WHAT TO SEE AT PARCEL FORUM: SOLUTION SPOTLIGHTS | PAGE 48
SEPTEMBER-OCTOBER 2016 www.PARCELindustry.com
DISTRIBUTION NETWORK PLANNING: ARE YOU UP TO THE TASK? P.26
THE TOP 5 DATA ANALYSES THAT GET RESULTS. P.28
WHY E-COMMERCE MEANS A DIFFERENT WAY TO TREAT SKUS.
SMALL-PACKAGE OPERATION TO THE TOP.
SPECIAL PARCEL FORUM ISSUE
SEPTEMBER-OCTOBER 2016 | volume 23 | issue 5
44 Bringing Risk Management Down To Earth By David Frentzel
20 How Do the Carriers Stack Up?
PARCEL is proud to release the results of our 2016 carrier performance survey.
By Amanda Armendariz
52 Automating “Super A” Moving SKUs By Ed Romaine
26 Distribution Network Planning: Part One
28 Top 5 Transportation Data Analyses that Get Results
By Kim Brown
By Tim Sailor
54 E-retailers Beware as
32 Blending Knowledge
By Shaun Rothwell
By Thomas L. Tanel
56 The Evolving World of Direct-to-Consumer Shipping
36 The Future of
Transportation Is Bright
By Curt Barry
By Andrea Obston
40 Delivery of the Future? My Way!
By Kathleen J. Siviter
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
60 Fulfilling Tiny Orders By Norm Saenz, Jr.
PARCEL Departments 06 Editor’s Note
The Supply Chain Game: Coming Out on Top By Amanda Armendariz
08 Spend Perspectives
How Technology Is Transforming Small Parcel By John Haber
Application Articles 09 Mastering the
Challenge of Developing a Parcel Budget Green Mountain Technology
11 When Experience and
Intuition Aren’t Enough VeriShip
10 Supply Chain Success
Peak Pain – Take Back Control By Joe Wilkinson
12 Operational Efficiencies
10 Things to Review to Increase Efficiency and Accuracy in Order Picking By Susan Rider
14 Ship Right
A World of Difference By Chris Giles
Incorporate the Inbound to Optimize the Outbound By Brittany Beecroft
13 A New Way to Ship
Rice Lake Weighing Systems
the International E-Commerce Market Endicia
NMFTA Drops a Bombshell — A New Uniform Bill of Lading!
Management System – Reinvented
19 Five Key Questions to
Ask a TMS Provider About Its Parcel Solution
39 Regional Small
Package Carriers Are Providing A Valuable Alternative PITT OHIO
By Brent Wm. Primus, JD
66 Wrap Up
The Convenience Factor By Michael J. Ryan
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17 The Transportation
48 Solution Spotlights: What 64 PARCEL Counsel
editor amanda armendariz
15 Stake Your Claim in
to See at PARCEL Forum
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advertising ken waddell
16 Transportation ABCs
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59 Customers Want a
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PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2016 © 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.
EDITOR’S NOTE BY AMANDA ARMENDARIZ
The Supply Chain Game: Coming Out on Top ne of the highlights of my summer was watching the 2016 Olympics with my family. The physical feats that these athletes perform with apparent ease is nothing short of astounding. My daughter and I were especially invested in the gymnastics competition; to see Team USA take gold was amazing. But of course, even when one’s home country comes out on top, there is still a little bit of sadness for those athletes who came short of the gold. My daughter asked me if the silver and bronze medalist winners were disappointed in their performance. I explained that while I’m sure there is some regret at not taking the top spot, they still are champions. They’ve done what very, very few people in the world have done (or will ever do): medal in the Olympics, where they are competing with the best of the best. Just making it to the Olympics (even if you go home medal-less) is a historical achievement worth celebrating. Yes, it’s important to learn from your competition, to take their win as motivation to improve your craft so you hopefully come out on top next time, but at the same time, what you have already achieved should not be overlooked. As I was explaining this to her, it occurred to me that this could, in some ways, apply to the supply chain industry as well. No, no one is giving out medals, and our performance certainly isn’t shown on a highly anticipated TV broadcast once every four years. But we can take some lessons from this year’s games. First, we need to keep an eye on the competition. It’s important to stay abreast of what our competitors are doing within the logistics space. How are they maximizing customer satisfaction? What steps are they taking to reduce shipping costs? Is there some packaging innovation in use by others that we have overlooked? It’s crucial we stay on top of the latest innovations in our industry, and whenever possible, we should be proactive, not reactive. But at the same time, we should always strive to be our best. Each company should know their own core competencies, the areas where they can or do excel above all others. Don’t be swayed by some tempting new product or service that seems like it’s working for your competition; be sure you analyze your own logistical operation to ensure that it will perform just as well (or better) for you. To win at the supply chain game, you need to be aware of what your fellow organizations are doing while at the same time remaining true to your company’s core values.
Are you signed up for our e-newsletter? If not, what are you waiting for? As of press time, these were some of our most popular articles from recent e-newsletters: • Supply Chain Lessons from the 2016 Walker Sands Future of Retail Study • A Day in the Life of a Parcel • A Retailer’s Guide to Reverse Logistics To get great articles like these emailed to you on a regular basis, go to PARCELindustry.com/enews.
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!
The PARCEL Forum is a great place to benchmark your operation against your peers’. I look forward to meeting with many of you at this year’s show! As always, thanks for staying connected with PARCEL.
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SPEND PERSPECTIVES BY JOHN HABER
How Technology Is Transforming Small Parcel peed, flexibility, and reliability are the differentiators in today’s small parcel environment, and technology is changing the competitive landscape. The explosion of e-commerce, combined with a consumer market that is demanding expedited delivery times, is challenging the legacy parcel carriers. As a result, FedEx and UPS are investing heavily in technology to speed up the delivery process and give the consumer more control over their packages. For the delivery company, it all starts in the small parcel sorting facility. Here, items are scanned, processed, and sorted for delivery to meet such requests as next-day, same-day, and in some cases, less than same-day delivery. Automating sorting facilities has been a priority for many delivery companies; for UPS and FedEx, automating facilities is a strategic multi-year initiative and the focus of intense capital investment. UPS’ largest fully automated package handling hub in Louisville, Kentucky is the size of 90 football fields. The company has tripled the number of conveyors and increased the sorting capacity by 37% to 416,000 packages per hour. The company is on track to automate its tier 1 and tier 2 hubs by 2020. Moving forward, all new hubs will be built using an automated design. FedEx also understands the importance of technology driving profitability and is injecting huge investments into facilities automation in its new fiscal year. The company plans to invest nearly $2 billion in 8
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capital expenditures in its Ground division for fiscal year 2017. The investment will be used to grow its “highly profitable network” and will involve facility expansions and equipment purchases. FedEx’s largest sorting facility in Memphis, Tennessee, has miles of conveyors and can sort thousands of packages per hour. FedEx has built its own proprietary technology to control and manage sorting. As a result, FedEx requires IT vendors to provide a standard interface in order to integrate the sorting and scanning hardware into its proprietary and customized process. This process is part of its Integrated Sortation System (ISS). The system uses algorithms that controls when and where to divert each package based on data recorded by overhead dimensional scanners. While packages are sorted and loaded into vehicles, routes are being simultaneously optimized to provide the most efficient means of delivery. UPS’ On-Road Integrated Optimization and Navigation (ORION) system uses fleet telematics and algorithms to gather and calculate data to provide UPS drivers with optimized routes. The technology helps UPS drivers determine the optimal method to deliver and pick up packages within a set of stops defined by start time, commit time, pick-up windows and special customer needs. The system relies on online map data, customized by UPS, to calculate miles and travel time in order to plan the most cost-effective routes. Full deployment of the company’s 55,000 routes in the North American market is expected by 2017, however, UPS is already benefiting from ORION. In first quarter 2016, ORION lowered driver miles by one percent despite total delivery stops growing by six percent. In addition, overall productivity gains held direct labor hours to an increase of 1.8%, below the average daily volume growth.
Delivery technology is also empowering consumers. Over the years, FedEx and UPS have enhanced tracking capabilities, allowing consumers to determine where to direct their packages, customize delivery times, and provide special instructions to delivery drivers. UPS recently announced “Follow My Delivery” as a functionality within its UPS My Choice service. The service allows members to monitor the progress of their urgent UPS Air and UPS Worldwide Express packages on a live map. The map enables delivery recipients to see a detailed view of where their package is located as well as when it is out for delivery. UPS plans to expand the Follow My Delivery feature to more services in the near future. In addition, FedEx and UPS are active participants in the shift towards digital solutions. Over the years, the UPS Strategic Enterprise Fund has invested in such companies as Shutl, Deliv, and Roadie. The Fund’s purpose focuses on products, services, and technologies that can reshape industries and expand UPS’ ability to provide customers with business solutions that “synchronize the flow of goods, information, and funds.” FedEx sponsors the FedEx Institute of Technology at the University of Memphis and is also a sponsor of the Epicenter Logistics Innovation Accelerator, which brings innovative logistics products and technologies to market. Efficiency and speed are critical in today’s environment, and the companies with the best technology will have a competitive advantage. ¾
JOHN HABER is the Founder and CEO of Spend Management Experts. Contact John at solutions@ spendmgmt.com.
Mastering the Challenge of Developing a Parcel Budget In my experience working with shippers, especially large complex shippers, the parcel budgeting process is one of the most challenging tasks for transportation managers. As e-commerce and parcel growth rates soar, it has become increasingly important to master the challenge. The challenges are many, including designing an accurate budget, allocating to appropriate cost centers, managing monthly accruals, explaining budget variances, and re-forecasting. According to a recent Aberdeen Group report entitled “What Steps Are You Taking To Manage Your Growing Parcel Freight Costs?”, most parcel shippers are struggling to get a clear view of their true costs due to the lack of segmentation capabilities and inability to allocate costs as B2B and B2C business models converge. According to Aberdeen, only a portion of the best-in-class firms, which represent 20% of all firms, have the capabilities to segment, allocate, and track total landed costs in order to effectively manage their spend. In their view, this amounts to a competitive disadvantage for the 80 plus percent of laggards. The budget development process is the first hurdle transportation managers must overcome in the spend management process. There are a variety of techniques to creating an annual parcel budget and they range from simple to complex. The level of complexity typically arises from two main areas. The first relates to how spend is forecasted. Some firms utilize a simple run rate process and create a budget using historical spend accompanied with assumed growth and carrier rate increase assumptions. Alternatively, other firms choose a more complex route to project future spend that involves utilizing historical data to model modifications to their network, including changes in carriers, services, zone, weight, and rates. Furthermore, firms may segment budgeted costs to align results to their brands, customer type, and/or product types. They may also further develop drill down capability by various carrier, service, base freight, surcharge, and fuel parameters. While complex and time consuming to develop, this level of budget detail allows managers to effectively track and understand parcel spend for their business unit stakeholders, as well as explain budget variances. A second hurdle for managers is gaining visibility to actual spend and aligning it to the segments of a budget for “apples-toapples” comparisons. This is very important for understanding root causes for gaps between budgeted and actual cost. A budget with very little sophistication in segmentation makes apples-
to-apples comparison easy, but explaining variances becomes a challenge. Alternatively, firms with detailed segmentation as described above encounter extreme complexity when coding parcel carrier invoice data to align the spend to their budget segmentation. However, once this process is designed, explaining root causes for variances becomes a much easier and efficient task. As one can see budgeting and managing parcel spend can be extremely difficult. Thus, only a handful of firms are considered best-in-class in this regard. For readers who are interested in learning more about the key methodologies to developing a sound parcel budget and best practices for bridging actual results to expectations, I encourage you to attend Green Mountain Technology’s session at the PARCEL Forum, “Best Practices to Monitor Parcel Budget Performance,” on Wednesday, Sept. 14, from 12:40 - 1:30 p.m. Hope to see you there! Mike Lambert is Vice President of Strategic Solutions for Green Mountain Technology (GMT). In this role, Mike is responsible for the development and execution of all strategic Parcel Spend Management solutions that permit GMT clients to effectively plan, execute, and manage their parcel networks. Mike can be reached at mlambert@gmcps. com. Learn more about Green Mountain Technology’s Parcel Spend Management solution at GreenMountainTechnology.com.
SUPPLY CHAIN SUCCESS BY JOE WILKINSON
Peak Pain – Take Back Control eady or not, here’s comes peak. And with peak comes the inevitable concerns about late deliveries and upgraded (and expensive) service levels. Now is the perfect time to examine what lessons we can garner from 2015’s peak and, more importantly, strategize on how to improve things for the 2016 peak, now just a few short months away. The national carriers have invested millions of dollars and thousands of hours building flex capacity into their networks over the last few years. They certainly recognize the critical nature of the shift we are seeing in peak demand. However, there is a ceiling at which point further investments have less of return. I would argue that we’ve reached, or are quickly approaching, that point. So, if we cannot rely on the carriers to untie the peak season knot, what can we do? The answer is that we must take the responsibility back into our own hands. There are two primary ways to do this: SHIFTING DEMAND Several years ago, I wrote an article on the topic of unintended consequences in relation to carrier negotiations. Ironically, I’m writing about unintended consequences again, this time in relation to customer expectations. The prevalence of free, ultra-fast shipping has changed customers’ expectations and their buying patterns. We have seen customer orders shift closer and closer to Christmas at an alarming rate, as customers now have the 10
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expectation that they can order by December 21 or 22 and still receive guaranteed delivery in time for the big morning. Shifting that pattern backward on the calendar un-bottlenecks the network. Shippers can seek to do this in two ways: } Setting and communicating guaranteed delivery cutoff dates – These dates should be planned in conjunction with your carriers. } Promotions – Discounts on shipping and/or product price earlier in peak season can drive purchases forward. These offers should be heavily marketed towards those who have shown a propensity for late orders in the past. OMNI-CHANNEL We can think of the constraints in the carrier systems in large terms, as miles and touches. We can either reduce these two variables on the front of the chain, or the back. Ship-from-store can be an effective strategy in reducing both miles and touches. By pre-positioning inventory at stores, shippers can take miles (and days) out of the carriers’ holiday networks. This strategy would be implemented differently depending on the shippers’ store network, their technology infrastructure, etc. But most shippers could take advantage of the benefits to one degree or another. Using LTL and TL/IM to execute an escalated store-fulfillment process has the added benefits of driving down average cost per piece and reducing damages by reducing touches. A key-store approach is generally indicated, though careful analysis and planning should define the optimal strategy. We can also ease the load on parcel carrier networks by filling orders via LTL/FTL in the regularly scheduled store fulfillment process. Shippers would typically have to
increase the frequency of store fulfillment during the peak season, causing a seasonal increase in labor costs, which would be offset in lower per-piece transportation costs. But this happens whether you are using a ship-to-store strategy or not; the only thing that changes is the scale. While parcel carrier networks are over-capacity during this time of year, the same is not true, or not as true, for freight carriers. Many shippers rely on alternative carriers as a safety valve. But this is a dangerous game. It’s not just UPS and FedEx who face the challenges of peak volumes. Every carrier is essentially facing the same set of problems. If you ask another carrier to provide you with short-term capacity during peak, what you’re essentially asking them is to put further strain on an already strained system and put their existing customers’ shipments at risk. Most will take the volume, but you will see delayed or missed pickups, low or no discounts, and the same transit time issues you were already experiencing with your current carrier. And all of this will come with little or no discount, so your average cost per package will undoubtedly skyrocket. The carriers cannot be expected to pick up all of the slack. But you can control your peak. It takes foresight, out-of-the-box thinking, and a commitment, but it can be done. For more information on dealing with the pressures of peak, plan to attend enVista’s presentation, “How to Perfect Peak Performance” at Parcel Forum. ¾
JOE WILKINSON is Director of Consulting within the Transportation Solutions Group at enVista. He has more than 17 years of experience across all modes of transportation including parcel, LTL, rail, ocean and air freight.
