’ve improved delivery time on many items from up to two weeks to… in several cases, now five to seven days. We’ve also taken several items that were previously vendor-drop shipped and are now directly imported, allowing us to not only speed up delivery but reduce prices to our members,” Costco Wholesale CFO Richard Galanti said during the company’s fiscal Q4 earnings call in September 2021. And, in 2021, American Eagle Outfitters (AEO) acquired last-mile startup AirTerra and e-fulfillment provider Quiet Logistics. “Our total delivery leverage, digital delivery leveraged as a percent of sales, delivery dollars are down, and our packages are getting to customers 10% to 15% faster…. and clearly, we’re acquiring Quiet Logistics. We acquired AirTerra because we believe that this combination of scale, speed, and cost advantages is needed in the
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market,” AEO’s COO Michael R. Rempell told analysts during the company’s Q3 earnings in November 2021. Throughout the COVID-19 pandemic, retailers and other shippers have had to pivot quickly to address temporary Asian manufacturing closures, delays at US ports, not enough staffing, last-mile delays, and other supply chain constraints, while attempting to mitigate rising costs attributed to all parts of their supply chains. While cloud-based technology has helped many retailers and other shippers quickly gain real-time visibility across their supply chains, managing the last mile, the part of the supply chain often most noticeable to customers, is a different issue. Before the COVID-19 pandemic, many retailers and other shippers had last-mile contracts with just FedEx and UPS (and perhaps USPS as well). However, increased pricing complexities from these carriers, combined with the need to offer multiple last-mile options to customers, has resulted in retailers and other shippers taking more control over the middle and last miles. For some retailers and shippers, such as Target, Costco, and AEO, acquiring the supply chain assets instead of internally building them helped to quickly address their middle- and last-mile concerns. According to the 2021 3PL Study from NTT Data, Penn State, and Penske, 30% of
shippers surveyed indicated that they plan to return to insourcing much of their logistics. Even though these retailers are insourcing a good bit of their middle- and last-mile capabilities, that doesn’t mean they’ll stop utilizing FedEx, UPS, and the USPS. Instead, these national last-mile carriers will be among several other last-mile carriers that retailers will utilize, depending on delivery location, speed, and cost. The more control over their middle and last miles that retailers and other shippers have, the more the likelihood grows that this control will help maintain and enhance customer service and stickiness within the highly competitive retail industry. Indeed, the 2021 3PL Study noted that 73% of shippers surveyed indicated that the use of 3PLs contributed to improving service to customers — a strong percentage, for sure, but a much lower percentage from 2020, when 88% of shippers indicated similarly.
With over 25 years of supply chain experience, John Haber has helped some of the world’s leading brands drive greater efficiencies through their supply chain operations while reducing transportation, distribution, and fulfillment costs. After a successful UPS career, John founded Spend Management Experts, now part of Transportation Insight.
Big, Bold Return for Guaranteed Service Refunds (GSRs)
service. She’s going to guarantee that her service is the best, but shippers are going to pay for it. Since taking the reins in 2020, Tomé’s strategy revolves around making UPS a betterperforming company, not necessarily bigger. Their volumes have grown, and performance has improved over the past few years because they’re rejecting shipments below their targeted margins. She made a conscious choice to turn away business that would cause UPS to underperform on a volume basis but would outperform when it came to profits. That’s strong leadership. She’s challenging the industry in many ways by making smart trade-offs needed to succeed.
Where there is chaos and disruption in global supply chains, great ideas emerge to help meet increasing customer expectations. This is evidenced by the pandemic, which continues to reshape the parcel shipping landscape even after two-plus years. While UPS and FedEx still dominate the space, shippers now have more options than ever. USPS did very well in 2021. The regional carriers are becoming more competitive on a national scale, highlighted by the LaserShip/ OnTrac merger just a few months ago. Emerging players like the FRONTdoor Collective and gig economy service providers like Veho and AxleHire are stepping up to give shippers more options. All of which puts enormous pressure on UPS and FedEx because being the biggest or most established no longer means they are the best. It’s all about offering better service. This is why UPS and FedEx will reinstate their guaranteed service refunds (GSRs), which were shelved the moment COVID became prominent in March 2020. Providing stellar service, and a money-back guarantee for late deliveries is the carriers’ way of saying, “We’re the best, and we’re going to back it up.” Carriers are the face of your brand, and providing a GSR is their way of conveying confidence to their customers in delivering on time.
A Balancing Game Tomé and UPS are looking at the data and making technologically-based decisions that allow UPS to think strategically for the long term with a shared vision. Now, more than ever, shippers need to look at data closely, too. Without data, they’re making emotional decisions that are very subjective. “I don’t want to work with this carrier because they’re underperforming.” That’s pure emotion. Intelligent Audit helps shippers remove emotions in favor of data-backed decisions. If they’re going to choose a different carrier, here’s how much money that’s going to cost. And here’s how it’s going to affect their customer experience and their time in transit. That way, shippers can decide what trade-offs to make. Do they care about customer experience? Do they care about the time in transit? Is cost the deciding factor? It’s a balancing game, and both sides — shippers and carriers — need the information to make decisions that drive their respective businesses. Money-back guarantees or not, databacked strategies can bring shippers and carriers together. It’s still a desperate market for shippers who need to know all available options. And they need to start making big moves to take advantage of getting shipments out the door. It may seem crazy, but the smartest shippers — the ones who have been saving money year over year and will again in 2022 — they’re already thinking about peak season 2022 in the first weeks of January. It’s never too early or too late to rely on data when making business decisions.
Paying for Premium Service Not all shippers will pay the hefty price required to get the money-back commitment. Some say it’s not a big deal if a shipment arrives an hour or two or even a day or two late. However, shippers whose customers need things delivered on time in the shortest amount of time — as is often the case with pharmaceuticals and food supplies — will pay a premium for that service. UPS and its CEO, Carol Tomé, are encouraging all shippers to take advantage of this premium
www.intelligentaudit.com email@example.com 201.889.1110
By Hannah Testani, Intelligent Audit CEO
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A FIRST LOOK AT UNITED STATES POSTAL SERVICE NEGOTIATED SERVICE AGREEMENTS By Brent Wm. Primus, J.D.
ontracts and contracting have often been the topics of previous installments of PARCEL Counsel. In this issue, we will look at a category of contracts not previously considered: USPS’s Negotiated Service Agreements (NSAs). On its website, the USPS defines an NSA as follows: “A Negotiated Service Agreement (NSA) is a customized and mutually beneficial contractual agreement between the USPS and a specific mailer (customer or organization). An NSA provides for customized pricing, prices, and classifications under the terms and conditions established in the NSA and may include modifications to current mailing standards and other postal requirements.” The underlying concept is essentially the same as contracts between parcel shippers and a multitude of other private entities providing transportation services. The gist is that a negotiation takes place based on the volume of pieces or parcels that a parcel shipper would be tendering in exchange for rates or other terms that are more favorable than the private provider’s or USPS’s standard rates or terms. Generally speaking, the higher the volume, the deeper the discount.
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There is one essential difference between private contracts and the USPS’s NSAs. The private providers are indeed private. They are free to negotiate whatever deal they choose subject only to their own internally established criteria. Conversely, USPS’s NSAs are subject to certain federal statutes and certain federal regulations. One regulation in particular, 39 CFR 3030.540, sets forth some very basic requirements for an NSA to be approved. First, the NSA must either “improve the net financial position of the Postal Service” or “enhance the performance of operational functions”. Furthermore, NSAs “may not cause unreasonable harm to the market place” and “must be available on public and reasonable terms to similarly situated mailers”. This latter requirement is perhaps the most critical distinction between private contracts and USPS NSAs. Private providers may freely discriminate between customers with respect to rates. However, USPS NSAs are not allowed to do this. It is my understanding that this means that parcel shippers tendering similar volumes with similar mailing and handling characteristics would be entitled to a substantially similar Negotiated Service Agreement.
