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PARCEL

MARCH-APRIL 2016

www.PARCELindustry.com

UNDERSTANDING THE REAL RATE INCREASE. P.14

WHAT WILL DC SOFTWARE OF THE FUTURE LOOK LIKE? P.22

GOING BACK TO BASICS: THINKING ABOUT THE BOX. P.24

LOOKING FORWARD: PREPARING YOUR SMALL-PACKAGE OPERATION FOR THE FUTURE.

THE 2015 PARCEL FORUM GAME CHANGER OF THE YEAR AWARD WINNER: THE LOGISTICS TEAM AT RED HAT, INC.


CONTENTS MARCH-APRIL 2016 | volume 23 | issue 2

Features

Departments 06 Editor’s Note

Ahead of the Pack By Amanda Armendariz

08 Transportation ABCs

Competing in the Online Retail World: Then and Now By Trevor Outman

09 Spend Perspectives

The European Small Parcel Market – Concentrated but Diverse

By John Haber

10 Supply Chain Success 14 Understanding the Real Rate Increase

Shippers often find that the stated increases differ greatly from those that appear on their invoices. Here’s why.

By Brittany Beecroft

Mode Inflection Points for Savings

By Eric Grice

12 Operational Efficiencies Going Beyond Maintaining the Status Quo

By Susan Rider

13 Guest Column

Supply Chain Management: an Art, Craft, or Both? By Tom Tanel

28 PARCEL Counsel 18 And the Award Goes to….. 20 Survey Results Say… The logistics team at Red Hat, Inc. won PARCEL Forum’s first-ever Game Changer of the Year award.

Insights into volume trends, pricing expectations, and more!

Courtesy of Morgan Stanley

By Amanda Armendariz

Parcel Shippers and the New Regulations Prohibiting Driver Coercion By Brent Wm. Primus, JD

30 Wrap Up

Paperless Challenge By Michael J. Ryan

Application Articles 07 Saving Distribution Center

Profits by Reducing Downtime Flesh Co

22 A Peek into the

Distribution Center Software of the Future

Where could your DC be in the future? By Chris Elliott 4

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24 Thinking About The Box

A new twist on an old saying encourages shippers to view their packages in a new light.

By Kathleen J. Siviter

17 Puzzled by Options that

Don’t Meet Your Needs? Engineering Innovation


president chad griepentrog publisher ken waddell editor amanda armendariz [ amanda.c@rbpub.com ]

editorial director allison lloyd [ allison.l@rbpub.com ]

audience development manager rachel chapman [ rachel@rbpub.com ]

marketing cierra bauer creative director kelli cooke advertising ken waddell (o) 608.442.5064 (m) 608.235.2212 [ ken.w@rbpub.com ]

PARCEL PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2016 Š by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com. 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

Ahead of the Pack Are you signed up for our e-newsletter? e’ve often heard the admonition to be proactive, not reactive. Those words have probably been thrown around in every boardroom at one time or another. But often, these buzzwords are just that — buzzwords. Thrown around at a monthly staff meeting and then when it comes time to actually implement these initiatives, the already overworked professionals find themselves lacking the resources and time to do so. This issue of PARCEL covers several areas of a small-shipment operation where it’s not only possible to be proactive, but it won’t break the bank doing so. From understanding the real rate increase (because after all, everyone knows that the “average” rate increase is anything but!) to visualizing the distribution center software of the future, to looking at packages in a whole new light — our March/April issue encourages logistics professionals to view things in a different light. Because it’s not just a buzzword — being reactive will certainly help your organization stay afloat, but only by being proactive can you truly be ahead of the pack. And speaking of being ahead of the pack, we are proud to feature an article on the PARCEL Forum 2015 Game Changer of the Year Award winners: the logistics team at Red Hat, Inc. We presented them with our first-ever award back in October, and as I was putting together the article on their team and their accomplishments, I was reminded, once again, of how they truly epitomized the proactive stance when it came to helping their organization succeed. Take a look at the feature on page 18, and if your small-shipment organization has what it takes to be the Game Changer of the Year in 2016, fill out a nomination form at www.PARCELforum.com. As always, thanks for staying connected with PARCEL.

If not, what are you waiting for? As of press time, these were some of our most popular articles from recent e-newsletters: • Is the USPS Still a Good Option for Shippers?

• Could Parcel Lockers Increase Your Customers’ Satisfaction? • The Ups and Downs of Carrier Fuel Surcharges To get great articles like these emailed to you on a regular basis, just scan the QR code above or go to www.PARCELindustry.com/enews.

Thursday’s Tip

Have you signed up for our Thursday’s Tip feature yet? If not, you’re missing out on some great information emailed to you every week! Don’t worry, we know you’re busy, so these tips are brief and easy to read — but yet much-needed information for any transportation professional! All you need to do is sign up for our e-newsletter and you’ll get this information emailed to you the third Thursday of the month (plus an occasional extra one when we have some pressing news!).

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APPLICATION ARTICLE

Saving distribution center profits by reducing downtime When you’re dealing with hundreds of thousands of packages every 24 hours the last thing you need are issues with your tracking labels. That was the case of a major e-tailer who found they had significant downtime in their order printing center due to jamming in their printers.

The Problem The online retailer used a bank of laser printers to print pick & pack forms for their high volume distribution center. These forms were designed with integrated labels that would be later applied to the outside of the shipping box. Integrated labels are manufactured with an adhesive transfer liner on the back of the sheet, then the face is die cut to create a removable label. By combining the pick slip with the label, both are imaged during one print process. This can reduce time and shipping errors. The shipping department found the integrated label sheets were jamming in the printers causing long shut down times while waiting for the IT team to fix the printers. These delays were creating gaps in the hourly fulfillment process as well as excess time involved during the repair. In some cases, damage to the printers was also occurring. The laser cut sheets with integrated labels had to be imaged through a bank of laser printers. The sheets were immediately then placed in auto folders to be folded in half and dispensed to the fulfillment team. During the packing process, packers wore gloves which, at times, made it difficult to remove the integrated label.

Solution Development Process To fully understand the nature of the issues and challenges, it’s necessary to spend time in the client’s distribution environment to audit the entire process. Documentation should include the types of printers and other processing equipment used during the entire packaging process. As the document is a paper based system, temperature and humidity levels may need to be monitored. In addition, visiting with actual fulfillment staff can add valuable insight into the initial issue as well as others that may be occurring.

The Fix Once a full understanding of the client’s high volume distribution process is understood, a solution can then be designed. In this case, the production process for creating the integrated label was modified to help the document process in the laser printers as well as the post printing folder operation. The new construction also allowed for easier removal of the label by the gloved staff in the packaging department. As a safety precaution for future projects, a special product testing lab was built at the manufacturer’s location which mirrored the client’s shipping

environment including all processing equipment. A testing process was implemented by the manufacturer which mimics the client’s packaging process. This included printing and folding the integrated label document, removing the label while wearing gloves and affixing to a test carton. Samples of each order are tested prior to shipment to ensure the product meets the preset specifications for the client. The new construction resolved the jamming issue for the client. The manufacturer’s internal quality control, using the newly created testing lab, blocked any potential problems that may cause lost time for the e-tailer.