When Experience and Intuition Aren’t Enough What Supply Chain Departments Need to Know About Their Data
Supply chain departments are increasingly relying on data to drive their operations, processes, and efficiencies. More than ever, they need detailed, specific facts and figures to guide them in making decisions that will impact not only their department, but their entire business. If those facts and figures — and the data they represent — are inaccurate or at all lacking, the bottom line could suffer. Recently, RSR Research released some statistics about data adoption in various industries — specifically how much emphasis they place on data over other methodologies like experience and intuition. Respondents were asked to choose between three options: • Primarily Data-Oriented (45%) • Data + Experience/Intuition (45%) • Primarily Experience/Intuition (9%) A surprising number of supply chain respondents answered they were “primarily data-oriented” (45%). For anyone who has worked with logistics-related clients for many years, their own “experience and intuition” might lead them to believe that number would be much smaller. The fact that it’s not, however, is a good sign. It means that more supply chain departments are making more decisions based on quantitative rather than qualitative measures. Shifting the focus so heavily towards data raises other concerns: specifically, it demands more from a company’s data — not only in terms of quality, but also in frequency and consistency. In other words, companies must ensure the data on which they are basing their most important supply chain decisions is high-quality and continuously monitored and updated to account for the latest changes; otherwise, it’s garbage in, garbage out. The other thing that supply chain departments must consider as they rely more heavily on data is the analysis of it. For example, it is not impossible for parcel shippers to actually lose money after renegotiating their carrier contract if they incorrectly base their negotiation on certain data sets they thought would favorably impact their parcel spend, but that in the end turn out to be only a symptom of larger problems. Often, if the data
and data analysis are both bad, shippers will discover that their renegotiation ignored the other “under-the-surface” issues, which were the true cause for the rising costs. It’s a positive step forward that more supply chain departments are relying on data to make decisions, but unless the data is good, current, and properly analyzed, the solutions created based on that data will likely be just as bad — if not worse — than the problems they were intended to address. And for the 9% of companies or shippers in the minority, relying on experience and intuition to guide their business decisions, make sure not to get left behind. If your competitors are using data, you should be, too. VeriShip is a cloud-based parcel audit and intelligence company providing innovative parcel audit, intelligence, and engineering solutions.
www.veriship.com firstname.lastname@example.org 800.903.3073
OPERATIONAL EFFICIENCIES BY SUSAN RIDER
10 Things to Increase Efficiency and Accuracy in Order Picking rder picking in most distribution centers is where the highest concentration of people are located, which creates the highest cost area of the warehouse. The pressure will heat up in most distribution centers this month in preparation of holiday peak orders. There may be some subtle differences that you can make to switch things prior to the season that will save you some dollars over the next few months. The unfortunate reality for many distribution operations is the staff is so lean and mean there’s only time to get the orders out the door. Many managers are working overtime, putting in long hours just to get their “day job” done. If this is the case, it would pay to hire a part-time consultant/analyst or bring someone in to do an operational audit. Maybe this list will help in determining some opportunity for improvements. 1. Mind Shift Changing the attitude of how you review other opportunities is the best way of creating a more efficient operation. Staying open to new processes, flows, and ideas will give you a better picture of what can be possible. 2. Timing Review the timing of order releases and the commitments. Does it make more sense in your batch release to change the commitment? For example, a simple cutting the “in by time” by one hour changed the batch size and increased throughput and productivity in a facility by 15%. 3. Layout Review your layout and notice 12
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if some repositioning would increase walk time and travel time. Would a different type of storage rack be more efficient? Would a more dense pick increase productivity? SKU Storage Do you have all the SKUs, no matter the velocity, stored together? By breaking down the fast, medium, seasonal, and slow SKUs and creating separate pick areas, you may increase productivity by over 25% or more. Review the velocity of your SKUs to determine the impact or gain. OP Style Believe it or not, there are different styles of order picking, and they are more appropriate for specific order profiles, storage mediums, automation, etc. If you are “strict picking” (one person picks the entire order), review what a change to pick and pass would accomplish. Or if you are cart picking, a common mistake is to go from organized storage to a disorganized cart only to a check area, which is back to trying to organize the mess. Accuracy may become an issue also. Analysis By looking at the whole process from beginning to end and then breaking it down to a process flow on paper, it is easier to determine what can be done to improve. Simply doing a 30-minute review by area each week will improve the whole picture over time. Square peg? You have heard the “square peg in the round hole adage.” Think about it from your team’s perspective. Look at your people and make sure you have the best and brightest in the most costly, time-sensitive areas. In a retail distribution center, no one wanted to pick in the direct to consumer area, so they put the slowest and less tenured
people in that area. As you may have guessed, they had trouble getting the orders out the door. Make sure your order pickers know how important their task is, and have some sort of accountability in order to track the accuracy of each. Rewarding perfect order percentages per month is very significant in showing other associates how important it is to the customer. 8. Replenishments This is a common area that can be improved. If you find the order fillers having to wait on product, it may pay to stagger the shifts of the people that replenish stock locations. Also, if a normally good picker seems to all of a sudden start making errors, you may want to check the person replenishing that area. If the product is replenished wrong you may have a really good picker picking the wrong product at no fault of their own. 9. Packing If you have a packing or rechecking area, review this flow and touch times. This is an area that usually can be improved. Over time if checks, rechecks, and check again steps have been added reactively, there may be a better way. 10. Shipping Definitely look at this area. Box size, bundling, and using the best rate to certain areas may save hundreds of dollars a month. PARCEL Forum in September is a great place to get ideas that will save you thousands of dollars on shipping cost. ¾
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at email@example.com.
A New Way to Ship An online retailer since 2006, Wholesale Marine offers it all. Most of their products are individually packaged and shipped, resulting in a huge range of parcel sizes and weights. With nationwide distribution and the best prices for high-quality products, Wholesale Marine stocks approximately 20,000 different SKUs and can ship more than 2,000 items in a single day during the peak of summer. Wholesale Marine has always held up their promise of great service and great prices. However, when large postal carriers started making changes to billable weight processes, Wholesale Marine felt the consequences. Prior to dimensional weight shipping, Wholesale Marine shipped products exclusively on actual package weight. But when carriers enacted dim weight to better maximize capacity, businesses like Wholesale Marine became susceptible to fees and back charges from miscalculated dimensions and freight compliance issues. Wholesale Marine owner Jim Stewart says, “We were doing a manual product sort and grouping with what we thought was the cheapest shipping, but we weren’t capturing the dimensions.” Frustrating dimensional shipping experiences and extra fees convinced Stewart to find a better way to ship product. For dimensional weight billing, having accurate cubic dimensions is key. Dim weight reflects the amount of space a package utilizes in relation to its weight. Carriers charge shipping based on either the package’s actual weight or its dimensional weight — whichever is greater. Determining dimensional weight manually can be laborintensive and it also leaves room for human error. Even when Wholesale Marine manually measured and determined the best shipping, they still ran into problems when trying to challenge charges. “We were getting an after-the-fact surcharge with no way to dispute it,” says Stewart. He realized that the company needed a reliable and efficient system to document package dimensions and weights to help them get the best shipping rates for each individual item shipped. Wholesale Marine also needed a solution fast — and they found one with Rice Lake’s iDimension™ 300.
The iDimension at Wholesale Marine’s distribution center is installed over their shipping conveyor line and synced with third-party postal software. Dimensions, images and weight data, as well as rate comparison and label printing are now streamlined to one central workstation. Wholesale Marine can definitely see the value. “I have confidence that I am getting the least expensive shipping method, especially when we offer free shipping,” Jim Stewart states. Wholesale Marine has been offering the best prices and best service since 1979. iDimension fits their company philosophy well by ensuring the business gets the best rate when shipping high-quality products to boating enthusiasts nationwide.
iDimension 300 is a dimensioning system that instantly captures dimensions of packages and irregular shaped parcels and converts them into cubed dimensions. Since it operates on 3D imaging and sensing technology with no moving parts, maintenance is virtually non-existent. Web service is accessed with a DHCP IP address and a free API allows users to interface using a simple HTTP request and XML parsing method to store data for their records.
www.ricelake.com firstname.lastname@example.org 800.472.6703
SHIP RIGHT BY CHRIS GILES
A World of Difference he e-commerce part of the sending puzzle is already big, but it’s getting even bigger. According to Forrester Research, 2016 will see an estimated $1.86 trillion in e-commerce sales worldwide. That’s double the amount five years ago. Furthermore, researchers at eMarketer project that global e-commerce sales will almost double again in just three years, reaching $3.5 trillion in 2019. Plus, the world is getting wider, unlocking new opportunities to businesses of all sizes. In January 2015, the US Commerce and Treasury Departments opened up trade with Cuba. US companies are now allowed to sell “tools, equipment, supplies, and instruments for use by private-sector entrepreneurs.” Prior to this agreement, American businesses were permitted to export only food, medicine, and medical supplies to Cuba on humanitarian grounds. New rules are also letting American banks directly handle transactions from Cuban banks. Previously, American companies had to receive payment before shipping anything out to Cuba, but now Cubans can pay for products upon delivery. The United States Postal Service recently jumped in, announcing Priority and Priority Express shipping to Cuba, starting this fall. Cuba is just one example of a previously daunting, now doable market. Businesses used to avoid shipping to many ex-Soviet states because of security issues. Today, parcel handling operations within those countries are far more reliable and secure. REGULATIONS VARY, CHANGE CONSTANTLY While there’s a world of difference in how 14
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business is done globally, there’s also a world of difference in how shipping is handled, country to country. You can’t just throw a label on a package and call the carrier to pick it up. Customs regulations vary wildly. These start with the acceptability of the products themselves. You can’t ship musical greeting cards into Bulgaria or chewing gum to Singapore. India won’t accept remote control helicopters and drones, and Algeria bars dental products with fluoride. South Africa, Mexico, and India all have bans on matching pairs of shoes. Then you have items that are illegal across the board or demand special care. For example, firearms, some categories of hazardous materials and oversized packages can’t be shipped anywhere, while other items can only be shipped in certain packages with special labeling, together with appropriate permits. These include products subject to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), plus other wildlife products and items that contain lithium batteries. Shippers are often required to provide accurate product descriptions, covering ingredients, material composition, components, and declared country of origin. Products may need additional information to clear US Customs, such as test certifications, registration, and manufacturer ID numbers and value breakdowns. When this information is lacking, the shipment is delayed. Furthermore, rules are constantly changing. For example, more than 100 countries impose a value-added tax (VAT), ranging from 10% to 25%. These vary as governments strive to get their share of the growing cross-border trade. Not abiding by the reg-
ulations can cost the shipper serious fines and may even have legal consequences. HELP COMES DOWN FROM THE CLOUD Navigating this complex shipping environment is difficult, but fortunately there are new, automated, cloud-based solutions making a world of difference to the international shipping challenge. Although the systems vary in their levels of capability, there is an option for every business no matter the size. For high-volume shippers, there are fully automated e-commerce solutions that determine which customs and shipping forms are needed, looking up and correctly calculating HS (Harmonized System) tariffs. HS classifications determine the forms required and costs incurred, but vary by country, and if these forms are incorrect, the item won’t be delivered. High-volume systems completely expedite shipments, so customers know the landed cost upfront. Low- to medium-volume office shippers also need international guidance — and systems now can direct them through the process. Such solutions can automatically select the correct customs form for the value and weight of the package. They guide users through completing the customs information and provide HS tariff lookup to accurately assign the correct code for each item in the shipment. These solutions can create a single form on which payment, address, and customs details are all printed at the same time. They can even report tracking history from origin to destination, anywhere in the world. ¾
CHRIS GILES is Vice President, Business Development, Global Product Management, Pitney Bowes.
Stake Your Claim in the International E-Commerce Market There’s a big world outside the United States and it’s ready to buy your product. B2C e-commerce sales are expected to reach over $2 trillion this year, with much of the growth coming from international markets including Asia-Pacific as well as Argentina, Mexico, Brazil, Russia, Italy and Canada, according to eMarketer Magazine.