Another critical difference is that while a private provider would have in place a mechanism for “upper management” to approve any contract entered into by the sales force, proposed NSAs negotiated by the USPS must be submitted to and approved by the Postal Regulatory Commission (PRC). A NSA must be approved by the PRC before it can be implemented. One step of this process is that redacted versions of a proposed NSA are published in what is known as the Federal Register. As an example, in the Federal Register for Wednesday, November 24, 2021, there were four such notices posted: two were for Priority Mail Negotiated Service Agreements, one was for a Parcel Select and Parcel Return Negotiated Service Agreement, and one was for a Priority Mail and First-Class Package Service Negotiated Service Agreement. All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found on PARCELindustry.com. Your questions are welcome at brent@ primuslawoffice.com.
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THE RETURNS PROBLEM By Tony Sciarrotta
orry, folks. The last mile is not necessarily the end of a supply chain. Instead, we at the Reverse Logistics Association view the supply chain as circular, encompassing reverse logistics practices. A reverse logistics process may occur at any time within a supply chain. Regardless of if it is a sale by a manufacturer, distributor, wholesaler, retailer, or other business-to-business players, everything that happens after a sale is an aspect of reverse logistics — a return, a repair or refurbished item, a repackaged item, a resell, or a reuse or recycled item. Reverse logistics processes are complicated and costly for businesses across all industries. As many as 20 vendors, including carriers and storage, may touch the product. The most recognized type of reverse logistics, returns, has witnessed dramatic increases and has also created the most angst for retailers thanks to the ease of online shopping. The National Retail Federation (NRF) estimates that in 2020, online returns more than doubled and are a major driver of the overall growth of returns. Retailers have made it easy for consumers to return items by providing friendly returns policies, such as allowing customers to order more items, like two different sizes of shoes or perhaps three different colors of sweaters, knowing full well that one, two, or all will be returned if the shoe size doesn’t fit or if the colors do not match what’s on the retailer’s website.
While returns happen yearround, the holiday season is when it is most noticeable due to the rise in holiday shopping. As retail (including online) sales rise, so do returns, and the 2021 holiday was no exception. From November 14 to January 22, UPS expects to handle more than 60 million return packages, a record amount and a 10% increase from 2020. According to a UPS survey, 79% of customers say a positive returns experience influences the decision to make future purchases, and 84% expect online retailers to offer a no-cost return option. However, handling returns is expensive for retailers, thanks to shipping costs, warehousing costs, staffing costs, and more. The NRF found that for every $1 billion in sales, the average retailer incurs $106 million in merchandise returns. Similar results were found from the Reverse Logistics Association’s first quarterly survey on returns management, conducted in October 2021. Over half of survey respondents indicated that the cost of returns increased during the third quarter. Several comments highlighted rising costs in transportation and labor, as well as warehouse space. Indeed, rising supply chain costs play a more significant role in returns management these days. A
growing number of retailers such as Amazon and Home Depot are refunding and allowing customers to keep some returns instead of taking them back because of the higher supply chain costs associated with them. The consulting firm, AlixPartners, estimates the value of all the refunds for goods that were not sent back will total as much as $4.4 billion across the retail industry. This is not the best practice for retailers to pursue. Besides potentially leaving money on the table, the environmental impact alone is huge as most people may throw the goods away. Five billion pounds of returned goods end up in US landfills each year, according to Optoro. Brand name impact should also be considered, particularly when these goods appear in flea markets, online marketplaces, or landfills. Many startups have entered the reverse logistics space to streamline processes and reduce costs, but it will take more to help a part of the supply chain that has been overlooked for so long. In future columns, we will highlight best practices in managing reverse logistics processes. Stay tuned!
Tony Sciarrotta is Executive Director of the Reverse Logistics Association.
JANUARY-FEBRUARY 2022 PARCELindustry.com 11
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THE FUTURE OF PARCEL: HOW REGIONALS AND RETAILERS ARE CHANGING THE MARKET By Rickey DuBois
he 2021 transportation market continued to feel the lingering effects of 2020 peak season. FedEx, UPS, and USPS have continued to cause stress on their customers with several surcharges and large increases implemented in their pricing structures. The e-commerce spike has given the giants leverage within the market, and shippers are looking for alternative solutions to help mitigate these big hits. However, the future is optimistic for shippers with the rise in competition coming from new carriers entering the market and existing ones increasing their coverage. LaserShip has recently made two announcements regarding the expansion of its network as it grows towards a national presence. Normally servicing the East Coast, LaserShip will begin operating out of Memphis, TN to reach Mississippi and Arkansas. On October 13, 2021, the company disclosed its acquisition of OnTrac, providing a footprint on the West Coast. In addition, LSO revealed a five-state expansion with a forecasted growth of 180% in e-commerce. These two expansion examples give a glimpse into alternative solutions becoming available. Amazon Logistics, a component of Amazon, was a marginal player in the transportation market in 2019. The pandemic’s volume surge allowed it to expand its parcel network from 1.9 billion packages shipped in 2019 to 4.2 billion in 2020. These results finished ahead of FedEx, but still behind UPS and USPS, and allowed Amazon to occupy 21% of the parcel market, in terms of volume. This should be promising news for shippers
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because Amazon Logistics will not only bring more competition, but innovative components as well. Its parcel division operates on subscription-based pricing through Amazon Prime, which allows customers free shipping instead of paying per package with other large carriers. Amazon is certainly catching up to the competition much faster than we anticipated. Walmart followed suit in announcing its parcel delivery service, Walmart GoLocal, on August 24, 2021. The program will increase Walmart’s revenue with delivery as a service for businesses of all sizes. As far as parcel shippers are concerned, this should be promising news for the future. This will help grow the number of carriers that can free up capacity from FedEx, UPS, and USPS, forcing these national carriers to compete with better pricing. Perhaps the most exciting part of these two programs is the development of innovative delivery methods. Amazon is experimenting with delivering packages through drones, while nearly all carriers are experimenting with the use of autonomous vehicles. This will add another element to the marketplace and an alternative option for shippers moving forward. Although it’s tough to forecast when these changes will be implemented, shippers can expect to see an increase in usage and more data on the efficiencies of these options within the next couple years. I imagine these methods would occupy a small percentage of volume within the next
five years or so, but as these become more normalized, more packages will be shifted towards these methods. Competition is coming in the form of new carriers and strategies to move products along the supply chain. The financial hits and operational constraints put on by the larger carriers have caused a tremendous amount of stress for shippers throughout 2020 and 2021. The 2021 FedEx Q1 earnings report emphasized the rise in prices it will be charging due to the increase of costs and demand the company is experiencing. Essentially, this is a message to shippers that the trend will continue for the short-term future, and the other larger carriers will likely follow in FedEx’s footsteps. The time is now for shippers to pivot and start looking for better solutions to improve their network. The competition will be heating up in the next couple of years with lots of innovative options: Regional carriers to cover certain areas of your network, upgrading and adapting to current shipping technology, and diversifying national carriers to ensure their capacity is met during peak season.
Rickey DuBois is a Consultant at enVista, a global consulting and software solutions firm. Rickey’s role at enVista includes helping shippers negotiate parcel agreements and the data analysis that comes with that. You can contact Rickey at rdubois@ envistacorp.com.
