THE WEB-CENTRIC WAREHOUSE: ADAPTING TO OUR NEW 24/7 REALITY.
BEST PRACTICES TO EASE YOUR INTERNATIONAL SHIPPING PROCESS. P 24
NINE STATEMENTS ABOUT HOME DELIVERY THAT COULD BE COSTING YOU MONEY. P 26
ATTACK THE DATA, NOT THE DIVISOR: LOOKING AT NEW WAYS TO CONTROL DIMENSIONAL WEIGHT. P.18
CONTENTS MARCH-APRIL 2015 | volume 22 | issue 2
Departments 06 Editor’s Note
Keeping Up with the Changes By Amanda Armendariz
07 Transportation ABCs Packaging Procurement in a DIM World
By Kenneth Moyer
08 Ship Right
From Clicks-to-Bricks — How Retailers Are Redefining the Customer Experience
By Christoph Stehmann
10 Supply Chain Pivot 18 Attack the Data, not the Divisor
Parcel shippers look at new ways to control dimensional weight. By Brittany Beecroft
Selling Is Always the Best Way to Boost Revenue
By Rob Shirley
12 Spend Perspectives Carrier Rate Increases Outpace the Economy
By John Haber
14 Supply Chain Success
DIM Weighting: It’s Not Just Ground By Joe Wilkinson
22 The Web-Centric Warehouse
24 International Shipping:
Logistics ‘Best Practices’ Can Add Greater Efficiency
Adapting to the 24/7 business cycle.
The Affordable Answer To Dim and Weigh Parcelcube
17 26 “SHIP” OF THE TONGUE:
The 3 Keys to Successfully Managing Customer Shipping Expectations Stamps.com
Carrier Contract Analysis & Negotiation Saves over $10 Million Annually enVista
MARCH-APRIL 2015 | www.PARCELindustry.com
By Susan Rider
29 PARCEL Counsel
By Will O’Shea
Justifying and Getting Your Improvement Projects Approved
By John Costanzo
By Kray Kibler
Nine statements about home delivery that could be costing your company money.
16 Operational Efficiencies
The Foreign Corrupt Practices Act: A Further Look
By Brent Wm. Primus, JD
30 Wrap Up
Free Delivery: It Is Here to Stay By Michael J. Ryan
COMING NEXT ISSUE } Who Are Your REGIONAL CARRIERS } Exploring Your WMS Options
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cierra bauer kelli cooke ken waddell
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EDITOR’S NOTE BY AMANDA ARMENDARIZ
Keeping Up with the Changes t goes without saying that the small shipment industry is vastly different than it was even five years ago, not to mention 20 years ago. The other night, my daughter’s music teacher (a woman in her early 60s) was talking to some of the other parents after class. I’m not sure exactly how the subject came up, but she was mentioning how years ago, it was not uncommon to receive a catalog in the mail, fill out the order form (by hand, of course), mail it back in with a check, and then wait six to eight weeks for the item to arrive. That made me think of when I was a teenager, watching TV after school, and getting so excited about infomercials for cosmetics, shoes, or whatever piqued a teenage girl’s interest, especially when those products were promised to arrive in only two to three weeks! Amazing; what an improvement from when my mom was young! I remember snatching up my phone (a landline, of course — my cell phone had very few minutes since it was only for emergencies, as was the case for most of us when cell phones first came out), placing the order and then rejoicing when the packages showed up a mere two weeks later. If six to eight weeks (or even two to three weeks) was the standard delivery time now, most companies would be laughed out of business. Sure, it’s still possible (I ordered a new dining table to better fit in our new home and it arrived about three weeks after placing the order online) but for the most part, when people place an order online, unless it’s a specialty product, they expect it to arrive within two to three days, not weeks. Companies that can’t keep up risk losing a customer for good. But how to adapt to all these changes, especially when they are happening so rapidly? Check out our feature on page 22; it gives great insight into making sure your warehouse is aligned with the new 24/7 cycle that is our reality. Just by implementing some changes regarding the way you staff your warehouse, for example, can make a huge difference. And if you want more information on the changes affecting us, be sure to check out the rest of the features in this book; we cover everything from how the new dim weight changes are affecting shippers, to shipping internationally, to mistakes made during the home delivery process that could be costing you money. And of course, I’d like to take this opportunity to remind you to register for the 2015 PARCEL Forum, held October 19-21 in downtown Chicago. This promises to be another great show, so I hope to see you there!
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TRANSPORTATION ABCS BY KENNETH MOYER
Packaging Procurement in a Dim World ontaining annual shipping cost increases has traditionally been the responsibility of Shipping, Transportation, and Logistics professionals. In 2015 and beyond, packaging and carton procurement professionals, with an assist from warehouse and packing personnel, will play an increasingly important role. As most shippers are by now fully aware, UPS & FedEx have changed their DIM Weight practices by removing the previous 5,184 cubic inch exemption. This change has effectively increased the rates on an entire swath of previously exempt packages. As the calendar turned to 2015 and shippers began to feel the full weight of the increase, they are seeking ways to mitigate a portion of this threat to their bottom line. One very effective tool lies in packaging and carton procurement. Procurement Departments have long kept packaging costs down by limiting the number of box sizes they order. This allows shippers to capitalize on volume discounts, helps speed pick and pack operations, and helps prevent package inventory shortages. This practice often leads, however, to packages being shipped with considerable excess space around the product. This space is often filled with packing materials and was
previously of little concern, especially for smaller weight shipments. In this new DIM world however, this excess space could prove very expensive. Let’s look at an example. This package was recently shipped via UPS. The outside package dimensions are 18” X 12”X 9”, a package that was previously not subject to DIM Weight (18 x 12 x 9 = 1,944). The package’s actual weight was 3lbs. At UPS published rates, this package to zone 5 would cost $9.15 without the DIM application. After DIM Weight is applied, this package now is subject to a billed weight of 12 lbs., and will cost $11.45, a 25.1% increase.
additional packing purchasing cost, and will cause warehouse and shipping operations to store, monitor and utilize more box sizes than in past years. However, the shipping cost reductions should far outweigh these considerations. In walking the floor at last year’s PARCEL Forum, it’s evident that companies are creating more cost effective, yet robust solutions to offer additional options. As an alternative to doubling or tripling the number of boxes that are stocked, solutions include using corrugated boxes to “cut down” the size of the box, investing in machinery that builds custom boxes on site based on the commodities shipped, and considering alternatives such as padded envelopes for smaller items. Combined with utilizing effective packaging material, these options along with others should all be considered. So remember, the first line of defense against increased DIM charges in 2015 may not be the shipping department, but packaging procurement. ¾
So remember, the first line of defense against increased DIM charges in 2015 may not be the shipping department, but packaging procurement. Approximately 50% of this carton’s volume consisted of air-filled packing materials and 25% was empty space. Prior to 2015, this practice would probably have proven cost effective, as the unused volume would have had no financial impact. This is no longer the case. Shippers must now rethink their package procurement practices to reduce the amount of unused space per carton. Increasing the number of cartons available for packaging, reevaluating current product sizes, and more closely coordinating outgoing carton size with actual product size, are effective ways to reduce the burden of the new DIM Weight changes. It is likely this approach will add some level of
KENNETH MOYER serves as Vice President of Supply Chain Strategies with LJM consultants. He brings over 23 years of industry experience, including a 16year multidisciplinary tenure at UPS. Kenneth spent almost 10 years in the UPS Sales & Pricing Groups; developing, analyzing, and implementing UPS Pricing and Costing Models. He has spent the last 9 years directing audit and contract negotiation activities to maximize client value in every transportation dollar. You can contact Kenneth at 631.844.9500 or kmoyer@myLJM.com.