“The strength of sales in emerging markets is largely due to their large populations coming online and buying there for the first time,” - eMarketer Magazine With such growth in e-commerce buying, why aren’t more U.S. businesses staking their claim to this international trade bonanza? Let’s take a look at some of the perceived challenges and ways to address them. Challenge 1: Shipping and Insurance Costs Unless you’re selling high-value items, shipping individual packages to international locations can be cost-prohibitive. With some carriers and services, the cost of shipping an item can be more than the cost of the item itself. Customers want your product, but not bad enough to pay double for it. Another expense that businesses struggle with is parcel insurance. They often feel that purchasing insurance is a waste of money — especially if parcel insurance only covers the cost of the item, not the cost to ship it to the buyer. But, without insurance, if the item is lost or damaged the e-commerce business owner is out the cost of the item, the cost of shipping, and perhaps out a repeat customer. Challenge 2: Complexity of International Commerce It’s no secret that cross-border e-commerce shipping can be complex. There are multiple forms to complete, multiple price schedules based on country groupings and discount tiers, and numerous weight cutoffs; not to mention restrictions and prohibitions which are different for each destination country. Perhaps the most confusing and intimidating part of the international shipping process is completing the required customs forms.
So what’s the answer? How can you get around the cost and complexity issues when shipping internationally? A new service called GlobalPost could help. GlobalPost is a secure, low-cost worldwide shipping service that specializes in making international shipping easier and more cost-effective by providing reliable delivery, affordable rates and high-quality, dedicated customer service. GlobalPost is designed specifically for businesses that ship parcels weighing up to 4.4 pounds with a total value of $400 USD or less. How does GlobalPost save you money? When using GlobalPost as your shipping service, your package is sent via USPS to a secure GlobalPost Shipping Center where it is sorted, bundled and fast-tracked to your destination country. This bundling method saves you up to 20 percent off shipping an individual item internationally… without sacrificing delivery speed. Once the parcel reaches the destination country it enters the mail stream and is delivered to your buyer’s door. In addition to providing lower rates than traditional services, GlobalPost provides package coverage up to $100 in value against damage or loss, at no additional charge. And unlike traditional carrier insurance, GlobalPost not only covers the cost of the items inside the package, but also the cost of shipping should the parcel be lost and not reach its final destination. What makes GlobalPost easier to use than traditional methods? With GlobalPost, you do not need to worry about customs documentation. You provide the shipment information through an easy-to-use application and GlobalPost does the rest. No more wondering what forms to use, how many you need, or if you’ve completed the information correctly. With GlobalPost, e-commerce businesses can now more easily, securely and confidently reap the rewards of selling internationally. To learn more about GlobalPost and how it can help businesses ship internationally more securely and cost effectively, visit www.goglobalpost.com
Amine Khechfé, Chief Strategy Officer, Stamps.com and co-founder, Endicia 650.321.2640 email@example.com
TRANSPORTATION ABCS BY BRITTANY BEECROFT
Incorporate the Inbound to Optimize the Outbound he trend of shifting inbound from the procurement department to transportation managers in order to blend inbound and outbound into your contract can inherently create savings. But we cannot just throw inbound into the mix to realize these savings — we need to be strategic with dock capabilities, staff needs, and operational efficiencies. Savings is but one benefit of blending the two shipping methods. While incorporating inbound freight into our outbound network can present challenges, the shift does not need to create roadblocks. So why aren’t we doing this more often? Controlling inbound freight can be a difficult process. We see procurement teams battling transportation managers. We see agreements between shippers and recipients impacted when aggregated revenues shift. When we have two teams charged with containing transportation cost, any net increase in price could result in a decrease in workforce. When evaluating corporate non-product costs, companies fail to recognize the importance of inbound freight. Outbound takes precedence as we tend to have tunnel vision to the end consumer. We aren’t always as focused on how we got the product to our store or plant as we are how efficiently and effectively we got it off the shelf or out of the online cart. Shipping isn’t free. And paying too much on inbound freight has a direct relationship with outbound fees. But we got the inbound shipments to us, and didn’t have problems, so why waste 16
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time thinking about it. Isn’t that the vendors’ problem to control cost and guarantee delivery? Shouldn’t my procurement team be creating business plans and establishing metrics for our executives as the face of inbound freight management? Ideally, yes. But what’s simple in theory can be excruciating in execution. A large retailer could have over 1,000 vendors shipping merchandise to its locations, which means thousands of account numbers. Just gathering data on all the inbound shipments — and being able to benchmark if cost is market-competitive — is complex. Because what determines competitive? Best-In-Class pricing is not one size fits all — demand and economies vary between regions. Distribution centers in Los Angeles, Nashville, and Baltimore may not be able to, or need to, incorporate inbound freight into the facility. Especially if the carrier contract is at the nine digit level versus parent account or if the centers house different product lines. If one facility ships shoes, while another distributes golf clubs, competitive pricing is relative to the fees being assessed. Competitive pricing can become irrelevant if we can’t get the products to the facilities. Equipment and dock demands need to be reviewed. If the inbound arrives on skids, do we have sufficient dock labor to receive the shipments — and do we have sufficient space on the dock? If pick and delivery occur from the same facility, do our trucks have adequate space to handle the inbound and outbound freight? Does the outbound require a special operational buffer (dry ice, oils, etc.) that, if spilled, can impact the speed to facility of the inbound freight should the fleet need to be cleaned?
Clean fleet and competitive contracts only exist if our procurement team communicates with our transportation managers. When business goals don’t align, we see teams working against each other. Transportation managers not only focus on current rates but also forecast for growth. They may be incented to create savings over goal, whereas our procurement team receives no incentive beyond goal. We are working for individual and team recognition, but the pieces aren’t always stronger than the whole (the company). We need leverage to negotiate. We lose leverage if we don’t know what we’re paying for the freight because our vendor doesn’t provide visibility to inbound costs. Vendors may see inbound shipments as their freight and subsequently do not feel outbound managers need access to implement controls. If we shift inbound freight from an outbound collect cost to a cost now incurred by the recipient, we risk the vendor facing a net rate increase if the contract is set up based on revenue tiers. While pricing the segment of inbound shipments specific to our company, the overall impact to the vendor agreement may be compromised if our inbound freight isn’t the driving revenue in the tiers. Why shift the freight? We can imagine numerous challenges — what are the benefits? Visibility, predictability, and opportunity. Visibility into the supply chain. Predictability in inventory. Opportunity in cost containment. We can’t be lean if we don’t trim the fat between inbound and outbound freight. ¾
BRITTANY BEECROFT is Regional Sales Vice President at AFMS. She can be reached at brittany.beecroft@ afms.com.
The Transportation Management System — Reinvented In today’s data-driven world, most transportation management systems are stuck in the dark ages. Shippers are left to simply guess how to reduce costs. ShipLinx TMS is completely different. First, ShipLinx TMS is part of an integrated ecosystem. With a single Rating Engine and Intelligent Invoice ManagementSM, the easy-to-use API links the order, shipment and invoice data together. Custom routing rules in the TMS are used during rate modeling to reveal where your shipping costs can be reduced. When new pricing agreements are set, one click pushes rates to the TMS, invoice payment system, and analytics. ShipLinx TMS is one of the few that both plans the order and executes the shipment. Freight rates, shipment information and tracking numbers populate in the ERP/WMS when packages ship. Execution is more efficient because planning is part of the integrated ecosystem. ShipLinx can be customized to capture any data and integrated with any ERP/WMS — making shipment processing faster and less costly for any carrier, mode or location. However, sometimes a completely new TMS is not the answer. Because of the IT costs and associated problems caused throughout the company’s infrastructure by changing a TMS, sometimes the worst thing you can do is to rip it out. Instead, ShipLinx TMS may be applied to augment the current TMS. Often, there’s a particular mode such as small parcel or LTL (less-than-truckload) where ShipLinx TMS can step in. ShipLinx can be used to provide analytics for Intelligent Invoice ManagementSM (IIM) to improve freight management. Modeling Analytics are helpful when a shipper wants to make a change such as adding a new carrier, changing a mode or changing where freight is shipped from/to. Rate Analysts pull the data from IIM and have ShipLinx TMS re-rate the sample to show the results of the change. After the shipper decides to make a change, ShipLinx TMS analyzes each incoming invoice in IIM for a “before and after” comparison. The Dashboard displays the difference to ensure that the shipper is obtaining the results they wanted. The shipper can now take steps to solve the problem while working with the customer to ensure that any routing changes being made won’t affect the service the customer requires. That’s the power of the data and real-time analytics that only ShipLinx TMS can provide.
While only ShipLinx TMS offers the full advantages of our integrated software suite, you can easily integrate our other ShipLinx offerings — ShipLinx 4 for execution and ShipLinx for small parcel — into your existing TMS to improve your shipping operations. Our team of experts will make sure we quickly implement the solution that works perfectly for the needs of your company. Don’t remain in the dark by managing your freight planning without all the information you need. ShipLinx Transportation Management System gives you the ability to manage your shipping strategy, planning, execution, and analysis more efficiently. Learn more about how ShipLinx TMS can work for you at ratelinx.com/enterprise/shiplinx-tms
TO SUM UP... Think About It
If there’s one thing that I’d bet on, it’s that carriers will increase accessorial charges in 2017. That’ll hit hard at B2C e-commerce with higher residential surcharges, delivery area and extended delivery area surcharges, and fuel surcharges. Expect them all to go up. — SHAUN ROTHWELL
The challenge facing many operations leaders is the “original” retail distribution center was designed to process orders with a higher volume of multiple products. The continued growth of online purchasing and other supply chain trends is creating a major shift from high-volume shipping to selecting orders from a wide range of products and handling/shipping these “tiny orders.” — NORM SAENZ, JR.
WHILE THERE’S A WORLD OF DIFFERENCE IN HOW BUSINESS IS DONE GLOBALLY, THERE’S ALSO A WORLD OF DIFFERENCE IN HOW SHIPPING IS HANDLED, COUNTRY TO COUNTRY. YOU CAN’T JUST THROW A LABEL ON A PACKAGE AND CALL THE CARRIER TO PICK IT UP.
Analyzing the minimum shipment charge can also produce significant savings. For those shippers who are impacted by the Ground minimum shipment charge, they saw YOY total increases of 34.2% over the last five years. — TIM SAILOR 18
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Ship-from-store can be an effective strategy in reducing both miles and touches. By pre-positioning inventory at stores, shippers can take miles (and days) out of the carriers’ holiday networks.
Clean fleet and competitive contracts only exist if our procurement team communicates with our transportation managers. When business goals don’t align, we see teams working against each other.
Many disruptive events tend to start at the local level or have very different kinds of impacts from location to location — which is why in addition to having a bigpicture, corporate-level supply chain management contingency plan, each of your company’s manufacturing sites, warehouses, and terminals should also have its own individual one.
— BRITTANY BEECROFT
— DAVID FRENTZEL
— JOE WILKINSON
Five Key Questions to Ask a TMS Provider About Its Parcel Solution Supporting parcel is not easy. It’s actually downright complex thanks to the specialized compliance rules each carrier has. As a result, some TMS providers try to dip a toe into the parcel pond by “supporting parcel” without really supporting parcel. Rather they handle the basic services like ground while also supporting a limited number of add-on services. This parcel module might even rely on the carriers’ web services behind the scenes, which adds another layer of concern. But here’s the kicker: this might be fine for some businesses. If you have a single carrier and don’t really care about network latency, then this type of set-up could work just fine. For many shippers, however, this isn’t enough. The goal for all shippers should be to have a versatile supply chain strategy that provides various transportation options and sets no limits. The most overlooked challenge for TMS providers trying to support parcel is compliance. Each carrier has its own rulebook that it requires shippers to abide by, and these rulebooks change constantly. So it’s not just a matter of getting compliant, it’s a matter of staying compliant. Even TMS providers that rely on parcel web services think it’s a one-and-done effort, but those web services also need to be kept up to date. Without question, staying compliant is the most difficult part of supporting parcel carriers, and the certification process for each carrier can be quite involved. Keep in mind that this is for every parcel carrier every year. So if you’re looking at a TMS vendor and they say “we support parcel,” you should ask the following questions to ensure you really understand their solution: 1. How did the TMS provider start supporting parcel compliance? Did they purchase a best-of-breed parcel system? Did they create it themselves? Are they partnering with another vendor? 2. If the carrier requires a compliance change for labels, what is the process to get these? Will you have to update your entire TMS?
3. How many people does the vendor have dedicated to maintaining carrier compliance? What about development and quality assurance? If they don’t have 10+, then this can be a red flag. 4. What is the process to on-board a new carrier that the vendor doesn’t currently support? Can you do this yourself or does the vendor need to get involved? How long does it take — days, weeks, or maybe even months? 5. How deep and broad are the carriers they support? It’s important to make sure you’re covered not only for what you need today, but also for the future and what it might hold — things like international shipping, hazardous materials, last mile, high performance, etc. As you can see that there are a lot of things to think about when it comes to TMS and parcel. But asking the hard questions now will save you many headaches down the road and set you up for success.
www.kewill.com firstname.lastname@example.org 978.482.2500 Booth: #332
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HOW DO THE CARRIERS STACK UP? PARCEL is proud to release the results of our 2016 carrier performance survey. By Amanda Armendariz It’s always interesting to see the results of various industry surveys. Not only can they help us benchmark our experience compared to our competitors’, but they allow professionals a chance to share their experiences with others. In this carrier performance survey, we asked our readers to tell us how UPS, FedEx, and the USPS fared in terms of service, pricing, transparency, and more. It’s interesting to note that most of the scores fell solidly in the 60-70% range. Definitely not shabby, by any means, but certainly not a gold medal score, either. But yet, shippers often feel trapped to some extent by the Big Two, assuming that the alternative options would not work for their operation. Could this lead to a sense of complacency among UPS and FedEx? That is certainly one hypothesis (but let me be clear, UPS and FedEx are also extremely competent at serving certain segments of the marketplace; no one is suggesting they do not serve a valuable purpose!). And there are definitely bright spots;
FedEx Did you use FedEx in the last 12 months for domestic parcel shipping? No Yes
But if shippers are feeling frustrated by the not-so-impressive aspects of UPS and FedEx, why do they not explore other options? Some definitely are; the numbers of folks using USPS has gone up, even if the number is lower than those using the Big Two. And while most of the USPS scores are lower than those given to UPS and FedEx, I am willing to be that these scores go up as the USPS continues to make improvements to its ever-growing parcel network. Furthermore, more and more shippers are exploring partnerships with regional carriers, which means that the industry as a whole could be getting closer and closer to establishing the perfect carrier mix.