Sort and Pick Faster Than Ever with Carton Flow Racks Efficiently rotate and pick inventory with Carton Flow racks. You can easily handle the intake of goods with bulk sorting capabilities while getting them out faster than they can come in. The process of intaking goods and organizing them will both save time when picking and reduce errors made. Pair this concept with pick-to-light technology and you have a recipe for success. Each item can be scanned when inducted into the processing area, illuminated, and then placed into large sorting containers. Once bulk sorted, each individual item can be scanned into its own bin on the carton flow rack for easy picking. This removes the manual error of trying to find the right container and allows for each item to be placed in the correct stocking order. Overall Benefits Regardless of how your team stocks and picks, one benefit of carton flow racks is how they can create lanes. Instead of having one central walkway, each side of the rack can be easily designated for a purpose; meaning that one path is specific to loading and stocking, while the lane for picking has a lot less congestion. Carton Flow has an increasingly beneficial prospect to e-commerce and other fulfillment services. Overall efficiency is improved due to the increased stocking speed, smaller footprint, and reduced movement needed. Even last-mile couriers and other package delivery services can utilize Carton Flow racks. Racks can be configured with various container sizes and be able to contain numerous items, allowing for systems that can adapt when needed. One of the more common configurations
is a series of gravity-fed rollers, which can move and widen to fit totes or containers of any size. An important consideration when deciding on carton flow racks is your containers. To effectively function, you must have containers that are easily pickable and can hold up over time. This means that you may need to think about how much your container weighs; if the items can be evenly displaced, and what materials your containers are made of. Check Out our Solutions Our pick-to-light solution, the LightSort Sorting System, can be adapted and modified to fit various environments. Whether you need a Gravity Fed system, package sorting solution, or anything in between, our technology can be applied to increase efficiency. We can even retrofit existing racks with our light technology to ease the sorting and picking process. At Engineering Innovation, we aim to create custom solutions that will offer you the right fit for your operation. We can create concepts and help solve problems in your warehousing operation with our over 15 years of experience. If you would like to learn more or are interested in consultation, please reach out today.
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PRITHA MEHRA PRESENTED WITH FIRST MEGAN J. BRENNAN AWARD FOR EXCELLENCE
n December 16, 2021, during the Women in Logistics and Delivery Services (WILDS) annual meeting, Pritha Mehra, the Chief Information Officer and Executive Vice President of the United States Postal Service, was presented with the organization’s first Megan J. Brennan Award for Excellence. “Pritha Mehra is a dedicated problem-solver who works tirelessly to advance solutions that mutually benefit the interest of the industry and the Postal Service whenever possible. She’s always mindful of the potential pinch points and routinely collaborates with the industry to try to design and implement cooperative approaches that achieve the common needs of the Postal Service and the mailing and industry shipping industry alike,” commented
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former Postmaster General Brennan in remarks read by Shoshana Grove, CEO of International Bridge and Co-Chair of WILDS, during the awards presentation. “I am so overwhelmed and honored to receive this first Megan Brennan award. This is wild,” Mehra quipped, drawing laughter from the crowd, before going on to say, “I’m talking about WILDS. WILDS is a great group. I’m really impressed with the networking and learning venues that you host, and the culture of growth that you foster. I really want to thank you for this award, and I want to also thank you for the continued and enduring partnership between the industry and the Postal Service.” Before she retired in June of 2020, former PMG Brennan (who is currently the only woman to have held the position of PMG) was approached by WILDS regarding creating an award for someone
who embodies the leadership traits that Brennan was known for during her tenure. The three main award criteria are: Appreciation for the employees of an organization — people on the front lines. Ability to work collaboratively. Ability to look at problems and opportunities holistically. Mehra has exhibited many of these qualities during her 31-year tenure with the Postal Service, the last two and a half years as the CIO and EVP. In her role, she is focused on re-envisioning and leading the transformation of the USPS as the organization strives to drive increased security, performance, and customer loyalty. During the Q&A following the award ceremony, Mehra’s commitment to collaborative and holistic problem-solving was clear. When asked what some of her key principles are as she is going
SUBSCRIBE FOR FREE! through the transformational process as the head of technology for the Postal Service, Mehra responded, “The industry is undergoing unprecedented change, and technology is at the root of this change. This is a really exciting time for CIOs. We’re all required to stay on top of it, to drive innovation and excellence… First and foremost, understand the marketplace and listen to the customers. Customers have choices, and we must keep in touch with their evolving expectations. So, I focus on the customer and develop customer-centric solutions. I like to use design thinking to generate solutions rooted in customer empathy. And by that, I mean understand customer touchpoints and pain points, and the goals they are trying to achieve at every step of their journey. Bring the customer along with you as you test new ways of meeting their needs.” She went on to say that it’s important to have a seat at the table when decisions are being made. “Look for opportunities to participate in strategic
Pritha Mehra (center) holds the Megan J. Brennan Award for Excellence, accompanied by Shoshana Grove (left) and Anita Pursley (right), co-chairs of WILDS.
planning and execution decisions across the board, whether it’s marketing, supply chain, sales, or most of all, customer engagement.” She wrapped up the Q&A by reminding attendees to always take stock of where they are in their fields and where they’d like to go. She advocated embracing new challenges so as to not get stuck in a rut in one’s comfort zone. “Never stop
learning… Be mindful of adding dimensions and value to the contributions you make. Contemplate how you can drive quantifiable results in your organization.” WILDS is a nonprofit organization created to promote women’s leadership in the postal, delivery, and logistics industries and to address the challenges women and minorities regularly face in these industries.
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By Justin Guthrie
CREATIVELY NAVIGATING PARCEL CARRIER CAPACITY CONSTRAINTS TODAY
he pandemic’s effect has had a considerable impact on most businesses, but few as visible as the effect on the small parcel shipping industry. Prior to the pandemic, most of the customer and carrier relationships revolved around contract negotiations, quarterly updates, and annual business reviews. Since then, interactions between carriers and shippers have increased exponentially — many of which have been carrier-favorable conversations about how shippers will face incremental surcharges or reduced capacities. The semi-balanced relationship dynamic of the past has certainly swung in the carrier’s favor, and shippers are trying to navigate how to be successful within this carrier-favorable environment. For decades, mega-shippers have shipped the overwhelming majority of their parcels with either FedEx, UPS, or USPS. When capacity was challenged, shippers typically defaulted to shift volumes between one of these three options. Post-pandemic, shifting volume is no longer viable, and we’ve seen new tactics arise, ranging from package consolidation, earlier or more frequent promotions outside of peak timeframes, and encouraging buy online, pick-up in store (BOPIS). All these solutions have helped shippers mitigate some of the capacity constraints that carriers have imposed. I believe if you ask shippers what they’ve learned from their carrier relationships post-pandemic, they would say overwhelmingly that the rules of engagement have changed and shippers must be more creatively strategic to be successful. We’ve seen our customers struggle to change their mindset in response to this evolving landscape. But once these changes are accepted within the organization, the next logical step is to truly partner with carriers to solve capacity constraints. So, what do some of these creative and strategic solutions look like in practice? Ask for potential fees for over-capacity thresholds. FedEx & UPS have both said on their earnings releases that they are
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prioritizing high-yield shipments. Many mega-shippers have skillfully negotiated rates that are near best-in-class over long-standing partnerships, and with the increased expenses that carriers are facing, many shippers are eroding profit margins with their aggressive rate structure. The drawback of best-in-class shipping rates is that when there are capacity concerns, the low-yield shipments are the first ones to get constrained. Shippers may find success by partnering with their account executives and negotiating a fee for shipments over the carrier-imposed caps. While this is an unpopular option (and should not be utilized until after carrier caps are presented) it may be more cost-effective to pay a fee per shipment over a threshold than to potentially lose a customer over a missed commitment. Seek to separate capacity constraints by service level to increase capacity. Carriers are not strained equally across all service levels. Typically, the lower price point services are where we have observed most caps imposed on shippers. The postal-insertion and ground services are also where we generally start to see the on-time delivery percentages drop. One solution shippers may want to explore is to partner with carriers to negotiate a cap by service class. By monitoring your on-time delivery and shifting volumes into higher-yielding express services when approaching these caps, shippers may get incremental capacity available to them in a more premium class. Again, this is at an incremental expense to shippers, but it could open capacity that is difficult to secure during peak season. Target capacity constraints by day of week. Carriers are not immune to facing staffing challenges. In the US, most shipments are placed over the weekend, meaning the beginning of any given week is the most constrained. Some shippers have found it valuable to dig into the data further and partner with carriers to increase capacity during off-peak times. For example, imagine you ship 20,000 packages per week and your carrier capped you at 15,000 shipments per week. A 25%
