Is E-Commerce Connected into YOUR Parcel Shipping Process?
the success of your global e-commerce business.
the efficiency of your order fulfillment operations.
to leverage TMS to increase profits.
CONTENTS MARCH-APRIL 2014 | volume 21 | issue 3
Departments 06 Editor’s Note
Will Packages Save the USPS? By Amanda Armendariz
07 Going Global
International Duties and Taxes: What’s the Difference? By Tom Stanton
08 Transportation ABCs
2014/2015 Conference Calendar
By Rob Martinez
10 Operational Efficiencies Intelligent Inventory Order Management
18 Connecting E-Commerce into Your Parcel Shipping Process
A look at making this integration as seamless as possible. By Brian Hodgson
By Susan Rider
11 Spend Perspectives
Free Shipping with a Twist By John Haber
12 Ship Right
Pushing the Reset Button on Your Resolutions By Karen D’Andrea
14 Supply Chain Pivot Speed
By Rob Shirley
20 Are You Prepared?
Aligning your international shipping strategy for your global e-commerce business.
By Bob Fischer
22 Building a Decision
Matrix to Improve the Efficiency of Order Fulfillment Operations By Ed Romaine
15 Regional Alternatives
Shifts in E-Commerce Are Shaking Up the Shipping Industry By Jim Berluti
16 Guest Column: TMS Insights
Leverage TMS to Increase Profits By Jim LeRose
26 Product Profile:
Discover Eii’s Rapid Parcel Processing Solutions
27 Case Study:
Carrier Contract Analysis & Negotiation Saves over $10 Million Annually
28 PARCEL Counsel
Damages, Damages, Damages By Brent Wm. Primus
30 Wrap Up
Back to the “Parcel” Future By Michael J. Ryan
MARCH-APRIL 2014 | www.PARCELindustry.com
president chad griepentrog publisher marll thiede editor amanda armendariz
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PARCEL 2901 International Lane Madison WI 53704-3128 p: 608-241-8777 f: 608-241-8666 www.PARCELindustry.com
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EDITOR’S NOTE BY AMANDA ARMENDARIZ
Will Packages Save the USPS? ackages, packages, packages. That was the buzzword at this year’s National Postal Forum. I put off writing my editor’s note for a few days, because I was sure that I would get some inspiration at this year’s forum, and I was right. Whether we were at the keynote opening speech or one of the several media briefings I attended, packages were a topic that was discussed consistently. Yes, headlines in various media decry the decline of First-Class Mail volumes (and the USPS revenue loss that accompanies it), but not quite as many people seem to realize that while First-Class Mail may be declining, the package segment of the USPS is picking up rapidly. In fact, as Chief Information Officer for the USPS, Jim Cochrane, said, “There are very few retailers out there who aren’t giving us [at least] some packages to deliver.” Yes, packages are clearly a booming business, and that means it’s an exciting time, both for the Postal Service and e-commerce companies. Of course, with that excitement comes challenges that weren’t around 10-15 years ago. It’s our goal that you finish reading this issue of PARCEL feeling much more prepared to brave this new territory than you were the day before. We have some great features on integrating e-commerce into your parcel shipping process, taking this e-commerce thing to a whole new level (an international one!), and more. So here’s to an exciting future of e-commerce, packages — and a bigger profit margin for retailers everywhere. As always, thanks for reading PARCEL.
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GOING GLOBAL BY TOM STANTON
International Duties and Taxes: What’s the Difference? ecently I had a customer contact me regarding increased “duties” that his sales manager reported the company was going to face when shipping into a European country. After further review, it turned out there were no increased “duties” but there was a court ruling that value added taxes were going to be increased in a particular country. So what’s the difference and why were they increasing? DIFFERENCES BETWEEN DUTIES AND TAXES: 1. A duty is a fee that is collected by the Customs authority of the importing or destination country. Duty rates are established by a country or group of countries to impact trade volume of a certain type of product and sometimes from a certain country’s manufacturers. Normal duties are generally calculated as a percentage of the transaction value (sales price, usually) or an amount per unit 10 cents per kilo etc. They are imposed to protect local industries that a country deems important. In some cases, there are additional duties, called antidumping duties, applied when the importing country receives information that the foreign exporter is “dumping,” or selling at less than fair value (less than the sales price in the home market). Or perhaps a foreign government is providing significant tax incentives to foreign manufacturers given them a cost advantage. When this is identified, the importing country may apply a countervailing duty equal to the amount of the tax subsidy the exporter
is receiving. While duties typically apply, your product may also qualify for duty exemption or lesser duties based on trade agreements and the harmonized classification of your product. 2. A tax is an amount collected in order to enable a country to pay for various government services or community needs such as roads. Generally taxes are not imposed to restrain trade; however, when calculated against the imported value this impacts the entry of the goods into the marketplace. A value-added tax (VAT) is computed as a percentage of the sales price plus freight and duty. In effect, the (wholesale) importer typically can pass along the cost of the VAT to the (retail) buyer, taking a tax credit related to the sale of the imported merchandise. There are various standard tax exemptions such as an exemption for the importation of medical equipment for handicapped persons. A thorough presentation of taxes and exemptions is beyond the scope of this article. DUTY VARIANCE EXAMPLES: Why do the same imported items receive different amounts of duty charges on different occasions? There are several explanations for this. 1. Different duties may be imposed if there are differing opinions as to the correct tariff number to be applied to the merchandise. For imports into the US, a binding ruling can be obtained to confirm the harmonized classification that should be applied to the merchandise. There are similar administrative proceedings in other countries. 2. When items move informally through Customs with a courier or the mail, the Customs officer may use a standard harmonized classification that he/she uses as a catch-all for the merchandise in question. (It is wise to list the correct
harmonized classification for the product on the export invoice.) There may be different interpretations of the appropriate classification and duties at different ports in some cases depending upon the sophistication of the National Customs duty administration. Believe it or not, I am part of a Linkedin group on classification that gets questions from international customs officials of smaller countries. TAX VARIANCES EXAMPLE: Generally all shipments to Europe are subject to VAT. In two countries in particular there has been a liberal extension of tax exemptions to health care products. But a recent ruling by the EU courts has instructed these countries to enforce collection of taxes for all health products except for a narrow subset, such as braces and equipment for the handicapped. CONCLUSIONS: In today’s world of imports and exports, duties are generally applied differently from taxes. Duties are imposed to control trade and protect certain industries while taxes are generally imposed to pay for government administrative services and infrastructure. It is important to understand what duties and taxes will be imposed upon your products before entering a particular county, since you may qualify for exemptions that could make your product more competitive in the marketplace. This type of information is usually available on the internet and from customs brokers and/or tax specialists in the importing country.