UPS Did you use UPS in the last 12 months for domestic parcel shipping? No Yes
when it comes to delivery performance and on-time service performance, both UPS and FedEx scored very close to (or even slightly above) an 8 on a scale of one to 10. Since the Olympics are on my mind as I write this, I’m going to say that these are bronze medal honors. Very impressive!
USPS Did you use USPS in the last 12 months for domestic parcel shipping? No Yes
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Rating the Carriers Customer Service
FedEx | 7.18
FedEx | 7.12
UPS | 6.78
UPS | 6.15
USPS | 5.69
USPS | 4.93
On-time Service Performance
FedEx | 8.15
FedEx | 6.89
UPS | 7.84
UPS | 6.32
USPS | 6.27
USPS | 4.76
FedEx | 7.99
FedEx | 6.41
UPS | 7.70
UPS | 5.59
USPS | 6.90
USPS | 6.25
Pricing (published rates for service levels, willingness/fairness of negotiations)
(driver courtesy, package handling)
Refunds for Late Delivery
Other Insights into Our Industry Do you think that there is enough competition in the parcel delivery market to keep pricing reasonable and service good? Yes 22
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Do you think that the cost of transportation will be a greater percentage of gross company revenue in 5 years than it currently is? Yes
How important are regional carriers to your shipping mix? 19.1% Very important Important
Somewhat important Not important at all
Shippers’ utilization of regional carriers is indeed growing, but the number of shippers who state that regional carriers are “not at all important” to their shipping mix is still the majority. I would wager that as e-commerce continues to grow (which means more residential deliveries and the corresponding UPS/ FedEx surcharges), the number of shippers utilizing regional carriers will rise dramatically.
If regional carriers are part of your shipping mix, what percentage of parcels do you ship with regional carriers? 2.0% 6.0%
6-10% 11-25% 26-50%
More than 50%
If you use regional carriers, what is the PRIMARY reason you chose to do so? Cost Service Speed
16.33% 4.08% 10.2%
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Check all of the carriers and levels of service you have used so far in 2016: FedEx Next Day | 75.9% FedEx 2-Day | 71.3% FedEx Ground | 83.9% UPS Next Day 69.0% |
UPS 2-Day | 70.1% UPS Ground | 81.6% USPS Next Day 40.2% |
USPS 2-Day | 48.3% USPS Ground | 64.4% LTL | 63.2% Parcel Regional Next Day | 12.6% Parcel Regional 2-Day | 9.2% Parcel Regional Ground | 16.1% Local Next Day | 13.8% Local 2-Day | 3.4% Local Ground | 16.1% Consolidator Next Day | 2.3% Consolidator 2-Day | 3.4% Consolidator Ground | 5.7% Same Day Service (i.e. airlines) | 13.8%
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What is your biggest complaint about your primary domestic parcel carrier? Accessorial Charges | 38.4% Claims Processing | 2.3%
If you have modified your PRIMARY carrier in 2016, please check the statement that best describes your reason for changing. Needed to achieve better pricing
Customer Service Response | 5.8% Driver Behavior | 1.2%
Dissatisfied with service
Fuel Surcharges | 10.5%
Changed our level of service (i.e., air to ground)
Fuel Surcharge Reversals | 1.2%
Negotiating Contracts | 4.7%
Reduced the number of carriers used
On-time Performance | 4.7%
Diversified to use more carriers
Invoices | 1.2%
Rebid transportation and a different carrier(s) won
Pricing | 19.8% Refunds for Non-performance | 0.0% Relationships with Carrier Reps | 2.3% Residential Deliveries | 2.3% Service Failures | 5.8% Tracking | 0.0%
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By Kim Brown
DISTRIBUTION NETWORK PLANNING: PART ONE By taking certain steps, you can successfully complete a potentially daunting task and improve your organization’s inventory flow in the process.
hat is Distribution Network Planning? This is a strategic plan that incorporates how many facilities you want to have, what your inventory and logistics strategies are, as well as makes certain to support your customers’ expectations. The plan also needs to be able to be flexible and adaptable to support changing business conditions (growth in business, increase in freight costs, customer profile, etc.) So how do you go about creating a plan? Sounds rather daunting, right? Let’s just take it step by step. First, you need to decide what your “go to market” strategy is. These are some of the questions that you should be asking yourself: Where do you want to spend your money — buildings or freight? Do you want to have one location and potentially more freight costs? Or do you want to be closer to your customers to minimize freight and reduce time in transit? What about the additional cost of operations in multiple places? Thus, the cost of operating multiple sites should be balanced against the costs of freight and the potential revenue gains from reduced
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time in transit to your customers. The key is to create the most cost-effective distribution network while still meeting or exceeding your customer expectations. Something to help you determine your “go to market” strategy is doing distribution network modeling. This is where you collect data to determine what the cost versus service trade-off is for your business. This type of modeling can help answer how many locations you should have, where they should be located, and what markets they should serve. You can do “what if” scenarios to determine the alternatives based on differing service levels to your customers. The type of data to collect is: where your customers are located, how many customers you can service within a certain time frame (for instance, one-to-two-day freight footprints), and what the cost of freight is from those points. Using service area maps on carrier websites is a great place to start in determining the service area. One other question that is often overlooked is what your strategy is in regards to freight. Are you using national parcel carriers, regional parcel carriers, less-than truckload (LTL) carriers, or truckload (TL) carri-
ers? Or a mix? This question can also help you to determine your service market areas based on where these carriers are located. Once you determine your service market areas, you need to look at what your inbound and outbound freight profiles will look like to determine what your freight costs will be. Something to take into consideration when you are looking at your inbound profile is: will shipments be vendor-direct to the new site, or will the product be transferred from a central distribution point? This can depend on where the vendor is located as well as what the minimum order quantity is for that vendor. This also leads to inventory strategy questions such as: Is it less expensive from a purchase order standpoint to do one purchase order and split the inventory between sites via transfers? Or is it better to have the vendor ship to multiple sites? How often is the product ordered? What is the lead time of the product? What safety stock level should you have at each distribution center to support customer fill rate? As for the outbound profile, location of the carrier hubs and what your potential pick-up time is for each carrier weighs heavily on which carrier to use as well as
where to locate your site within the service area. The key is keeping your focus on your customers’ needs. For instance, if you are a same-day shipper, you will want pick-up times as late as possible to allow for customer order processing. This is where the distance from the hub can be crucial. For instance, try and stay within 30 minutes of the parcel carrier hubs. The closer you are, the later a pick-up can potentially be! Another point to your outbound profile is whether a trailer is dropped or if you have to live load your boxes for your carriers. This can impact your processing time and thus how late you can have customers order for same-day shipping. Also, for both inbound and outbound profiles, you will want to take into consideration what type of product you are shipping. For instance, large and heavy items should be stored as close to the customer as possible to reduce overall freight costs since these will most likely qualify for additional handling fees unless you have the surcharge waived or discounted by your carrier(s). Additionally, shipping
dangerous goods (lithium batteries, aerosols, lubes, etc.) to customer expectations may mean storing these types of products at the closest distribution center to avoid having to do the extra paperwork and pay the extra expense to ship these by air. Can you do your own modeling or should you have help from a consultant? This is a tricky question and really depends on how much analysis you already do as a company. You need to have access to historical data and know what your growth expectations are so you can adjust for that future growth. The national parcel carriers have a team inside their companies to help with this. There are also many very talented consultant teams out there that can also do this. Be aware that whether they are done internally or externally, these types of projects do take approximately 12 weeks to complete. Once the distribution network modeling is done, you then need to look at the pros and cons of the local sites that are being suggested. There are corporate income tax and other tax considerations that need
to be taken into account when locating a facility. For instance, corporate tax in California is nine percent, but right across the border, Nevada is 0%. Keep in mind, however, that there are other costs of doing business as well. What is the local wage rate? Is there a large enough labor pool to pull employees from? What are the local lease rates? Or is it better to purchase a building? What are the local utility costs? Depending on how many facilities the modeling is suggesting, you will want to weigh the operational costs — building, utilities, wages, equipment duplication, size of the buildings needed, and inventory carrying costs as well as additional IT costs and additional administration/ overhead costs. Once the plan is completed, the next phase is implementing the plan! We’ll cover that in part two, which will appear in the November/December issue of PARCEL. ¾
KIM BROWN is Director of Distribution, Quality Bicycle Products. She can be reached at email@example.com.
Top TRANSPORTATION DATA By Tim Sailor ANALYSES THAT GET RESULTS
e have all heard that knowledge is power. This could not be truer when it comes to managing your transportation expense. In today’s world, the carriers have made it difficult for shippers to get the information and data that they need to effectively manage their carrier contracts and expenditures.
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When shippers enter into discussions on renewing or replacing their existing carrier agreements, they are usually told by their representatives that they will give the shipper their best possible deal. Well, what does that mean? And, how do you compare it with the other offers on the table? Many shippers (and consultants) try to back into the “best deals” by employing
benchmarking and/or trying to understand the carriers cost to serve models. I believe that a better approach is to use data and analytics to determine which factors increase your carrier expenditures and dilute contract discounts. After studying and evaluating thousands of different shippers’ carrier costs, we have found that five simple analyses can identify and significantly drive down hidden costs.
UNDERSTANDING THE GRI AND ACCESSORIALS The biggest culprit in increasing costs is the carriers’ annual General Rate Increase (GRI). FedEx and UPS announce these GRIs by saying that the annual increase will “average” a certain percentage. The biggest problem with this approach is that the increase is not applied equally across services, weights, zones, and residential deliveries. Since shippers typically have fixed discounts off of tariff rates, most shippers don’t know the true impact to their bottom lines. This year, the carriers announced a 4.9% increase. However, if you are a residential shipper who ships packages weighing from one to 10 pounds, you took a 7.3% increase. Big difference! It’s necessary to evaluate net rates for each weight and service level using the carrier-provided net rate sheets. Then, to determine the actual dollar cost to your company, apply the new 2016 net rates to your 2015 actual usage. This will
show you to a penny what your increase will be, including the minimum shipment charge. We have also found that negotiating a GRI rate cap will also limit these increases and ensure an equal, acrossthe-board application of the new rates for all weights and services. In addition to the GRI net rate increase, the carriers also impose annual increases to their accessorial fees. These increases can also be significant. This year, FedEx increased the Additional Handling Fee by $1.50, or 16.7%. Again, apply the new rate to your 2015 historical usage to get the net increase to your organization. By quantifying the additional costs, it’s possible to go back to the carriers and ask for additional discounts to offset the tariff increase. We take the same approach to calculating all accessorial fees. Most carrier reporting will break out the accessorial fees and show you annual shipment totals and cost for each surcharge.
Other common accessorials are the DAS fee and Residential fee. DAS fees have increased a total of 13.9% over three years, and residential fees have increased 15.3% over three years.
3 Year Increase
Once the dollar impact of these charges have been quantified, it’s possible to request additional discounts to offset these increases. THE DREADED DIM Dimensional charges have been another area where shippers have taken huge increases and have had difficulty calculating how this impacts their costs. The carriers first began in 2013 by lowering the
dimensional factor from 194 to 166. By most estimates, this increased oversize shippers’ costs by 18%. Then, last year, the carriers began to apply dimensional pricing to all packages, including those under one cubic foot. The first thing to review is the weekly electronic shipment invoicing from the carrier. Focus on two columns: Actual/ Original Weight and Billed/Rated Weight. If the invoiced weight is higher than the actual weight, you are getting hit with additional dimensional charges. The next step is to request that your carriers provide you with an electronic billing format that gives you the length, width, and height for each package. When multiplied together you will see the total cubic inches of each package. Apply the carrier dimensional factor, and you will get the true invoiced weight and cost. Compare this to your packaging and you will then see which boxes incur the highest dimensional weight. With this data, you can establish your incremental costs and may be able to negotiate a non-standard dimensional factor that benefits your company’s unique packaging and shipment mix. We have seen many shippers lower their costs by hundreds of thousands of dollars utilizing this approach.
counts are, the carriers state that your net rate can’t fall below a ground, zone 2, one pound package — or $6.94. Most shippers don’t realize how many of their packages are impacted by this rule (see table above). For many shippers, the minimum shipment charge negates ground discounts, on average, for 30-50% of packages. Essentialy, these shipments are going out as tariff rates. Once you quantify the impact to your shipping costs, you may be able to negotiate a reduction in the minimum shipment fee. And, as we showed earlier, this will produce more savings than negotiating higher discounts. The best way to determine the impact of the minimum shipment charge is to quantify the total number of shipments where the charged amount was $6.94 from the carrier invoicing.
For those shippers who are impacted by the Ground minimum shipment charge, they saw YOY total increases of 34.2% over the last five years. DON’T IGNORE THE MINIMUMS Analyzing the minimum shipment charge can also produce significant savings. For those shippers who are impacted by the Ground minimum shipment charge, they saw YOY total increases of 34.2% over the last five years. Despite how high your dis-
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APPLES TO ORANGES COMPARISONS A fourth area where shippers would benefit from robust analytics is when they are trying to compare different carrier proposal and rate sheets. While it might seem impossible to do this “apples to oranges” comparison, it can be done. Again, start by building a comprehensive data and usage sample. Then, do a NET rate comparison on a shipment by shipment basis. This is far more effective in determining costs than by evaluating discount levels. Next,
do the same exercise for all your accessorial fees. Many times, the low cost bidder may not offer the lowest up front rates, but instead offers accessorial concessions that more than make up for it. UNDERSTANDING AUTOMATION Finally, one last analysis shippers can improve upon is when they automate rate shopping and Least Cost Routing (LCR) logic. While this is an effective automated way to process shipments at the lowest cost, it is extremely important to analyze the rates you use to compare and route shipments. If the routing logic is based on inaccurate rates or mismatched services, it may end up costing money instead of producing savings. Not only do the right rates need to be uploaded, but the comparison needs to factor in all the accessorial variables. Finally, LCR needs to be updated every January to reflect the GRI impact. Once you have done these analyses and established your shipping expenditures, you are in a better position to request concessions from the carriers that will impact and lower costs in the areas that impact you most. These savings will go right back to your bottom line. ¾
TIM SAILOR is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. As a 10-year speaker at PARCEL Forum, Tim will be presenting “101: Top 5 Transportation Data Analyses that Get Results.” You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.