SUBSCRIBE FOR FREE! reduction in capacity can be crippling to a business. If a carrier was approached and asked what days of the week they could take extra capacity (Wednesday to Friday usually), then one could request additional volume on those days and tailor their online commitment to delay one to two days to get shipments flowing in this off-peak timeframe. Although most of this work would be put on a shipper, it is an option to explore if you need capacity and do not have the ability to add a carrier. Encourage commercial pickup locations. Outside of labor challenges, we have heard carriers consistently say that the unprecedented residential volumes have been a challenge as they are lowering efficiency due to a lower density of shipments per stop. While consumers are very accustomed to a convenience factor of having items delivered directly to their doorstep, they also might be enticed to pick up at a commercial pickup location, particularly if someone in their neighborhood had something stolen recently. FedEx & UPS have partnered with businesses across the country to set up secure pickup locations for shipments. Partnering with the carriers to increase volume into these facilities is mutually beneficial for all. The carrier increases its density per stop and does not need to make as many residential stops. The shipper will typically pay less for this type of delivery as it is considered a commercial delivery vs. a residential delivery. The commercial pickup location will typically see an organic increase in sales due to a customer setting foot inside the location. Integrate same-day couriers. Same-day carriers are also growing in popularity with our customers. While these carriers are typically crowd-sourced and less cost-effective, they can be a lifeboat if it is critical to have your shipments arrive on time. Today, the options for national same-day carriers are limited, but this is one of the fastest growing segments in small parcel, and I expect to see it continue for some time. The capacity constraints in parcel and LTL shipping networks can be difficult to navigate. We’ve seen some shippers successfully overcome these challenges by creatively using their network and carrier data to pinpoint optimization opportunities. A common theme is seeking a plan or budget for probable scenarios, helping to not only mitigate risk but control some of the unavoidable expense. There’s no question that the carrier-shipper dynamic has changed indefinitely, and shippers must rethink and create new strategies to move forward in a way that serves their network and customers for the future. Those that do this successfully have a firm grasp of their network’s realities and shortcomings, and they can utilize network data to see the big picture.
Justin Guthrie is a Solutions Manager at Green Mountain Technology (GMT), where he partners with clients representing nearly $1B in parcel spend to provide GMT’s strategic Parcel Spend Management solutions – Network Optimization, Spend Analytics, and Contract Management. JANUARY-FEBRUARY 2022 PARCELindustry.com 17
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ALTERNATIVE DELIVERY OPTIONS CONTINUE TO SHAPE THE E-COMMERCE EXPECTATION
By Matt Kulp
y now, it’s no secret that the COVID-19 virus and pandemic has changed the world in countless ways. Many would also agree that the effect has been felt within the supply chain world as much as any other industry. Customer expectations have changed, and companies need to react to keep up. According to a survey from ShipStation of 600 US online shoppers: 63% are less likely to shop in stores due to COVID 70% are less likely to shop in stores to avoid germs in general 2/3 expect free shipping due to slower shipping times 87% expect extended return windows due to potential shipping delays “The most successful companies right now are those that have figured out
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how to re-imagine every touchpoint a consumer has with their brand, delivering an experience-based, emotional connection. These organizations are looking past traditional ways to attract and retain customers and designing compelling, personalized experiences — via advanced technologies — around products and services to better engage,” states Ross Freedman, co-founder and CEO of Rightpoint, in a post written for Forbes.com. The Rise of E-Commerce… Sort of According to data from statista.com, in Q1-2010, e-commerce sales were 4.2% of overall US retail sales. That number increased steadily over the following decade to 11.3% in Q4-2019, inching further to 11.4% in Q1-2020. And then came COVID. E-commerce as a percent of total retail “jumped” to a peak of 15.7% in Q2-2020 as the world shut
down and quarantined. In successive quarters, e-commerce then actually dropped to 13.8%, 13.6%, 13.6%, and finally 13.3% in Q2-2021. “E-commerce sales will reach 14.4% of all US retail spending this year, and 19.2% by 2024. When excluding gas and auto sales (categories sold almost exclusively offline), e-commerce penetration jumps to 20.6%,” enVista CEO Jim Barnes notes in a post for Forbes.com. And so, over the past decade, e-commerce has more than tripled. But with all of the headlines around supply chain challenges, lack of postal workers, parcel backup, etc., you might expect that number to be higher. Indeed, when I tell most people this number, they are shocked that it is so low. In other words, many people have the impression that COVID is driving people inside to order from home, creating the parcel and mail delivery issues. But in fact, as a percent to total retail, e-commerce still has a tremendous amount of unrealized growth potential. That is both the good news and the bad news. Retailers Taking Notice That reality of almost certain growth in e-commerce for the foreseeable future has many retailers concerned. They are concerned that the delivery infrastructure — as it is today — cannot deliver to the level that many Americans incorrectly think home delivery is at (meaning 80%+ of total retail sales) or expect it to become. If you were running a business and had to have confidence in e-commerce deliveries five to six times greater than today, would you be comfortable? Most are not, which leads them to investigate alternatives. One alternative is buy online, pick-up in store (BOPIS). This strategy allows the customer to shop and compare online, place the order through the retailer’s website, and — you guessed it — pick up the item at the store. This is a win/win scenario. The customer avoids paying the parcel shipping cost, can see the product before taking it home, and can return it instantly if not satisfied. Meanwhile, the retailer gets the customer in the store — a perpetual goal of retailers. Random thought: you can buy on
SUBSCRIBE FOR FREE! Amazon and return your package at Kohl’s… I wonder who pays whom in this arrangement? Nearly 44% of top 500 retailers with stores now offer curbside pickup, a COVID enhancement to BOPIS, which may have staying power if customers get trained to expect it. Most retailers offer BOPIS of some kind with varying customer adoption rates. “As last mile capacity tightens, BOPIS and curbside pick-up eliminate the last mile, which can significantly improve the customer satisfaction and brand experience. Last mile expense can be up to 53% of total shipping costs,” notes Barnes. Circling back to the survey from ShipStation of 600 US online shoppers: 71% expect BOPIS permanently 57% have used BOPIS since the start of the pandemic 44% are less likely to shop with retailers that don’t offer BOPIS 69% have used curbside since the start of the pandemic 62% expect curbside pickup from now on
44% are less likely to shop with retailers that don’t offer curbside In a related strategy, the retailer may ship inventory from the store to the customer’s home. This is often referred to as buy online, ship from store (BOSS). In this strategy, the customer experience is theoretically unchanged. While the retailer doesn’t get the customer in the store, they do open up their store inventory for filling e-commerce orders. Many retailers view store inventory accuracy as the biggest challenge of this strategy, followed by the fact the customer experience can be negatively affected by increased backorders and missed delivery dates. But what is an e-commerce retailer to do if they don’t have brick and mortar stores? Some have been experimenting with renting space and installing delivery lockers. Customers will get a locker location and code in an email to open the locker. If you are wondering why they would do this instead of delivering to your home, consider yourself blessed to not live in an area where porch pirates roam. It
may seem like you’re on camera everywhere you go, and yes, many people have the Ring doorbell, but capturing images of someone walking away from your front door with a package is much different than getting an overwhelmed police department to investigate and retrieve your $10 t-shirt. Porch pirate activity also tends to peak around holidays, when delivery promises are most important. The world is changing. But the world has always been changing. You can choose to be uncomfortable with change, or you can choose to embrace the change and look for new opportunities. I prefer the latter. Yes, the customer experience is changing, but with e-commerce still sitting below 15% of total retail sales, all that is guaranteed is that a lot more change is coming. Embrace the change and prosper.