MARCH-APRIL 2015 | www.PARCELindustry.com
SHIP RIGHT BY CHRISTOPH STEHMANN
From Clicks-to-Bricks – How Retailers Are Redefining the Customer Experience few decades ago, retailers relied solely on opening physical stores to sell their merchandise and launch their brands. To compete, retailers and marketplaces like Amazon and eBay countered this trend by opening online storefronts, giving time-strapped consumers a new way to conveniently shop and have goods delivered. Fast-forward to today and the vast majority of traditional retailers are all online. However, a new strategy that is continuing to gain traction is more savvy online retailers are opening brick-and-mortar stores to offer a hybrid shopping experience by connecting both physical and digital interactions. To build a successful clicks-to-bricks strategy, fulfillment and delivery are critical. More consumers will continue to shop online. This is a trend that will not be broken. However, by offering store pick-up, retailers can drive online traffic to physical stores, providing add-on and up-sell opportunities. Also, shipping matters when it comes to buying decisions. Therefore, retailers should offer flexible shipping options for direct delivery and even same day delivery to help build customer loyalty. When a brick-and-mortar store becomes a mini warehouse and fulfillment center, it’s critical to have robust inventory and shipping management systems that integrate with order processing and routing optimization. Retailers should work with multiple couriers and regional carriers that can cover smaller areas so they can provide more ground-delivery options. 8
MARCH-APRIL 2015 | www.PARCELindustry.com
Physical stores can also help serve as showrooms and drive purchasing decisions. TWO FLAVORS OF CLICK-TO-BRICK STORES There are two main flavors of click-tobrick stores: POP-UP STORES — Temporary shops or “popup stores” allow retailers to reach customers in various locations over different time periods to test concepts and sell merchandise. Zappos opened its first physical store last November in Las Vegas. The shop blended online and offline retail and was open 24 hours-a-day, seven days a week, from November 21 until December 31. If shoppers couldn’t find what they were looking for, Zappos offered them the same fast and free shipping options it offers on its website. Amazon also recently tested pop-up shops through kiosks in shopping malls in San Francisco and Sacramento so consumers could try its latest devices. Amazon’s pop-up shops emerged following wide-spread news reports last October that it would open a permanent store in New York City. The store would function as a mini-warehouse with limited inventory for same-day delivery, offer product returns, exchanges, and pickups of online orders, and serve as a distribution center for couriers. It would also likely one day feature Amazon devices. While we don’t know what the future holds for Amazon in the physical space, this offers a glimpse into how online retailers could shape future delivery models to reach consumers in local markets. PERMANENT STOREFRONTS — Warby Parker and Bonobos are two examples of retailers that have gone from clicks-to-bricks in
recent years. Trendy eyeglass maker Warby Parker opened its first physical store in New York City in 2013 after gaining a successful online customer base. They sell all of their boutique-quality glasses for $95 through their website and showrooms. Nonprescription eyewear can be purchased at their stores. Prescription eyewear is shipped to customers, which is the same for an online order. Fashion retailer Bonobos first gained recognition with its line of pants. However, when the retailer tried to sell shirts online in 2012, no one bought them. After customers kept inquiring about a place to try on their shirts, the retailer built a few fitting rooms in its office’s lobby. This spread by word-of-mouth. Today, Bonobos has 10 brick-and-mortar shops in the US and is planning to add more. Bonobos’s customer service model encourages shoppers to make appointments at their shops to try on clothes before ordering online. Serving as a virtual website, the brick-and-mortar stores offer one of every item to look at and try on in different sizes, styles and colors. There’s no inventory for sale in the store. Items are shipped to customers. LOOKING AHEAD As retailers continue to innovate and improve on the overall customer experience, how they cater to shoppers in the physical and digital worlds will continue to change. However, one thing remains the same — the key will be to offer a seamless shopping experience across channels and provide flexible delivery options. ¾
CHRISTOPH STEHMANN is Chief Operating Officer, Digital Commerce Solutions, Pitney Bowes.
Q: HOW MUCH DOES THIS 1-POUND BOX WEIGH? A: 11 POUNDS, IF YOU USE THE WRONG SHIPPING COMPANY. Something is different this year: Some shipping companies are trying to box you in by expanding their use of Dimensional (DIM) Weight Pricing. That means you pay for your domestic package’s actual weight or its dimensional weight — whichever is greater. For example, you could be billed the 11-pound rate for this 1-pound box because of its 12"x12"x12" size. That could get expensive. But you have a choice: The USPS® continues to offer a broad range of efficient and economical shipping options. Because we understand that one size does not fit all.
To weigh your shipping options go to usps.com/pickyouroptions
Privacy Notice: For information regarding our privacy policies, visit www.usps.com/privacypolicy. ©2015 United States Postal Service®. All Rights Reserved. The Eagle Logo is among the many trademarks of the U.S. Postal Service®.
SUPPLY CHAIN PIVOT BY ROB SHIRLEY
Selling Is Always the Best Way to Boost Revenue ne of the most fascinating thing about sales is learning something every single day about how to improve. First and foremost, people love to buy, enjoy good showmanship and hate to be sold a bill of goods. Most effective selling is blocking and tackling with a coordinated team effort as opposed to a one man statue of liberty play. If you are not thinking about sales and revenue, your competition is and may flatten you without you ever seeing it coming. The best sales people are completely honest and are incredibly effective at: 1. Discovering new markets 2. Selling additional features, products and services to existing customers 3. Finding new ways for different usage of existing products and services 4. Absorbing competitive strengths, reporting it quickly and determining how to adapt or reposition 4. Getting great referrals to more prospective customers 5. Making the firm more money than they are paid There are some exceptions, but generally sales people don’t like doing the same things your customers don’t really want: 1. Being a pest and calling on the client more than is reasonable 2. Dishonesty — including selling something that doesn’t perform well 3. Overselling and/or having to resell constantly because the competition is much better at providing the service or product 10
MARCH-APRIL 2015 | www.PARCELindustry.com
Clearly, big business understands the need for an extremely knowledgeable and capable sales team and has invested heavily to effectively compete. Generally, one of the original entrepreneurs at a small company is pretty good with customer interface, but there usually comes a time when they can’t squeeze a quarter of their time into the details of selling and that is a clear indication to hire sales professionals. Since you cannot manage what you can’t measure, there will need to be some systems in place that can actually measure and improve sales performance. This is much bigger than just the number of sales calls or revenue goals. Think about your firm’s strengths and play on them, then evaluate your weaknesses because some of them are the most valuable. For instance, if you are paying your drivers more than others, it could be positioned as a mega strength that you have the best drivers, which makes for higher quality, less turnover, better customer knowledge and how to help the customer. Make sure your drivers have a business card and at least their first name on the uniform (or hat). Campaigns should be considered quarterly with a revenue objective, measurement, spiffs for those beating goals and a formal name. I did a campaign once because we were on the brink of taking a competitor’s largest and most profitable account. Our entire team called on every one of their other accounts and gave them a mini-proposal with a dare for them to ask the incumbent competitor to match it. The competitor’s sales team was inundated with requests and they ignored their biggest customer. Essentially we smoke
screened our competition, and benefited by landing the target, gaining five additional accounts from them and received a bonus when their head of sales was asked to “pursue other interests.” My preferred steps in the sales process are called APPCOMM: 1. Approach — Plan carefully how to open the door (little things make a difference) and make sure you are polite to everyone, especially the receptionist. Sometimes the real influencer is not the “official buyer.” For instance, the CFO has a big say, but does way more than just logistics. Set up the meeting and cover every detail. 2. Present — This should be semi-customized, not off the rack and not so unusual that they are more fascinated with the media than the service/product you are presenting. Knowing this incredibly well is key. Build flex to expand or contract into your presentation flow. Control the presentation without being overbearing. 3. Propose — Give them something to work with that includes your features, your advantages and their benefits. Assume the doc will be shared in their organization. Set a timeline. 4. Consult — Ask questions, shape the solution to their needs, and provide the documents necessary (contract, rates, etc). Encourage them to ask them something from the incumbent competitor that is in your favor. 5. Objections — Anticipate these with strong data and logic to overcome. If you don’t hear an objection, you will not land the deal. This is where price comes in; if you are the highest price spread, justify why they need the best.