800.745.7921 findadealer@fleshco.com www.fleshco.com


TRANSPORTATION ABCS BY TREVOR OUTMAN

Competing in the Online Retail World: Then and Now he number one reason online shoppers abandon their carts at checkout is due to the spike in price when shipping fees are included. National parcel carriers continue to implement monumental rate hikes year over year, which have a significant impact on the small/medium-sized businesses trying to compete in the .com world. Additionally, mega online retailers are somewhat insulated from these rate hikes as their volume allows them leverage to negotiate caps on these annual rate increases. To better understand how parcel rates have increased over the previous five years, let’s consider the following example: Small/medium-sized retailer with an average 30% Ground Discount and an average 60% Express Discount. Package shipped is a 10”x10”x10” box that weighs three pounds. Delivery destination is a rural home address, 800 miles away from pickup location (zone 5, which is 601-1000 miles from pickup location). This package shipped via the Ground network with FedEx/UPS in 2011 would have cost $10.67 (incurred a Delivery Area Surcharge and a Residential Delivery fee) and billed at the actual weight of three pounds. The same shipment this year would cost $15.14. The 2016 package has the same surcharges (each of which significantly increased from 2011); however, now this package is also 8

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impacted by dimensional billing policies that increase the billed weight from three pounds to seven pounds. The same package shipped via Express (Next Day Air Saver with UPS or Standard Overnight with FedEx) in 2011 would cost $29.93, which includes DAS (Delivery Area Surcharge) and Residential Delivery fees as well as the dimensional upcharge from three pounds to seven pounds. In 2016, this same package would cost $40.64, which also includes the same surcharges (at the inflated rate due to annual increases) and the dimensional billing upcharge. Additionally there’s a stark contrast in today’s marketplace when comparing approximate parcel discounts offered to an e-commerce startup, a small/medium-sized business, and a mega retailer. An e-commerce startup would have paltry discounts, no concessions on accessorial fees, no relief on minimum charges, no relief on dimensional billing policies. A small/medium-sized retailer could expect improved discounts on service rates, possibly some accessorial discounts, and maybe relief on minimum charges, but likely no relief on the dimensional billing policies. A mega retailer could expect deep discounts on service rates, many accessorial discounts or full waivers, and possibly no minimum charge, along with concessions on dimensional billing policies. Assuming the same package characteristics as our example above for this year, net pricing fluctuations per each business category could look like this: Ground Shipment Costs E-commerce startup - $18.22 Small/medium-sized retailer - $15.14 Mega retailer - $5.80 Express Shipment Costs E-commerce startup - $73.62

Small/medium-sized retailer - $29.93 Mega retailer - $14.28 Note #1: Many contractual pricing components impact pricing far beyond service discounts. Some of these often overlooked items are: General Rate Increases (caps on the GRI), Fuel Surcharge (discounts on fuel), Dimensional Billing Policies (improved DIM Factor and dimensional threshold), Minimum Charge (reduction per each service), Rebates, Early Termination Penalty, Minimum Commitment Penalty, unfavorable thresholds on volume based (Earned Discount Tiers for FedEx and Portfolio Tiers for UPS), Payment Terms, and more. And some of the common accessorial surcharges: Residential Surcharge discount, Delivery Area Surcharge discounts (Residential, Commercial, Resi & Comm Extended different for Ground and Express), Additional Handling Fee discount, Address Correction discount, Signature Required discount, Pick Up Fee discount, Advancement Fee discount, and many more. Note #2: The discounts communicated above should not be considered a “benchmark” as they do not communicate nuances of an organization’s particular shipping profile. This is important because specific distribution and package characteristics vary from one shipper to the next. However, these specific shipping characteristics or shipping profile will affect the parcel carrier’s profitability and, in turn, impact pricing proposed by the carrier. ¾

TREVOR OUTMAN, MBA is Co-Founder & Principal Partner of Shipware, a firm that provides expertise aimed at helping shippers negotiate improvements to their carrier contract terms & pricing. Trevor can be reached at trevor@shipware.com.


SPEND PERSPECTIVES BY JOHN HABER

The European Small Parcel Market – Concentrated but Diverse he European market is comprised of approximately 50 countries, which is comparable to the number of states in the US market. However, small parcel players vary considerably from one country to the next, much more than they vary from state to state in the US. The current trends of the European small parcel have similarities to the US market and include: Click and Collect – According to Forrester, about one in seven online consumers in Europe use the click and collect option if available. Cross Border – Overseas and within the region, cross-border is increasing due to the growth of e-commerce. In 2014, 15% of all individuals in the EU28 purchased goods and/or services via the Internet from sellers outside their country of residence. This is an increase of 25% compared to 2013. Technology – Faster, efficient technology offers complete visibility as small parcel providers seek ways to differentiate in a diverse market. Courier, express and parcel (CEP) providers are adapting to these trends in a variety of ways, and are offering new services and expanding via acquisitions. PARCEL DELIVERY PROVIDERS The largest CEP providers in the European market are the three global integrators: DHL, FedEx and UPS. FedEx has further expanded its European reach by acquiring TNT Express, which has a ground network

linking European countries. DHL has invested in innovative solutions such as its own locker network, Packstations, with well over 3,000 in Germany alone. According to the company, 90% of people in Germany live within 10 minutes of a DHL Packstation. In 2014, DHL began installing Packstations outside of Germany in locations such as Italy and the Netherlands. UPS’ click and collect service, Access Points, was born from a 2012 acquisition of Belgian-based Kiala and today offers this service in Belgium, France, Germany, Poland, Spain and the UK. However, the big-three integrators are not the only delivery companies in Europe. UK-based Yodel is a popular choice for lowcost B2C delivery for retailers. The company was formed in 2010 when Home Delivery Network acquired DHL’s UK domestic business. Germany’s Hermes is a big player in B2C delivery for retailers and the e-commerce sector. Hermes specializes in reducing delivery times by offering a four-hour time window on the morning of parcel delivery or collection, a timeframe that will soon be reduced to two hours. It is also eyeing international cross-border solutions with its BorderGuru service, which includes the tracking and management of the international logistics chain and country-specific import and customs clearance. EUROPEAN POSTAL ENVIRONMENT Postal reforms among several European countries such as the UK have put these former government-controlled entities in direct competition with the likes of DHL, FedEx and UPS. UK’s Royal Mail has invested in service centers in order to handle parcels quicker as well as extend hours of operation. In addition, its European parcel sub-

sidiary, GLS, launched a partnership with Chinese express company ZJS Express for cross-border service. Meanwhile, post offices still under government control, such as La Poste, have achieved success by taking advantage of its protected status by expanding its role from French letter carrier to global parcel carrier via its GeoPost subsidiary. Companies such as DPD, Chronopost and Interlink Express have been folded under GeoPost’s umbrella as subsidiaries, along with investments in companies as such India’s DTDC. La Poste is one of the largest European CEP providers having delivered over one billion parcels in 2015. DELIVERY UPSTARTS Similarly to the US, there are a variety of crowd-sourced delivery companies popping up across Europe. For example, Nimber is a marketplace that matches a person who has something they want delivered with someone traveling in the same direction. The website allows people to post details of items they want transported short or long distances. On the other side of the transaction are those travelling by foot, car or van in the same direction who agree to take the package and deliver it for a fee. We can’t forget about Amazon. Amazon is rapidly evolving in Europe by moving further into the delivery space by offering same day delivery and delivery of groceries in the UK, building a rumored Air Cargo network, installing lockers across Europe and even acquiring and making investments in European parcel carriers.