Matt Kulp is EVP, Managing Partner, St. Onge Company. For more information, visit www.stonge.com.
JANUARY-FEBRUARY 2022 PARCELindustry.com 19
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DEMYSTIFY THE SMALL PRINT IN YOUR CARRIER CONTRACT
By Matt Bohn
ave you ever taken the time to fully read your carrier agreement from UPS or FedEx? Generally, most shippers have not. Yet, fully reading and understanding all of the non-pricing components of a carrier agreement has become more important now than it has been in the last 15 years. In the past, shippers typically only needed to concern themselves with making sure discounting was correct or that their revenue bands were appropriate. However, in the last two years, we have seen far more one-sided punitive language being added into agreements by UPS and FedEx than we ever have in the past, and shippers need to be aware of these clauses. Here are the items that we see most frequently: Early termination clauses: Most of the time, these clauses require the shipper to ship with their carrier for the duration of the contract. They typically do not allow the shipper to negotiate even if the carrier introduces new surcharges or
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terms. For example, when the carriers changed the Additional Handling — Weight trigger from 71 to 51 lbs., shippers with this clause and a large number of affected packages would see massive increases to their bills. They had no contractual recourse despite this surcharge being non-applicable when the agreement was signed. These charges are usually a percentage of revenue (e.g., 2%), a flat fee (e.g., $200,000), or allow the carrier to terminate the shipping agreement. Risk of enforcement: Medium with UPS, low with FedEx. UPS often enforces these when a customer leaves but is less likely to do so in response to one or two asks, especially in response to a new charge, an acquisition, or new product line. FedEx rarely enforces these, in our experience, but that’s not to say its mandate on these won’t evolve in the future. Minimum commitment clauses: Similar to the above, these require a volume commitment and also come with a penalty. For example, we have seen clauses that require shippers to commit a percentage of their volume (e.g., 10,000 packages monthly) or a fixed annual spend (e.g., $20,000,000) or face financial penalties similar to the early termination penalties. Often, these will not contain language like “unless shipping decline is outside of customer’s control,” which is especially punitive. Risk of enforcement: High with UPS, low with FedEx. Although anecdotal, it seems that UPS can enforce these systematically via its standard invoicing process. This eliminates the potential of receiving a waiver from a sympathetic sales rep who might be more willing to understand why your revenue is down. FedEx still likely processes these manually and is thus less likely to enforce these. Generally, its reps have more flexibility to make exceptions here. What about me? Interestingly enough, we have seen carrier agreements with commitment language — say 95% — and also refuse to actually pick up 95% of the customer’s packages! It’s critical that if you are a larger shipper considering signing commitment language like that, you also require the carrier to pick up said volume (or else you’d be in violation).
Not so fun fact: The carriers can enforce both items (early termination and minimum commitment) at the same time if both clauses are in an agreement. Growth clauses: New in the last four to six months, shippers’ volumes can be restricted if a shipper’s volume grows by more than 15% in an unspecified country pairing. This allows the carrier to either 1) not pick up the shipments, 2) change the shipment service level, or 3) modify your pricing. Risk of enforcement: High. This is a brand-new clause, and it directly correlates to the international peak surcharges first introduced during the beginning of the COVID pandemic, which makes it likely to be enforced. If the carrier lane is full, and you have this clause, it makes it very easy for them to say “sorry, but you signed this — it’s in your agreement,” while shipping the packages of another customer without the clause. US inflation clauses: Also, new for 2021-2022, we have started to see carriers include inflation clauses for some shippers with rate caps. Essentially, they allow the carrier to void the rate cap if the US inflation exceeds the number inserted into the agreement. In my opinion, based on recent US monetary policy, any agreement with this clause is likely to take full increases should the carriers enforce. Risk of enforcement: High. Although we have no history with this one, it’s very likely that they’re inserting these with the intention of enforcing them in 2022 or 2023. How can shippers fight back? Step one is to carefully read through your carrier agreement. Do not accept the presentation or a bullet-point summary of changes from your rep. Although I don’t think they ever intend to act punitively, oftentimes, these clauses will be simply overlooked by your reps. If you have one or more of these clauses, you may be thinking, “now what?” First, remember that absolutely none of these are required and they are both removable and negotiable. If you are unable to get the carriers to remove the clauses, make sure that they are at least reasonable. For example: if you agree to early termination, insist that it is only triggered if you decide to leave, has reduced penalties as time passes, and allows you to negotiate intra-contract. It’s also important to remember that when you sign a carrier agreement, you are not only agreeing to the terms therein, but you are also agreeing to all of the terms in the respective carrier’s 150+ service guide. Regardless of your relationship with your carrier and/or your carrier rep, it’s more critical now than ever that your carrier agreement be reviewed for new punitive clauses that are more prevalent than before.
Matt Bohn is Senior Consultant, Professional Services for Shipware, LLC, a San Diego based parcel consulting ﬁrm that specializes in cost reduction and recovery services. Prior to his work at Shipware, Matt spent nine years as a Senior Pricing Advisor at FedEx, where he analyzed pricing programs and wrote pricing contracts for some of FedEx’s largest e-commerce and retail shippers. For more information, please contact email@example.com. JANUARY-FEBRUARY 2022 PARCELindustry.com 21
8 COMPANIES WHO CAN HELP WITH YOUR PARCEL AUDIT & SPEND MANAGEMENT Every year, you are trying to increase your business and ship more packages, more efficiently, and more effectively. Throughout your year, one important step in your overall operation needs to be careful and detailed spend management and parcel auditing. The question is, what is the best way to go about this — and the bigger question is, who can help you with this daunting task? We have tried to make that last part easier for you. Please take a good look at these 8 companies with the know-how and experience to help you be more cost-effective and profitable.
Small parcel shipping is growing more complex with ongoing rate increases, surcharges, zone-based and never-ending peak surcharges. Shipping data must be analyzed as an ongoing systemic process to uncover billing errors, overcharges and optimization opportunities. Auditing and optimizing is a zero-risk practice that can significantly improve your bottom line. The ACT process of monthly scrutinizing and analyzing shipping data allows ACT to collaborate with your team to offer solutions to reduce costs and address your shipping challenges.
www.Go-ACT.com | Inquiry@Go-ACT.com | 248.630.1326
Alexandretta is the global leader in parcel spend management for shippers spending between $1mm-$500mm+ on parcel annually. We review every aspect of parcel data to optimize spend via detailed analytics, negotiations support, contract optimization, strategy, regional carrier optimization and business intelligence. Shippers have complex factors to consider for cost mitigation, cost reduction, service, transit and carrier mix. Let Alexandretta provide optimization and advisory solutions as a trusted partner in unprecedented times. www.alexandrettaconsulting.com | 714.777.3377 | firstname.lastname@example.org
CT Logistics, a global logistics supply chain provider, delivers impactful cost reduction initiatives. By leveraging CT, you’ll have assets available 24/7 for services including: freight audit & payment, TMS, Managed Freight, bid management, benchmarking, peer group comparison and expert spend analytics. CT customizes all solutions to reduce your costs & save your company money. CT’s staff include a Professional Services group for consulting & advising. CT’s business intelligent platform provides global supply chain visibility with graphical dashboards. CT is SOCII and ISO 9001:2008 certified.