BLENDING KNOWLEDGE AND WISDOM
As the need for supply chain talent grows, it’s important to strike this balance. | By Thomas L. Tanel
ccording to Supply Chain Insights, 60% of companies within the supply chain industry have job openings, and 51% of companies are seeing an increase in the turnover of supply chain leaders. Looking ahead, the United States Bureau of Labor and Statistics predicts that the number of logistics jobs is expected to grow by 22% by 2022 — nearly double the rate of other professions. Therefore, we will be in a catch-up mode for a decade or more. This is a crisis now! In some instances, the shortage of talent has simply occurred because companies have inadequate human resource management to support the recruitment and retention of talent. And the 20082012 recession-related layoffs have greatly undermined the industry’s ability to build back the supply chain profession’s front-line workers and management talent. The good news is that there is a vast pool of talent out there in the form of the many knowledgeable supply chain professionals who chose to leave the profession altogether or people who, for one reason or another, have been away from the labor market for a long time. In the long run, how can you replace this diminution of experienced Baby Boomers like myself?
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SKILL SET NEEDED TO OVERCOME THIS TALENT SHORTFALL As a result, the immediate question is, where we do find people with both the breadth and depth of supply chain skills for a global operating environment with cost-to-serve tradeoffs that influence optimal supply chain design decisions? That’s a tall order to fill, considering the talent gap shortfall. What many C-level executives don’t realize is that supply chain management is an activity that touches so many other parts of a company’s business. For young people — front-line workers and management — it may appear complex and mystifying, but as a profession, we (the Baby Boomers) have the important task of explaining to the next generation exactly what is involved. One of the key supply chain competencies needed to overcome this talent gap shortfall is the capacity to solve supply chain problems that you encounter dayto-day. Naturally, critical thinking is crucial. This includes a skill set aimed at problem-solving and decision-making. We are talking the innate ability to identify the problem; access and organize relevant information; discern causes and effects; generate options; and choose and implement a workable solution.
Second, according to Art van Bodegraven of Discovery Executive Services, is in the realm of analytics; “those skills are insufficient without context and experience.” Our colleges and universities seem to address the mathematical, statistical, and quantitative methods in preparing graduates for supply chain analytics. However, as van Bodegraven articulates with an example: “A mathematical analysis [could] lead us in one direction, but experience will point us in another.” EXPERIENCE DEPENDENT ON KNOWLEDGE AND WISDOM In a previous column entitled “Logistics Tribal Knowledge and Millennial Supply Chain Talent,” I said, “Through experience, logisticians within a supply chain organization also learn through shared experiences and skills — their tribal knowledge. This is different from all other sources of information because it is either unwritten or not widely shared among the supply chain team.” Therefore, knowledge is information of which someone is aware and is also used to mean the confident understanding of a subject, potentially with the ability to use it for a specific purpose. Knowledge is gained through learning facts, while wis-
dom is the ability to make correct judgments and decisions and is an intangible quality gained through our experiences in life. Wisdom comes from observing experiences and learning from them in a way that affects future decisions and behavior; it is the aptitude to see the truth of a matter, in spite of any deceptions or distractions. “Wisdom is not a product of schooling but of the lifelong attempt to acquire it,” as stated by Albert Einstein. And good supply chain judgment can be acquired, possibly at some risk and at the cost of making mistakes, as many experienced Baby Boomers can attest! The application of knowledge is often a matter of finding or knowing the right facts, meaning that there is a distinct difference between the “right” and “wrong” facts. In contrast, wisdom often requires much more than facts to perceive and choose the “right” action or to avoid the “wrong” action. One thing that experience brings is knowing to be honest and say what you know when you know it. If you don’t know the answer, commit to getting the answer and ensure you do.
Time can also affect knowledge and wisdom in a negative way, as facts and data can change over time or be forgotten. Favorite adages of mine include: “I know people with 30 years of experience but only 10 minutes of knowledge” or “they have 20 years of experience but have had the same one each and every year.” Time has a more direct correlation with knowledge than with wisdom. Since wisdom is subjective and context-based, it appears that during volatile and uncertain times, some experienced people can result in being “out of touch” with the times because they have not adapted to an ambiguous environment. In that same column referenced previously, I said, “As Baby Boomers, our recollections of what we’ve done before usually help us grasp the unique pattern of a current logistics or supply chain situation. This is our pragmatic ability to absorb a vast flow of information, and to distinguish the essential current of events — the things that go together and the things that will never go together. It is our ability to engage in complex discus-
sions, and sense which arguments have the most weight.” CONCLUSION As a Baby Boomer with 40 plus years of experience, I can personally corroborate that it is difficult to gain wisdom without also gaining knowledge. “Knowledge comes, but wisdom lingers,” wrote Alfred, Lord Tennyson. Wisdom is a function of time and experience, and it is this wisdom which Baby Boomers have already accumulated that is really lacking at colleges and universities, which are focused on knowledge-based learning. In closing, a quote from the website Philoscifi: “Subject matter experts number in the thousands, but the wise may only number in the tens or hundreds.” 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 firstname.lastname@example.org or 979.212.8200.
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By Andrea Obston
THE FUTURE OF TRANSPORTATION IS BRIGHT Several industry experts spoke at the recent CLDA annual meeting and shared their thoughts on the evolution of the small-package space.
ow will the continued growth of e-commerce impact our industry? How will local providers cope with the Amazon Effect? How do providers know when a new opportunity is right for them? These are the kinds of questions tackled by a panel of industry leaders at the CLDA Annual Meeting. They polished up their crystal balls for a sneak peek at our industry’s future and found good news. Led by moderator Chris MacKrell of Custom Courier Solutions, the panel included: Jim Berluti, VP Sales, US, Dicom and Founder/CEO Eastern Connection; Steve Wilson, E-commerce Analyst at Tompkins International; and Brian Surber, Priority Dispatch, VP Operations. MACKRELL: No one can look into the future of this industry without talking about the impact of e-commerce. Talk about that. WILSON: Nobody’s going to go back to the brick and mortar model of retailing, and that’s good news for those of us in the transportation industry. The package delivery numbers generated by e-commerce
are incredible. The volume will force us to consider new financial models and to ultimately confront the need to build fulfillment centers to support e-commerce. We know Amazon and other online retailers understand the compelling need for local inventory. They know they need to keep up with customer expectations (yes, they, too, are wrestling with the Amazon Effect). And they understand that they will need fulfillment centers near their customers to lower their delivery costs and make sameday feasible. They are already doing that. But here’s the opportunity for the rest of us right now: those fulfillment centers haven’t all been built, so they can be located where they make the most sense: in and near local markets. Amazon has already begun that process in larger markets, but they won’t get to the smaller ones for a while. There’s a window of opportunity for local and regional delivery companies. Amazon is also selectively in-sourcing parts of their supply chain. They are shipping directly to some of your hubs. They are inducting into the postal system. They are doing deliveries of food through Amazon Fresh and offering one and two-hour deliveries through Amazon Flex. Right
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now, that means they are giving you more business to meet those needs, but what does the future hold? They are buying their own planes and tractor trailers. They think they can do it better and cheaper than you in the future. If they think they can do it, they will do it. What will you do in the face of that competition? How will you adapt? What will you offer that they can’t or won’t? Amazon’s concepts aren’t new. Some logistics service providers have eight or 10 fulfillment centers and can lower the cost of delivery by being closer to the markets. But here’s the good news for you: retailers are beginning to understand that they have to take drastic action in the face of Amazon’s continued rise. And they will need to work with last-mile delivery companies to do that. With the help of third-party providers like you, retailers will engage in fulfillment-sharing and pooling business models with local delivery. YOU are the key to helping them store and quickly deliver more volume to their local delivery markets. MACKRELL: How does a carrier decide whether these and other business opportunities are right for them?
SURBER: Right now demand exceeds supply in our space, and I forecast that trend will continue for the near term. However, not all business is good business for every provider. So, how do you guide yourself? What acts as your compass to ensure you create a mutually beneficial relationship with the shipper? It’s taking the time to reflect and create a strategy that’s founded on the motto “Know thyself.” Look, this space is confusing by default. The lastmile space acts as a liaison to a variety of transportation genres. You need to gain clarity on your core competencies. You’re going to have to understand what niche in this industry is your strength. Review your revenue stream. Break it out by service verticals. What drives your profitability? What’s next? Where will you grow based upon the results of your review and what the market is telling you? Be absolutely intense and disciplined on direction once defined. Let your strategy guide you. BERLUTI: I agree with Brian. When I was the CEO of Eastern Connection, I knew we had to continually reinvent ourselves. At
one time, we focused our attention on the B-to-B end of our business. But when we looked at revenue per stop, it turned out B-to-C was actually more productive due to the focus on the medical home delivery market segment. For us, that was where the opportunities were. We were already doing home delivery of medical products. So we asked ourselves, “What can we do to add value to those deliveries?” So we began offering to set up the equipment and show people how to use it. That business was very good for us. It was recurring and included multiple stops. MACKRELL: What are the long-term implications for this industry from what Alibaba’s doing? Do you think it will affect the supply chain in this country? WILSON: The world is a small place. We can learn from China. There’s a lot of innovation coming from Asia. There’s no question that Alibaba is a model retailers will need to respond to. Amazon could respond or Alibaba could come over here and play a leadership role. I think it’s important that
we understand how they evolved. It was never in Alibaba’s plans to do deliveries. They wanted to remain a marketplace and leave the delivery assets to others. But the logistics infrastructure wasn’t keeping up. They didn’t have the technology infrastructure that tied together logistics providers and warehouses. They saw a void and they felt they had to create something to fill it. Someone’s going to see that opportunity and do something similar here in the US. MACKRELL: I want to talk about something else that’s top of mind for shippers and carriers — the current low pricing of fuel. Is this a positive or a negative? SURBER: Strangely enough, the answer is “both.” You have to look closely at what’s melded into your base rate. It’s much cleaner for all parties involved to keep surcharges, of any nature, separate from base rates. If you have transparency, it’s much easier to talk to your clients about their rate structure. You can educate them about what you’re up against. A shipper could say, “I need a reverse
fuel surcharge since gas prices have gone down.” You need to know if that’s possible. You need to be able to draw a line between your base rate and your other charges so you know the role fuel costs play in that rate. If you’re fortunate enough to have started relationships when fuel was $4 a gallon and your fuel charges were baked into that rate, then you need to celebrate this scenario with your contract partners. Not doing so creates an unsustainable reality. When fuel prices bounce back, expectations will exceed what the market can bear. It’s important to “normalize” expectations now.
Group. Eastern Connection’s location was an asset here, as it’s on the border of Quebec. It was in a perfect position to take advantage of the growing potential of cross-border trade between the Northeast and Canada. I believe those opportunities will attract other companies that are looking for ways to drive up yield and increase profitability.
MACKRELL: Jim, Eastern Connection recently joined the trend towards taking advantage of cross-border opportunities by becoming part of Dicom. Tell us how this gives us a look into the future of our industry.
SURBER: It’s an opportunity for all of us. However, a direct relationship with a VC may not be for everyone. Take a look at your strategy, value proposition, and succession plan. What are your ultimate goals? Is it to cash out and move on? Or to build a business that you and your family will keep for generations? Priority is a family business. We like steady sustainable growth for the long-run. For
BERLUTI: We believe there are big opportunities for cross-border shipments as a result of the acquisition and now being part of the Dicom Transportation
MACKRELL: Speaking of acquisitions, I’d like to talk about the influx of interest by private equity firms in this sector. What are your thought on that? Is it positive or negative?
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us, being too opportunistic means watering down our value proposition. We’re not interested in doing that. This is still a cottage industry. VC capitol is good for it. Companies that take advantage of those opportunities are paving the way for everyone in our industry. Many of the entities are being acquired by the same firms and creating regional networks through these synergies. Shippers realize that we offer a true alternative to the “duopoly.” Supply exceeds demand and these regional carriers are reaching out to us. Who better to partner with than a room full of proven entrepreneurs in the last mile space? We are doers. VCs love that. In a market in which demand exceeds supply, there exists a wealth of opportunity. Like everything else that’s coming over the horizon, it’s going to be a matter of picking the right course, the right partners, and the business model that’s right for you. ¾
ANDREA OBSTON is the Director of Public Relations, CLDA. She can be reached at AObston@aomc.com.
By Kathleen J. Siviter
DELIVERY OF THE FUTURE? MY WAY!