JOHN HABER is the Founder and CEO of Spend Management Experts. Contact John at solutions@ spendmgmt.com. MARCH-APRIL 2016 | www.PARCELindustry.com

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SUPPLY CHAIN SUCCESS BY ERIC GRICE

Mode Inflection Points for Savings pring is nearly upon us; yes, that downtime post-holiday glaze period is over. If you are like most supply chain managers, you spent this brief respite trying to figure out how you could reduce costs to hit some unrealistic budget that was created last October. What was even going on then? I don’t know either, but based on the numbers, we seemed to think we were miracle workers once again projecting top line growth while the transportation budget seems surprisingly flat. Looking back to 2015, shippers received relief provided by continually dropping fuel prices coupled with a freight market that was remarkably more receptive than 2014. However, looking forward to 2016, most projections expect fuel to level out, meaning we must seek out other areas for cost reduction. One often overlooked and under-analyzed area is the inflection points between modes. I am going to discuss some quick tips of how understanding your shipment characteristics, along with your parcel & freight tariffs, can drive savings. PARCEL VS LTL This is the decision we are most familiar with mainly due to frequency. For most shippers, it is a static decision based on a weight or carton count threshold, possibly a combination of both. The common inflection point is around 150 pounds and/or 15 cartons, but these numbers are surprisingly sensitive. First, let’s be honest and think about how many of us take the time to consider dimensions and use chargeable weight in this decision pro10

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cess, as opposed to just actual weight. Perhaps you have already factored your average carton dimensions and weight into your established inflection point; please remember to never underestimate the light and fluffy tax (DIM weighting). Another important factor is your parcel incentives. Your effective parcel cost will be a direct result of your pricing agreement. Perhaps you focused on express discounts due to your spend density but this easily could have left an unfavorable ground discount. On the other hand, for LTL, even without a strategic sourcing effort within this weight break, shipment costs are going to be a near market average minimum charge. I also want to bust any myths about the 150 pound shipment ceiling (shipping individual packages that exceed 150 lbs. would result in unacceptable surcharges) as multi-weight pricing can extend beyond and, if sourced well, be advantageous to certain shippers. Another important factor is the length of haul. If we take a quick look at Illustration A we can see how at the same decision point (Total weight 150 Lbs. & 15 cartons for each) the least cost mode changes. Normally at shorter distances the driving factor of parcel cost is carton count. Illustration B shows a series of zone 2 shipments. When we held the weight static at 150 Lbs., but varied the cartons (gray line), we saw a large variance. Meanwhile when we held the carton count static at 15, but varied the weight (orange), the cost delta was minimal. As we get out to the larger zones, Illustration C, we used the same shipment set in the previous example but now the price moves significantly with variances in both cartons and total weight. Meanwhile, for LTL, the negotiated minimum charges are still the main factor in your cost comparison.

LTL VS VOLUME While maybe not as redundant, making the right decision between your standard LTL tariff and a spot quote can quickly mean a couple hundred dollars — yes, a couple hundred per shipment. Almost all LTL tariffs have pricing that is good up to 20 or even 24 linear feet but they have these nasty little cubic capacity clauses when you breach the six pallet threshold. We find over 750 cube (by their calculations) that you must be over six pounds per cubic foot unless the rate you expected to see and was, presumably, kicked out by most any rating engine becomes meaningless (even the rate off carrier websites will often not reflect these). One important thing to remember is that they are not measuring the cube based on actual dimensions of that pallet you shrink wrapped; if you only built the pallet to two feet they are still going to calculate a pallet space normally at 125 cube. This makes our magic number 750 pounds per pallet; if you are averaging over this, you normally can go ahead and use your tariff all the way up to 10 or even 12 pallets. If not, the carrier will normally apply a dimensional weight and re-rate at class 150 (absent of any FAK). Therefore, it is very


important to understand your freight characteristics such as average pallet weight, density, shipment size, and specific rules of your pricing tariffs. The volume spot market can be tricky and is more of an unknown than the LTL tariff, but one general rule in shopping the market is to retain competition while creating partners. If you keep organized data for your volume moves, calculating a running cost per pound can be helpful to establish that inflection point. That said, this does not factor in the lane you are moving on. If it is a standard lane and you

have data points then there you go. But otherwise you can try bucketing volume moves into mileage breaks to get cost/ pound. This is a good way to capture more moves and data points while maintaining accuracy in your comparison. Understanding this inflection point is a little trickier from a pricing standpoint but, if done correctly can drive significant savings on every move. SUMMARY I wish I could give you some static rules to live by for making these modal deci-

sions, but every shipper is different. Even those shippers that use a rating engine can be tripped up by factors rating engines do not consider. So take the time and understand your freight characteristics and do the detailed analytics to ensure an optimized modal strategy. While we all continue to scramble to reduce expenses in a competitive transportation market, the solution isn’t always to simply source cheaper rates. Finding internal improvements opportunities, such as implementing a more dynamic modal selection at these inflection points, can prove beneficial. ERIC GRICE is a Project Manager with the Transportation Solutions Consulting practice at enVista. For more information he can be contacted at egrice@envistacorp.com or please visit the website at www.envistacorp.com.

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OPERATIONAL EFFICIENCIES BY SUSAN RIDER

Going Beyond Maintaining the Status Quo he world of distribution is dynamically changing all the time. What makes facilities world class? World class can be defined with a list of different criteria including inventory turns and productivity, accuracy, etc. Many of you might be saying, “I don’t care about world class, I just want to keep up with my orders and reduce the number of fires I have to put out per day.” Or perhaps you just want to add dollars to the bottom line and reduce your picking/ shipping cost. But world-class is within reach. Technology is allowing people to change their current operation and to achieve things that previously were a nightmare to accomplish. How do you know what you can improve on? By looking at the common fires that you are having to put out every day, such as: Frequent cycle counts Inventory is frequently not in location that is being picked Same SKU cannot be in multiple locations, creating bottlenecks Major accuracy issues. Sometimes this isn’t noticeable because the company doesn’t know that they are erroneously shipping duplicates. Product is slotted unintelligently, creating more time to pick History of orders cannot be recovered, so no accountability Reports take hours to develop; therefore, no one is doing any analysis People cannot be reassigned to areas, so you must do a manual workaround There are lots of sticky notes around 12

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the area Constantly having to figure out workarounds No visibility of ASNs (Automatic Ship Notices) Cannot use smart phones, tablets during peak times to give temps the tools needed It takes several days to ship an order once received Your accuracy rates are declining versus climbing Once dimensions are entered for a SKU they cannot be changed If your facility was given a grade card, what grade would you get? Upgrading to a newer version is extremely costly, but perhaps that is the first hint that you should start looking. It might make more sense to just buy a newer system without modifications than to try to upgrade an old platform with old databases. Eventually that old platform may cause you incapability with hardware and downtime. Recently, a company complained that after buying a new system, once the functional design session was over, the software functionality was lacking. There would be a need for 150 modifications! In today’s matured software functionality, 150 modifications is totally wrong. Functionality that was shown pre-sale was simply not actually in the system. End users would be wise to add a clause after the functional design allowing for a “divorce” if such a discovery is uncovered. Another company expressed frustration after buying a new system and learning that the system would not allow the SKU to be stored in more than one location, creating havoc in a high volume multi-

channel facility. Ouch! Even worse, both of these companies were using consultants that were supposed to assist them in avoiding such horrific mistakes. Sometimes the fear of making a change causes many companies to be complacent and not change a “C” grade facility to an honor roll facility. Identify your problems before starting your search for a new solution. Any areas that are non-flexible that are causing workarounds should be addressed. Vow to attend a conference of your peers and learn more about solutions to solve the problems that you are having today. Look at attending vertical or association trade shows that are specifically designed for companies that are in the same type of business as your company. Your competitors might be there, but that’s even more of an opportunity to hear what they might be doing better than you are. Warning though, just because a company is doing business with one of your competitors doesn’t mean they are the right solution for you. PARCEL Forum is a good show to attend if you are looking for ideas on how to reduce your shipping cost, your parcel handling cost and how to negotiate the best possible shipping rates. Do your research and make sure you “see” the software in action solving the problems you have every day. ¾

SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.