TOM STANTON, AFMS, LLC, International Analyst can be reached at 503.246.3521 or Tom.stanton@ AFMS.com. MARCH-APRIL 2014 | www.PARCELindustry.com
TRANSPORTATION ABCS BY ROB MARTINEZ
2014/2015 Conference Calendar he value of attending conferences is significant: Learn from a combination of expert and peer-led presentations on trends and strategies to improve processes, enhance quality, reduce costs and do your jobs more effectively; network and make new connections; seek certification and professional growth opportunities; peruse the exhibit halls to better understand vendor capabilities and services; and more. Since I present at many leading shipping industry conferences, I’m often asked for recommendations on which to attend. Each conference has its unique lineup of speakers, schedule and format, topic/industry focus, etc. so my recommendations depend on what each person is looking to achieve. Some prefer smaller, more intimate conferences with limited attendance — others enjoy the big shows with attendance into the thousands. In addition, the cost to attend varies significantly. Some conferences are supported entirely through vendors and sponsors and are FREE for industry buyers. Others cost as much as $2,000. I encourage online retailers and all shippers to selectively attend as many conferences as time and budget allows, but to plan in advance. If you are new to conferences, let me humbly suggest that you carefully plan your itinerary to maximize your investment. Most conferences publish the proceedings well in advance of the show, so take the time to map out your schedule. While there are plenty of opportunities for lavish vendor dinners and late night 8
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fun at the hotel bar, I encourage you to most conferences attempt to resolve! treat these conferences as “work.” At- Once you’ve selected a conference you’d tend and actively participate in as many like to attend, study the conference propresentations, workshops, roundtables ceedings to identify those presentations and keynote sessions as you can. Get to that will help you address some of these bed at a decent hour so you can start ear- challenges (i.e. manage expenses more ly and maximize learning the following day. We can’t let this opportunity pass: That said, don’t skip social and networking opporif you haven’t already registered tunities including meals, cocktail hours and other for the PARCEL Forum, the events. These are some of premier show in the small the best opportunities to make new connections in shipment industry, don’t delay! an informal, relaxed setting. Bring plenty of busi- Visit www.PARCELForum.com. ness cards and introduce yourself to those sitting around you in each effectively, grow top line revenue, inconference session. If you have challenges crease productivity, etc.). Then make an in your business, ask your peers how they appeal to the powers that be, with their resolved those issues within their business. points of interest in mind! Keep in mind that different people Can’t get your boss to approve the costs and time out of the office? In most cases, within an organization often have difyou simply haven’t provided sufficient jus- fering points of concern. Therefore, your tification! Leading companies continuous- chances of getting approval are better ly invest in the growth and development if you can articulate how conference atof its most important resource: its people. tendance will help you address areas. Here’s what I suggest: In my experi- Obviously, if possible, identify areas ence, C-Level executives are concerned of importance for each key player that with these business challenges (no par- makes the decision. If at first you don’t succeed, check back with key players ticular order): periodically as these areas of concern 1. Expense management are transitory and will change. 2. Revenue growth Be sure to document your activities at 3. Shareholder value the conference (sessions attended, ven4. Increased productivity dor and client meetings, important con5. Risk mitigation nections made, key learnings, etc.). And 6. Customer retention & satisfaction most importantly, demonstrate Return 7. Operational stability on Investment (ROI)! If your organiza8. Regulatory compliance tion gained in productivity based on new The good news about these challeng- products purchased on the trade show es is that they are precisely the themes floor, quantify the value. Cost savings
with a service provider? Write it down! One final note…I recognize the conference list above reflects my bias as a parcel shipping consultant. If there are additional conferences that you recommend, kindly let me know to ensure it gets added to next year’s list. I hope the list is valuable for you, and
I am happy to talk with you to provide my candid assessment on any specific show or to recommend a conference around your interests. Good luck!
ROB MARTINEZ, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm
that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers 25 years’ experience negotiating parcel contracts — on both sides of the negotiating table — for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.879.2020 Ext 114 or email@example.com.
MARCH-APRIL 2014 | www.PARCELindustry.com
OPERATIONAL EFFICIENCIES BY SUSAN RIDER
Intelligent Inventory Order Management ith the face of retail changing and the e-commerce industry growing at an incredible pace, companies are becoming more and more challenged in how they manage inventory across their supply chain network. Products are being managed across multiple channels. Supply chains that have increased their number of channels to the market without the benefit of an integration strategy suffer from inefficiencies and high operating costs, not to mention inventory carrying cost. To maximize inventory, it is no longer acceptable to just know the inventory in the distribution center. There is a need to have an intelligent system that connects to the inventory in the Distribution Center, in the stores, in the partner sites, in third party logistics companies and vendors. This software is being called Distributed Order Management. It connects all the pieces and parts of a supply chain to ensure there are no black holes giving ultimate flexibility in filling orders accurately and avoiding missed sales. The system can even connect to the trucks carrying inventory across the country. This system will also connect the inventory and manage the orders also coming from many sources: websites, mobile sources, in store orders, catalog orders and call center orders. Think of your supply chain as something with many tentacles trying to fulfill the demands of multiple order requirements. It seems very complex and is keeping many a retailer up at night, especially with the growing number of orders needing to be processed daily. It 10
MARCH-APRIL 2014 | www.PARCELindustry.com
takes a robust engine to fulfill millions of order lines during the day. The need for such a mission control or nerve center in most complex supply chains has gone unfulfilled until recently. In todayâ€™s e-commerce world, many customers, including the new millennials, are requiring same day delivery and expect products to be delivered on time and efficiently or they will just click away and purchase the product from another site. Unhappy e-commerce customers rarely return to the site, therefore causing missed sales continuum. With escalating freight cost, is becoming even more important to source the product from the closest geographical point to be able to accomplish the demand of same day delivery. There are many trials and prototypes taking place all over the country to see if same day delivery is in fact feasible. Much like a conductor leading an orchestra to perfect harmony, the DOM system can balance the inventory with the supply need based on your rule set criteria. Synchronizing the movement of inventory to achieve the best fill rates and customer satisfaction is the name of the game for the future. Without a conductor or DOM, product order fulfillment is being managed by disparate systems or individual business units with limited visibility and insufficient resources. Multi-site sourcing for a single order ensures customer expectations are met. Powerful rules engines manage the order lifecycle to segment and prioritize orders, hold and release orders, and source to optimize against capacity, inventory, delivery or other constraints. Distributive Order Management, an adaptable business process engine, al-
lows for true collaboration among suppliers, 3PL networks, stores, distribution centers and partners. The system also handles complex reverse flows enabling more efficient handling and processing of returns. Real time visibility of the entire network enables the retailer to have control over all channels across the supply chain. Global visibility of orders, inventory and delivery accomplishes what many supply chain leaders have desired for many years, which is the elimination of black holes within the network. Your associates will be able to view orders in real time, check current inventory across extended supply networks and track order status throughout the network enabling excellent customer service visibility. Intelligent systems are making supply chains all over the industry more effective and more efficient. Systems are being replaced that no longer offer the flexibility, and new ones enhance the decision making process to achieve great customer satisfaction, which equates to more sales. Companies have a variety of software solutions to choose from; they must be diligent in selecting a partner that will support and enhance their product for the future. The better the technology, the more lean the supply chain enabling flexibility and agility in decision making. The visibility of the entire supply chain will afford the retailer to get better inventory turns and reduce the amount of lost sales for inventory outages.
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at firstname.lastname@example.org.
SPEND PERSPECTIVES BY JOHN HABER
Free Shipping with a Twist s noted in my previous column, the holiday debacle was indeed that — a debacle for not only UPS and FedEx but also for those shippers that offered free shipping or other incentives to entice customers to purchase as late as the day before Christmas Eve for expected delivery in time for Christmas Day. In fact, according to Shop.org, one in every six retailers offered free or upgraded expedited shipping as late as December 23. While lessons were hopefully learned by both the carriers as well as by e-retailers, what was evident was the fact that free shipping has become the new normal for e-retailers. A recent study by Forrester on shipping policies found that 92% of the top 50 retailers had free shipping policies. For many of these e-retailers, free shipping is necessary to preserve market share. However, in order to offer free shipping, shippers usually either absorb the cost or slightly increase prices to cover it. But this is getting difficult to do, particularly as carrier rates continue to rise, with the 2014 average FedEx ground rate increasing 3.9% and UPS average rate increasing 4.9%. The reality is that the new rate impacts were much larger than the carriers announced, with many customers realizing 7% to 8% effective increases. For e-retailers, shipping costs can range from 5% to 20% of total revenue. While offering free shipping for unique products and high margin products may be good, it’s not advisable for low margin products. So, e-retailers are
introducing a slight twist to free shipping — subscription based services. Perhaps one of the most popular offerings is Amazon Prime. At a cost of $79.00 per year, subscribers receive free two-day shipping, no minimum order size plus unlimited streaming with Prime Instant Video and free books through its Kindle e-reader tool. Meanwhile, Newegg, an online retailer of computer hardware and software, recently has introduced its own version of Amazon Prime — Newegg Premier. For $49.99 per year, subscribers receive free expedited shipping guaranteed to arrive in three days or less, discounts on twoday and one-day shipping. Restocking fees are also waived along with free returns and dedicated customer service. Another entrant to this subscription based service is Shoprunner. Shoprunner partners with such retailers as Anne Klein, Nine West, Neiman Marcus and Petsmart and for $79.00 a year, provides unlimited free two-day shipping, no minimum order size and free returns shipping. While subscription-based services may not be for all e-retailers, the use of either a minimum order or minimum number of items is also proving popular. For example, Amazon made headlines a few months ago when it raised the minimum order from $25.00 to $35.00. Although there was a brief outcry over the increase, Amazon was quick to encourage customers to sign up for its Amazon Prime service for just a few dollars more. Another example is that of Staples. Through its free membership, Staples offers free shipping on a minimum order of $19.99. As such, there is no “one size fits all” when it comes to free shipping. However, it plays such an important role in the
highly competitive e-retailing space. In fact, according to some estimates, free shipping can lift sales by 10% to 20%. According to “UPS Pulse of the Online Shopper,” shipping costs play a huge role in influencing online shoppers’ attitudes and behavior. Sixty-eight percent of those surveyed cited free shipping as their top driver of positive recommendations for an online retailer. On the other hand, 59% cited shipping costs being too high as their top driver for a negative recommendation. For those e-retailers contemplating free shipping options, a shipping strategy that is reviewed on a regular basis is necessary. When developing such a strategy, be sure to review what the competing e-retailers are offering and also be familiar with shipping options from parcel carriers. Some experts suggest rate shopping, that is, downgrade the shipping service. Forrester estimates that this can reduce shipping costs up to 30%. However, many retailers are now placing a higher importance on customer experience and are concerned about the possible loss of tracking visibility or losing packages. Customers now expect some kind of free shipping or else they will likely abandon their online shopping cart. As shipping costs rise, however, e-retailers are answering the demand for free shipping and increasingly with a twist.