www.ctlogistics.com | email@example.com | 216.267.2000, Ext. 2190 22 PARCELindustry.com JANUARY-FEBRUARY 2022
Optimize your global transportation operations leveraging enVista’s unmatched expertise and marketleading freight audit and payment solutions. We annually process 500 million unique shipments and manage $11b in spend across 5,000 global shippers. Our comprehensive solution includes transportation invoice auditing, BI & analytics, and payment processing to fully optimize freight spend and financial processes. enVista’s market-leading BI and analytics engine delivers a holistic view of transportation activity across your network and highlights opportunities for cost savings and service improvements. Let’s have a conversation™. www. envistacorp.com | firstname.lastname@example.org | 317.208.9100
Intelligent Audit is a technology company specializing in reducing transportation costs by leveraging your carrier data to find strategic opportunities to decrease spend beyond the contractual audit. Without normalized cleansed data, it’s impossible to understand your actual costs across carriers, modes, and regions. Intelligent Audit pairs actionable intelligence and highly knowledgeable account managers to discover those cost reduction strategies for our customers. As a result, we can quantify decisions before they are made, taking the guesswork out of the equation.
www.intelligentaudit.com | email@example.com | 201.880.1110
If your company ships with FedEx or UPS, you could be entitled to thousands of dollars in refunds. Reveel not only performs the audit, we also do the recovery for you as well. The best part is, Reveel believes you should be able to keep 100% of those refunds, no gain share, no catch, no hidden fees, just money in your pocket. That’s why we offer Invoice Auditing ABSOLUTELY FREE in our Essential version of our Shipping Intelligence® Platform.
| www.reveelgroup.com | firstname.lastname@example.org | 877.421.4994
The Trax Difference: Trax is focused on empowering our clients to succeed. We know that our customers need more than just freight audit and payment. They need visibility and insights to make confident decisions about transportation and logistics. Driving global logistics efficiency is impossible when you have no visibility and enormous cost swings within your transportation network. With Trax, you’ll get global transportation spend management solutions that are built to deliver data-based visibility and insights, higher savings, and better control of transportation spend.
www.traxtech.com | 800.755.0110 | email@example.com
With driver shortages, port congestion and volatile fuel prices, supply chain challenges today can seem insurmountable. If your company has been struggling to get materials in — or finished goods out — you’re certainly not alone. But with increased visibility, you can uncover new ways to keep products moving and costs under control. Backed by the safety and security of a bank and a tier IV data center, U.S. Bank Freight Payment enables you to make smart business decisions at every mile.
usbank.com/transportation-solutions | CPSTransportation@usbank.com | 866.274.5898 JANUARY-FEBRUARY 2022 PARCELindustry.com 23
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SUPPLY CHAIN SUSTAINABILITY EFFORTS: DELAY IN PROGRESS AMID COVID-19
BY VIPUL KUMAR
raditionally, for any large manufacturing organization, the supply chain accounts for 60–80% of greenhouse gas emissions (GHG). Since the Industrial Revolution, supply chains have largely been linear. Most companies and consumers typically use a product only once and then discard it as waste. However, amid rising environmental degradation, companies are increasing efforts to ensure sustainability of the supply chain. The objective is to set up environmentally friendly practices in order to address climate change and comply with government regulations. As companies work toward achieving the 17 key sustainability goals defined by the United Nations, they are aligning
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their long-term plans with three main objectives: building a circular economy (using recycled materials and packaging), ensuring traceability, and reducing the overall GHG emissions (including transportation-related). COVID-19 has hampered sustainability efforts across the globe, compelling companies to switch priorities. This is particularly visible in the case of two leading industries, fast-moving consumer goods (FMCG) and healthcare, despite both witnessing substantial business growth amid the pandemic. FMCG Industry Impact of COVID-19: Increased focus on social aspects over sustainable packaging Over the last decade, FMCG companies have proactively committed themselves to decreasing the usage of single-use plastics and making packaging more sustainable. In line with this, they have redesigned packaging
systems based on recovery and reuse, thereby creating a new plastics circular economy (reduce -> reuse -> recycle -> recover). Key sustainable companies such as McCormick, Unilever, and Nestlé continue to generate clean revenues, deliver renewable energy projects, and target transition to 100% circular packaging. COVID-19, however, forced FMCG companies to change the focus from packaging sustainability to health and protection of people in the value chain (focusing on people aspect of the 3Ps: Profit, People, and Planet). Consequently, social commitment, including addressing inequality, drew more attention in terms of attracting investment and efforts. This has created a contradiction — consumption of single-use plastics rather increased as the pandemic spread. Moreover, efforts toward sustainable packaging took a hit amid limited
options for new product development, testing, and production, with work from home becoming the norm. Additionally, several FMCG companies now offer packaging alternatives in line with hygiene, health, and safety protocols. Therefore, while sustainability initiatives continue, the focus has changed. Road ahead With the pandemic subsiding, FMCG companies are planning to resume their sustainability efforts, entailing launching and using new biodegradable products, increasing the use of recyclable plastics, and reducing waste. Diageo and PepsiCo, for instance, partnered to make bottles from sustainably sourced wood pulp (100% plastic-free bottle). Mars Wrigley too is developing a fully biodegradable wrapper sourced from canola and soy seeds, while Bacardi and Danimer have partnered to manufacture bottles made from plant-based oils (100% biodegradable plastic bottle). These products will decompose quickly in soil, compost, or water. Raw material companies such as Berkeley Lab are coming up with new infinite recyclable products (forever reusable without ever degrading in quality) such as polydiketoenamine (PDK), which is used in a wide range of applications, from packaging to car parts. CPG giants such as Unilever recognize the role of the food industry in adding to GHG worldwide (contributing over 20% to emissions); accordingly, they are focusing efforts on reducing factory-to-shelf food waste to 50% within the next five years. Healthcare and Pharmaceutical Industry Impact of COVID-19: Increase in emissions and plastic waste During COVID-19, approximately seven billion vaccine doses were produced and distributed; this led to a significant increase in carbon dioxide emissions. Currently, carbon dioxide emissions from healthcare and pharmaceuticals account for five percent of the carbon footprint in large economies globally; within this, approximately 71% of emissions can be attributed to supply
chain issues, including production, transportation, and disposal of medicines/medical devices and chemical agents. The situation has worsened with the increase in consumption of single-use (plastic) components and PPEs amid the pandemic; for instance, the generation of plastic waste in hospitals is staggeringly high. Road ahead Digital transformation is expected to bode well for sustainability in the post-pandemic era. Developments/ advancements in remote healthcare technologies and emergence of telehealth firms would not just improve care but also reduce the need for patients to travel. Furthermore, adapting multiuse products wherever possible and conscious disposal of waste (one example being conversion of one-time use blue face masks into raw material for road construction) will help in achieving sustainability goals. Many companies are planning to increase adoption of digital tools such as FLASC (Fast Life Cycle Assessment of Synthetic Chemistry) by GlaxoSmithKline to assess the sustainability of manufacturing processes and products & services as well as ideas in the R&D process. These tools help in synthesis route selection in early stages of pharmaceutical research as well as helps in increasing material efficiency and environmental health and safety. Post-pandemic, companies are focusing on accelerating their sustainability programs by adopting sustainable packaging, digitalization, alternative fuels, and autonomous vehicles. This would not just help them create (or protect) brand value but is also in line with their commitment to address climate change.
Vipul Kumar is Senior Manager at Aranca. With a global footprint and a team of 550+ conducting research in 20+ languages, Aranca provides insights across their business research & advisory, technology research, valuations & financial advisory, procurement research, and investment research teams.