GUEST COLUMN BY THOMAS L. TANEL

Supply Chain Management: an Art, Craft, or Both? ith all the hullabaloo about the Supply Chain profession, I think that we need to make a solid distinction between art and craft. Art is a result of a person’s innate, creative talents whereas skill in craft can be acquired with experience. Craft can be called skill sets. In craft, more practical thought is needed whereas in art, it is being innovative or pioneering beyond basic supply chain concepts or techniques. Art, in the supply chain, revolutionizes to the point where the rules of the game change to accommodate it. By way of example, how supply chains can leverage digital capabilities to support new business models and improve performance is truly revolutionary because value can be a profit multiplier. The art of supply chain management (SCM) is not easy to implement because it runs counter to the ingrained logistics functionally-oriented thinking about how supply chains organize, operate, and add value. Yet art is needed in managing flexible and uncertain supply chain environments. For example, when customers value distinctive or unique output (in other words, all customers don’t want the product or service to perform or be performed the same way), this is art. Craft involves technique and implies the application of human intelligence. As an example, acting quickly and decisively to capitalize on given supply-chain opportunities is craft at work. A craft may be defined as a skill at making the logistical functions useful

within the supply chain, whereas art is a representational expression of ideas, passions and experiences that seeks to add value. Unlike craft, art is known to come out of the heart and soul — creativity. In Gartner’s 11th annual global Supply Chain Top 25 in 2015, they indicated that “some of the leading companies are tracking customer satisfaction measures, and their supply chains are not just collecting data concerning the details of the sale, but also the patterns of usage and resulting sentiment of the end user,” which is artful. Craft comes out as experience and needs considerable supply chain event exercise to deliver consistent and sustainable world-class practices. It is based on a person’s skill sets developed over time. More to the point, craft work is skilled work. One of the 2015 Gartner Supply Chain Top 25’s Key Trends was that “the more mature supply chain organizations have dedicated teams and established playbooks for assessing the current and required capabilities of new businesses and determining the best transition roadmap… strategies tailored to different business units, while others differentiate by major geography or individual markets” which involves the application of technique or craft. Supply chain managers must have the tools (craft) to accomplish their task. Managing supply chains like any other discipline is an art because it is the ability to do things in light of the reality that pertains to the given situation. SCM is a craft with a systematized body of knowledge and universal application as well as an art that requires specific skill to be applied as the situation demands. It implies putting knowledge into prac-

tice (wisdom) by a person who possesses a highly specialized set of expertise and skill sets. In summary, art is a result of a person’s innate, creative talents whereas skill in craft can be acquired with experience. In craft, more practical thought (pragmatics) is needed; whereas art is more related to supply chain aesthetics (perspective or aggregate of fine qualities). And what we term art can be described as “perspicacity-based work” while craft applies to “credentialed and/or certified supply chain professionals doing their thing.” The need to know how to effectively manage the end-to-end, forward and backward flow of materials and information through your supply chain is both art and craft. Therefore, as a person engages in the supply chain over a period of time, we allow them to go from being technically competent to a point where they have mastered their craft by practicing it for many years. From the above discussion, it is clear that SCM is a mixture. The artistic element and the craft component in SCM are intricately linked. Since they complement each other, it’s not an either art or craft situation. It is both art and craft! Today, supply chain management is the place where art and craft must be able to employ a plethora of ever-changing technology. How do you measure up? ¾

THOMAS L. TANEL, CTL, C.P.M., CCA, CISCM, is the President and CEO of CATTAN Services Group, Inc. specializing in Logistics and Supply Chain issues. He can be reached at tanel@cattan.com or 979.212.8200.

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UNDERSTANDING THE REAL RATE INCREASE Shippers often find that the stated increases differ greatly from those that appear on their invoices. Here’s why. By Brittany Beecroft

H

ave you ever negotiated your carrier agreement just to receive the first invoice and think, “Where are the savings?” Not being familiar with the actual impact of rate increases on your shipping profile and any verbiage associated with the increase can double and triple your costs over the stated average increase. Shippers should annually evaluate their current agreements and adjustments, as well as invoices (invoices are your Magic 8 ball to reveal the actual net rate and billed weight). We are not saying negotiate yearly (don’t nickel and dime your agreement), but rather review what a stated increase looks like (4.9% on Ground) versus the actual increase when you compare service guides (5.4 to 5.9% on one to five pounds across the

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Ground zones). If you budget your shipping based solely on the stated increase, chances are good — if not great — that your invoice will reflect a much higher percentage. What does that mean for you? While we’re certain that most people understand the nature of the General Rate Increase, do we understand the reality? A percentage is pretty abstract until we see the net effect on paper. For 2016, FedEx (as an example) stated the following average increases: Domestic Express 4.9% Export/Import 4.9% Ground/Home Delivery 4.9% When we look at the below table we see the actual increases for this shipper. Stated Domestic was 4.9%. Yet 2-Day and

Express Saver actually went up 10.3% and 11.5%, respectively. Why the difference? Weight is a driver. Lighter weight shipments tend to see a higher increase than their heavy counterparts. The below FedEx customer ships shoe insoles — average package weight is two pounds. So the projected 4.9% almost doubles once the actual increase implements. RATE CAPS AND MINIMUMS — CAN THE TWO WORLDS AMICABLY COMBINE? We thought our rates would increase five percent — turns out they went up over 10%. How do we get that increase more manageable? Ultimately we want the service guide rate — our minimum charge — reduced, or capped. We want to limit the variable, but we would be remiss to assume the only variable is the list rate.


A rate cap does essentially as the name implies — caps the maximum rate increase on the list rates. The maximum increase on the rate only applies to base rates and minimums — not additional charges. Why is that important to remember? If you are a hockey stick merchant looking at a 14.8% increase on the Oversize Fee this year, and you negotiated a four percent rate cap, you are still getting hit with the full Oversize increase. If fees are a cost you pass through, you want to be cognizant of what needs to be assessed or your black line could become red. If your actual increase is less than the cap (again on list rates, not additional charges) no adjustments to incentives occur — but what if the increase is greater? Adjusting incentives is how carriers

implement the cap. Let’s say Year 1 you receive a four percent rate cap with a 60% reduction to Next Day Air. When we move into Year 2, UPS won’t generate a service guide specific to the cap — everyone receives the same service guide rates. But UPS will adjust your incentives to offset the increase. Your 60% could now become 60.8% — the equivalent of a four percent increase. Ideally, using UPS as an example this time, the carrier wants to apply the in-

centive adjustments on your actual volume characteristics — not the stated General Rate Increase. UPS wants to get as close to the true cap as possible using a shipping profile sample during the third quarter of the calendar year. Why, as a shipper, do we care what they use so as long as the rate is capped? Scroll back up to the FedEx table, and you’ll see that shipper’s true increases are based on volume, not averages. If UPS was to just cap those rates based on the General MARCH-APRIL 2016 | www.PARCELindustry.com

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Increase, they likely would not offset a 10 and 11% actual increase to the rates. UPS wouldn’t apply enough of an incentive adjustment to bring the 10% down to four percent — we may only see it shifted down to six percent since UPS is applying the cap on the stated four percent, which you took… and then some. To keep the understanding clean — UPS wants to know what you ship and where. Because, if you are a lightweight shipper, the general four percent increase is just that — general, based on much volume, various weights, and all zones. But you aren’t general, and neither is your budget. So UPS wants to make sure what they are offering you, you are receiving. If your true increase is 10.3%, UPS wants to adjust your incentives to bring that 10.3% down to four percent. Maybe you took 3.6% on Ground. You will keep that increase, as it is less than four percent. You took 5.2% on 3 Day — your 57% would now become 57.2% to bring the 5.2% down 16