JOHN HABER is an expert in shipping, freight and transportation spend management. In his current role he provides the vision, and the execution knowhow, that helps companies save 10% to 20% or more in logistics spend. Contact him at jhaber@ spendmanagementexperts.com.
MARCH-APRIL 2014 | www.PARCELindustry.com
SHIP RIGHT BY KAREN D’ANDREA
Pushing the Reset Button on Your Resolutions e start every year with the best intentions. We set goals, make lists, and promise that we’ll see our New Year’s resolutions through to completion. Then the realities of dayto-day responsibilities take over. We respond to urgent requests, deal with customer calls, and stomp out the occasional fire along the way. Before you know it, March has turned into April, and our best intentions are but a distant memory. Take a moment now to reflect again on last year. You probably saw an increase in parcel volume. You may have experienced first-hand how more consumers waited until the last minute to place holiday orders. You might even have felt the backlash as even the best carriers could not meet all of their delivery commitments. Overall, 2013 proved how parcel shipping can have a significant impact on company costs and customer satisfaction. That’s why it’s so important to push the reset button now — dust off your resolutions — and take steps to help ensure that 2014 will be your most successful and profitable year. Here are five resolutions that were high on the list for many shipping and logistics professionals: Resolution #1: Create a More Agile Shipping Operation A recent survey found that 80% of Americans consider shipping options an important part of the shopping experience. Not surprisingly, a retailer’s ability to provide a variety of shipping options can make a difference in attracting new shoppers. 12
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This lesson is important whether you are shipping goods to a customer or documents to a co-worker: one size does not fit all. Shippers will succeed when they have the flexibility to offer and choose the best options — balancing service times and costs based on actual needs — for each and every parcel. Every organization now requires a multi-carrier shipping platform, and many find that adding regional carriers can increase delivery flexibility, expand next-day delivery options, and even help them introduce incentives such as flat-rate shipping.
tion. Eighty-one percent of consumers track their orders when expecting a delivery, and automated alerts are a great way to build confidence in your operation. Resolution #3: Manage Parcel Costs More Effectively Everyone likes to think they’ve negotiated the best rates with their carriers. However, while your average rate could be attractive, you may be able to find lower cost options when you drill down to exactly where you are shipping and when your parcels need to arrive. Hav-
Shippers will succeed when they have the flexibility to offer and choose the best options — balancing service times and costs based on actual needs — for each and every parcel. Resolution #2: Provide More Satisfying Customer Service Satisfaction relies on your ability to set and meet expectations. As a manager, you need to understand the needs of your internal and external constituents so you can manage costs and workflow accordingly. You’ll need ways to generate reports and validate performance. Tracking progress and results on a parcel-by-parcel basis can help you respond to issues and questions in real time, while your ability to analyze roll-up reports across vendors can help identify trends and opportunities. And don’t underestimate the importance of visibility on customer satisfac-
ing an easy way to compare rates and service levels across more carriers is the only way to help ensure you are saving as much as possible. Across the US, there are hundreds of regional carriers that range from “micro-regionals” to multi-state regionals. Many shippers find that by using regional carriers, they can reduce shipping costs up to 40%. And, when you consider that 49% of American consumers have abandoned a purchase due to shipping costs, you may need to add even more low-cost options. This past year, for example, the USPS greatly improved its tracking capabilities via the Intelligent Mail pack-
age barcode. With more package scans, date-specific delivery and free insurance, the USPS shipping services may now be a valuable option to consider. Resolution #4: Utilize Technologies in Smarter Ways Maybe we’re not quite ready yet for drone delivery, but current technologies can certainly do more to help you increase efficiency this year. } Automate. If you are processing shipments manually or inputting any information by hand, you probably have opportunities to increase efficiency and reduce errors. If you use numerous carrier websites, you can save time and make better choices by investing in a multi-carrier system. } Integrate. So many shipping groups operate in silos, despite the fact that information needs to be pulled in from and sent to other systems within the
company. Choose a shipping management platform or system that can easily tie into other systems, such as inventory management, order processing or routing optimization. } Regenerate. Look for systems that can grow and change as your business needs evolve. An ideal platform should be scalable and able to support both centralized (warehouse) and decentralized (branch-office) operations.
Resolution #5: Manage Incoming Parcels with the Same Level of Diligence While every incoming parcel is critical to someone in your organization, few companies invest as much in automation and workflow management for inbound as they do for their outbound operations. The costs can be substantial. These are not just measured by the hard costs
of wasted time and lost deliveries — but also the impact lost deliveries have on your internal customers. A more automated approach can help ensure chain of custody and confirm that every item reaches its intended recipient. Best-inclass systems will simplify and automate delivery logging, reporting and prioritization for mail-center staff, and provide recipients with a variety of options for checking delivery status and location. It’s still early enough in the year so that actions you take now can have a dramatic impact on 2014 results. Push the reset button and make this the best year ever.
KAREN D’ANDREA is Director, Shipping and Logistics Solutions, Pitney Bowes.
MARCH-APRIL 2014 | www.PARCELindustry.com
SUPPLY CHAIN PIVOT BY ROB SHIRLEY
ith all the new technology at our fingertips, have you noticed how some things are slowing down so much that they are exasperating? 1. Calling a number and running into a telephone tree of choices causing us to do the work of an operator, then after five minutes being told all lines are unusually busy — call later Waiting three minutes for Microsoft Office to boot up Feeling like it is normal for five telephone tag calls to take place on your mobile before talking to someone Extra buttons and prompts for almost every website including your own bank, software provider and email provider So many passwords and user IDs that you have a two-inch black book to keep track of them Dealing with the “new normal” of getting to the airport two hours early—I have to say if the trip is fewer than 500 miles I usually drive
Of course there are examples when the speed of the solution just seems perfect: 1. The new Corvette does 0-60 in 3.8 seconds, has a V-8, 460 horsepower, gets 29 mpg, looks awesome and is barely over $50k…that is true value 2. An iPad turns on instantly 3. Microwaves for some things are too hard to resist 4. Love my Keurig that takes less than a minute, lets me choose from 20 varieties of coffee and costs 4x over a full pot But my best analysis says that same day delivery, even if the envelope is pushed, 14
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will not be greater than one percent of package volume in the next five years. Here are a couple of recent events that were added after writing this story 1. The USPS has ended its test of sameday delivery service in the San Francisco Bay Area after the service attracted a grand total of 95 packages over a five month period. The USPS had expected at least 200 deliveries per day. 2. John Donahoe is CEO of eBay, which has a service, called eBay Now, that delivers items in as little as an hour. Donahoe said, “eBay Now has received too much media attention, given the scope of the operation. This is not a major independent business line we want to grow,” he added. “The notion of fast and convenient delivery is attractive to wealthier consumers, but most shoppers are willing to take more time to search for better prices. In this room, we have money but no time,” Donahoe told the audience, which included fund managers, Wall Street analysts and venture capitalists. “But the bulk of consumers have more time than money and are willing to search for value, or they like shopping as a source of entertainment.” Express delivery, broadly defined as delivered the next business day, still seems to me to be the Corvette of delivery. 1. The pure symmetry of having a package picked up (or dropping it off) this afternoon and having your customer/ vendor/partner receive it the next business day practically anywhere in five time zones with all of the work done during the night is just right 2. Inventory carrying cost, especially for high value items, depreciates the value of inventory rapidly. Letting your cus-
tomers know your standard is to deliver it tomorrow helps you control that cost and lets them control theirs because they don’t have to hold excess inventory Yes, this costs more than ground — and should because it is worth more. Higher volumes can substantially reduce the price per unit Once it is delivered, even your brand new mail center clerk knows it is important, so it is hustled to you quickly inside your building Express is truly a global product; it can originate in Kuala Lumpur, Malaysia and be on your desk in two days. No warehousing or other logistics costs is required. Global connectivity becomes a reality when it moves beyond virtual to physical and info based Express took a hit during the recession because financial gurus got control of all business and reduced cost to the lowest common denominator. If we can get the economy moving again, especially exports from the USA, it will come back very strongly. The stock market is acting like it believes the economy will come back Express literally strengthens the supply chain
Speed when coupled with technology is a competitive weapon that can provide a true competitive differentiation. Just so there is no mistake, I would like a red Stingray coupe-preferably the Z51 model and am generously offering the donor a ride in Texas with me on our 85 mph highways.