6. Motivate — Essentially means to close, now, not next week. Gain their agreement in the form of their signature. 7. Manage — This is the process to move the deal quickly forward. Involve invoicing, IT, their sales exec, marketing and every other department necessary at the client to get this moving forward with minimal friction APPCOMM works extremely well for small business, large corporations, products, services, solutions, high or low price, new or industry legends and to every targeted department. It is “The Process,” stick with it, refine it, but don’t add or subtract any steps. Honestly, it is easy to lull yourself into thinking you have seen it all. After 30plus years, I thought I had heard every single way to sell a mega deal and then I realized that what Google has done in Austin is stunning. Never mind that they have one competitor with one hundred
years of entrenched service literally hanging from every telephone pole named AT&T. Google introduced Google Fiber, which provides basic internet for free, and for a price they provide a full gigabit for web and tv. The governor of Texas, mayor and every other politician in sight have now compared it with the breakthrough of providing electricity to rural America. Competition heated up and matched Google’s prices (but not their finesse) and the roll out is moving forward with breakneck speed. Google has already connected to 25,000 poles with only about 150,000 to go along with 3,000 miles of cable. They have already done this in Kansas City and Provo, Utah, next are Nashville, Atlanta, Charlotte and Raleigh-Durham. How did they do it in Austin? They hired multiple very well connected politicians, engaged an excellent PR firm, donated more money to all politicians with their lobbyists and started inviting high profile people to major events. Totally coordinated, bril-
liantly executed and utilized time as a competitive weapon. With Amazon, Google, Walmart, Uber, Lyft and eBay joining the fray with FedEx and UPS, I believe we will see a revolution in service solutions that will smartly utilize technology, particularly mobile. Their services will become dominant and make it very difficult to alter. ¾
ROB SHIRLEY is CEO of ExpresShip, a strategic consultancy in the global supply chain. Contact him at email@example.com or visit www.xpship.com or check him out on www.LinkedIn.com.
MARCH-APRIL 2015 | www.PARCELindustry.com
SPEND PERSPECTIVES BY JOHN HABER
Carrier Rate Increases Outpace the Economy xpectations have been set that FedEx and UPS will raise Ground rates on an annual basis. This year, however, rate increases have a stronger punch especially when considering additional changes, which include recent modifications to fuel surcharge tables and the implementation of new Ground dimensional weight standards. Instead of blindly accepting these increases, shippers should instead be asking for justifications. Are there other options available for shippers? Since the “Great Recession,” the US economy has been operating in recovery mode, albeit sluggish at times. Unemployment is slowly declining, manufacturing production is positive, trade is improving and inflation has been minimal. Food, energy and medical care appear to be the primary drivers for inflation increases. Meanwhile, average daily parcel volumes for FedEx and UPS have steadily increased along with average revenues per parcel. For FedEx, average revenue per Ground parcel has risen from $7.70 for fiscal year 2009 to $9.25 for fiscal year 2014, reflecting over a 20% increase. UPS, although at a slower rate, realized average revenue per Ground parcel increases from $7.20 for its fiscal year 2009 to $7.85 in fiscal year 2014. When compared to the US Bureau of Labor’s CPI (Consumer Price Index), a measurement of inflation, average annual Ground rate increases have significantly outpaced the average annual inflation rate. 12
MARCH-APRIL 2015 | www.PARCELindustry.com
AVG PRICE INCREASE VS. CPI
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
The reality is that customers have realized much larger rate increases than what the carriers have announced. This is due to carriers strategically increasing prices much more in areas where shippers have the majority of their volume between one pound and 20 pounds. The Ground minimum charge which is the minimum cost per package that most shippers pay has increased by almost 30% over the last five years. In addition to average rates increasing at a higher rate than the CPI, fuel surcharges appear to be increasing the average shipping rates as well. In its recent earnings announcement, FedEx noted a decline in fuel surcharge revenues thanks to falling oil prices. As a result, it announced it would reconfigure its fuel surcharge, and effective February 2, 2015 the average rate increased from 5.5% to 6.5% for Ground Shipments and from 0.0% to 3.5% for Air and International shipments. Additional accessorial charges are also contributing to this increase in shipping costs. For example, UPS Domestic
Ground will charge $3.00 per request for excessive tracking, tracing and refund requests while FedEx Ground will charge $1.00 for use of its email return labels. This historical chart of accessorial rate increases for the last five years shows a much different picture than the CPI. Furthermore UPS plans to not only cut costs in 2015, but will also implement a peak residential surcharge. According to David Abney, UPS’ CEO, “pricing strategies will be designed to ensure we’re properly compensated for the value we provide.” While operating costs have indeed increased for both parcel carriers, profit has as well. Since fiscal year 2009, FedEx Ground has enjoyed a 16.4% CAGR increase in profitability from its Ground products whereas for the same period, UPS has seen a 13.6% CAGR increase in its Domestic Ground profitability. Annual rate increases, fuel surcharges, accessorial charges and DIM weight pricing are all adding up to huge headaches for shippers. Not only are these charges
GROUND MINIMUMS DOLLAR VALUE % CHANGE
2011 $5.17 N/A
2012 $5.49 6.19%
2013 $5.84 6.38%
2014 $6.24 6.85%
2015 $6.61 5.93%
5 YEAR CHANGE $1.44 27.85%
KEY ACCESSORIAL CHARGES DAS Reg- Ground Com
‘11 THRU ‘15 $0.40
DAS Reg- Air Com
DAS Reg-Air RES
DAS Extended-Ground COM
DAS Extended-Air COM
DAS Extended-Ground RES
DAS Extended-Air RES
% Change year over year % Change year over year % Change year over year % Change year over year % Change year over year % Change year over year % Change year over year % Change year over year % Change year over year
N/A N/A N/A N/A N/A N/A N/A N/A N/A
11.11% 11.11% 9.09% 8.11% 8.11% 8.33% 8.33% 9.09% 4.08%
adding to shippers’ general operating costs, but budgeting for these additional charges is difficult when many shippers
0.00% 7.50% 8.33% 0.0%
7.50% 7.69% 7.69% 6.67% 9.80%
3.50% 4.65% 4.62% 3.5%
4.65% 3.43% 4.29% 4.69% 3.57%
6.28% 4.44% 4.41% 6.28% 4.44% 4.97% 4.11% 4.48% 6.9%
22.22% 30.56% 29.09% 18.92% 27.03% 26.67% 26.67% 27.27% 26.53%
are unaware of the numerous charges. Many shippers whom offer “free shipping” may find they are no longer able to
do so and must come up with alternative ways of customer retention. As such, shippers need to review their contract and be willing to renegotiate. If all else fails, shippers should be willing to walk away and know there are alternative solutions to the duopoly. Among the alternative solutions are regional carriers, the USPS and modal changes to air, LTL, intermodal or a combination. Regardless, the need to have an optimized network is increasingly important in today’s changing business environment. ¾
JOHN HABER is an expert in shipping, freight and transportation spend management. In his current role he provides the vision, and the execution know-how, that helps companies save 10% to 20% or more in logistics spend. Contact him at firstname.lastname@example.org.
The Affordable Answer To Dim and Weigh An economical and convenient way to offset and manage some of the higher DIM costs is provided by Parcelcube. As the most cost-effective static cubing system on the market, Parcelcube is designed for the accurate and efficient capture of shipment and product data (relating to dimensions, weight and ID). Parcelcube is delivered as a stand-alone unit or with mobile cart and battery for warehouse inventory.
“The technical support provided by Parcelcube has been outstanding,” he said, “especially with all the assistance we needed when it came to using HTTPS services for the Electronic Data Interchange (EDI) link to our own software. We’ve found the readings to be very accurate, and the software provided with the device has also been excellent.” Parcelcube is designed so maintenance and calibration can all be done cost-efficiently though remote access support.