The way consumers expect to receive their packages is constantly evolving, which could have a substantial impact on shippers’ operations.
t’s an exciting time in the parcel delivery business with new solutions and business models popping up by the minute, it seems. What will parcel delivery look like in the future? Will delivery be made by drones? Autonomous robots or vehicles? Into Smart Lockers? Using crowd-sourced solutions? Same-day or same-hour delivery? Something we’ve not even seen yet? My prediction is… all of the above! We’re already seeing a phenomenal and diverse set of delivery solutions and new business models being born, but in my mind, most of them have a key thing in common. They are designed to satisfy the needs of consumers, each of whom basically wants delivery “my way!” WE WANT IT… WHERE? There are many aspects of delivery that consumers would like to control in the “my
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way” model, the first being where the parcel is delivered. Traditionally, that meant to the consumer’s home, but nowadays the list of location types is steadily growing because consumers want delivery where it best meets their needs. That may be where they live, where they work, where they are traveling, or any point in between. Most of us in the parcel delivery ecosystem are familiar with the more traditional “where” solutions, but the innovation being seen today goes way beyond the traditional. For example, 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). It may be a natural extension of this concept to include anywhere the car is parked, such as at a work or travel location. 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 receptacle, the 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. Looking more at the “en route” options, we are seeing rapid growth and expansion of self-service parcel lockers (GoPost from USPS, Access Point from UPS, Amazon Lockers, FedEx Ship-andGet Lockers, etc.), as well as new entrants in the market, such as postal equipment manufacturers like Bell and Howell, who are developing “smart” parcel locker solutions (CleverBox and PackRobot) to be placed at centralized delivery points. Innovation around parcel lockers continues to grow, for example, with recent market entrees like CA-based SwapBox,
which provides secure two-way use lockers for consumers to deposit goods to be shipped (and does the packing for outgoing shipments) and also to receive parcels. At the residence itself, innovation is also afoot, focused on the consumer need for security and convenience. There are businesses developing carrier-agnostic secure parcel delivery receptacles, like ParcelHome in the UK, and the “Jeffrie” being tested in the US. And it doesn’t stop with single family home residences; multi-dwelling buildings are perfect for centralized and secure parcel delivery receptacles. A recent survey of apartment renters (2016 MFE Concept Community Survey) asked 84,000 renters whether they would pay for access to a 24/7 package locker as a residence amenity, and “more than 30% of all renters are explicitly willing to pay extra to live in a community that offers package lockers.” Secure parcel locker solutions are growing as apartment and multi-residence building dwellers demand
better secure parcel delivery solutions. Parcel Pending offers a parcel locker solution where online orders are delivered to a parcel locker location, and the recipient receives an email or text message alert when it arrives, with a code they use to open the parcel locker and retrieve their items. Businesses such as Package Concierge and Luxer One also offer secure parcel lockers that can be accessed by a variety of carriers, with property management and resident controls in place. With the innovation focus largely addressing the unarguably more profitable urban residential delivery, what about those living in spread out rural locations? There are other countries, which also have geographically spread out populations, that are looking at other ways to deliver parcels beyond the traditional means. In China, e-commerce retailers are testing drone delivery to remote areas, and the Fetchr app uses a mobile phone’s GPS location as the delivery address for countries where the lack of a good address sys-
tem is a challenge. But rural locations are definitely more challenging, and most of the solutions we are seeing focus on delivery to centralized locations where the rural population may work or shop. WE WANT IT… WHEN? Another key consumer desire when it comes to delivery is to control the when. Traditional models where a “notice” is left in lieu of a parcel because a customer is not home to receive the item are fast being replaced with services that allow the consumer to better control when the delivery is made. The big carriers all have put some level of consumer controls in place to help them schedule package delivery, and there are also new apps and services being developed just so consumers can dictate the when of delivery. Businesses like Doorman offer consumers delivery windows that in some cases go beyond what traditional carriers may offer (e.g., delivery up until midnight). And of course delivery to innova-
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tive receptacles we’ve discussed (e.g., car trunk, parcel lockers, smart box at house) generally offer 24/7 access so the consumer can access the delivery when it is convenient for them. WE WANT IT… HOW? While consumer desires for convenience and schedule flexibility are driving innovation around the where and when of delivery, business’ needs to control costs and provide consumers with low-cost delivery options are driving innovation around the how of delivery. For the most part, consumers may be agnostic about who the carrier is and how they deliver the parcel, but they still have a set of needs that carriers must meet, which includes reasonable cost, security, and convenience. Innovations are focusing on each of these aspects of parcel delivery, particularly ways to drive down costs. Lower cost is one of the key drivers behind forays into delivery by drone (Matternet, Flirtey, etc.), autonomous vehicles (like Starship Technologies), or some combination thereof (Workhorse combines electric vehicles and drone delivery). All of these solutions promise lower cost delivery in certain business models. SwissPost, SingPost, Australia Post, and other posts actively have begun testing drone delivery of parcels. Last year, Amazon received FAA approval to start testing drone delivery of parcels in the US and just this month was granted a patent on a drone delivery docking station system. Then there is also the “sharing economy” movement, bringing us new crowdsourced business “P2P” delivery models ranging from regional entrepreneurs too numerous to list, to business giants (Amazon with its Flex service, DHL’s aptly-named “MyWays” app, and others), to those in between, such as Deliv 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 e-commerce market. There are models that tap into driving travelers willing to make deliveries en route, such as PiggyBee, Hitch, RideShip, or Roadie. And the sharing economy mod42
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el extends internationally as well, with businesses such as Shipizy, Jib.li, and Packmule — which differs in that users post items locally once they arrive in the destination country vs. a face-to-face delivery — and many others. Within individual countries there are many of these types of services, apps, and platforms cropping up. These types of services are shaking up the traditional parcel delivery business model and making us look at delivery in a whole new way.
day, I immediately went to the website to see what I could do to have the delivery meet my needs. Although the carrier apparently offers a tighter window of delivery choices, “signing” online to avoid having to be there to sign for the item, and a host of other options — none of these were available to me for this item, for some unexplained reason. So in this wonderful age of technology and innovation striving to meet consumer choice… I was left with no option but to hope I was home when the delivery arrived or deal with the consequences of having to collect my item or schedule re-delivery. Consumers want to be able to control the when, where, and sometimes how of their delivery, and they like having options to do that. Not having the ability to control delivery leaves a gap in the marketplace… and there are entrepreneurs more than ready to step into gaps left by the big carriers.
One thing is for sure: the future of delivery is “business NOT as usual,” so it will be key to keep a sharp eye on these developments. WE WANT CONTROL! The bottom line when it comes to keeping consumers happy is giving them control over the aspects of delivery that are important to them. And despite all the delivery choice features being added by the big three carriers (UPS, FedEx, and USPS), there are still gaps that open the door for entrepreneurs and innovators. Here’s a case in point — my own recent experience in ordering a new HTC Vive Virtual Reality set for my husband’s “special decade” birthday. I live in a residential neighborhood just outside Washington, DC, and parcel delivery for us means leaving it on the doorstep, sometimes with a text alert or email noting delivery, sometimes with a knock on the door. It’s a relatively easy delivery environment on our end, except for times when “controls” are not available. In this instance (I won’t name the carrier), I had a call telling me the scheduled delivery day, and noting that I could go on the website and take advantage of delivery choice features. Since this package required a signature and I would not be home on the scheduled delivery
BUSINESS NOT AS USUAL… One thing is for sure: the future of delivery is “business NOT as usual,” so it will be key to keep a sharp eye on these developments and new business models. Luckily, that theme will be the centerpiece of PostalVision’s March 2017 event, to be held March 21-22, 2017, at the Ritz Carlton Pentagon City (just outside Washington, DC). Those who have attended previous PostalVision events know that it is a great place to discuss and learn about new business models and see innovations in the postal/parcel delivery sector. ¾
KATHLEEN J. SIVITER is president of Postal Consulting Services Inc. (PCSi) and has over 30 years of 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.
By David Frentzel
BRINGING RISK MANAGEMENT DOWN TO EARTH
n 1970, crew members of the endangered Apollo 13 became overnight heroes when they safely reached home despite not reaching the moon. Today their failed mission is regarded as one of NASA’s finest successes because even though one disaster struck, a worse one was averted with the help of world-class teamwork, planning, and cooperation. It’s a lesson that all of us who are engaged in global logistics would do well to remember because even though lives usually aren’t hanging in the balance as a result of our efforts, many other important things often are, including our companies’ sales, customer relationships,
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production schedules, and reputations. And various Murphy’s Law-type events have the potential to compromise them. Like Apollo 13, we don’t always have a say in how or when such things happen. However, we do get a vote when it comes to determining how dramatically they will affect our supply chains. It’s called risk management. When most companies engage in this practice, they tend to equate it with systems and engineering — and highly analytical, data-driven techniques. And they’re not entirely wrong. I’ve overseen the use of such techniques numerous times over the years and firmly believe they represent major breakthroughs in
the quest to identify and compensate for vulnerabilities, assess countermeasures, and provide early warning. But as NASA discovered all those years ago, even the most sophisticated of systems and designs can only take us so far, not to mention wind up being costly to implement and maintain. Just as important, our over-reliance on them can sometimes cause us to overlook many handson, practical tools (such as the following) that are just as important and, in many cases, equally effective. SITE-SPECIFIC CONTINGENCY Many disruptive events tend to start at the local level or have very different kinds
MISSION-CRITICAL FOCUS Even in today’s highly global economy, sometimes it’s easy to forget that many events that initially seem remote and isolated can eventually impact and even cripple operations that are closer to home. For example, in recent years alone, floods in Thailand, mudslides in Mexico, and a nuclear power plant disaster in Japan created numerous disruptions for manufacturers and retailers throughout the world, many of whom were unaware of the fact that their key components would be stranded for weeks on end due to the closure of those areas’ factories or transportation arteries. With this in mind, you can do a better job of protecting your company’s supply chain continuity by taking the time to: } identify the components, suppliers (both internal and external), and service providers that are truly mission-critical } ask for copies of these suppliers’ and service providers’ contingency plans — or insist they develop such plans — and make those plans available to your company’s key stakeholders } identify alternate sources of these components, supplies, and services that you can tap into if necessary (for more on this see “looking for your next good match” further on in this article) You also may wish to encourage these key players to do the same thing with their mission-critical vendors and suppliers. After all, the events that have an impact on them could eventually have repercussions for you, too. of impacts from location to location — which is why in addition to having a big-picture, corporate-level supply chain management contingency plan, each of your company’s manufacturing sites, warehouses, and terminals should also have its own individual one. Focusing on the risks and consequences that apply to each particular operation, these facility-specific plans should contain clear and thorough step-by-step instructions for what to do in the event of: } life- or health-threatening events such as fires or attacks } inclement weather like blizzards, hurricanes, or floods } the departure of key personnel (hint:
have a good succession plan in place) } mechanical, IT, or power failures } local events that could restrict movement to or from the operation } local driver or labor shortages } anything else that’s likely to impact production, inventory, or service continuity. They should also include the names and contact information for the appropriate local and corporate rapid response team — and be accessible to and executable by at least some of your personnel who work outside of that operation, because you never know when the appropriate local personnel will be temporarily out of pocket.
LOOKING FOR YOUR NEXT GOOD MATCH Whoever coined the term, “there’s more than one fish in the sea” probably didn’t think so at the time. But he or she was providing sage advice for any company that wants to minimize its supply chain exposure. Although there’s certainly nothing wrong with having a small, select group of suppliers, carriers, and routes, it’s always important to remember that the A in Plan A isn’t necessarily synonymous with agility — particularly not if you never deviate from it. The most successful supply chain contingency planners tend to be the ones who are always thinking in terms of Plans B, C, and D and diligently laying the groundwork for their execution by: SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
} choosing and prequalifying back-up suppliers (hint: you may wish to give them at least a bit of your business from time to time to see how they perform and to establish a working relationship) } having Bills of Material with robust component substitution rules } practicing route diversification } using multiple modes; in light of the ongoing truck driver shortage, this could become increasingly important in the years to come } practicing geographic diversification in terms of both manufacturing and warehousing inventory } paving the way for rapid on-boarding of these alternatives by adopting industry-standard systems interfaces with robust plug-and-play functionality Having this kind of flexibility will provide your company with considerably more options for working around — or even avoiding — disruptions quickly and cost-effectively. It’ll probably help you sleep better, too.
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COMMUNICATIONS SAVVY Much like a car is only able to drive if it has gas, a good contingency plan is only as effective as its ability to be mobilized quickly and thoroughly, which is why it’s wise to map out a clear, consistent contingency communications protocol long before anything goes wrong. The level of detail and work you’ll need to put into this protocol will largely depend on your company, industry, and ownership status. However at the very least it should: } designate a key communications liaison (be it a department or individual) } provide step-by-step instructions about how and when various stakeholder groups should be contacted (and by whom), preferably stratified by contingency } contain up-to-date names, titles, phone numbers, and emails of all key stakeholders, including how they can be reached after hours if necessary } provide a list of the phone call scripts, emails, news releases, texts, letters, or other messages that will need to be developed — or actual drafts of the same
} involve key suppliers as well as your company; it’s important to find out if they have the same kind of protocol in place and to ascertain whether or not it’s been tested Putting these things together may feel like a colossal case of putting the cart before the horse — and like something your corporate communications department should be doing instead of you. But ultimately you’ll be glad you had a hand in the planning and that you have a plan ready to go, because when mishaps or disasters occur, many professionals tend to become so focused on tending to operational details that they forget to worry about “peripheral” things like notifying customers and employees. And such neglect often comes back to haunt them. IT-ENABLED VISIBILITY No matter how thorough or imaginative your contingency planning teams are, your supply chain inevitably will encounter a few Black Swan events that no one could see coming.
Whether these events are major, minor, or somewhere in between, having the right kind of visibility can be a game-changer because it can help you assess and respond to the challenges at hand far more quickly and rationally. In light of this, consider doing an IT pulse check to make sure you have adequate technology-enabled access to key decision-making data such as: } your products’ Bills of Material and knowledge of which can be reworked with component substitutes } a list of your company’s and/or your suppliers’ manufacturing points } a snapshot of how many days of component and finished goods inventory you have and where it’s located } a list of alternative suppliers and service providers } a network model of your supply chain that can be used for optimization purposes It’s important to note that not all of these data-enabled capabilities have to come from your company. In fact, I’d highly recom-
mend doing a similar IT pulse check with your key product and service suppliers in case you need to put their data into play. WORKING THE PLAN On a final note, allow me to offer a recommendation that may seem obvious but is all-too-often forgotten. If you want to truly protect your supply chain from the worst impacts of disasters — be they natural or manmade — make it your personal mission to maintain and periodically refresh all of the above. Just as the crew members of Apollo 13 and Mission Control were far better equipped to deal with adversity because they’d spent considerable time training, rehearsing, and preparing for worst-case scenarios, your risk management initiatives will be much more likely to work if they’re treated as an integral part of your company’s day-to-day operations and organizational DNA. Among other things, this means that you should: } include risk management action plan
reviews and updates in your regular supply chain staff meetings } schedule frequent risk management compliance reviews with your logistics departments and operations } add a risk management compliance component to your supplier scorecards and in your managers’ PMPs It also means that you should continue to keep the possibility of contingency — and the importance of funding risk management initiatives — top-of-mind, even if the “why” behind such initiatives isn’t something most people like to think about. We all hope we won’t ever need to actually use our contingency plans. But at the end of the day, hope won’t help us when a disruption strikes. Preparation will. ¾
DAVE FRENTZEL is a partner with New Harbor Consultants. A 25-year supply chain professional, he currently focuses on helping companies to improve business outcomes with more effective supply chain and logistics strategies and operations.
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
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As businesses find that the national carriers are less able to meet their specialized shipping needs, they’re taking notice of regional carriers and their next-day ground service across a vast footprint. Diversifying your shipping strategy to include regional carriers could be one of the smartest things you ever do for your business.