ROB SHIRLEY is CEO of ExpresShip, a strategic consultancy in the global supply chain. Contact him at email@example.com or www.xpship.com.
REGIONAL ALTERNATIVES BY JIM BERLUTI
Shifts in E-Commerce Are Shaking Up the Shipping Industry -commerce isn’t a new trend, but online purchasing is changing dramatically, and this may have significant implications for parcel service providers. To appreciate the scope of this evolving industry paradigm, consider the following data recently released by the National Retail Federation and eMarketer: } Global Internet sales in 2013 increased over 18% to $1.3 trillion. } Today, Internet orders account for about 6% of all retail sales and almost 14% of holiday sales. } Mobile shopping is fueling this trend (up almost 40% for holiday sales and accounting for almost 22% of total online sales), an increase of nearly 43% over last year. } Nearly one-third of the top North American retailers didn’t get their orders delivered on time for this past Christmas and Hanukkah holidays, even though consumers placed their orders on time.
The answer is that 10% still translates into a huge segment of the population, and that segment is expected to increase considerably in the future. For these e-shoppers, traditional shipping models often don’t work. And for that reason, e-commerce companies like Amazon are increasingly turning to alternative shipping solutions, with regional carriers uniquely positioned to benefit. Why? Because the regionals provide less risk at lower rates than the industry giants, UPS and FedEx, for guaranteed same-day or next-day delivery. According to supply chain consultant James Tompkins of Tompkins International, Amazon — which failed to deliver five million of its shipments in time for the holidays and whose transportation costs are spiraling out of control — has revamped its delivery network: The top 40 national markets will be served by a private Amazon fleet, the next 60 largest population areas will be served by regional carriers, and the remainder will be served by the U.S. Postal Service. The big losers will be UPS and FedEx because they are considered too slow to meet the needs of the typical Amazon customer.
REGIONALS ARE RIPE FOR SUCCESS Tied to the above, an evolving trend has been changes in the supply chain, as more manufacturers are establishing warehouses that are closer to their customers. The idea is to allow for faster, on-demand deliveries, usually in one day.
A SENSE OF BALANCE Let’s put this in perspective. Today, despite these shifts, only 10% of American shoppers are sold on e-commerce. So, if there is still a preponderance of traditional shoppers, why all the hoopla?
Again, the big winners could be the major regional carriers around the country, services that provide e-customers, as well as traditional customers, with faster and less expensive service than the giants. Regionals are able to do this thanks to a ground transportation network that is more direct than the giants, which generally rely on more costly air transportation. Once again, however, let’s maintain our perspective. Whatever their flaws, the national carriers aren’t about to go away. Despite all the criticism it has faced,
UPS responded well to its holiday delivery glitches. It acknowledged problems and offered refunds for packages not delivered on time. Still, we think it’s inevitable that individual customers as well as companies will be more likely to consider a third shipping alternative that will ease the burden placed on the giants. By all accounts, e-commerce is going to escalate. According to Morgan Stanley, based on projected annualized growth rates of 15%, e-commerce could be a $1 trillion worldwide business by 2016. As we look into the e-world of tomorrow, we realistically don’t expect an immediate, seismic shift in the shipping industry away from the top-heavy giants and toward the more nimble regionals. Rather, the shift will probably be more measured and moderate. But don’t be surprised if there’s some rumbling along the landscape as customers turn to carriers that provide more reliable and more economical ground transportation.
JIM BERLUTI is president & CEO of Eastern Connection. Founded in 1983, Eastern Connection, the largest regional small-package overnight carrier on the East Coast, covers over 6,800 zip codes in the Northeast. The company, which has 16 facilities, is open 7 days a week and 365 days a year. Services include Next-Day Ground, Priority Overnight, Same-Day, Second-Day, Logistics & Warehousing, Trucking, Medical Logistics, and Expedited Mail. For more information, visit www.easternconnection.com.
MARCH-APRIL 2014 | www.PARCELindustry.com
GUEST COLUMN TMS INSIGHTS BY JIM LEROSE
Leverage TMS to Increase Profits he days of single carrier shipping strategies are now considered ancient history. If your company isn’t leveraging multi-carrier TMS (Transportation Management Software) to increase profits, it’s probably missing the boat. Instead of investing in a TMS solution, however, many shop for one based only on price, and that’s a big mistake. Better yet, more advanced TMS solutions are designed to make money (so much that even Jordan Belfort would be envious) and help a company grow. Therefore, it’s best to consider the ROI and investment potential vs. the start-up costs as the dominant purchasing factor. Executives charged with evaluating and implementing TMS solutions on behalf of their companies can be categorized into two groups: the prudent or the investor. The prudent guard their company’s cash box as if it were their own and take great pride in doing so, while the investor lays the groundwork for a shipping solution that practically prints money. The mistake I often see? Executives charged with implementing TMS shop for a solution as if they were shopping for a car. They research it for months, check the features, get confused or frustrated and end up buying the cheapest one. They are the prudent, and they will have their reward, but they are simply not leveraging TMS’ inherent ability to continually beat the competition and increase profits. Rather, they are just looking to save on the purchase price. The next group, the investor, views TMS for what it is: an income-generating machine that 16
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pays dividends for a generation or more. They are creating a seemingly endless stream of cash flow and contributing toward corporate growth. The problem is philosophical. The first type views TMS as a system required to perform perfunctory tasks such as print carrier compliance labels, international forms and BOLs. They wait too long to get a system and then lament for years because their system can’t deliver the functionality required to properly run their business. Conversely, the second type spends more time and money designing a system that whips the competition, provides endless ROI and possesses an untethered capacity to deploy business rules and functionality that help run their e-commerce business. A high growth e-commerce company has a solid TMS solution. How you view multi-carrier TMS will have a tremendous impact on your company’s bottom line. Here are 10 ways one can be leveraged to help drive revenue, beat the competition, and increase profits: 1. Automated selection of least cost, day definite delivery services among all carriers/all modes — Quicker delivery is an expectation. Heck, the USPS is delivering orders on Sundays to meet changing consumer demand. Better keep up with the changes whether you like it or not. If your company can’t deliver by yesterday, customers will find another e-commerce store that can. One carrier can’t do it all! TMS will help achieve desired delivery objectives and rate shop all carriers/modes including: TL, LTL, regionals, UPS, FedEx, DHL, USPS, couriers, messengers and many more.