MARCH-APRIL 2016 | www.PARCELindustry.com

to 4%. But you took a big 10.3% on 2 Day Air. UPS wouldn’t want to offer just a blanket 0.2% adjustment on 2 Day as well because the adjustment is likely too small to reduce 10.3% to four. So UPS would adjust the current 63% on 2 Day to 63.8% (or whatever the equivalent adjustment would be based on the service guide year of your rates — and yes, you can freeze those rates or negotiate your own base rate table.) Should UPS use the General Rate increase for your adjustments, or if your actual shipping characteristics change (like by introducing something lightweight to you package mix), your effective rate increase could be greater or lesser than the Rate Cap Percentage. Say what? UPS is just letting you know, if they can’t get that actual sample of your volume — and they need to use the stated increase percentage — your effective increase (actual increase) could be greater than your cap. Or, if your shipping profile changes (e.g. using deeper zones,

heavier products) you may now fall under your cap so you don’t need to worry about the offset adjustment. You capped your rate increase, which is good, but what about those minimums? If you don’t have an agreement with flat minimums your work on the cap is not done. You can drill down the list rate to ensure it only took that four percent increase. But you likely have minimum reductions on your contract. If those reductions change from that last time you negotiated, your list rate could be at a four percent increase and your minimum charge increase 14% due to the change in the reduction. We want to see this clause on the UPS agreement so we know our minimum charges cap as well. For example, Next Day Air Zone 2, one-pound rates are $6.66 on a 2015 rate sheet. A four percent increase is $6.93. A 2016 rate sheet shows $7.60 — a 14% increase over the 2015 rates of $6.66. That’s a problem. When applied correctly we can see the minimum cap effective in this example. A contract signed in May 2013 had a $1.30 minimum reduction. The minimum net charge in 2013 was $4.54 ($5.84-$1.30). So adding four percent to that we get $4.72, which is what we see on the 2014 rate chart. However, this represents a $1.52 minimum reduction ($6.24-$4.72). For this agreement, the rate cap affects minimum charges, as it should. A good takeaway for all shippers — but especially lightweight shippers — is to watch the minimum net charges. You can effectively cap rates by just negotiating a competitive minimum reduction. But if the carrier is more willing to offer the rate cap versus the minimum reduction, be sure the rate cap applies to, and is implemented on, minimum charges as well. Minimums aren’t as small as they sound when they drive your rates up 14% versus the expected four percent. ¾

BRITTANY BEECROFT is Director of Parcel Pricing, AFS. She can be reached at 801.758.7369 or bbeecroft@afs.net.


APPLICATION ARTICLE

Puzzled by Options that Don’t Meet Your Needs? Specialists in workflow savings solutions for mailers of all sizes, Engineering Innovation Inc. (EII) offers solutions for all types of mail including letters, flats, and parcels. EII’s unparalleled flats and work desk parcel solutions begin with the Champ and grow beyond our EZ-Flats sorting system that simplifies parcel data collection and induction of flats and parcels. EII recently introduced its newest product, EZ-Parcels MPS, Modular Parcel Solution. EZ-Parcels MPS was designed with affordability and flexibility in mind. The EZ-Parcels MPS can feature barcode and OCR reading, weighing, dimensioning, RFID, label application, and comes in a variety of speed ranges to meet the end users’ needs and budget. This solution can be customized to fit the needs of each company due to the modular design. EZ-Parcels MPS is ideal for Outbound Processing, Data Capture, Parcel Induct, and Logistics companies. “The current logistics market cannot survive the lead time required to provide the custom solutions that they require,” said Don Caddy, Chief Operating Officer of Engineering Innovation Inc. “With the EII EZ-Parcels MPS system, EII can meet the demands of individual requirements with the lead times of an off-the-shelf solution”. End the frustration of having to change your environment to accommodate someone else’s solution. Engineering Innovation’s Modular Parcel Solution can be personalized to efficiently fit into your operation.

EII’s other parcel solution, 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). Discover how EII can create the pieces for your perfect fit. EII’s flexible, modular approach affords growth opportunities through solutions from enhanced manual workstations to fully automated OCR/Barcode/Sorting equipment. Engineering Innovation’s team of experts are well acquainted with optimizing the value of our solutions around the client configuration, even in cases that don’t lend themselves to a traditional operational layout. Contact us today to discover the missing piece to your parcel puzzle.

800.350.6450 sales@eii-online.com www.eii-online.com


The Red Hat Logistics Team Left to Right: Matt Morelock, Bryan Nelson, Steve Shaffer, Rick Pate, Kathy Mauer

By Amanda Armendariz

AND THE AWARD GOES TO….. PARCEL and PARCEL Forum were proud to present Red Hat, Inc. with our first-ever Game Changer of the Year Award at our conference in October. Here’s why Red Hat stood out from the rest.

R

ed Hat, located in Raleigh, North Carolina, certainly set the bar high when PARCEL and PARCEL Forum selected its logistics team as the recipients of our first-ever Game Changer of the Year award at our conference in October of 2015. Founded in 1993, Red Hat is the world’s leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat prides itself on creating relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT. We at PARCEL Forum received several qualified submissions, and all of them demonstrated, on many levels, a commitment to optimizing their logistics processes in a way that truly changed their organization’s “game.” But Red Hat’s submission stood out to the PARCEL Forum Advisory Board, which selected the winner. The Advisors sensed that those involved in their project had not just a

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desire to streamline their processes for efficiency’s sake, but that they truly wanted to change the way their organization both saw and invested in their logistics process. THE PROBLEM Like many companies, the most pressing problem for Red Hat was how to reduce their shipping spend, without affecting customer service — a dilemma that I’m sure resonates with many of our readers! Red Hat was experiencing significant growth; from the end of fiscal year 2011 until the end of fiscal year 2015, Red Hat’s number of employees more than doubled, going from 3,700 to 7,500. During that same time period, revenues grew from $909 million to $1.8 billion. That kind of growth within an organization often comes with excitement, innovation — and a new set of challenges. The most pressing challenge that needed to be addressed was the fact that the “shipping” department was understaffed and used antiquated means of processing ship requests, which naturally led

to inefficiencies and over spending. The team had to find a better way to move an increasing number of packages, without sacrificing customer satisfaction. THE INNOVATORS The two team members who spearheaded this project were Rick Pate, Manager, Global Logistics Operations and Steve Shaffer, Project Manager. THE SOLUTION The shipping and receiving department was rebranded as the logistics department in 2013. The change wasn’t just limited to a new name; the way team members conducted business began to change, as well. The most noticeable shift was that the team went from being merely reactionary to becoming strategic and proactive. No longer content to just solve problems after they appeared, the logistics team sought out solutions to potential roadblocks before they even had a chance to occur. This was something that really resonated with Pate. “When I first came to Red Hat from FedEx, I noticed that our team


was very tactical. We needed to be more strategic because of the money we were spending. With our growth, it spurred us to put together an actual program. Along with Steve’s help with rebranding what was basically a shipping and receiving unit before, we became a lot more strategic with what we did.” Shaffer concurs. “The re-branding was a strategic move to create more awareness of the logistics team’s capabilities and services. As we started growing, we wanted to leverage that growth within the company. It was an opportunity for new business, and to strengthen our partnerships with Red Hat’s business units. But our [ultimate] goal was to create value by lowering costs but still providing excellent customer service.” As part of their strategic initiative, the team implemented business rules with associates and vendors that included packaging, consolidating and optimizing service levels. This has had a huge impact, according to Pate, especially considering that most Red Hat associates aren’t shipping professionals. “Our associates basically brought up a package to the shipping room and just said, ‘Get this package there as quick as you can, the best way you can.’ They weren’t taking into account what it was going to cost us. We were probably running at about a 70% clip, overnight shipping at the time. That could be anywhere from the same state, all the way to the west coast.” I can just picture the logistics pros who are reading this article right now, cringing at the thought of the expense of all that needless overnight shipping. No wonder Red Hat needed to remedy this! Another complication was the fact that Red Hat doesn’t really have a typical shipment size, according to Pate. “We mainly do intra-company, inter-office shipments, and we can go anywhere from a letter to 1,000 pounds of freight. It’s quite different than what some people might expect from a software company.” One of the first tactics Red Hat utilized to combat this shipping inefficiency was setting some simple ground rules. Pate explains that they educated their associates on what type of shipping speed to use for what type of shipment destination. A simple (but hugely cost-saving) remedy they implemented was requiring