The device incorporates the latest sensor technology for accurate and reliable measurement. A standard PC interface and software enables real-time data transfer for seamless integration with almost any WMS or ERP system. Equally important is the technical after-sales support that Parcelcube provides for its clients — as Mr Ali, General manager at Viva Express in the UK, was keen to point out:
www.parcelcube.com 240.624.0001 email@example.com MARCH-APRIL 2015 | www.PARCELindustry.com
SUPPLY CHAIN SUCCESS BY JOE WILKINSON
DIM Weighting: It’s Not Just Ground any shippers we’ve talked to over the last several months have some basic misunderstandings about DIM weighting, and the resulting planning efforts are often leading them down the wrong path. Many shippers are planning, or have executed, a shift from Ground to Surepost/ Smartpost to avoid the DIM issue. Where UPS is the current carrier, there are some serious issues to consider. Surepost packages have been subject to DIM weighting for some time. However, the same threshold that was in place for Ground also applied to Surepost. If a package was smaller than three cubic feet, DIM weighting did not apply. UPS changed this in the 2015 GRI; removing the threshold so that now all Surepost packages are subject to DIM weighting regardless of size. This means that simple conversion from Ground to Surepost does not solve the problem. Certainly if your Surepost rates are lower than Ground, this strategy should reduce the impact, but most times the cost advantage of Surepost revolves around surcharges, not the transportation rates. So the cost/benefit equation is really no different now than it was pre-GRI. For FedEx the issue is simpler (for now). FedEx Smartpost packages are not subject to DIM weighting. Not only have they not removed the threshold, there wasn’t a threshold to remove as DIM weighting simply doesn’t apply to Smartpost packages. However, the industry consensus is that FedEx will move to implementing DIM weighting for Smartpost sooner rather than 14
MARCH-APRIL 2015 | www.PARCELindustry.com
later. The expectation is that FedEx will implement this change with the 2016 GRI if not before. And few would be surprised if the change was made mid-2015. Various regional / niche carriers handle DIM weighting in different ways. Spee Dee Delivery doesn’t DIM packages with a length + girth of less than 130 inches. While OnTrac’s Service Guide does not reference a DIM threshold, their standard DIM Divisor is still 194, giving them an advantage over UPS and FedEx. Standard terms and conditions vary across the regional players, but we have seen more willingness to accommodate shippers through contractual concessions from the smaller carrier than we have seen with the big two. And let’s not forget the USPS. At this time DIM weighting and cubic pricing is not part of the USPS’ standard pricing logic. While the USPS will occasionally propose contractual pricing based on package cube, this is not an issue for most shippers. This makes the USPS a viable option in mitigating the budget impact of the new DIM logic. The September 2014 rate cut at the USPS makes the USPS an even better option. However, shippers should bear in mind that a rate increase has been requested and, if approved, would make them less attractive than they are today. This brings us to the topic of negotiated concessions. Leaving aside the obvious operational options (carton studies, fill optimization, etc.), negotiated concessions are the most effective way to mitigate the impact of DIM weighting. Generally speaking there are four ways to approach this: DIM Divisor — All other things being equal, increasing the DIM divisor will reduce the DIM weight on your packages. What divisor do you need to eliminate the
impact of removing the threshold? That will vary from shipper to shipper, and will require careful analysis to quantify. Contractual Thresholds — UPS and FedEx have removed the 3 cubic foot threshold for Ground, and UPS has removed it for Surepost as well. But this doesn’t mean that thresholds cannot be implemented via pricing agreement. Both carriers have the capability to implement threshold logic in their pricing systems, so this is a legitimate option for most midsize-to-large shippers. Tiered DIM Structures — A final option is to negotiate a tiered DIM program. Usually this is set up such that packages below a certain cubic threshold would be subject to one DIM divisors, while packages above that threshold would be subject to another. An example is provided below: THRESHOLD
< 3 cu. ft. < 3 cu. ft.
Through other means — Most shippers are less concerned about why they are being charged than what they are being charged. Therefore, the carriers could offset the increased charges stemming from DIM weighting by offering concessions in different areas; be that transportation charges, surcharges, fuel, rebates, etc. With all of these strategies, play close attention to the term of the concession. It is common practice for both UPS and FedEx to offer these concessions for a one year term only, even when the agreement term is longer.
JOE WILKINSON is Director, Consulting, Transportation Solutions for enVista.
OPERATIONAL EFFICIENCIES BY SUSAN RIDER
Justifying and Getting Your Improvement Projects Approved ne of the most challenging areas for managers is presenting their case to executives to get their projects approved. Over my many years in the supply chain I have seen many good and valuable projects not approved because the right message, data or the appropriate collaboration has not been made to sell the upper management on the project. Getting your projects approved can be somewhat of a slippery slope. The first step is preparing the current state versus future state argument. Commonly referred to the AS IS and TO BE state. This argument is very important, and many times, an intangible may drive this whole decision. Everyone looks at the basics: increased productivity or accuracy. Often times the areas that get overlooked are areas of intangible benefit. Loss of customer for order delay is a number that is hard to calculate. The sales and marketing team probably have a number or percentage they’re using for the impact of sales numbers if customer is lost. When trying to justify a project make sure you use the growth rate that the CFO is using in presentations to the executive board, this way there won’t be any question where that number was originated. Collaboration is important in getting the data needed from other functional areas within the company. Some other areas to find hidden savings: REDUCTION OF PAPER, TAPE, LABELS The cost of paper, tape and labels is overlooked because the weekly cost doesn’t seem to be a large number. But once you expand that 16
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to a yearly cost it can send your ROI from a negative to a positive. REDUCTION OF CLERICAL INPUT Sometimes this reduction involves another department, therefore, it is important to collaborate with that department. Unfortunately, other departments on the manager level may be sensitive to a reduced headcount by another department’s project, therefore, you may have to go up a level to get buy in. AVOIDANCE OF CAPITAL EXPENDITURE If your growth is imminent and your company is thinking that it will need to expand the warehouse, the capital expense of adding 50-100,000 square feet is not a small number. If your project can give you better space utilization and create enough space to handle the increased business for the next three years, this number could be huge and justify the project. AVOIDANCE OF INCREASED PERSONNEL If your project helps you double your productivity, that savings is often used. Another number not to forget is the increased personnel cost you would need if the project is not approved. ORDER TURNAROUND TIMES If you can decrease the amount of time it takes to turnaround an order you may make a better cut off time and therefore increase your shipping time by a day in some cases. Improved shipping time lapse may reduce the amount of next day or two day shipments needed. DON’T FORGET ACCOUNTABILITY Sometimes a project may not reduce productivity but give the managers more accountability of the team. With this new accountability the team is more efficient and more accurate because they are now aware of the traceability of any errors and the fact they will be held accountable for productivity levels.
REDUCTION OF RETURNS If you have increased your shipping speed and transit times, the better customer service may reduce customer returns along with the increased accuracy of your personnel. This number may be a harder one to arrive at but the vendor you have chosen for your project probably has some end users that have achieved such success and can give you a benchmark to use. VENDOR COMPLIANCE ACCOUNTABILITY The cost in receiving of fixing an order, quality assurance, rework and shipment returns is also overlooked. The key to getting an accurate number to use in this area is tracking what it cast currently. Number of receipts requiring attention, cost of relabeling, cost of quality assurance, etc. Because the buying and merchandising is usually done in either procurement or by a merchandiser, many times the distribution manager just shrugs his/her shoulders and accepts this as fate. If collaboration can be done and a report generated describing the effect of additional cost caused by specific vendors, it gives distribution the ammunition to affect change. REDUCTION OF EQUIPMENT SUCH AS FORK LIFTS, ETC. Don’t forget politics! This is usually a definite delay or killer of a project. If you need a software interface and you haven’t pre-approved the project with IT, you can almost be guaranteed that the IT executive will put a hold on your project or send it sideways in the decision process. Review your presentation with others before presenting to the holistic team to get buy in and suggestions. ¾
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at firstname.lastname@example.org.
The 3 Keys to Successfully Managing Customer Shipping Expectations When it comes to shipping, keeping your customers happy can be a full-time job. How fast do they want it? How much will they pay? How do I make sure I’m choosing the right carrier and getting the best rate for each package? Many shippers tend to let their shipping company determine when and how customers receive their packages. Little do they know, that decision could be costing them a lot of money… and customers. Now is the time to take control and find the best options for you. Follow a few simple rules and you’ll create a shipping program that will save you time, money and help you drive your business.
1. Understanding Customer Expectations Understanding expectations is crucial in developing a shipping program that delivers the best experience for your customers. Customers generally base service satisfaction on two factors... price and delivery speed. So what’s an acceptable delivery timeframe? First, you need to understand the standards in your industry. For example, thanks to Amazon Prime, many consumers have come to expect two-day delivery. But, while faster delivery is important, some customers would rather wait and get free shipping. A recent survey showed that 33% of respondents would wait 5 days to receive their package if shipping were free. Not sure what your customers want? Send them a survey or take a look at what your competitors are offering.
ship with multiple carriers at the lowest rate possible and ensure that every package sent meets your delivery criteria. A carrierneutral system will also give you the ability to seamlessly move between carriers as business conditions change. Companies like Stamps.com, a partner of the USPS, are integrated with a variety of multi-carrier platforms, including Agile Elite, ShipStation, ShipWorks and Webgility. These companies will enable you to leverage the many benefits of shipping with the USPS while also using other carriers within the 3rd party platform. For a complete list of Stamps.com integrations go to www.stamps.com/shipping/integrations. Remember, technology should never be looked at as a cost, rather as an investment that truly pays for itself.