A good TMS can quickly add new services that help a business grow. Here are two examples: International Bridge will help increase business in places few consider important such as Alaska, Hawaii, Puerto Rico and US Territories. Vanguard Global saves money and delivers faster while increasing sales into Canada. With TMS, all classes, such as SurePost, SmartPost, DHL Global Mail, CWT, MWT and many, many others, are included in the rate shop. Expect transportation costs to decrease 8-15% or more immediately after a system is in place. 2. Ship from stores — Does your e-commerce company have brick and mortar stores? Can they ship from a single enterprise-shipping platform from those stores while adhering to a company’s business rules or do they use carrier provided disparate systems? Is the critical shipping information visible throughout the organization? Are business rules enforced? Omni-channel commerce is driving growth in this area. A good TMS solution eliminates disparate systems across an entire enterprise, increases shipment accuracy and helps delight customers. 3. Enforce S & H policies — It’s one thing to create shipping policies, it’s yet another to enforce them. Companies lose four to eight percent of shipping spend by not deploying automated enforcement tools inherent in a well-designed TMS solution. 4. Avoid Fees — Accessorial fees account for 30% or more of small packager carrier invoices. Due to the great recession, LTL carriers got serious
about reclassifying and reweighing their freight to increase revenue and although the recession is now over, it seems they really like having the extra money so they’ve decided to keep up the revenue enhancement, albeit at your expense – no surprise there. Many fees are unexpected and some executives believe they are unavoidable. They’re wrong. A TMS is the best way to avoid and/or reduce fees. Save an additional 5-10% in this area. 5. Validate addresses — This should be done at the time of purchase, when an order is placed but even today, many incorrect addresses slip through the cracks and can cost a company $12.00 or more each time. That doesn’t include the real cost — the inability to achieve the desired delivery objective resulting in customer dissatisfaction. TMS will validate addresses in the cart and at shipment execution, ensuring deliverability and reducing unnecessary fees. Many executives are completely unaware this is even happening, so check your carrier invoice periodically to be sure. 6. 3rd Party Insurance — This is one of the biggest no-brainers. Expect savings of 30-50% or more on insurance costs and increased coverage. TMS will charge back the list price of declared value to the customer, thus enabling a company to realize a profit. Companies such as Transguardian offer heavily discounted insurance and will insure even up to $100,000 or more per package (with any carrier) and if a package gets lost, they’ll send an investigator to find out what happened to it! U-Pic is another great alternative. 7. Switching residential deliveries to the USPS — This is not your father’s post office; it’s the new USPS. They track, they ship, they deliver and when it comes to residential delivery, they do it better and more efficiently than anyone else… period. That explains why they are the principle carrier for residential delivery for some of the largest e-commerce companies in the world. You may need to get over the
fact they lost one of your packages in 2008 and give them another try. Companies that switch to the USPS can easily realize shipping cost reduction of 15- 20% or more. Know this: you competition is switching, saving and growing as a result! For more information contact the USPS e-commerce expert, Peter Manning, at firstname.lastname@example.org. 8. Regional carriers — Business is good at regional shipping companies such as Eastern Connection, Lone Star Overnight, OnTrac, Spee-Dee Delivery, US Cargo, LaserShip and others. Regional carriers can provide significant savings between 15-20% and their rates can easily be included in a TMS solution. 9. Third Party Logistics for LTL/TL services — 3PLs can leverage millions of dollars of buying power and can generally save 15-30% or more on LTL/TL shipping. Their rates/services can be exposed in a good TMS solution and require no maintenance. Some examples: check out CT Logistics (www.shipandsave. com). They provide unparalleled service and extremely low shipping rates for LTL/TL carriers and as an added value, all invoices are pre-audited and consolidated. Other popular brands to consider: Echo Logistics and Coyote Logistics, among others.
10. Returns — Eliminate old-fashioned paper/ label-based return processes that generate millions of tons of waste. Eliminating waste equates to higher profits and happier customers. Connect a dynamic return solution to TMS to help reduce waste and increase profits on returns. It’s time to rethink shipping strategies; giving all the business to a single carrier to achieve tiered revenue targets is no longer as effective as it once was. Annual double-digit rate increases appear to be taking a toll. Multi-carrier TMS is simply a requirement. When searching for one, please consider the payback, not the price. This is not a time to be prudent; it’s a time to invest. I assure you the result will be dramatically different. Here’s an example: a company that spends $5 million per year on transportation can easily see savings of half a million or more. That means saving a few thousand dollars on the TMS price tag is meaningless.
JIM LEROSE has been a transportation industry consultant for three decades. Formerly with Pitney Bowes Distribution Solutions, Jim is now Principal of Agile Network, North America’s leading provider of multi-carrier shipping software and transportation cost reduction strategies. Jim is also CEO/Founder of EcoReturn.com. Contact Jim at jim.lerose@ agile-network.com or 888.214.1763. Visit www.agile-network.com for more information.
PRODUCT SPOTLIGHT GrayHair Global Address Challenge How do your international addresses match up? GrayHair, the leader in domestic and international address coding and correction, is offering a Global Challenge to all parcel shippers. This is a limited time offer to test your addresses via our database of over 200 plus countries. We know we will provide you a more accurate and cost effective addressing solution. GrayHair 866.507.9999 GrayHairSoftware.com/Challenge
MARCH-APRIL 2014 | www.PARCELindustry.com
By Brian Hodgson
Connecting E-Commerce into Your Parcel Shipping Process
he US is the largest market in the world for e-commerce and is growing at 10-15% per year. Not surprisingly, companies large and small are rushing to serve this opportunity. As companies build success, they also feel the pressure of high customer expectations. The question becomes: can they service these in-demand channels while managing and controlling costs? Despite the growth, no one expects their warehouse costs to be able to rise at a similar rate — in fact, expectations are typically to keep them flat! Let’s take a look at some key issues, including: } Various e-commerce channels and strategies } Options on handling order management in new and growing e-commerce channels } Impacts of growing e-commerce channels on parcel shipping } The proactive steps to take to ensure successful growth and ability to address new e-commerce models E-Commerce Models New e-commerce channels add complexity to existing warehouse processes. They typically have their own specific requirements, such as real time status updates, packing and documentation require-
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ments, and shipping cost options. What is critical to understand is that e-commerce itself breaks down into multiple models, each having specific needs. At a high level, there are three models that fit into the e-commerce channels: 1. A company branded e-commerce website — this is your web store. One trend in this model is companies setting up multiple stores to be extremely targeted. 2. Selling through marketplaces — selling goods through the major marketplaces such as eBay, Amazon, Sears. com, Etsy, Groupon, etc. This is one of the fastest growing segments and, even in this segment, there are multiple options. For example, Amazon has the most sophisticated options: (a) you can sell as a supplier on the Amazon network and fulfill orders yourself, (b) you can leverage fulfillment by Amazon, where it manages the logistics for each order on a consignment model, (c) you can become a supplier to Amazon for goods that it sells under its brand. 3. Selling through large retailers such as Lowe’s, Target, JCPenney, etc. — this is an older model of the marketplace model above, as it could require drop-ship or shipments into their warehouses and/ or stores. The growth of the model has accelerated tremendously in the past
five years based on e-commerce and the needs of the large retailers to retail their customers across the Omni Channel. Order Management and Application Integration As multiple e-commerce models get adopted, the order management process typically can get more complex. There are two approaches that are common: (1) Channel centric model; (2) an order centric model. This is shown in the diagram on the following page. The channel centric model is typically used by companies “born on e-commerce.” The origins of the business came from successfully leveraging a single model such as eBay, Amazon, Groupon, etc. The advantage it provides is a well-oiled process optimized for the channel, all while supporting tremendous growth. The disadvantages are that it is harder to add new channels and diversity. Also, inventory allocation becomes more challenging. Order centric models provide a more scalable model and it can be easier to add new e-commerce channels. However, more often these models originated from more mature business models where orders came into salespeople via phone, fax, and email. Often in these scenarios, the emerging e-commerce channels are treated as “an exception,” which ultimately limits growth and causes more errors.
Impact of Growing E-Commerce Channels on Parcel Shipping Each different e-commerce model, as well as the partners within each model, will drive separate (and sometimes unique) requirements on the pick, pack, ship process. Looking across the order management for each e-commerce model, you can see the areas impacted in the table to the right. This table provides some examples of the different requirements. Drilling into some of these will help highlight the challenges. More mature companies that have grown through traditional sales channels but are now adding and rapidly growing their e-commerce channel have to constantly assess the shipping options they provide their customers, balancing the marketing need for “free” shipping with the consumer expectations of delivery times. Since the recession of 2008, consumers have shown to be more patient, not to mention cost-conscious, resulting in the growth of services such as UPS SurePost, UPS Mail Innovations, and FedEx SmartPost. A consumer-oriented e-commerce channel tends to drive higher order volume with more single item orders. If this is added into an existing traditional business, it has implications on the picking and packing process. For ex-
e-commerce site Multiple shipping
Wider Order Mix
Cost effective residential deliveries
Heightened consumer expectations
Branded pack slips
Selling through Retailer
Third party accounts
Advanced Ship Notices
er, as their brand is more recognized, their wholesale orders will increase, similarly adding to the complexity. Marketplaces are one of the fastest growing segments, but can also be the most challenging for more mature businesses. Typically, there are mandated rules for being a supplier on these marketplaces, such as maximum shipping costs that can be charged, fulfilling orders and updating status and tracking in a timely fashion, or consumer feedback and ranking issues. Groupon is one of the newer models in this segment and they require a Groupon-branded pack slip. While the order volumes are welcome, fulfilling a spike of 300-400 Groupon orders within two days can be daunting for a business that normally fulfills 100 orders per day. Finally, while selling through large retailers can be a huge opportunity, the expectations and requirements can be intim-
in and of themselves can be complex for a smaller business. However, when mixed in with all of the requirements across channels, they can lead to costly errors, delayed shipments, and additional labor costs. 4 Steps to Ensure Your E-Commerce Is Connected to Parcel Shipping Given the options and requirements discussed above, the need to connect your e-commerce processes with your parcel shipping will result in: } Meeting your customers’ heightened expectations on delivery, tracking, and visibility } Controlling shipping and warehouse costs while supporting e-commerce volume growth } Scaling up for peak periods without extensive training } Adding new e-commerce channels without major impact to existing sales channels In order to attain these benefits, you should: 1. Make a list of all the channels you serve 2. Document whether there are there channels that you treat as exceptions and why 3. Review the channel exceptions to determine the manual steps (creation of branded Groupon pack slip, creation of an ASN, etc.) and process inefficiencies 4. Automate the manual steps by integrating your e-commerce orders and process into your ERP/accounting and shipping software Focusing on the exceptions may seem counter intuitive, but while they may only make up 5-10% of your orders, they probably also make up 70-80% of your errors.