that any shipment that was going in-state or to a neighboring state needed to be shipped via ground. It would still arrive the next day, but at a much lower cost than the overnight service. The team also established rules for vendors and took a more proactive look at supplier invoices from procurement of goods, among other things. This tactic alone revealed huge markups tacked on by vendors, which Red Hat could eliminate simply by putting each shipment on a specific account. In their search for better solutions to fulfill ship requests and process improvements that helped associates make educated decisions when choosing carrier services, Red Hat utilized the experts at the PARCEL Forum. Through the Forum, Red Hat found several companies that offered a multi-carrier Transportation Management Solution (TMS). After an extensive RFP process, the team chose xCarrier by Process Weaver, implementing the solution globally in early 2015. BENEFITS REALIZED With this implementation, customer service satisfaction is over 99%. In less than two years, Red Hat saved nearly 35% in transportation costs while moving an increasing (20%) number of packages. Key Performance Indicators such as cost per package, cost per pound and cost per employee are down nearly 18%. The TMS allowed the implementation of a new “hub and spoke” business model within each country, which reduced labor costs by 20%. The global implementation of this sys-

Could your parcel operation be the Game Changer of the Year at the 2016 PARCEL Forum? Fill out a nomination form and let us know how your parcel operation is truly stepping up its game! Visit www.PARCELForum.com for more details.

tem in more than 50 of Red Hat’s 85+ offices replaced an inefficient shipping form. Employees can now create ship requests and track each shipment through their individual dashboard. This unique system is beneficial to both employees and team members by increasing efficiencies while reducing costs. The global added value is the ability to freight shop among carriers, audit invoices for billing errors and carrier service failures, as well as collaboration between global team members and business entities within the company. The success realized by Red Hat is something that any company should be proud of achieving. But Red Hat’s situation is even more unique, according to Pate, since, “it’s tough sometimes because we’re not in manufacturing, we’re not in retail, so it was hugely important to educate [leadership] about why we needed an actual logistics team.” Clearly, with their success in reducing costs and improving overall efficiencies, they’ve more than proved their worth. And we at PARCEL and PARCEL Forum were proud to award them our first-ever Game Changer of the Year Award. ¾

MARCH-APRIL 2016 | www.PARCELindustry.com

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SURVEY RESULTS SAY…

INSIGHTS INTO VOLUME TRENDS, PRICING EXPECTATIONS, AND MORE! Courtesy of Morgan Stanley

Volume Growth Outlook by Listed Primary Carrier

Four times a year, Morgan Stanley conducts surveys among professionals involved in all aspects of the logistics process, from truckload, to LTL, to small parcel. These results are

Air - Avg Change by Industry

a comprehensive look both at where our industry is, and where we expect it to be in the near future. We are grateful to Morgan Stanley that they allow us to share these results with you in our publication. Without further ado, let’s take a peek at the parcel trends that could be affecting your small-shipment operation. Keep in mind that this is only a sampling of the survey results shared with us; the survey is far too comprehensive to contain within the pages of this issue. To read the full survey results, including the disclosure statements, visit www.PARCELindustry.com/March2016survey.

Expected Shift in Product Usage: All Shippers

Ground - Avg Change by Industry

How Will Your Usage of the Following Products Change as a Proportion of your Total Parcel Shipment Budget (on a Year-over-Year Basis) Over the Next 6 Months?

International Avg Change by Industry

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Volume Growth Outlook by Listed Primary Carrier Air - Avg Volume Change by Primary Carrier

Ground - Avg Volume Change by Primary Carrier

% of Respondents Switching Primary Carriers Over Time % of Shippers Switching Primary Carriers Over the Past 6 Months

Level of Aggressiveness in Trying to Win New Business Parcel Shippers’ Rankings of Carriers’ “Aggressiveness” in Trying to Win Business Over Past Six Months

International - Avg Volume Chg by Primary Carrier

Percentage Discount Off of List Rates Average Discount by Carrier and Product

Visit

www.PARCELindustry.com/ March2016Survey to read the full results!


A PEEK INTO THE DISTRIBUTION CENTER SOFTWARE OF THE FUTURE

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rofessors Dazie and Johnston, writing in the Journal of Business, researched companies’ automation plans. They found that the majority were considering significant investments in automation technology. When asked why, they distilled the thoughts down to something many business executives relate to: “There has been a dramatic change in the overall business climate, including the rising cost of money and labor, fierce global competition, and rapid technological sophistication.” Does that statement resonate with you? With talk of having omni-channel solutions, the Internet of Things (IoT), cognitive, and digital supply chains, this statement of change gets a lot of nods when I have presented it at conferences. What gets chuckles is when I reveal that Dadzie and Johnston published their article in 1991. The challenges we face are the same

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faced 25 years ago, so as you look to understand the software of the future, realize that the overall strategy of automating the supply chain has not changed. What is changing are the tools and the speed at which those tools can be applied to problems. Between 1991 and today, a lot of companies have desired the most automated distribution system possible, but when the projects get implemented, they are typically less automated than what is available. This has happened because the cost of distribution labor for 25 years did not change much compared to inflation. Then means that high capital expense projects didn’t have as rapid as a payback as less automated solutions. What I am seeing is that this is starting to change. In the last three years, labor rates are rising faster than inflation and companies are having a harder time filling distribution positions. Automation solutions are also becoming more reliable and

faster to implement. Hitting the market are new solutions that are creating faster payback for large and highly automated distribution centers that are serving both direct to consumer and store deliveries. This is opening the door to new solutions that will drive change in distribution for the next three to five years. As the market changes, the solutions must adapt to allow companies to successfully navigate the changing solutions that are on the market. I see this happening in three phases. The first is digital augmentation of current distribution systems, then the semi-autonomous systems, and finally the fully autonomous system. Making a company digital is a great buzzword-laden phrase that many consultants like to throw around to sound smart in front of clients, but understanding what that means for distribution will be important in the coming years. As devices become more prevalent in our lives, from smarter phones and watches to tags


By Chris Elliott

that track our every vital sign, utilizing that data will be important for businesses. In a nutshell, becoming digital means utilizing all of the devices, tools, and data available to deliver products and services to your customer. This isn’t just another way to get more data. The digital augmentation to distribution will radically change how distribution software operates. In the past, we have tended to use discrete systems for different supply chain functions. While many of these tools have been integrated into larger ERP or Supply Chain Execution systems, many are still just independent tools operating under one brand name. While these tools will share a common master data file, there is nothing built into the systems that allow them to easily capitalize on data from both vendor systems and customers. The distribution tools of the future will require a new layer to connect supply to customer demand. Many are labeling this layer the Internet

of Things, or IoT. While the IoT layer will be important, what takes precedence are the algorithms that sit atop the IoT data to make sense of the data being provided. It will be the distribution algorithms that predict demand based on external events that help drive change in the supply chain. How will algorithms affect the supply chain of the future? As the media utilizes Twitter today to get a break on news stories, so too can businesses tap into social media to analyze where people are talking about their products. This information can then be fed into an algorithm that will determine if there is enough demand to warrant adjusting forecasts or responding. Being able to respond to customer demand is only the tip of the iceberg for the tools of the future. From risk management, cash flow management, to reducing machine downtime, the distribution software of the future will become more reliant on the digital augmentation of supply chain systems. No longer will we be reliant on fixed datasets to make decisions. We will be constantly feeding data from multiple sources into our systems and allowing our systems to make decisions on less than reliable data. The next phase will be the augmentation of the digital supply chain with semi-autonomous physical systems. Pressure from high-tech competitors is driving customer to demand shipments faster. Even outside of the retail sector, industrial clients with finely tuned Just in Time production systems demand rapid responses to requests for goods. This increasing demand to reduce lead times will drive the adoption of more automation. We call this semi-autonomous because the system will still require operators to do complex functions, but they will be augmented with flexible AS/ RS systems, semi-automated put walls, and high speed sortation and conveyor systems that will greatly reduce the walk time of employees. The employee of the