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Only LSO™ combines the speed of a courier, the discipline of a carrier and the service of a true partner. We offer reliable, efficient Parcel and Final Mile delivery services in Texas, Oklahoma, Louisiana, Arkansas, Alabama, Tennessee and southeastern New Mexico. More Responsive, more Flexible and more Friendly than any other shipping company. That’s the power of LSO.
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USPack is a leader in custom same-Day and next-Day parcel delivery solutions. USPack provides premier service with complete closed loop real-time tracking, full EDI back to your site, optimization to improve delivery efficiency, and complete transparency for you and your customers tracking shipments, all at a rate that fits your budget. USPack 615.556.5546 Fpowell@gouspack.com www.gouspack.com
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We can help you optimize transportation spend across the supply chain reducing costs by 20% or more. Our finance background and experience analyzing shipping costs relative to carrier profitability enable us to develop effective optimization strategies across all transportation modes. Spend Management Experts 404.902.5390 firstname.lastname@example.org www.spendmgmt.com MEET KEYNOTE SPEAKER, MAJOR GENERAL BOLES, TUESDAY, 9/13/16, 2:30PM, BOOTH #515
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While other larger providers try to establish a “onesize-fits-all” approach, regional providers like U.S. Cargo are listening to our customers and establishing true partnerships that benefit the customer’s needs. Flexibility, personalization and customization are what customers want and U.S. Cargo is able to deliver.
U.S. Cargo 412-227-5108 email@example.com www.us-cargo.com
Flexibility and convenience were missing from the small package picture, so PITT OHIO put significant focus on offering a unique ground solution based on customers’ needs. Regional carriers offer a choice that’s economical, reliable, flexible and personalized. Take another look. Regional carriers like PITT OHIO offer more than customers may expect.
PITT OHIO 412-232-3015 ext. 6593 firstname.lastname@example.org www.pittohio.com
The eSort System handles the most difficult eCommerce polybag and carton packages from .5 oz. to 50lbs. Off the shelf plug and play modules provide the fastest custom configuration, delivery, installation and return on investment. The smallest footprint with the highest density of sort locations. Combine with existing conveying equipment.
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AUTOMATING “SUPER A” SKUS
Remember, all inventory is not equal, so here are some things to consider when evaluating a new system.
nderstanding how different classes of inventory move through the order picking/ order fulfillment process is critical to designing a system that is accurate and efficient while meeting business plan objectives. The classes or strata of inventory are usually designated A, B, and C, generally signifying fast, medium, and slow movers. Those Stock Keeping Units (SKUs) classified as A movers most often conform to Pareto’s 80/20 rule that 20% of the items account for 80% of the orders. We will call this subset of the fastest class A SKUs Super A SKUs. These Super A SKUs might represent a small percentage of your total inventory, but because they consume a large percentage of labor resources, they represent a challenge to efficient order fulfillment. What is the most efficient and economical way of handling these Super A SKUs? Before looking at that, it’s necessary to fully understand the anatomy of these SKUs.
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
Super A SKUs often have three characteristics in common: high velocity, size, and quantity. } High Velocity. What constitutes a fast moving SKU varies, but Super A SKUs usually fall into the range of a few thousand picks per day, consuming from one-third to two-thirds of picking labor resources. } Size. There is a certain size and weight range as well. Items that are smaller than 8” x 8” x 3” and weigh under a pound can provide issues when being picked by manual or automated systems. } Quantity. As few as nine SKUs or as many as thousands can make up the Super A inventory sub-group and consume a disproportionate amount of a facility’s resources. Velocity, size, and quantity of SKUs combine to create a unique order picking challenge. Few material handling solutions offer the speed, accuracy, flexibility, scale, and cost-effectiveness to handle these hot movers.
What has the velocity of flow rack, the accuracy of pick to light, and velocities faster than shuttle technologies? The A-Frame and mobile A-Frame systems are uniquely designed to provide the solution for velocity, throughput, and accuracy while providing that rapid return on investment (ROI). The A-Frame systems conquer the Super As and turn them into completed orders with a fraction of the resources other order picking technologies require for these unique fast moving SKUs. A-FRAME DESIGN A-Frame dispensing systems consist of two rows of dispensing channels arranged in an “A” shape that straddles a conveyor. The portable A-Frame is similar but uses only one side to ensure easy mobility. Both utilize all-steel dispensers that are microprocessor-controlled for accurate timing of product release. Belt speed and timing can be customized for fast travel to the product, slower dispense speed, and gentler product handling. A wide range of dispenser types are avail-
constructed. The only moving parts are the dispensers, which can be quickly changed.
By Ed Romaine able to meet specific product shape and size characteristics. The A-Frame family uses zero picking labor. Items are dispensed or placed automatically into totes, cartons, or belt positions at a rate of up to 4,200 orders or totes per hour. The only labor required is replenishing the unit. Each pick required for its associated order is verified to ensure accurate dispensing. This extremely accurate system often eliminates the need for order checkers, thus reducing labor and time requirements even further. Depending on the size and scale of operations, an A-Frame system can reduce order picking and order checking labor costs by 85% or more. The capacity of an A-Frame system can range from 16 SKUs in a mobile unit to hundreds or thousands in a full A-Frame system. The A-Frame family uses zero picking labor. Items are dispensed or placed automatically into totes conveyors or containers. A-Frame dispensing systems are designed to be rugged and reliable yet simply
4,200 ORDERS (NOT LINES OR ITEMS) AN HOUR A-Frame dispensing systems are generally available in three configurations: Pick-toBelt, Pick-to-Container, and Pick-to-Tote. In applications that require extremely high throughput, the Pick-to-Tote and Pick-to-Container configurations are usually chosen since they can provide throughput rates of up to 4,200 orders per hour. The number of lines and pieces per order is generally irrelevant. Whether the application is for e-commerce with one to three lines per order or store orders with hundreds of lines per order, the system automatically dispenses sufficient quantities to fulfill large orders and adjusts the conveyor speed to accommodate each specific order for rapid fast order fulfillment if necessary. Pick-to-Tote and Pick-to-Container applications not only provide higher throughput rates; it often saves costs by eliminating consolidation, inventory transferring labor or equipment, and order checkers. Dispensing directly into totes or containers helps reduce downstream order handling costs. High throughput can create other issues, such as order contamination, if the speed of the dispensing process is not controlled. A variable speed conveyor is a must-have feature. It automatically adjusts the conveyor speed based on each specific order profile; slower to accommodate larger numbers of items from one dispenser and faster to receive small quantities from a number of dispensers. In addition, each dispenser can be set for specific picking speeds, depending on the item. Thus, it is possible to pick fragile products gently, while still picking “normal” products at high dispenser speeds to meet throughput requirements, with no damage to fragile items. Order picking accuracy is of paramount importance, not only for customer satisfaction, but also because high accuracy performance reduces labor costs associated with product checking, re-picks, and returns. A-Frame dispensing systems use sensors to verify that each dispenser unit fires and that the product is successfully dispensed. Systems utilize multiple
microprocessor sensors in each dispenser channel to achieve accuracies of more than 99.95%. For the rare anomaly, problems are automatically logged, and the order is flagged and routed off line for manual intervention. A report is printed to locate and direct the correction with little loss in throughput. HIGH REPLENISHMENT RATES Since these systems utilize zero picking labor, the only requirement is a small percentage of replenishment labor. Easy replenishment is a major feature of A-Frame systems. Operators visually see inventory levels and can fill any SKU with a few clicks of a mouse to stay ahead of the rapid order fulfillment pace. Replenishment rates of more than 1,500 pieces per manhour can be achieved with no training or special skills required. Automated replenishment devices can handle up to 3,000 pieces/hour. Most importantly replenishment takes place while the A-Frame is operating without interruption. EFFICIENT SPACE UTILIZATION The Pick-to-Tote configuration provides great flexibility in designing the system since this configuration does not require routing conveyors or transfer stations. Any number of frames can be arranged end-to-end, or at right angles, to provide the desired overall capacity. The dense configuration of the channels, together with the unique “compound angle” arrangement, provides efficient utilization with no wasted space. To meet seasonal or promotional order requirements, a mobile A-Frame can be set up in very little space and adjacent to existing conveyor. Every technology has a place in the order fulfillment process. The key is dividing and conquering your inventory profiles and then utilizing the best of breed solution to turn your operations into a profit center. If your Super A SKU profile is light, small, and moves thousands of items per day in consumer, store, or kitting applications, you will likely not find a more efficient or cost-effective solution. ¾
ED ROMAINE is VP Sales & Marketing, SI Systems and a frequent speaker at industry events. He can be reached at firstname.lastname@example.org. SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
By Shaun Rothwell
E-RETAILERS BEWARE AS CARRIERS PREPARE How rising costs will affect your e-commerce shipments in 2017
he small parcel market is growing its market share every year. Why? Because everything is trending toward a direct-to-consumer (B2C) model. You’ve already noticed once-crowded malls closing shops as flowing streams of shoppers have run dry. Brick and mortar stores have less traffic every day because customers prefer to browse from the comfort of their homes. As more transactions occur at the B2C level, carriers are finding themselves responsible for a huge increase in small parcel shipments. The way they respond will affect every package you send. HOW WILL CARRIERS MEET THE DEMAND? The easiest way to answer this question is to look at the carriers’ sensitivities. What drives up their costs, and how are they adapting to handle the rising tide of e-commerce? Find the answers, and you’ll get an idea of what’s coming. First, let’s understand what carriers want. THE PERFECT PACKAGE The ideal package for most small parcel carriers is a small,
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
heavy package going to a business plaza in a busy part of town. Since time is money — especially in our industry — carriers save big when shipments are clustered together. It’s cheaper for carriers because a typical commercial delivery route has clustered drop-off sites, more stops per mile, and more packages per delivery. Meanwhile, residential routes are spread out and rarely have more than a parcel or two to drop off per stop. Which one is better for carrier revenues? This is where you see a big shift due to e-commerce — more parcels are being sent to residential addresses, and carriers are experiencing margin reduction. This is where you can expect carriers to focus on margin improvement. ANNOUNCED RATE INCREASES VS. HIDDEN SURCHARGES This December, carriers will announce next year’s general rate increase (GRI). They’ll say something like “We anticipate a 4.8% average rate increase.” But that doesn’t mean every parcel’s rate will increase by 4.8%. What it means is that the average will increase by that much. Don’t be surprised when you see an eight percent increase on your shipment of a shirt to a Zone 2 customer but only two percent on a case of paper
sent to Zone 8. And that’s just the base rate we’re talking about — what will happen with fees and surcharges? LOOK OUT FOR ACCESSORIAL FEES If there’s one thing that I’d bet on, it’s that carriers will increase accessorial charges in 2017. That’ll hit hard at B2C e-commerce with higher residential surcharges, delivery area and extended delivery area surcharges, and fuel surcharges. Expect them all to go up. FACTOR IN THE PEAK SEASON DIFFERENTIAL Carriers have some difficulty anticipating holiday demand, thanks to e-commerce. Do you remember two winters ago when top carriers failed to keep up with demand? Or last winter when they were over-staffed in anticipation? So do they. In another swipe at the e-retail market, carriers are likely to either increase peak-season surcharges (or remove discounts), expand the peak-season timeframe, or both. It’s difficult to predict exactly what will happen, but you can count on carriers revisiting seasonal fees. CREATIVE NEW MODES OF DELIVERY Carriers will also look to increase revenues by cutting costs on their end. They’ll find creative new delivery models, make tweaks to existing protocols, and fine-tune to shave seconds and feet off their routes. For example, they might incentivize customers to pick up shipments at their local dry cleaner, allowing them to use an urban-like delivery model while charging rural (residential)-like fees. HOW DO I PREPARE? Now that you have an idea of what the carriers will do, you can adjust your shipping model to push back. For example, offer incentives to customers so they pick up their merchandise at your brick and mortar store (ex. “pick up your suit onsite and get a free tie!”). This may reduce costs and drive foot traffic that would otherwise be non-existent. Or, you can prepare thoroughly by revisiting contracts, analyzing trends to see if you can get better rates by sticking to one carrier or by using several. Whichever route you take, ensure that you are auditing your shipments and assessing your shipping data. This will reveal historical surcharge adjustments, thereby allowing you to anticipate and mitigate future adjustments imposed by the carriers. I don’t have a crystal ball, but if there’s one thing my experience tells me is absolutely certain, it’s this: a lot of increases are coming, and they will be targeted toward e-retailers like you. ¾
SHAUN ROTHWELL is Founder and CEO of iDrive Logistics — an industry-leading supply chain consulting and contract optimization firm. With 22 years of experience in the small parcel and logistics industry, Shaun was a partner in building (and selling) the largest and fastest growing small parcel audit and contract optimization firm in the industry. Shaun was the Gold Eagle Chairman award winner while at UPS and holds the degrees of Bachelor of Science in Business Administration and Master of Business Administration (MBA).
By Curt Barry
THE EVOLVING WORLD OF DIRECT-TO-CONSUMER SHIPPING WHAT ARE YOUR COMPETITORS DOING… AND HOW DO YOU KEEP UP?
echnology has revolutionized how we shop. Fifty years ago, discounters and department stores ruled retailing. WalMart, big box retailers, and specialty stores reinvented retailing. Where there used to be only 40 retailers with catalog operations, now there are millions of .coms competing. Now even a trip to the store starts with an Internet search a high percentage of the time. Given all this change, what is unfolding now could make this look like child’s play as retail and direct-to-customer is changing how we service the customer. Here are seven game changers your competition is undertaking. 1. UNDERSTANDING RETAIL’S SEA OF CHANGE Amazon has reached sales of $100 billion. Some studies show 44% of online
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
customers start their purchases directly on Amazon’s site versus 21% on a specific retail site. By having multiple DCs in many states, Amazon can offer four-hour delivery (ordered online, delivered to home) in many areas. Amazon is historically willing to operate on low margins and “give away” shipping cost to get the order. The customers and the competition are both forcing change. Shoppers want preferences: they want options when it comes to the when, where, and devices of their choosing. All of this has caused a major channel shift within retail companies. Compared to several years ago, annual reports show that retail brick and mortar operations have become less statistical about their online success. One thing for sure is that many retail companies’ sales are relatively flat year to year compared to their dou-
ble digit growth increases year over year in the e-commerce arena. Here are a few tea leaves showing the changes: Walmart – In Walmart’s 2015 annual report, Doug McMillion, President and CEO, talked about the importance of integrating digital and physical stores in a seamless fashion. “Through our more than 11,000 stores, websites, and mobile apps, customers can access Walmart in more ways than ever before… In 4Q 2015, approximately 70% of www.walmart.com came from mobile devices… But the future of retail is not just in-store or online — it’s putting the two together in new ways. I’m excited that we’re leaders in integrating digital and physical retail in a seamless fashion. We’ll continue to test and learn as we explore options for convenient merchandise pickup or delivery to save customers time.”