ample, batch picking versus master picks by item, etc. Alternatively, companies “born on e-commerce” have mastered the fulfillment of e-commerce orders. Howev-
idating. Advanced Shipment Notices are mandatory and, depending on the fulfillment model compliant labels, pack validation is often required. These requirements
BRIAN HODGSON is VP Sales & Marketing, Oz Development Inc. MARCH-APRIL 2014 | www.PARCELindustry.com
ARE YOU PREPARED? Aligning Your International Shipping Strategy for Your Global E-Commerce Business | You’ve launched your e-commerce site and the orders are starting to roll in — from all over the world. How prepared is your company to ship products overseas? 20
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etting your shipping operations export-ready makes good business sense. According to the U.S. Chamber of Commerce, 95% of the world’s consumers live outside the United States. However, if you want to build a sustainable international customer base, preparation is critical. As many businesses are discovering, launching an e-commerce site can result in a sudden explosion of overseas orders. It doesn’t take many additional orders to cause a bottleneck in shipping and potentially unhappy customers. Following are some practical tips to consider in ramping up your export shipping operations.
By Bob Fischer
Evaluate Your Systems’ International Readiness If your goal is to attract international customers, it’s important to audit your existing systems to determine if they are capable of capturing and managing international data. This may sound like a given, but many USbased companies are still managing their operations on older business systems designed to handle largely US-based orders. Assessing your systems’ export readiness will require input from every department that deals with the processing of a sales order — sales, finance, operations, logistics and customer service. } Do your financial and order entry systems accommodate multiple curren-
eliminating the need for staff to move between multiple systems and manual processes to complete an order. Other savings can be gained implementing a solution that includes options such as:
cies and international address formats? } Are you able to store additional product information such as Harmonized Tariff Schedule numbers? } Does your shipping system allow you to load all your international carrier rates and services? } Can your systems produce the necessary export documents required for each country you plan to ship to? These are just a few of the questions that need to be addressed. In addition to your internal team, you’ll want to also invite your systems vendors to participate in this process. They will be able to provide the additional details regarding your system’s current capabilities to handle international data requirements. Ideally, they should have experience in dealing with international orders and shipments, and provide you with technical resources who have actually worked on implementations that include international elements.
Create an Export Order Workflow Another best practice is to map out your most common export order scenarios and walk them all the way through the order placement, picking, packing and shipping process, including all the necessary documents that will be needed for that order. We’ve seen companies make the greatest gains when they document their order scenarios in this way. It enables them to identify information or processing gaps,
resolve them and then create an integrated order-to-shipping solution in which country-specific and customer-specific business rules are embedded into their systems. This means sitting down with the team and determining all of the order handling, shipping decisions and document requirements that could be automated. This approach not only accelerates order throughput by eliminating many manual processes typically found in export shipping operations, but it also guarantees that orders are handled correctly, efficiently and consistently. Time and labor savings can be tremendous. A medical products company, for example, was able to reduce international shipment processing time by 80% by automating their workflow in this manner. Meanwhile, an electronics manufacturer created a specific order workflow for each of their top customers and countries — a total of 30 different shipping scenarios in which they had to comply with country-specific and customer-specific requirements. With these workflows serving as a blueprint, each scenario’s business rules were embedded into the order and shipping systems. Now, carrier selection, rating, routing and document generation are all handled by their systems. Their international shipments are processed on the same line as their domestic shipment — and in a matter of seconds.
A Multi-Carrier Shipping System for Greater Cost Control If you’re using multiple carriers, you’ll gain the greatest financial benefit by implementing a carrier-agnostic, multi-carrier system that will allow you to automatically compare international carriers’ shipping rates, services and times in transit. The most robust systems will also enable you to generate all carrier-compliant documents as well as additional export documents,
} Freight consolidation — Some solutions also offer the capability to auto-detect shipment consolidation opportunities by customer and by country. } Easy addition of carriers — The most robust multi-carrier solutions will have a full library of carriers that can be easily added to your system. You may find international carriers who meet your service requirements for a much lower rate. } AESDirect Filing — You can dramatically reduce the time your staff spends on AESDirect filing if your shipping system can be configured to automatically initiate the process.
Bottom line: You can’t afford not to develop an international shipping solution Once your e-commerce presence is established, order volume can grow rapidly with little warning. Equally important: today’s e-commerce customers are growing more sophisticated all the time. As Frank Cebello, Executive Director of the U.S. Postal Service’s Global Management Group noted, “As the e-commerce market has gotten exponentially more sophisticated, customers are demanding faster service, more visibility and tracking, and more delivery options for less cost.” How well you are able to respond to new international customers will have a direct impact on the sustained growth of your international business.
BOB FISCHER is the founder and CEO of Advanced Distribution Solutions Inc. (ADSI), provider of multi-carrier shipping software systems for domestic and international shipping. Visit www.ADSIonline.com for more information.
The USPS: A valuable player in the international arena? It’s true! Scan the QR code to read more!
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re companies ready to take advantage of a potential growth opportunity in order to meet customer demand? Coupled with this question is the concern that without added operational efficiencies, will our US-based companies be able to compete with overseas companies who are capable of providing lower costs? The slow but steady growth forecast is a window of opportunity that offers companies the time to develop and execute plans in order to improve efficiencies. Improving efficiencies allow organizations to not only prosper, but to improve customer satisfaction levels by providing 22
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the optimum customer experience. Today, that means offering same day or next day delivery, free shipping, hassle free returns, and always “in stock” inventory. An optimum means of reducing costs to help pay for these services is through cost effective order picking and fulfillment operations. Consider that in warehouse and distribution center operations, storing and distributing goods are non-value added functions, and the cost of order picking is estimated to be as much as 55% of the total warehouse operating expense. The cost of these functions can be reduced by streamlining manpower requirements, minimizing inventory and by increasing throughput. In effect, doing more with less.
The cost of your warehouse picking, packing, sorting and shipping operations can be dramatically reduced over time by utilizing technology. Utilizing technology allows an organization to reduce its labor, floor space and inventory levels while increasing accuracy and extending order cut-off times. Let’s start be breaking down your facility into specific functions. Bulk storage, order picking, order packing, and shipping are generally good places to start. Next, consider simple technologies to begin with such as pick to light, carousels, vertical lift modules (VLMs) software, weigh scales and manifest and document printers, just to name a few. But the question still remains, “What type of
Building a DECISION MATRIX to Improve the Efficiency of Order Fulfillment Operations By Ed Romaine
system or equipment is best for my operations and business?” This is where using a decision matrix becomes important.
WHERE TO START? The choices may appear confusing and overwhelming at first. However, by creating a decision criteria matrix, you can analytically measure and evaluate your options to be assured of making the right decisions. A decision matrix is a list of values in rows and columns that help identify, analyze, and rate the performance of relationships between sets of values and information. Options are scored and totaled to gain a score that can be ranked. The matrix will help you zero in on a system, or combination of systems, that can sig-
nificantly reduce costs, improve efficiency and influence bottom line profitability. The critical consideration is to utilize the type of equipment and systems that meets your facility’s specific needs and objectives. As an initial step in creating a decision matrix, do some homework. Determine the strengths of your company and also areas where your company may need to improve. Is your company known for innovative product design, just-in-time manufacturing, on-time delivery, or fast order turnaround? In what areas would your company like to improve? Better throughput, more efficient operation, faster deliveries, or fewer returns? What are the marketplace challenges facing your company? What is your company’s market share? Who is your competition and how do they differ from your company?