Now’s the Time — Take Control of your Shipping. It’s competitive out there. Shipping carriers will do anything to secure your business. Keep your options open. Remember, different carriers excel in different areas. A smart, balanced carrier mix should be your goal. Solicit unbiased advice from a third-party carrier-neutral shipping solution. These companies have the technology in place to help you manage and ship all of your orders using the carrier that best fits a particular shipment. This will keep your shipping process fast, flexible and efficient… and keep your customer happy. If you have any questions or comments please feel free to call or email anytime. Happy shipping!
2. Matching Customer Expectations to Carrier Capabilities Now you need to find carriers to deliver those customer expectations at the right price. Shop around and negotiate with all the carriers including USPS, UPS and FedEx. You probably already know that the USPS is cheapest for small parcels, but negotiating with all the carriers, including regional carriers, can help you get better pricing for heavier packages. Using multiple carriers is sometimes the only way to get the best rates.
Rodney Small is National Sales Manager at Stamps.com, a leading provider of online postage, shipping software, services and developer solutions for Postal Service customers. He can be reached at 310-429-4069 or email@example.com.
3. Using the Right Technology to Deliver Customer Satisfaction There are a few options when it comes to the technology you’ll need to access the best carriers and best rates — carrierprovided systems, home-grown systems or third-party carrierneutral solutions. Carrier-provided systems will obviously limit your options and won’t give you the flexibility you need to choose between multiple carriers. Home-grown systems require significant development work and time to maintain. Using a third-party carrier-neutral system will allow you to efficiently
By Brittany Beecroft
ATTACK THE DATA, NOT THE DIVISOR Parcel shippers look at new ways to control dimensional weight
mall parcel shippers understand the nature of the General Rate Increase, and they best attempt to mitigate the increase accordingly. We, as shippers, understood the dimensional weight logic to change in 2015, and ideally we were preparing for several months to ensure our invoiced costs and negotiated divisors most accurately reflected our actual shipping profile. Now that the smoke is clearing we are getting a look at who took a financial hit and what alternatives exist that create savings through durability, not just the divisor. The logic changed — did shipping patterns change?
CUBE UTILIZATION When considering dimensional impact, and more so how to offset it, we must first understand cube utilization. We can go fast and furious and attack the dimen18
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sional divisor itself, but few shippers get the divisor waived. Instead of immediately targeting the surcharge let’s understand what drives it — and how we can eliminate it outside of the contract. Cube utilization is the use of space within a container or box — a percentage of total usable space. The average e-commerce shipper achieves 60-65% cube utilization on outbound boxes. This means that package has 35-40% of its inner space occupied by fillers or air. Unfortunately you aren’t paying peanuts to ship those foam peanuts. We want to consider the concept of unitizing as we utilize. Unitizing a shipment or load is taking smaller packages (units) and putting them in a larger package or system to move the shipment easier — the goal being to pack the shipment and use the space in the container efficiently with product. If a product is not designed correctly shippers then need to adjust packaging to offset poor product design.
PRODUCT DURABILITY VERSUS PACKAGE PERFORMANCE A significant area of review in transportation cost management is packaging optimization. Shock, vibration, compression — this is what your package is exposed to each time it gets sorted in a hub or station and loaded on the van. A package traveling a mere couple hundred miles may be loaded and reloaded as frequently as five times between truck, terminal, and hub. Carriers offer definite delivery times so these packages need to be scanned quickly and moved to the next destination. Therefore package handlers will sort the packages in a manner the keeps the center of gravity low, so the package is not top heavy and risks falling off the belt, and keeps the label visible at all times. Package handlers do not stack one package on top of the next in a columnar fashion but rather the packages are interlocked. The goal — to secure-
ly move as many packages as quickly as possible. The concern â€” compression. Corrugated box strength, when interlocked in transit instead of column stacked, reduces by up to 50%. Handlers try to keep the heavier packages on the bottom of the stack, but since packages are stacked and loaded as they are received, smaller less dense packages are subject to supporting the weight of the package wall. Compression is not exclusive to stacking. When a sortation belt jams packages can slam into each other and continue to press together until the jam is alleviated or the belt is turned off. Compressive forces can impact the top and bottom as well as the sides of the package. Palletized packages are frequent victims of dynamic compression, which is why shippers are encouraged to consult their carrierâ€™s package testing lab to verify the durability and sustainability of the package composition before using it to send
merchandise. As shippers we want to cut dimensional cost by under designing the package. Seemingly makes sense for cost containment â€” less wasted package space, less billed weight. But if your product lacks durability, what you save in packaging you spend in replacement freight, fees, and fuel. If you are at 50% of your strength you are also at 50% of your support, which now introduces the elements of shock and vibration. Shock occurs when a package is dropped or rattled by another package. Packages rarely fall flat; they normally strike an edge or corner or hit the bottom surface of the package when they land. This impact can cause abrasions to the package surface or tear the packaging entirely, now subjecting the contents to damage. To ensure some level of protection a two inch buffer should be allowed on each side between the product and the packaging. Anything greater than two inches then introduces
package over design. Waste of packaging and increase of costs though materials, dimensional impact, and possibly storage. As trucks, aircraft, and sortation belts move they create levels of vibration. Vibration varies from a steady constant hum to a several pinpointed sharp jolts. Packages on a trailer driving cross country are subject to vibration for days. This constant movement can loosen closures and weaken packaging as well as shift the package contents, resulting in pressure points on the box, bag, or container. Two additional packaging hazards to consider are climate and altitude. Contractor vans are not air conditioned so if it is 100 degrees outside the van it is 100 degrees inside the van. Likewise if the van is traveling through below zero temperatures the packages are below freezing as well. Most cargo jets are pressurized, but trucks can hit altitudes over 10,000 feet. MARCH-APRIL 2015 | www.PARCELindustry.com
HOW DID WE WEATHER THE DIMENSIONAL STORM? Why, as shippers, do we need to care about all of this? Because package optimization drives dimensional costs, and shippers are feeling the burn of the new logic. The burn isn’t universal, though. Chart A represents the dollar impact of the dimensional logic change for a $3MM shipper, based on a four week snapshot of data. Because this shipper had previously negotiated a 250 divisor, the impact is minimal for this month at a little under $7K. While this shipper did see more packages invoice at higher billed than actual weights, the already strong divisor lessened the gap. We can annualize the numbers, and assuming the shipping profile remains constant, see a year end increase of $84K.
Values 2015 Dim Logic 2014 Dim Logic
130000 128000 126000 124000
Total Chart A
Chart B shows a dimensional dilemma and highlights why shippers cannot rest on divisor relief alone. We must control costs through contract optimization and supply chain optimization. The company shown in the chart has a 173 dim, and as we can see through the analysis, will face a cost increase over $2MM with the 2015 logic change. As we negotiate through the divisors we see that $2MM reduce down to less than $200K. This client cannot just “suck up” a $2MM increase so we would consider dimensional waivers based on account 20
2015 Affected Volume 268,653 268,653
Dimensional Weight Impact 4-Week Cost Annualized Cost $1,183,808 $15,389,504 $1,355,019 $17,615,247
Dim Logic Used 250 Dim 2015 Logic Actual Weight Grand Total
2015 Dimensional Weight Impact - 250 Dim Divisor Affected Volume 4-Week Cost Annualized Cost Cost Increase Over 2014 182,344 $805,338 $10,469,394 86,309 $414,499 5,388,487 268,653 $1,219,837 $15,857,881 $468,377
Dim Logic Used 275 Dim 2015 Logic Actual Weight Grand Total
Affected Volume 159,622 109,031 268,653
Dim Logic Used 300 Dim 2015 Logic Actual Weight Grand Total
2015 Dimensional Weight Impact - 300 Dim Divisor Affected Volume 4-Week Cost Annualized Cost Cost Increase Over 2014 140,848 $600,629 $7,808,177 127,805 $596,744 $7,757,672 268,653 $1,197,373 $15,565,849 $176,345 Chart B
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Cost Increase Over 2014 $2,225,743
2015 Dimensional Weight Impact - 275 Dim Divisor 4-Week Cost $691,759 $515,188 $1,206,947
number or a freeze in the logic change. We also want to consider negotiating the billed weights to offset the increase in cost.