Shipping Industry Disruptions COVID-19 has disrupted the supply chain and made it highly vulnerable. This has created the need to revive or reinvent it; one of the strategies in this regard is China Plus One, which entails increasing focus on diversification, reshoring, and regionalization. However, making adjustments may create the need for more flexible shipping services, including more vessels, routes, and shipping time, thereby leading to an increase in carbon emissions and usage of fossil fuels. This would derail sustainability efforts. Furthermore, changes in consumer spending patterns across the e-commerce industry have translated into higher demand for digitally enabled warehousing and distribution facilities and lead to more shipping and emissions. The shifts in supply chain design and globalization, resilience focus, and changes in consumption and spending have increased the need for sustainability and a low-carbon agenda. With the growth in business opportunities, the shipping industry must work toward addressing climate change, prioritize use of alternative fuels, and reduce emissions by adopting initiatives like de-carbonization. Besides exploring green fuels and applying innovative technologies, shippers must focus on delivering a sustainable future. Prioritizing electrification of public transport as well as heavy-duty trucks, LCVs, and last-mile delivery, with a long-term aim for aviation, and expansion of charging stations for electric vehicles will further help the shipping industry build a sustainable future. Overall, key technological advances such as alternative fuels, autonomous vehicles, and digitalization will create a new and sustainable transport and mobility sector.
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3PL PROVIDER NEGOTIATIONS AND KEY PERFORMANCE INDICATORS Is it time to view your 3PL as less of a vendor and more of a partner? By Kimberly Cox and Matt Wyatt
hird-party logistics (3PL) providers are often an extension of a shipper’s business. The process for selecting a partner, establishing an agreement, and implementing a physical and technical solution is time-consuming and costly. As a result, it is critical to establish a strong partnership with clear expectations for all parties at the beginning of the relationship. Contractual key performance indicators (KPIs) will enable the long-term success of the partnership.
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KPIs can be built within the quality agreement or service agreement. Companies should also discuss opportunities to establish risk/reward metrics (incentive payments) that guide both parties to achieve more and deliver exceptional service to the end customers, giving the shipper a competitive advantage. The KPIs should gauge the pulse of the business and align with the company’s business strategies. Each KPI must have a target derived from the baseline performance of the company. Business-critical KPIs should be tailored
to the individual business requirements and be impactful to end customer perceptions of the business relationship. The initial setup of KPIs will take the most time and effort, and it is important to determine how they can be automatically measured, reported, and managed during the course of the relationship. Remember to take the necessary time and ask questions not only from the 3PL, but of the senior management of the shipping company to ensure the right priorities are established at the beginning of the relationship. Be sure to collaborate with the 3PL provider to define what success looks like for both parties and how to make that measurable. The targets should drive the desired behaviors to achieve excellent results for both organizations, such that they could be used as promotional information to win new business. Remember, we must aim for perfection and achieve operational excellence. The chart on the next page shows a few KPIs with risk/reward concepts to jumpstart the discussions. These are basic KPIs and only a suggested starting point to find common ground on which to build a foundation between the customer and partner of measured performance. These KPIs will help both parties
Target Service Level
Receiving Dock to Stock: Incoming LTL/TL putaway will be completed by the following business day, and parcel receipts received by 2PM will be put away on the same business day.
1% of the monthly service fee
Deliveries Shipped on Time: All small parcel deliveries received at the warehouse by 4PM local warehouse time are shipped on the same business day, and all LTL/TL deliveries are shipped by the end of the next business day (excluding goods on backorder and orders on hold).
1% of the monthly service fee
Order Picking Accuracy: The number of customer credit requests for shortage, picking, overage, and/or shipping errors over the total number of orders provides the error rate. One minus the error rate gives the results.
1% of the monthly service fee
Inventory Accuracy: Percent accuracy that the 3PL achieves for expected inventory vs. actual inventory.
1% of the monthly service fee
System Availability: 24x6 (Mon-Sat)
1% of the monthly service fee
Technical Call Response: Calls acted upon within one hour of receipt, excluding holidays
1% of the monthly service fee
1% of the monthly service fee
Quality Deviations: Violation of cGMP regulations due to unplanned deviations
KPIs are a natural on mobile devices to stay on top of business while in the field.
Here is an example of KPIs that are color coded showing pass/ caution/fail status.
benchmark the business and establish the pulse for success. Don’t be afraid to ask questions about other customers and internal departments to define
what “winning” means to them within the day-to-day operations. Ensure the contract allows the business partners to refine, expand, and change the KPIs during the course of the agreement. Regular KPI “maintenance” should be a part of the overall management strategy because everyone’s business changes. Static measurement systems inevitably become less relevant and useful if not maintained. Defining KPIs that are historical in nature, focused on summarization, presentation, and analysis of data found in distribution management systems is common. Identify methods and technology to create alerts that highlight activities and business areas that need immediate attention. This
will alleviate an over-reliance on busy managers to pore over endless reports and screens. Identify built-in tools to enable fast, intensive analysis to get to the root cause of the problem and make sound, informed decisions quickly. KPIs will quickly become an ally to the organization for uncovering conditions or actions that adversely affect operations so they can be addressed quickly before the losses pile up. This same tool will enable the identification of the activities where performance is exceeding expectations. Create rewards, incentives, and motivational techniques to recognize the teams who drive the performance. Execution of these techniques can lead to a long-term valued relationship and turn the 3PL from just a vendor into a true business partner.
Kimberly Cox is Sr. Director, Customer Fulﬁllment, Bracco Diagnostics Inc. Matt Wyatt is General Manager, Pharmaceutical Distribution, Kenco Group. This article is based on their joint presentation at the 2021 PARCEL Forum. JANUARY-FEBRUARY 2022 PARCELindustry.com 27
BY STEPHEN T. HOPPER, PE
LABOR PAINS: THE LABOR SHORTAGE AND HOW TO SURVIVE IT
f your warehouse or DC needs qualified workers, and you’re having trouble finding them and getting the work done, you are not alone. Most North American businesses are wrestling with a dramatic shortage of qualified labor, and this lack of available workers is especially evident in the warehousing and distribution sector of our economy. Unfortunately, you have little control over the availability of qualified workers and over the economic and cultural conditions that influence it. You do, however, have much control over the way your business finds, uses, manages, and retains labor. To do these things effectively, you need to understand the nature of the real problem, identify what causes it, and take steps to solve it. Then you can reduce your labor requirements and find the qualified workers you need. A Failure to Participate Labor shortages in blue-collar industry sectors are really nothing new. Businesses with warehouses and DCs have been experiencing a growing shortage of qualified workers since more than a decade before the COVID-19 pandemic began. The U.S. Bureau of Labor Statistics has defined the labor force participation rate as “the percentage of the civilian, non-institutional population 16 years and older that is working or actively looking for work.” The labor force participation rate has declined steadily since 2000. (You can see an interactive graph at https://fred.stlouisfed.org/series/CIVPART.) There are several causes of this long-term decline in labor force participation. One primary cause has been the aging of the North American population. In recent years, the “baby boomer” generation has been retiring and exiting the workforce in droves, and the supply of new workers has simply been unable to keep up with the demand for them. The result is a steadily growing labor vacuum.