Now is the time to prepare the actual decision matrix by first identifying criteria that are important to meeting order fulfillment goals and business objectives such as scalability, system flexibility, improved productivity, increased throughput, improved accuracy, fast installation, floor space savings, ergonomics, meeting green and/or lean initiatives. Evaluate these criteria vs. qualitative factors such as not important, important, very important, and must haves.
EXAMINE AND EVALUATE Examine and evaluate a variety of materials handling and logistics management systems to determine if they meet system criteria. List the types of order picking systems and equipment on the left hand side, or vertical axis, of the matrix. Across the top of the grid, list the selection cri-
Once you have selected a system, it’s good practice to get a rough idea if it is realistically possible for your organization to economically utilize this system. Is the market open to more competition? Define your customer base. Who are your potential customers? What makes them prospects? Who are your customers and what types of businesses do they provide? What are your customers’ expectations? How do your customers expect to receive products, and in what initial time frame? The way to gather this information is to interview your own management, particularly marketing and sales staff. Their input, along with input from executive management, will help you build a model of your company’s relationship with its customers. Visit your customers’ websites to get a sense of how they position themselves to their customers. Also, visit the websites of trade publications that cover your markets to learn about market trends. Armed with all of this valuable information, you can create a statement that answers the question, “Is there a better way to deliver my product, and meet my company’s business objectives?”
teria. The criteria should be “things” that are important to your operations and overall success of the operation. For example, if a primary concern is running out of space, then floor space requirements would be top criteria. Reducing labor, improving worker ergonomics, sustainability, reduced training, future flexibility/growth, ability to repurpose the equipment, longevity and speed of implementation… well the list can go on and on. List everything by importance. While working on this, if additional criteria comes to the surface, no problem. Add it, and simply evaluate the equipment and technologies you have already completed. This is a flexible methodology and tool designed to help build decisions and validate answers. Once your grid is complete, use a scale from 1 to 5, and rate each system based on how well it meets that specific criteria. Total the ratings. The systems with the highest totals may be the systems that MARCH-APRIL 2014 | www.PARCELindustry.com
(Illustration 1) In this example, the different zones were identified and the options listed and then graded in the matrix vs. the criteria. The grades will be subjective based on every organization’s exact needs, but this method provides a quantitative decision process which can be used by a group. In this actual case, the company went with two zones of horizontal carousels and one RF pick to belt zone for its order picking. In the consolidation zones, one horizontal carousel system and a reverse flow rack system were used for the two zones.
can best meet your organization’s order picking and fulfillment needs. If there are some criteria which are more important than others, you can also give a 1 to 5 weight for each criterion. This makes one criteria “more important” than another.
FOR EXAMPLE To see how the criteria matrix works in action, let’s review an actual matrix done by a leading beauty products distributor (illustration 1). They were concerned that their current manual order picking systems and processes would not allow the company to effectively compete against their growing competition. Company management determined that selection criteria needed to improve employee productivity, increased picking throughput, high accuracy levels, improved ergonomics, and space savings were the primary objectives in determining the right system. They grouped: improved productivity, increased throughput and high accuracy as “must have” features with improved ergonomics and space savings as “important.” In building the decision matrix, the company listed various types of equipment and systems down the left hand side of the grid. Included in their list were vertical carousels, Vertical Lift Modules (VLMs), horizontal carousels, pick-tolight system, pick modules, RFID picking zones, consolidation zones, and conveyor system. Across the top of the grid, they listed the selection criteria. Using a 1 to 5 scale, they assigned values to each device. Those devices that received the 24
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highest totals were horizontal carousels, RFID pick zones and consolidation zones.
PROVING SYSTEM VIABILITY Once you have selected a system, it’s good practice to get a rough idea if it is realistically possible for your organization to economically utilize this system. There are three major variables that influence price: throughput, space and budget. Each factor has a direct influence on the other. As the system purchaser, you can usually control two out of the three points. The best advice is to evaluate the three-choice approach to see if the type of system you have in mind will work for your organization. This process will help you refine the parameters of your choice and select the system that fits your real world situation.
RETURN ON INVESTMENT In all cases, it’s a must-do to compare the efficiency and operating costs of any materials handling process improvement project and determine their ROI/IRR (Return on Investment/Internal Rate of Return). This should always be one of your primary criteria. General accounting practices say any investment with an internal rate of return over five provides immediate value back to the organization.
ROI CONSIDERATIONS: } Amount of floor space occupied by current equipment } Cost per square foot } Number of employees handling transactions
} Number of daily transactions } Average labor costs } Value added opportunities. With the space and labor you save what revenue generating activities will be created. Rigorous ROI/IRR analysis can financially “prove in” your system choice, assuring you that you have made the correct system selection to improve materials flow and meet business objectives. Improving materials handling processes is one of the fastest ways to reach these objectives. The resulting improvements in the throughput, productivity, accuracy, and general efficiency of any materials handling and order picking and fulfillment operation have a direct effect on your organization’s bottom line, as well as your organization’s market share. As always, business is about selling, competition and market share, but today, these factors are even more challenging in a shifting global economy. By building and examining your direct matrix analysis, materials handling process improvement offers a valuable solution to reducing operating costs while enhancing quality and customer service.
ED ROMAINE is the CMO-VP Marketing for Integrated Systems Design - ISD, which provides consulting and integration of cost effective automated order picking, packing and shipping systems for warehouses, distribution centers and manufacturers. He can be reached at email@example.com, or 215.431.4524. Visit their website at: www.ISDDD. com or https://plus.google.com/+EdRomaine
Discover Eii’s Rapid Parcel Processing Solutions Engineering Innovation, Inc. (Eii) is a market leader in the development of workflow automation equipment and solutions for rapid package processing. Eii’s hardware and software systems enable clients to enhance effectiveness while reducing shipping and operational expense. Our portfolio of Eii solutions includes products for letters, flats, and parcels. Our newest product, the EZ-WorkDesk, is a low entry cost machine that includes OCR technology for rapid IMb/IMpb production, configurable Wide Area Bar Code Reader to capture barcodes, single and two-sided label technology, and a dimensioning feature to read length, width, and height. The EZ-WorkDesk integrates data conversion tools to capture information from multiple platforms and warehouse management system environments to generate shipping labels on demand. In addition to being feature-laden, the EZ-WorkDesk offers elegant simplicity as a parcel processing solution. The EZ-WorkDesk is designed to scan the address block and barcodes of a package, capture its weight and dimensions, then communicate the results to your business logic. Software immediately interprets package data for labeling, routing, postal documentation, and customer billing. Once the piece information is processed, a label is printed, featuring the IMpb (Intelligent Mail Package Barcode). The EZ-Flats, our signature product, offers a solution for obtaining automation postage discounts from the USPS in the most efficient way. EZ-Parcels builds on EZ-Flats to offer an automated package induction machine that integrates EZ-Confirm, Eii’s web-based delivery confirmation software, dimensioning, a conveyor system and automated label applicator, and optional barcode verifiers. Additionally, the EZ-Parcels can function as a scan, print, apply (or SPA) application, which cater to fulfillment, consolidators, mailers, return package processors, and shippers. As a SPA application, the EZ-Parcels reads a barcode that contains a piece ID from a warehouse management system, and then passes this information to a customer-supplied business logic engine. That engine uses the piece ID to determine which carrier will be used to ship the piece and returns a label form to be printed and routing information or the carrier. Discover how Eii’s products integrate and work together in the Eii One MailRoom. Eii’s flexible modular approach affords growth opportunities through solutions from enhanced manual
workstations to fully automated OCR/Barcode/Sorting equipment. For jobs with multiple mail streams, multiple mail types, and multiple customers, the Eii One MailRoom offers a solution with One Touch.