Dim Logic Used 2014 Dim Logic 173 Dim 2015 Logic
ATTACK THE DATA, NOT THE DIVISOR The challenge for many shippers is knowing what dimensions exist in their warehouses, and what the actual weights of those packages are. We receive manifests of tracking numbers and associated dimensions, but without knowing actual weight, we will be challenged to adequately quantify the potential cost increase. And many warehouses do not own or lack the manpower to employ software to capture and store the data. How are shippers handling the new logic? They are looking to cubing and weighing systems. Automated dimensioning systems optimize freight handling by quickly and accurately obtaining package dimensions, storing the shipment data, and allowing shippers to rapidly sort and target problem packages. We see static systems — collecting data on stationary items and sending the metrics to the warehouse for freight manifesting. But packages move so we need a way to review data when the boxes travel on conveyor belts. As we discussed above, packages fall, stack, and smash so the shape of the package at pick up can drastically change during sortation and delivery. If the shape changes, the di-
Annualized Cost $8,992,867 $6,697,444 $15,690,311
Cost Increase Over 2014 $300,807
mensions can change, and now your billed weight can change even if the package just went a mile down the road to the local station. By using in motion scanning systems shippers can review length, width, and height — one cubing company offering a system that will measure the parcel’s data at speeds up to 600 feet per minute.
KEY TAKEAWAY Shippers are feeling the dimensional logic pinch — we knew they would. We need to be mindful the carriers changed the operational cost of doing business, not just the financial cost. When a carrier looks at your actual package differently we need to look at the impact of poor design. We can negotiate a solid dimensional divisor, but if package performance is weakened, so is our expected savings.
BRITTANY BEECROFT is Director of Parcel Pricing for AFS. In her position, she oversees Parcel Cost Management and RFP processes for the purpose of negotiating and retaining best-in-class client-specific pricing. Brittany also provides training and guidance to sales and the support staff to manage parcel cost reduction and optimization services. Prior to joining AFS, she spent 12 years as a Strategic Pricing Analyst at FedEx. Brittany consults regularly with some of the largest shippers in the world and is a sought-after speaker and consultant.
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 firstname.lastname@example.org www.envistacorp.com
The Web-Centric Warehouse: Adapting to the 24/7 Business Cycle By Kray Kibler
n todayâ€™s 24/7 business cycle, warehouses must be fully integrated and ready to provide instant information about inventory as it is being handled. To remain competitive, this means updating information as soon as tasks are completed and being Web-centric in order to meet growing customer expectation for round-the-clock responsiveness. This trend will continue to grow, with short and long-term growth relying upon
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a companyâ€™s ability to evolve, keep pace with change, adopt the latest technologies and break free of obsolete systems. The imperative falls on oversight managers to find new strategies for aligning operations, customer support and labor resources to ensure effective problem solving and quick execution. The ability to adapt has become an essential component for companies making the transition from catalog to digital sales of its product
line, while managing the challenges of a large centralized distribution facility.
KEEPING CUSTOMERS AND WORKERS HAPPY While many companies have shifted into an Internet environment, some have failed
to recognize the need to update warehouse management. This situation calls for the leadership team to take an in-depth analysis of their market and recognize the twopronged challenge: customer dissatisfaction and decline in workforce morale. When a warehouse is failing to meet demand in a timely way, Internet customer dissatisfaction about delivery times will grow, bringing such comments as, “Why do I have to wait three days?” On the other end of the spectrum, a workforce that is tasked to work overtime to meet the flexible demand schedule leads to increasingly dissatisfied workers, bringing such comments as, “I hate working late and on weekends because we have fallen behind on orders.” To address these conflicting challenges, the management team should meet with employees representing all aspects of the company’s operations to start a dialogue, evaluate their suggestions and gather information regarding customer satisfaction.
UNDERSTANDING NEW CHALLENGES IN THE DIGITAL AGE Managers should also take stock of key trends brought about by the digital age, including: } With the 24/7 digital age, customers have higher expectations, i.e., same or one-day shipping service. } With the standard work schedule — the way most companies have always done it — orders made on the Internet can pile up over the weekend. } When work schedules fail to align with customer demand, workers fall behind — adding pressure and creating an unpredictable work schedule — which in turn leads to costly overtime. } All of the above issues can lead to delivery delays and unhappy customers, who will take their business elsewhere. In the digital age, a perceived lengthy time gap between order and delivery is no longer acceptable, especially for time-sensitive health and wellness products, like catheters and disposable underwear. Adding to the challenge, when a company has a broad inventory or one that includes a complex product line, any commitment to a one-stop solution and shipping in-stock orders within 24 to 48
hours is compromised without the right strategies.
TWO IMPORTANT STRATEGIES To overcome today’s challenges, companies should create a two-part plan to realign labor resources to meet peak demand — and, at the same time, improve customer satisfaction.
STRATEGY NUMBER ONE In periods of high demand, warehouse employees should work longer hours to accommodate the volume. On slower days, they should work shorter days. This reduces overtime costs. If overtime is still required, it should be scheduled well in advance so that workers can have an opportunity to better manage their private time. This strategy can eliminate 90–95% of shipment delays, and greatly improve customer satisfaction. What’s more, workers will be more content because they have a predictable schedule that allows them to coordinate commitments outside of work. This simple, clearly communicated and effective solution has been shown to enable companies to better manage customer and labor expectations, and reduce costs.
STRATEGY NUMBER TWO Cross-training employees can be highly effective, and benefits everyone because each warehouse employee is learning every job in the warehouse. The result is that, for example, if the main forklift operator is out sick, anyone on the floor will be ready, able and well trained to take his or her place.
REAL WORLD SUCCESS Let’s take the example of a national distributor of healthcare products. Its fill rate was less than 50% of products sent on the day received, and only two-thirds were shipped by the end of the next day. After implementing the above two-part strategy, today the company benefits from exceptional results:
} Two-thirds of the orders go out the day they are received, while 97% go out by the end of the first day } Customer inquiries about estimated delivery have reduced by more than 50% } There has been a 20% reduction in head count } The workforce is happier, creating a more optimistic company culture and a labor force that is working toward the same goals The real-time standard of the digital age has created new challenges for warehouse management. Thanks to two simple strategies, companies can better serve customers’ needs while maximizing labor resources. In order to remain competitive and position themselves for more sustainable growth, companies should not only adopt these changes, but stay flexible and open to new ideas going forward. ¾
KRAY KIBLER, chief financial officer, Scrip Companies, first joined Scrip in May 2006, gaining broad and deep experience throughout the business with responsibility for oversight of the Company’s financial, IT, human resource, customer service, distribution operations and field/corporate sales. Prior to joining Scrip, Kibler served as corporate controller at AbilityOne (Patterson Medical) from 2001 to 2006, where he oversaw the financial and IT operations during a period of rapid growth and acquisitions. Before this, he spent seven years in public accounting before holding positions as a tax manager at Wilson Sporting Goods and as a controller for a national not-for-profit organization.
MARCH-APRIL 2015 | www.PARCELindustry.com
Logistics ‘Best Practices’ Can Add Greater Efficiency
nternational shippers have faced a perfect storm of unfortunate situations in recent months. From the longshoremen strike that brought West Coast-Asian shipping routes to a standstill, to news that China’s airports lead the world in late departures (Flights from Beijing have an 18% ontime departure rate; 28% for Shanghai), to the harsher-than-normal snowfall experienced in many regions of North America, luck has not been on the side of shippers trying to transport goods across the globe. The good news though, is there are solutions for even the most dire of situations. Innovations throughout the logistics industry have dramatically changed the landscape for international shipments, resulting in more and better options.