future will also be augmented with visual displays that watch what they are doing and are able to make sure that they are picking the right products the first time. This augmentation will rapidly progress until we get to a point that a large portion of the supply chain will be autonomous. With progress being made on 3D printing and automated picking systems, I can envision a world where a product’s components are printed and assembled on demand, packaged, and shipped to a customer without an employee touching the product. This feat will be accomplished with 3D metal printers, computer vision controlled picking arms, movable shelving, and drones that walk, roll, and maybe even fly the product to the customer. This future might not be as far off as we think. As 2015 came to a close, many publications were reporting on a pharmaceutical warehouse in Japan that was performing 70% of the picks in the warehouse with autonomous robots. While many of these systems are still demonstrations, the technology is fast approaching a tipping point. As labor rates as well as the age of the labor market continues to rise, we will see both a need and the ROI in creating automated systems. The labor need for automation combined with the demand from customers that our supply chain responds faster to changing demand, will radically change the distribution systems of the future. No longer will we have the ability to sit back and wait to see what happens. We will have to allow the systems to make decisions, fulfill based on complicated algorithms, and put the machines and software in place that will automate our supply chain of the future. ž

CHRIS ELLIOTT is Senior Strategy Consultant, Blue Horseshoe Solutions. He can be contacted at celliott@bhsolutions.com.

MARCH-APRIL 2016 | www.PARCELindustry.com

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THINKING ABOUT THE BOX

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es, it’s an old play on words to say that instead of “thinking outside the box” we should be “thinking about the box,” but in today’s challenging shipping and logistics world of ecommerce, The Box is receiving some long overdue attention in terms of innovation. The parcel (aka “The Box”) is a key focus for the ecommerce, postal, logistics and delivery supply chains. And wonderful innovations are being seen around all aspects of The Box: shipping the box, delivering the box, and even creating the box to begin with. SHIPPING AND THE BOX In between purchase and delivery comes the actual shipping of products, and the box that contains the product(s) has become even more important. Re-

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cent implementation of dimensional weight pricing by major carriers UPS and FedEx has driven businesses to be more careful about how they ship their products, in an effort to keep shipping costs manageable and not use boxes larger than necessary, since that could result in significant price increases. Few shippers can afford to ship “air” these days, and competition between shippers is heating up rapidly, with new market entrees ranging from start-ups, to crowd-sourcing alternatives, to giants exploring new business lines. The physical parcel has garnered more attention as shippers work to reduce their costs in transporting parcels and businesses work to avoid significant price increases resulting from the switch to dimensional weight pricing. All these changes have driven businesses to look harder at “the box” and seek cost-cutting alternatives.

By Kathleen J. Siviter Some solutions providers have focused on developing new product packaging systems that can create boxes to fit the volume of the contents on the fly, helping businesses move from having to use/ store/purchase a variety of preformed box sizes for shipping purposes, to being able to custom-produce boxes that protect contents without being an excessive size. Other solutions focus on reducing transportation/distribution costs by exploring more local warehousing and distribution alternatives, while other innovative solutions center on getting rid of the box altogether, such as services providing local delivery of purchases in a manner that does not require the same packaging as traditional shipping would, or in some cases does not require any packaging. DELIVERY AND THE BOX The face of “last mile” delivery is chang-


market, such as the “crowd-sourcing” approach to delivery of parcels being explored by a variety of innovators, including Amazon with its Uber-like local parcel delivery pilot (Amazon Flex); and new local delivery players such as Doorman, which allows users to use a “Doorman” warehouse address for their purchases and then receive more delivery scheduling options than some carriers provide; or Silicon-Valley upstart Postmates, which may be known for delivering Starbucks, McDonalds, Apple and Walgreens purchases using its mobile app, but now is eyeing local retail delivery opportunities in the broader ecommerce market. Consumer desires for delivery convenience and schedule flexibility are driving innovation around the “where” of delivery, but business’ needs to control costs are driving the “how” of delivery. On that front, we are moving from the sci-fi feel of the drone/UAV parcel delivery concept to pilot tests now being performed by posts and carriers. SwissPost, SingPost, Australia Post, and other posts actively have begun testing drone delivery of parcels and Amazon in April 2015 received FAA approval to start testing drone delivery of parcels in the U.S. The innovations go beyond using drones for delivery, if that wasn’t far enough — there are different flavors of drone delivery envisioned, including recent testing by Workhorse Group of its Horsefly unmanned aerial system concept based on drones launched from its electric work trucks. Then there is Starship Technologies, which is designing a fleet of small ground delivery robots that it says “can complete local deliveries within 5-30 minutes from a local hub or retail outlet, for 10-15 times less than the cost of current last-mile delivery alternatives.” The bottom line is that the “last mile” is certainly not last when it comes to new ideas and innovation around how The Box is delivered to the shopping public! ABOUT THE BOX ITSELF Sometimes it seems like the last holdout for innovation and improvement — the box itself. Beyond adjusting the box size and dimensions to better accommodate contents with the lowest weight and

TAKE CONTROL OF AUDITING YOUR PARCEL INVOICES

DO IT YOURSELF!

ing as new delivery carriers enter the market, and innovations in delivery modes are being seen in response to growing consumer demands for more delivery options. Consumers are demanding more options and flexibility not only on the speed of delivery, choice of carrier, and cost of shipping, but also on the exact location and time for delivery of their purchases. On the “where” of consumer parcel delivery, anywhere the consumer goes is fodder for innovative solutions, from their home, to work, to locations in between. Some innovators are looking at new ways to deliver parcels to the home, providing security and convenience and avoiding the dreaded “notice” left by carriers when the consumer is not home, while others are looking at innovations around other places the consumer routinely goes. Innovation around parcel lockers continues to grow. For example, there are recent market entrees like CA-based SwapBox, which provides secure two-way use lockers for consumers to deposit goods to be shipped (and SwapBox does the packing), and also to receive parcels. Other entrepreneurs are focusing innovation on providing secure parcel delivery locations at the consumer’s home, such as Parcelhome’s Smart Box secure parcel delivery box which provides consumers with a secure parcel delivery locker at their residence, and still others are focusing on centralized secure parcel lockers such as the USPS’ GoPost solution. And innovators are really thinking beyond the parcel locker concept to any secure location at a consumer’s residence — including some that might surprise you! A pilot program between Audi, DHL and Amazon gives DHL drivers the ability to access customer car trunks to securely deliver packages to the consumer’s home (where the car would be parked). In some ways, this concept is similar to those testing parcel delivery to secure parcel lockers, but by using the existing consumer car trunk as the secure parcel delivery location, cost of installing a new parcel locker is avoided. Entrepreneur CarDrops uses a similar concept of delivery to car trunks but is more carrier agnostic. Innovations in the actual carrier model also are being seen in the parcel delivery

Parcel invoices can be full of errors. Late deliveries, consolidated shipments, and incorrect fuel and accessorial surcharges can leave you exposed to overcharges that you don’t know about. But your only option to eliminate these overcharges is normally to use an outside auditor. Now there’s a solution. With our TrafficPro Parcel Auditing Software, you can easily audit and pay your invoices in-house. And the reporting capabilities will allow you to quickly and easily track your parcel expenses. Contact us today and we’ll show you how to gain control of the auditing of your parcel invoices.