765.807.0699 firstname.lastname@example.org www.eii-online.com
Carrier Contract Analysis & Negotiation Saves over $10 Million Annually The Opportunity A multi-billion dollar private equity firm has a diverse portfolio of companies that ships almost $600 million through parcel, truckload and intermodal services. The firm was interested in leveraging the total transportation spend across the participating brands to drive additional cost savings. With such a diverse group of participating portfolio companies, the individual needs of each entity had to be balanced and carefully managed. Due to the large number of holding companies and carriers involved, significant data needed to be analyzed. In addition, the parent company’s own needs and corporate cultures needed to be addressed while the participating portfolio companies were largely concerned with maintaining operational positioning and optimizing the cost reduction for their own entity. The company engaged enVista for Contract Analysis and Negotiation services to address its diverse modal needs. As part of the new agreements, the equity firm required updated routing assignments and maintained carrier service levels. enVista’s close attention to detail, diligent project management, and open, frequent communication throughout this process saved the company over $10 million annually.
The Benefit of Engaging with a Third-Party Service When portfolio companies’ shipping metrics are divergent, as they often are in private equity and venture capital engagements, developing a negotiation strategy that meets the needs of individual companies is critical. Since companies’ cost drivers differ, a single strategy is not always the optimal solution. enVista’s ability to provide the necessary data analytics to evaluate the validity of a single- or multi-prong strategy led to superior contract analysis and negotiation results. In addition, when equity firms with multiple operational companies are involved in a negotiation, an expert and objective third-party can better manage the process and streamline communication between the equity firm and the carriers. Using enVista as this third-party also meant that each individual operating company’s shipping data and information remained confidential. With enVista acting as a facilitator, each group could individually and confidentially identify their distinct operational issues.
that met the individual needs of the participating operating companies as well as achieving the objectives of the parent entity. Improvements were made to the agreements for all modes, providing the client with extra protection from rate increases, improved adherence to best practices, and better insurance and indemnification terms. The truckload and intermodal participants also significantly reduced the number of total carriers through enVista’s selection process. In addition to analyzing the client’s freight transportation, enVista also negotiated new parcel agreements. Deploying a proven analysis methodology, enVista successfully exceeded the project goal to reduce overall cost without negatively impacting service. In total, enVista saved the client more than $10 million in annual shipping costs. Dozens of project deliverables included a pro-forma truckload agreement, the final negotiated agreements, shipper-specific parcel, truckload, and intermodal analyses, and final negotiated rate sheets. For more information on enVista’s Transportation Spend Management solutions, please call 877.684.7700 or contact info@ envistacorp.com.
The Result Multiple operating company engagements are challenging by nature. The number of stakeholders involved, as well as divergent shipping models and corporate goals makes a project of this nature especially complex. enVista expertly developed a strategy
877.684.7700 email@example.com www.envistacorp.com
PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D
Damages, Damages, Damages n this installment of PARCEL Counsel, we will take a look at the term “damages” and how it is used in legal matters. Generally speaking, the term is applied to the injuries or loss sustained by one person as the result of the negligence or contractual breach of another person. However, there are many subcategories of the general term. It is my sense that many readers of this column have encountered these terms from time to time, but may be unsure as to their exact meaning in a legal context. Here we will focus on those most often encountered by business persons and, in particular, by transportation professionals.
THE STARTING POINT The terms actual damages, compensatory damages, direct damages, and general damages all refer to the same type of damage — those which directly relate to the loss. An example of this in transportation matters would be when a carrier loses a shipment with a value of $1,000.00. The shipper would be entitled to its general (or actual, compensatory, or direct) damages in the amount of $1,000.00.
AND PAY THE CONSEQUENCES? In contrast to this are consequential damages, also referred to as indirect or special damages. These are damages that do not flow directly or immediately from the loss. An example of this in transportation matters would be where a manufacturing facility had to be closed for several weeks because a replacement part for a critical 28
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piece of machinery was delivered late. Whether the loss sustained by a person is in the nature of general damages or in the nature of consequential damages is a critical distinction. This is because once a party, such as a shipper, can prove that the other party, such as a carrier, is responsible for the loss, the first party will be entitled to recover its general damages… but may or may not be able to recover its consequential damages. As a general principle, consequential damages are only recoverable if they were reasonably foreseeable and/or were contemplated by the parties. If not reasonably foreseeable, they may not be recovered. Although there is general agreement as to the definitions of general and consequential damages, when applied to a particular set of facts it is often not at all clear as to whether or not the damages were sufficiently foreseeable as to make them recoverable. This is a very subtle distinction. In transportation matters there are almost always collateral problems arising when a shipment is lost or damaged. If the parties are unable to settle their dispute, it will require a court or jury to make a factual determination as to whether or not it was, to coin a phrase, “foreseeable enough to be foreseeable.” After having thought about this quite a bit, I believe the most critical aspect of making this determination is whether both parties were aware of the potential for certain specific consequential damages to arise.
STOP!! The third category we will consider is that of irreparable or non-pecuniary damages. These are damages that cannot be remedied by the payment of a sum of money.
This term comes into play when a party is seeking an injunction, that is, an order from the court enjoining (compelling) another party to do or stop doing something. One of the elements that must be proven in order to obtain an injunction is that there will be irreparable damage to the party seeking the injunction if the conduct sought to be enjoined is not immediately stopped. An example of this would be a company seeking an injunction to enforce a non-compete provision in an employment contract. To obtain the injunction the company would have to prove that if the alleged violation is not stopped now, the diversion of customers and sales would cause it to suffer irreparable damage while waiting for the matter to be tried in court years later.
SWIMMING WITH THE SHARKS In the next installment of PARCEL Counsel we will look at liquidated damages. Interestingly, a loss which might be considered liquidated damages as between a seller-consignor and a buyer-consignee could at the same time be in the nature of consequential damages as between a carrier and its shipper customer. To conclude, I would like to take this opportunity to acknowledge the invaluable assistance in the preparation of this column, as well as previous columns, of the Research Librarians at the Hennepin County Law Library located in Minneapolis, MN (https://hclaw.co.hennepin.mn.us/).
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 in the “Content Library” on the PARCEL website (www.PARCELindustry.com). Your questions are welcome at firstname.lastname@example.org.
WRAP UP BY MICHAEL J. RYAN
Back to the “Parcel” Future t’s 2034, and I just made a trip back to 2014. I can’t believe that we used gasoline to run our delivery trucks back then. There also seems to be a lot of “manual” labor that is used in the distribution of parcels. There are a couple of things that are still common… Amazon was around in 2014 but is the largest delivery company in the world now. FedEx, UPS, DHL and the USPS are still around and do a good job but are much smaller than Amazon. So what happened? It appears that Amazon was a future-thinking company and was keen on getting closer to the customer. It has developed a distribution network that allowed it to create its own delivery network and capitalized on the e-commerce platform. In 2034, it offers a valet delivery service based on when the consumer wants the parcel… it has learned how to offer convenience to the buyer in receiving their goods. It has also partnered with local delivery companies that cover areas that it cannot effectively do with its own fleet (and all of the vehicles are electric). The last 20 years have also changed the ways e-commerce is conducted. The world is smaller and anyone in the world can ship a product to anywhere in a couple of days; DHL seems to be the big winner here. As the savvy buyer has learned, they don’t care where the product comes from but want a good
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price point and quick delivery. By the way, the world now offers “free shipping,” which we all know does not exist. There are two distinct e-commerce models that have developed over the
exist anymore. It was on-time or late… no grey area. Well, I need to get back to 2034. We have come a long way since 2014. As a shipper or delivery provider, start to
As the savvy buyer has learned, they don’t care where the product comes from but want a good price point and quick delivery. past 20 years: the Near Shipping Model (Amazon) and the Global Shipping Model (rest of world). In the global shipping model, there are sophisticated apps that allow the buyer to speak into their phones and search for the best total landed price. All the buyer needs to do now is say “buy” and the phone does all of the work. The buyer gets updates based on pre-set preferences and has an expectation of when they will receive their purchases. If they do not have a good experience, the seller takes a performance hit on a rating system and will be banned if they don’t keep a 98%+ rating. The standards in 2034 are much higher than 2014. The new buyer has high expectations and will not settle for anything less. The parcel companies have learned to overcome natural disasters, bad weather, political unrest and anything the world throws at them. The old “service exceptions” list does not
think how you can re-invent yourself for the future. The world is changing rapidly and the winners will be ahead of their customers.
MICHAEL J. RYAN is the Executive Vice President –Parcel Solutions at Pro Star Logistics and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael. email@example.com.