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Here in North America, for example, where e-commerce has fueled a spike in the number of small shipments traveling between the United States and Canada, businesses are able to offer customers guaranteed delivery times that would have been unthinkable as recently as five years ago. There are many reasons for this, including advances in route optimization, better insight into customs compliance, and efficiencies in warehouse operations. Unfortunately though, too many shippers are unaware of these innovations. Business managers generally do not have the time necessary to keep pace with these changes, especially with regard to customs compliance and regulatory mandates. I do find though, that most managers like to have at least a cursory understanding. With
that in mind, following is a brief overview of some of current “best practices” that could help improve efficiency, and possibly even reduce logistics costs. ROUTE OPTIMIZATION. Just as the GPS in your car is able to help you move from Point A to Point B, technology is also affecting the way shipments are routed. It used to be that shipments followed very rigid transportation routes, with very little room for flexibility. As a result, shipments were sent on crazy routes that pulled them hundreds of miles off course, only to travel back until arriving at a final destination. We now see how unproductive past practices were, and thanks to route optimization technology, a shipment can travel in a much more direct route. Route optimization can allow ship-
By John Costanzo your shipment will arrive at its international destination on time, and in good condition. TARIFF CLASSIFICATION. Proper tariff classification can be a tremendous source of savings. Every product crossing an international border must bear a 10-digit classification code that is used, among other things, to determine duty liability. The code is rooted in a universally recognized “Harmonized System,” which lists codes and accompanying product descriptions. Differences between the product descriptions can be slight, but may trigger very different tariff rates. A rug that is “handloomed,” for example, is different from one that is “machine-loomed.” Make sure your logistics provider can ensure that your products are properly coded. Every business understands its obligation to pay duty, but there is no benefit to paying more duty than is necessary.
ments to shave days off their transportation routes, and can often eliminate the need for a distribution center stopover. Not every logistics provider has invested in this technology though, so it’s important to pay close attention and if your shipment’s route seems excessively long, you might want to ask a few questions. INTERNATIONAL DISTRIBUTION. Don’t assume that the logistics provider that does such a great job with your intra-US shipments, can replicate that same quality of service on an international basis. You’ll need to do some homework. How will your shipment be handled once it leaves the United States? Will your logistics provider maintain control/visibility, or will it be transferred to a local provider? You need to have full confidence that
TRUSTED TRADER PROGRAMS. With regard to US and Canada transactions, it is important to make certain that your logistics provider participates in government-authorized “trusted trader” programs. Both the US and Canadian governments have programs in place that “reward” businesses that voluntarily agree to certify the safety of their supply chains, as well as they safety of their suppliers’ processes, and that pass a rigorous application process. These qualified businesses are known as “trusted traders,” and are entitled to significant trade incentives. In the US, the main program is called Customs-Trade Partnership Against Terrorism (C-TPAT), and Canada’s main program is called Partners in Protection (PIP). Membership in these programs has become standard for all top-tier logistics providers. Make sure that your logistics provider is a member. Not only will your shipment benefit from expedited customs processing, but you can also be assured that your logistics provider is highly regarded by the US and/or Canadian governments. EXPEDITED SERVICES is increasingly an “option of choice,” for international shippers. A growing number of businesses are turning to expedited services for their “normal” shipping needs because of the tremendous efficiency the premium level of service af-
fords. Expedited service offers guaranteed on-time delivery, high levels of customer service, and customized logistics solutions. In recent years, expedited service has become even more finessed at catering to international shippers: } Customs courier. Some expeditors maintain networks of “on the ground” customs couriers who will meet a shipment at the airport, and physically transport it through the local customs process. A customs courier will be fluent in the local language, and will often be known to local customs agents. This personalized attention ensures that a shipment will not be unnecessarily delayed by any customs compliance issues. } Charter services. International shippers are finding ways to circumvent known bottlenecks, by circumventing airports with notoriously inefficient on-time performance rates, or understaffed customs processing functions. Charter services are proving to be an efficient alternative, whereby a shipment moves through a less-busy airport, or via a destination with a less onerous customs process. US manufacturers and retailers are truly benefiting from the “global marketplace,” with worldwide supplier networks, and growing international customer bases. Fortunately, US businesses can look to their logistics providers for expertise and skillful management as they take advantage of these opportunities. Keep in mind though, logistics “best practices” seem to change every day. A good logistics partner will make sure your business is on track, with increasingly efficient processes in place. ¾
JOHN COSTANZO, President of Purolator International, has more than 35 years of experience in the global supply chain industry. Since becoming President of Purolator International in 2001, Costanzo took the company from a small US freight forwarder to a leading provider of cross border services that offers expedited and economy Parcel and Freight Services, Transportation Management, Customs Brokerage, Warehouse and Returns Management, and more. Under his direction, Purolator International’s presence in the US has grown to have operations in 30 markets in the US. MARCH-APRIL 2015 | www.PARCELindustry.com
By Will O’Shea
“SHIP” OF THE TONGUE:
Nine Statements about Home Delivery that Could Be Costing Your Company Money
rofessional basketball players, coaches and owners may be among the country’s wealthiest individuals. But they could have been a whopping $11.5 million richer. That’s the total amount of fines imposed on them by the NBA between 2003 and 2013 for various verbal infractions. Although logistics isn’t a sport, this statistic offers a helpful caveat for any company looking to trim costs: No matter what anyone says, talk is not always cheap. In fact, sometimes it can be downright expensive. As evidence, consider the following nine statements. Each represents a fairly common and seemingly harmless mindset about customer service, transportation or home delivery. But in reality, each is a misconception that — if corrected
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— could mean significant savings or efficiencies for your business. “PRE-DELIVERY CALLS, TEXTS AND E-MAILS ARE OVER-RATED. BESIDES, WE DON’T WANT TO PESTER OUR CUSTOMERS.” Most of us are inundated with more messages than we can respond to in an average day. Nevertheless, considering how highly connected today’s consumers are, there’s no excuse for keeping them in the dark about where their purchases are or when they’ll arrive — especially if they’ve purchased a large or high-value item that requires them to be present to receive it. The more proactive your company can be in terms of customer communications (for example, adding a reminder call, text or e-mail on the morning of delivery and
reaching out when the carrier is 30 to 60 minutes away from the customer’s home) the less likely your carriers are to encounter not-at-homes — and the costly redelivery expenses that will follow. “EACH OF OUR STORES DOES A GREAT JOB OF HANDLING ITS OWN LAST-MILE SHIPMENTS.” There are many recipes for inefficiency. One of the most prevalent is to take an “every operation for itself” approach to coordinating customer deliveries. While a store manager may enjoy being able to book his or her own shipping and may be very proficient at it, this kind of silo approach is only a sub-optimized solution at best. By simultaneously optimizing deliveries from multiple stores and DCs, your company can do a better job of every-
ture that ties to your sales volumes. If not, consider switching to a carrier that will. Depending on your company’s size, this could equate to hundreds of thousands of dollars in annual savings — or more. “WE ALWAYS SHIP WITH THE CHEAPEST CARRIER, SO IT’S ALL GOOD.” It’s always wise to compare rates when choosing carriers, especially considering how widely these rates can vary. But consistently selecting carriers based on price alone is no guarantee of flow-through to the bottom line. That’s because bargain-basement rates can quickly add up to bigger expenses if they go hand-inhand with poor quality, high damages or sub-par customer service. Before deciding whether or not a carrier deserves your business, pay careful attention to every element of its value proposition, not just the initial sticker price. You’ll often discover that the most economical choice on the surface isn’t necessarily the cheapest one in the end.