Garry Oswald 800-775-8253 ext 206 goswald@natraf.com www.natraffic.com

MARCH-APRIL 2016 | www.PARCELindustry.com

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smallest dimension box possible, there are a few areas concerning the actual physical box used for shipping that are seeing recent innovation. While businesses are focusing some attention on reducing the box size to better fit the contents, they also are being driven by consumer needs to offer better tracking solutions to identify where the box is along its journey, which leads to change on the physical box such as barcoding and labeling. The USPS and others are continually exploring new technology to better track parcels, such as sensors, GPS, RFID, all of which can lead to changes in design of physical parcels. Even consumers are seeing innovation in boxes used for shipping. The Rapid Packaging Container, designed by two students at the Albert Nerken School of Engineering at Cooper Union, and demonstrated at a past PostalVision 2020 event, was probably one of the more innovative approaches to redesigning the plain va-

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nilla cardboard box seen in a decade, at least for consumer use. And we have not even touched on the design of The Box, with innovative elements being seen around branding, advertising and marketing… that’s an article all by itself! NURTURING INNOVATION Luckily for innovators in the postal ecosystem and parcel delivery space, there are some great opportunities for exposure and discussion, even for start-ups and entrepreneurs. At its March event, PostalVision 2020 showcased a long list of innovators, including many of those mentioned in this article. At the upcoming May 24-26, 2016 Post-Expo event to be held in Hong Kong, yet another opportunity to focus on innovators will occur with a special Live Innovation Showcase co-sponsored by PostalVision 2020 and the Postal Innovation Platform (PIP). The Post-Expo innovation showcase will in-

clude a series of interactive conference sessions where brand-new technology, ideas and concepts will be presented, including live demos of new innovations. These venues and others are great breeding grounds for innovative ideas — for every challenge identified in the postal/parcel arena, innovation opportunities abound! It is imperative that those involved in the growth of this great ecosystem ensure there continue to be opportunities for innovation to grow! ¾

KATHLEEN J. SIVITER is president of Postal Consulting Services Inc. (PCSi) and has over 30 years’ experience in the postal industry, having worked for the U.S. Postal Service, Association for Postal Commerce (PostCom), and a diverse set of clients with interest in the postal industry. She also serves as the Director, Community & Brand Development, for PostalVision 2020 (www.postalvision2020.com), an initiative designed to engage stakeholders in discussions about the future of the American postal system.


PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D

Parcel Shippers and the New Regulations Prohibiting Driver Coercion n November 30, 2015, the Federal Motor Carrier Safety Administration (FMCSA) issued its final rule prohibiting the coercion of drivers to violate federal regulations relating to safety and the operation of commercial motor vehicles. These regulations went into effect on January 29, 2016. It is very important for parcel shippers to understand these new regulations and how they will be affected by them as violations carry substantial penalties. There are two key components to the regulations. The first is to define the prohibited conduct. The new regulations state “A motor carrier, shipper, receiver, or transportation intermediary, including their respective agents, officers, or representatives, may not coerce a driver of a commercial motor vehicle to operate such vehicle in violation of” certain specified safety and vehicle regulations. This begs the question as to what it means to “coerce a driver”? The definition of coercion is the other key component of the regulation: “Coerce or Coercion means either a threat by a motor carrier, shipper, receiver, or transportation intermediary, or their respective agents, officers or representatives, to withhold business, employment or work opportunities from, or to take or permit any adverse employment action against, a driver in order to induce the driver to operate a commercial motor vehicle under conditions which the driver stated would require him or her to violate” safety and vehicle regulations. An example of this would be if a driver 28

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told a manager of a trucking company that he would not be able to complete a shipment to destination without violating his hours of service limit… and then the manager told the driver that if he doesn’t keep driving he would not be paid or would suffer some other financial consequence. The situation addressed in the regulations would most typically arise in the day-to-day interactions between drivers and motor carrier dispatchers and managers. However, parcel shippers are not isolated as even international air shipments begin with a truck driver picking up the shipment. During the rule making process, many concerns were raised as to the proposed wording of the regulations. Of particular concern was what would a shipper be allowed to do and what would they not be allowed to do. Of further concern was whether the regulations would create an obligation for shippers to do something that they were not previously legally obligated to do. In response to these concerns, the FMCSA specifically stated in its decision that “This final rule does not require shippers, receivers, and transportation intermediaries (unlike motor carriers) to monitor a driver’s compliance with the HOS rules or other regulations…There would be no requirement or even occasion to inquire into the driver’s available hours unless the driver had raised an objection to the delivery schedule.” To further satisfy these concerns, the Agency “has amended the definition of ‘‘coercion’’ to make clear that the driver has an affirmative obligation to inform the motor carrier, shipper, receiver, or transportation intermediary when he or she cannot make the requested trip without violating one or more of the regulations

listed in the definition. Motor carriers, shippers, receivers, and transportation intermediaries cannot commit coercion under the final rule unless and until they have been put on notice by the driver that he or she cannot meet the proposed delivery schedule without violating the HOS limits or other regulatory requirements.” Another example addressed in the decision was: “Shipper A hires Carrier B to deliver a load on a reasonable schedule. However, when Carrier B’s driver arrives to pick up the load, he tells Shipper A that he has to go off duty in a few hours under the HOS regulations, making it impossible to meet Shipper A’s delivery schedule. Shipper A says in frustration, ‘That’s the last time I use Carrier B.’ Is Shipper A subject to a penalty of up to $11,000 just for saying those words, even if no safety violation occurs? How many penalties could Shipper A face if it makes no more use of Carrier B?” The FMCSA stated that, “Shipper A has not coerced the driver to violate the HOS rules, nor has it coerced Carrier B to put pressure on the driver to violate the rules. It has simply decided not to use a carrier that does not dispatch drivers who can meet the agreed upon delivery schedule.” While the clarifications and comments of the FMCSA relieve many concerns of the shipper community, it still must be kept in mind that violations can result in a civil penalty of up to $11,000.00! 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 on the PARCEL website (www. parcelindustry.com). Your questions are welcome at brent@primuslawoffice.com.


WRAP UP BY MICHAEL J. RYAN

Paperless Challenge he advances in shipping technology are continually creating new ways for us to ship items in a more convenient way. Back in the mid-80s, UPS used a manifest booklet. Yes, I said booklet (all hand written). Most of the major carriers use multi-part forms that were used as the shipping label, billing copy, accounting copy and an operations copy. Interestingly,

these forms all got the job done. In today’s world, the shipping technologies have advanced so you can ship from your home, office, hotel or just about anywhere. However, there is one caveat: you need a printer. Technology was going to make us a paperless society, but that does not seem to have happened. I believe the future will bring us to a paperless way of shipping. We have already seen this in the likes of international shipping. DHL Express was one of the first carriers to offer the ability to create your export documentation that would be linked to DHL’s export manifesting system and US

Customs. We have all experienced one or more exports documents going astray in the past… not fun. This new process does not require hard copy export paperwork. So here is a peak into the future. You will be able to process your shipments without a label. You will process as normal with your favorite carrier and the system will provide a tracking number. You will still need to hand write the consignee information and the tracking number. This new way of shipping will make you less reliant on needing a printer. Think of the endless possibilities: You could ship from a store You could ship from your house You could ship from your car (as a passenger) You could ship from a hotel room You could ship from a cruise line You could ship from anywhere outside You could ship from a plane The options are endless. There is technology available today that can read hand written addresses. This will truly create more “convenience” in our lives. I’m sure one of the carriers will bring this to the market shortly. This new approach is bringing back an old way of doing things with modern technology. I understand that shipping from your desk at home or the office offers the convenience of printing a label but this new “paperless” way provides more flexibility in where you ship from. So here is the Paperless Challenge. Who will bring it to market first? ¾

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.ryan@prostar.com 30

MARCH-APRIL 2016 | www.PARCELindustry.com


PARCEL March/April 2016  

PARCEL March/April 2016

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