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To make matters worse, recent economic events worsened the labor shortage. The labor force participation rate dropped dramatically when the COVID-19 pandemic walloped the economy in early 2020. At the time of this writing, the labor force participation rate was hovering near 61.7%. Prior to the pandemic, it had not been that low since the mid-1970s. So currently, more than 38% of the US population has chosen not to actively participate in the labor force. Many of these people were employed before the pandemic began, but why did they choose not to go back to work? Labor economists have offered several main reasons. Some people have avoided working due to their fear of being infected with SARS CoV-2 by others in the workplace (and as a practical matter, most workers in warehouses and DCs cannot work remotely). Others have preferred unemployment compensation over earned wages, especially during recent periods of extended unemployment benefits and higher-than-usual weekly payments. An Imperfect Match But what about rest of the labor force? Why aren’t more of them searching for work in warehouses and DCs? The short answer is, in the warehousing and distribution sector, there is a growing mismatch between the jobs available for workers and the workers who are willing and able to do them. The demographics and physical attributes of available workers have evolved significantly in recent decades. For example, older workers who do remain on the job are working longer, but their work performance has understandably been adversely affected by age-related physical limitations, such as limited speed, stamina, dexterity, flexibility, and mobility. Older workers sometimes also have limited technical proficiency in relation to the technologies often found in modern warehouse and DC environments. Plus, more women and minorities comprise the
SUBSCRIBE FOR FREE! available workforce than ever before, a trend that has changed the anthropometric attributes of the “average” worker. Furthermore, among the growing number of immigrants in the available workforce, there can be language barriers that would make work in a typical North American warehouse or DC difficult. The growing skills gap is another challenge for employers seeking workers. Managers of warehouses and DCs generally require a basic level of “soft” and “hard” skills that have become scarcer among the available labor force. Necessary soft skills include work ethic, verbal communication, teamwork, reliability, positive attitude, flexibility, creativity, accuracy, and critical thinking. Necessary hard skills include reading, writing, counting, and familiarity and comfort with certain technologies, such as computers and mobile devices. To make a long story short, many unskilled workers who are available are not wanted, and many skilled workers who are wanted are not available. What Not to Do Sadly, some businesses have adopted a “Do something, even if it’s wrong” philosophy to address the prevailing labor shortage, and they focus on the symptoms of the labor shortage rather than addressing its underlying problems. Instead of systematically exploring ways they can reduce their need for labor and make their existing workers more productive, they just throw money at the problem. As an example, one management team I know was convinced they “just need to hire more people,” so they impulsively and instantly raised the starting wage at their warehouse by more than 36% and increased the size of their warehouse workforce by 40%. As a result, their worker productivity plummeted due to lack of supervision by overwhelmed managers and leads, and their average labor cost per unit shipped spiked. The CEO of another company I know was so desperate to get work done in his DC that he shortsightedly forced his core management team to leave their posts and join the workforce on the DC floor for several months. Since no one was left to manage the business, you can imagine the array of new problems that have resulted from that knee-jerk decision. Several businesses I know are paying their workers bonuses just for showing up for work, regardless of how well they perform on the job. But if you can’t depend on your workers to show up for work, then their work performance is not likely to be good.
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Easing Your Labor Pains Despite the current labor shortage, there are fundamentally two steps your business can take to meet production goals in your warehouse or DC. These actions will continue to be valuable to your business even when (and if) the labor shortage becomes a thing of the past. Step #1: Find Ways to Reduce Your Labor Needs There are three ways you can reduce or eliminate labor in your warehouse or DC: You can mechanize, automate, or improve worker productivity. In addition to reducing your need for labor, mechanizing or automating repetitive activities in your warehouse or DC can JANUARY-FEBRUARY 2022 PARCELindustry.com 29
SUBSCRIBE FOR FREE! pay big dividends in the form of cost savings. The transporting, sorting, packaging, and unitizing functions are the most common activities that can be mechanized or automated using standard, off-the-shelf solutions available in the marketplace. Nevertheless, implementing such solutions can be risky and time-consuming, and doing so can demand significant financial investments. It would be unreasonable to try to summarize in this brief article the myriad of possible mechanization and automation solutions you might consider. Beyond automation, however, you can also reduce or eliminate your need for labor by making your available workforce more productive. After all, you won’t need to hire as many new workers if you require fewer workers to get your work done in the first place. In my experience, labor performance improvement is the most misunderstood and overlooked opportunity for businesses who operate warehouses and DCs, yet these businesses could potentially reduce labor by 20% or more if they made a commitment to do so. Too often, businesses blame workers for inferior performance, but the elephant in the conference room usually isn’t the workers themselves — it’s often the unskilled, ineffective, complacent, or nonexistent management team that manages the workforce. Face it: Your business doesn’t need babysitters in your warehouse or DC — it needs active managers who are sufficiently trained and skilled in the art and science of improving labor performance. The labor performance of your workforce is typically propelled by a combination of three performance attributes that many industrial engineers refer to as P, M, and U. The pace (P) of a worker is the most obvious, as it reflects how fast they do their work. The method (M) is the way the worker does their work, including the procedures they follow and the tools they use. The utilization (U) is how much of the worker’s time on the clock they are actually engaged in doing productive work, rather than giving in to distractions. And for good or for bad, these three attributes compound each other to result in a worker’s overall level of performance. Of these performance attributes, the pace (P) of a worker is typically the most difficult to improve. On the other hand, the method (M) attribute can often be improved by documenting efficient standard operating procedures (SOPs) combined with effective training, coaching, retraining, and cross-training programs. And the utilization (U) attribute can often be improved by implementing a well-designed performance improvement program that effectively combines work standards with monetary incentives (bonuses, raises, etc.) and/or non-monetary incentives (rewards, recognition, etc.). Step #2: Be Creative to Find New Workers Even after you’ve taken the previous step to reduce your need for labor, you might find that you still need to find and hire more workers who are qualified to do the work. Due to the current labor shortage, however, the pool of workers who are both qualified and available to work in your warehouse or DC is limited. So, you must expand your market of qualified workers who are available and encourage them to work for you. To find new workers who are qualified, you will obviously want to pay competitive wages, offer the kinds of benefits that 30 PARCELindustry.com JANUARY-FEBRUARY 2022
workers want, and reward those workers who perform well. Offering flexible work hours, incentives based on performance (not just showing up at work), opportunities for advancement, and length-of-service raises will help, of course. How else can you expand your access to these workers? One answer is to flip your thinking about jobs and workers. Since the workers available in the labor market are no longer as homogeneous as they once were, rigidly defining job descriptions and then looking for workers who “fit” them is not likely to result in much success. Instead, start by understanding the attributes of those workers who want to work, and tailor your jobs to fit their skills and functional capabilities. Consider an older worker who no longer has the speed and agility to work in a physically demanding role in a warehouse or DC. They might have other skills you can use, such as reading, math, and accuracy, and they may be more responsible than younger workers. Such a worker might be very productive and effective in a job that allows them to sit instead of stand, for instance, or ride an industrial trike or scooter instead of walk. Consider a disabled worker or a worker with special needs. These workers have reputations for having a good work ethic, being reliable, having high retention rates, and being enthusiastic about working. Instead of focusing on what such a worker can’t do, evaluate what they can do, and discover which warehouse or DC functions they can do effectively if their job is tailored to accommodate their limitations. The list goes on. Consider a military veteran who has recently been discharged. Consider someone with criminal record who has paid their debt to society, has recently been released, and is looking for a fresh start. Consider someone with limited English-language skills. Many people have solid work skills and experience that your warehouse or DC can benefit from. Discover what their capabilities are, and connect the dots. It’s About Results, Not Headcount The quality of a workforce is much more important than the quantity, especially in the current economic environment. Remember, your goal isn’t to hire a bunch of new workers; your goal is to get your work done as quickly, accurately, and cost-effectively as possible. To achieve this goal, first take the time to plan and standardize the work performed in your warehouse or DC to minimize your need for labor. Then think creatively to identify the kinds of work that can be done for you by the spectrum of available workers with varying attributes. If you take these steps, you’ll not only be more likely to survive the labor shortage, but also save labor costs.
Stephen T. Hopper, PE is Founder & Principal of Inviscid Consulting, whose mission is to help business plan and streamline their warehousing, logistics, manufacturing, and distribution operations to drive down operating costs, boost capacity, improve service levels, and mitigate risk. He can be reached at firstname.lastname@example.org or 404.832.5326.