thing from inventory deployment and load building to route optimization, carrier negotiation and process improvement. The result will be significant savings and economies of scale. “WE’VE HAD A FIXED-COST ARRANGEMENT FOR YEARS, AND IT SEEMS TO WORK WELL FOR EVERYONE.” From a budget planning perspective, few things can match the predictability of a fixed-cost transportation arrangement. But if your company works in a volatile industry, such an arrangement could wind up being the equivalent of buying air, because during times of low demand you could wind up funding a considerable amount of idle equipment and personnel. As an alternative, consider seeing if your carriers will offer a variable pricing struc-
“IT’S AN OUT-OF-THE-WAY LOCATION. BUT IT WAS TOO GOOD OF A DEAL TO PASS UP.” In recent years, it’s become more common for communities to want distribution or fulfillment business so badly that they’re willing to offer companies significant tax breaks or other financial incentives to get it. However if a location or venue is too far off the beaten path for purposes of reaching your customers, it’s also probably too good to be true, because any real estate savings your company might enjoy are likely to be negated by higher shipping costs. Even at this time of moderate fuel costs, transportation costs still outweigh warehousing costs several times over, so always let the former drive your DC and cross-dock site selection decisions. “IT’S JUST A LITTLE DIRT.” Due to the rigors associated with transportation and handling, customers really shouldn’t be surprised if a product’s exterior packaging looks a little less than perfect by the time it reaches their doorstep. But many consumers have sent products back for less. Although your company can’t avoid every return, you can significantly diminish the ones that occur for superficial reasons
(such as the perception that customers have received an old or used item) by giving your products and their exterior packaging every opportunity to shine before they go out the door for final delivery. For example, if the box or crate surrounding an otherwise perfect product looks like it’s been through the wringer, take the time to change it out. If an item has gathered dust, wipe it down. And if a product has minor but repairable cosmetic damage, bring in a professional with the know-how to mend it well. You won’t regret the extra effort, because the reverse logistics processes that are associated with returns typically cost considerably more than other supply chain functions. “WHEN IT COMES TO HOME DELIVERY, VALUE-ADDED SERVICES REALLY AREN’T OUR THING.” There’s a lot to be said for maintaining a sharp service focus and knowing what you’re good at. However there’s also a lot to be said for being realistic: If your company sells any kind of electronic device, appliance, computer or item with multiple pieces, there’s a strong possibility some of these items could wind up being too complex for certain buyers to assemble or install without help. Bear in mind that one of the most common reasons for returning a product is, “I couldn’t get it to work.” That’s why in many cases it can make fiscal sense to offer product set-up and installation as a value-added delivery service option, provided this is permissible by state law. Along these same lines, it often pays to have delivery service professionals walk customers through a brief product familiarization at the time of delivery instead of putting the onus on the customer to call for assistance later. Even five or ten minutes of face-to-face, on-site instruction can go a long way toward making customers feel more comfortable with using their purchases. The net result will be fewer returns, lower customer service costs and — quite possibly — a higher amount of repeat business. “THERE’S NO SUBSTITUTE FOR A LIVE CUSTOMER SATISFACTION SURVEY.” Whoever said what you don’t know can’t MARCH-APRIL 2015 | www.PARCELindustry.com
hurt you was obviously never in the delivery business. Customer surveys are an excellent way for the left hand — your company — to learn what the right hand — a professional delivering on your behalf — is doing during the moments of an interaction that would otherwise be invisible. And such clarity is essential considering that all it takes to lose some customers’ future business is one or two negative experiences. But that doesn’t mean that administering these surveys has to dramatically increase your company’s headcount. When our company tested the efficacy of live versus automated surveys many years ago, we discovered that automated surveys were not only less expensive, they garnered a higher rate of response. Who says that better results have to cost more? “BUSINESS-AS-USUAL IS BEST FOR US, BECAUSE WE’VE BEEN DOING PARCEL DELIVERIES FOR A LONG TIME. WE ALREADY HAVE DELIVERY EFFICIENCY DOWN TO AN ART.” Being a tenured name in e-commerce or last mile can be a distinct competitive advantage. After all, there is much
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to commend already having time-tested processes, partnerships and protocols in place — and being ahead of the steep learning curve that many other companies are just starting to scale. At the same time, it’s important to note that when it comes to the omnichannel, we’re now playing in a much larger and more competitive arena and that the rules may have changed. The demand for last-mile deliveries is growing significantly. At the same time, the transportation industry is facing a critical truck driver shortage and increasing capacity constraints. For the shipper, this means that brand protection and customer satisfaction is at stake. Meanwhile, today’s consumers clearly expect better combinations of speed, promptness and accuracy — without appearing to be willing to pay for them. (Case in point: The number one reason for online shopping cart abandonment is high shipping and handling costs.) Should these trends continue, there’s every chance that the average cost per delivery could rise. As a result, unless
your company wants to pass 100% of these increases on to customers and risk losing sales you will have to start looking for new and different ways to take costs out of your supply chain. Will all of the aforementioned things deliver all of the cost-cutting horsepower you need? Only time and your particular supply chain can say for sure. But it’s safe to say they’re a step in the right direction. ¾
WILL O’SHEA is Chief Sales & Marketing Officer, XPO Last Mile. XPO Last Mile is part of XPO Logistics, one of the fastest-growing providers of logistics services in North America. The company is the largest provider of last-mile logistics through its XPO Last Mile business. Other XPO divisions provide freight brokerage, intermodal, expedited transportation, technology-enabled contract logistics, global freight forwarding and managed transportation services. The company uses its relationships with ground, rail, sea and air carriers to serve over 14,000 customers in the manufacturing, industrial, retail, commercial, life sciences and government sectors. For more information visit www.xpo.com.
PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D
The Foreign Corrupt Practices Act: A Further Look n the previous installment of PARCEL Counsel we took a first look at the Foreign Corrupt Practices Act (FCPA). In this issue we will look at a few of the Act’s nuances. Generally speaking, the purpose of the Act is to deter US nationals from bribing foreign officials for business purposes. Although the Act has been broadly interpreted and applied by the courts, there are certain narrow exceptions. These exceptions include “facilitating payments,” which were discussed in the last issue. Also referenced in the last issue was “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (http:// www.justice.gov/criminal/fraud/fcpa/guidance/guide.pdf) which provides examples of permitted or not permitted payments. The Guide provides the following examples of “routine governmental action:” } obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; } processing governmental papers, such as visas and work orders; } providing police protection, mail pickup and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; } providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; While facilitating payments may be made to a government official, it is critical that the payment only relates to “routine
governmental actions,” not acts where the official is being paid in order to make a decision in favor of the paying party. The Guide lists examples of payments made with the intent to influence an official in an unpermitted manner: } Winning a contract } Influencing the procurement process } Circumventing the rules for importation of products } Gaining access to non-public bid tender information } Evading taxes or penalties } Influencing the adjudication of lawsuits or enforcement actions } Obtaining exceptions to regulations } Avoiding contract termination Another category of exempted payments would be charitable contributions. But, again, the charitable contributions cannot be in the nature of a disguised prohibited payment. Another class of payments which would not violate the FCPA would be those made under extortion or duress. “Businesses operating in high-risk countries may face real threats of violence or harm to their employees, and payments made in response to imminent threats to health or safety do not violate the FCPA.” A more mundane class of expenditures are those relating to the promotion of a company’s products and services. From time to time the Department of Justice has issued opinion letters opining that the following would not warrant an enforcement action: } travel and expenses to visit company facilities or operations } travel and expenses for training } product demonstration or promotional activities
However, it must be noted that these opinions are based on an analysis of a very specific set of facts. If other facts are added, for instance, the reimbursement of travel expenses plus payment in cash of a $1,000 per diem, an otherwise permissible payment becomes a prohibited bribe. And, if the payment is mislabeled in the company’s books and records, the company has also violated the accounting portions of the Act. So, how does one navigate in such a sea of gray? I would suggest that the starting point of a company policy be “Thou shall not make payments to government officials.” To the extent that a company felt a compelling need to make permissible, but risky, facilitating or other exempt payments, they should only be made pursuant to a well thought out company policy…drafted by an attorney knowledgeable in FCPA matters…and then strictly enforced. All for now! ¾
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 email@example.com.
MARCH-APRIL 2015 | www.PARCELindustry.com
WRAP UP BY MICHAEL J. RYAN
Free Delivery: It Is Here to Stay “I ordered a new remote speaker for my iPhone and the shipping was free.” Unless the merchant has buried the shipping cost into the cost of goods or is taking a loiwer margin on the sale, shipping is not free. Somebody is paying for it. THE LANDSCAPE TODAY However, Amazon is taking the lead position by offering free shipping more often, especially at the holidays. This is causing havoc in the e-commerce world. There are many small e-tailers who are struggling with this competitive offer. It is also driving many merchants to use Amazon’s Fulfillment Services. This is a brilliant strategy by Amazon because it allows them to continue to drive down their operating cost which will give them the “lowest landed cost” in the industry. By continually lowering their cost and re-investing in the business model, they are in a great position to be the king of free shipping. The consumer is the big winner here and the smaller e-tailers are struggling with being competitive. WHAT ABOUT IN THE FUTURE? The e-commerce business is fragmented by millions of enterprises. However, Amazon, eBay and Alibaba are the dominant players. As market leaders, they will dictate price and service expectations to the market. This can be very dangerous; look what is happening in the parcel business with FedEx and UPS. These two organizations have implemented the single largest price increase in the history of 30
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the parcel industry in 2015. The small e-tailers need to continually drive out cost in their operations and look at all shipping options to stay competitive. At the end of the day, the consumer wants a quality product, a good price, trackability, delivered in three to five
days... and no surprises! ¾
MICHAEL J. RYAN is the Executive Vice President — Parcel Solutions at Pro Star Parcel and has over 25 years’ experience in the parcel industry. He can be reached at 708.224.1498 or firstname.lastname@example.org.
“As market leaders, Amazon, eBay, and Alibaba will dictate price and service expectations to the market. This can be very dangerous; look what is happening in the parcel business with FedEx and UPS.”
PARCEL March/April 2015