Kohls.com – Kohl’s 2015 annual report shows 2011 to 2015 retail sales per square declined from $232 to $228. Kohl’s has made huge investments in e-commerce and adapting to omnichannel shipping from stores. They have online DCs in MD, OH, TX, and CA (4.82 million sq. ft.). 2015 annual reports mention rapid growth of less profitable omnichannel sales because of shipping costs. Neiman Marcus – $1.3 billion sales online in fiscal 2015, accounting for 25.5% of total sales. Williams-Sonoma – Online sales grew 12.1% in fiscal 2014; web sales reached 50.5% of $4.7 billion total sales. Some of their brands historically were heavily catalog marketing and fulfillment-based. Cabela’s, the outdoor specialty retailer – In addition to its major B2C business, it has 79 mega stores with large backrooms and four DCs to ship from. Additionally, the DC network includes a return center and a consolidation DC on the west coast where imports arrive.
The customer is demanding preferences and immediate shipment of orders, and they want low or no shipping costs. When retailers — which can be defined broadly — don’t stay competitive, someone else does. 2. E-COMMERCE FOSTERS COMPETITION The internet spawns new ideas for selling goods and services at a dramatic rate. Look for competition to increase. As an example, merchandise vendors to big retailers have not competed with their retail customers. However, there are major strategic advantages for manufacturers, wholesalers, and distributors to enter the internet marketplace. Recently, we developed a strategic plan for a $1 billion apparel manufacturer to relaunch an e-commerce business. The first few years of sales will be less than five percent of total sales, since this is considered a test. But the strategic importance to the wholesale business is paramount. Initially, the manufacturer dabbled with selling and fulfilling orders on Amazon ($20
million annually). Now developing their own e-commerce business lets them show their entire product line. They learn what the customer wants and thinks, and they can test new products. They are synergistic with their retail store customers by drop shipping their customer orders and featuring store locators on their sites. SEO and social media are part of their marketing and promotional mix. It’s just the beginning of new competitors emerging. 3. MULTI-SHIPPING POINTS IMPROVE TIME TO CUSTOMER AND REDUCE SHIPPING COSTS As mentioned above, brick and mortar retailers have the potential for every sales floor, backroom, and DC being a shipping point for customer orders. The closer the proximity to the customer, the less shipping costs by using one or two days ground service. By having strategic multiple shipping points, your competitors will gain an advantage. Analysis shows that multichannel companies that have four or five DCs strategically placed can ship to 95%+
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
of their customers via one to two days ground. Multiple shipping points is the lesson from Amazon, Walmart, and the brick and mortar retailers as discussed above. Again, the customers’ preferences and expectations — “point, click, deliver” — are driving this requirement. 4. THIRD PARTY LOGISTICS (3PL) MAKES MULTI-DC SHIPPING POSSIBLE Admittedly, 3PL isn’t for everyone — most companies feel they need to control the entire supply chain. However, we see many major multichannel companies using qualified 3PLs to jump start their implementation of multi-DCs. The cost per order is competitive and makes fulfillment a variable cost. It allows you to scale to peak easily. 3PL lets you avoid the use of capital for new facilities and systems. It allows for increases in sales without increasing staffing headcount. 3PL greatly simplifies international order fulfillment. One of our clients selected a 3PL provider to transport and replenish (i.e. cross dock) its hundreds of base stores in the US and Japan rather than building several new DCs. A big factor was the significantly reduced time to be operational — it took months rather than years.
Having the strategic placement of DCs is one thing. Having the right level of inventory by item is another. Multi-DC operations require much more inventory. Each additional DC adds a double digit increase to inventory levels. Additionally, returns from online orders are higher and more expensive than at retail. In stores, customers see and perhaps try on the item. The biggest reason for returns in e-commerce is “customer choice.” “No-quibble” return policies build trust. Retailers may take back returns to locations that never had that assortment or item originally, which means more costs for labor and shipping to get it to stores during the season or to be liquidated.
Your competition is getting serious about committing to continual process improvement programs throughout in the entire supply chain. To stay competitive, you must eliminate inefficiency and waste. Formalize department and individual productivity reporting; just focusing on labor use will improve productivity. Investigate adopting incentive pay for increased performance. And then, of course, there is automation and technology. 7. AUTOMATION AND TECHNOLOGY IS A COMPETITIVE ADVANTAGE Again, Amazon is at the forefront of adopting technology and automation in their massive DCs. It acquired KEVA, a warehouse robotics company, several years ago. In some warehouse ads, pay is $12.50 to start. Many of our industry leaders like Crutchfield, Walmart, Colony Brands, Cabela’s, etc. are already heavily automated. The result: lowered cost per unit processed for orders, packages shipped, returns, etc. Small- to moderate-sized businesses should adopt RF communications, barcode products, and warehouse locations as well as implement scan technology. Today, there are warehouse management systems that are more powerful and cost-effective for small- to moderate-sized retailers. These become the building blocks for more sophisticated sortation and automation as your company grows. Voice-enabled applications are commonplace throughout the fulfillment process for online data entry and tracking, not just voice picking. The rate of change in retailing continues to accelerate. The customer has spoken, and so have your more advanced competitors. Now each company has to find the ways to improve processes, lower costs, and provide competitive customer service. ¾
The biggest reason for returns in e-commerce is “customer choice.” “No-quibble” return policies build trust.
5. INVENTORY SYSTEMS BECOME CUSTOMER FACING APP Inventory systems in brick and mortar retailers were always considered “back office” applications. Now we must give the customer accurate item availability (for example, the location where they can go to see the merchandise or pick up an e-commerce order in-store or at the DC) and whether the order will ship from a remote store or DC. The order management system (OMS) — which most retailers didn’t have prior to e-commerce — must communicate delivery time and shipping cost. Additionally, the OMS must reserve the item at that location for that customer. This has turned every store into a mini-fulfillment center with employees picking, packing, and shipping the order. When you reflect back to the William-Sonoma and Neiman Marcus examples above, that’s a huge change. 58
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
6. LABOR COST INCREASES AND INEFFICIENT FULFILLMENT The fulfillment processes in many companies is largely manual. Our benchmarking cost per order shows no relationship to company size and efficiency. Now unemployment is under five percent and the quality of new hires is not so good. Labor costs are increasing, and we face a $15.00 per hour minimum wage in the 2016 presidential election. To understand the impact, consider this example. A direct-to-consumer client with sales over $200 million employs about 275 full-time employees (FTEs) at an average wage of $10.50 per hour. If they are paying $15.00 per hour, every one dollar increase in wage rate results in an incremental cost of $418,000 annually. To move from $10.50 to $15.00 per hour is a total increase of $2.3 million annually, a 42% increase. This does not count the increases in administrative and clerical departments.
CURT BARRY is Founder & Partner at F. Curtis Barry & Company, a consulting firm specializing in direct operations and fulfillment. He is the author of two new eBooks: 70+ Cost Reduction and Productivity Improvement Ideas; and How to Improve Your New Systems Selection and Implementation, available at www.fcbco.com. Visit www.fcbco.com/services for more information.
FULFILLING TINY ORDERS It can be difficult to keep on top of the ever-increasing amount of “tiny orders,” especially when most DCs were designed to process higher-volume orders. But it’s crucial you do so.
SEPTEMBER-OCTOBER 2016 | PARCELindustry.com
of orders per day, with orders averaging fewer than three products. The past few years have seen Cyber Monday and other key seasonal dates spiking these volumes considerably. Another retail trend that is increasing the frequency of smaller orders is multi-channel fulfillment. An example of this trend is allowing customers to order an item online or inside a store and then having it delivered from a distribution center to the store for the customer to pick up at a later date.
By Norm Saenz, Jr.
ave you joined the online shopping craze? Perhaps the better question would be, who hasn’t joined? For the past six years, US e-commerce web sales have grown near or above 15%. In 2015, e-commerce web sales totaled $341.7 billion, according to non-adjusted estimates released by the US Department of Commerce. With e-commerce sales accounting for the majority of the retail sales growth (66.4% in 2015), the impact on retail distribution and fulfillment centers is not going away. Encouraging this growth is continued enhancements with the online experience and use of mobile devices. This rapidly growing ‘Mobile Channel’ has made purchasing online more frequent and convenient. As a result, today’s operations are dealing with an increase in the number of SKUs, the need to capture market share, and thousands of orders with one to three lines per order. For many firms, internet order volumes are reaching thousands
} Packaging into envelopes through various box sizes } Dealing with special packaging /gift wrapping } Shipping small parcel and considering major providers including USPS, UPS, and/or FedEx One of the primary concerns is dealing with the increasing number of SKUs. While online orders are typically less than three line items, the assortment of online items for most retailers is growing. This explains why online orders account for the majority of the retail sales growth — you can’t buy many of the items in the store! This means the distribution center/fulfillment operation must provide additional storage, pick locations, and handling equipment for more SKUs. Compounding this opportunity is the fact that many facilities are out of space and facing the challenge of adding storage and pick locations within their current infrastructure. The right solution depends on your specific requirements, and current layout & equipment. Here are some ideas to consider:
In a highly competitive market, shippers that get their tiny order operations running efficiently are going to earn the larger market shares. The challenge facing many operations leaders is the “original” retail distribution center was designed to process orders with a higher volume of multiple products. Similarly, manufacturer and wholesaler facilities were designed to ship mostly pallet level quantities. The continued growth of online purchasing and other supply chain trends is creating a major shift from high-volume shipping to selecting orders from a wide range of products and handling/shipping these “tiny orders.” So, what does a tiny order operation look like? Whether you squeeze it into an existing operation, expand your building, or establish new space, the best practice for a successful tiny order operation involves the consideration of many factors, such as: } Order management processing capacity for increased frequency of orders } Processing one to multi-line order sizes } Pick locations for a high number of SKUs, with potential wide range of sizes/weights } Picking less-than-case line quantities (piece-picking, broken-case, open-case) } Handling high frequency of orders, with tight shipping windows } Product slotting and advanced WMS capabilities
} Identify the fast, medium, and slow moving items } Factor in the size of items, from small to large, including if the item can be conveyed } Conduct a SKU cubic velocity analysis to identify the slower/smaller items } Remove dead moving SKUs (not sold in 12-18 months) } Add shelving within a current case flow module for the slower/smaller items } Add additional levels/mezzanine to utilize vertical space } Convert storage areas to very narrow aisles (72” vs. 96”-144”) Now, how do you handle the increasing number of tiny orders if you are stuck within an existing operation? Most businesses are initially forced to squeeze tiny
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orders through an existing operation, even if it is not very efficient. If you are constrained to an existing facility, the following are some considerations that can be combined with the solutions for dealing with the increase in number of SKUs. The right solution depends on your specific requirements, as well as current layout and equipment. } Batch pick using smart carts (voice and/ or light technology) from the current pick/fulfillment area and use specifically assigned pack stations } Batch pick into totes using existing pick module and conveyor systems, diverting to specifically assigned pack stations } Batch pick and establish separate PutWall stations for fulfillment/packaging of orders } Establish a separate area/space (i.e. on a mezzanine) and use smart carts with a separate pack area
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At some point (and, for some, immediately), it might not be feasible to support the increase in SKUs and tiny orders within the same facility. It may be necessary to conduct a comprehensive logistics strategy, so consider various scenarios, such as: } Expanding your facility to include a separate processing area } Using a 3PL to set up a separate operation in the location that best services your internet customers } Establishing your own separate facility in the location that best services your internet customers } Fulfilling e-commerce orders using some of the strategically located retail stores } Setting up certain products to ship direct from suppliers If e-commerce sales continue to grow at 15% per year and the multi-channel trend continues, the tiny order phenomenon will
continue to be an operational challenge. In a highly competitive market, shippers that get their tiny order operations running efficiently are going to earn the larger market shares. There is not one answer for everyone, but many of the considerations outlined are being used by companies being forced (or are choosing) to ride the wave of change within the e-commerce/multi-channel space.Âž
NORM SAENZ, JR. is a Managing Director for St. Onge Company in Dallas, Texas. St. Onge Company is an independent supply chain consulting company founded in 1983 and is based in York, PA. Mr. Saenz has over 24 years of experience in planning, designing, and implementing distribution center and supply chain solutions. He has been involved in distribution center design, space & layout planning, labor productivity analysis, technology evaluations, material handling and storage solution development, logistics network optimizations, and software (WMS, Slotting, LMS, and TMS) solutions.
PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D
NMFTA Drops a Bombshell — A New Uniform Bill of Lading! n July 14, 2016, the National Motor Freight Traffic Association (NMFTA) issued a supplement to the National Motor Freight Classification (NMFC) to become effective on August 13, 2016. The gist of the supplement was to publish a revised Uniform Straight Bill of Lading that is extremely favorable for the motor carriers using it — and not so friendly, to put it mildly, for their shipper customers. Although many parcel shipments move pursuant to the terms of an air bill, other parcel shipments are transported by motor carriers pursuant to the NMFC Bill of Lading. By way of background, a “bill of lading” is old English for a “list of the cargo.” Although often prepared by a shipper, it is “issued” when the carrier’s driver signs it at the point of origin. Its primary function is to serve as a receipt for the goods and, in the absence of an individually negotiated contract between the shipper and the carrier, is also used as the “contract for carriage.” The terms of the contract consist of nine sections known as the “bill of lading terms” as well as a carrier’s individual tariffs — all of which are incorporated by reference. The first Uniform Straight Bill of Lading for motor carriers was approved by the Interstate Commerce Commission (ICC) in 1922. It was the result of a collaborative effort by both shippers and carriers. After the demise of the ICC in 1996 and the further deregulation of the motor carrier industry, a need arose for an updated bill of lading. This need was filled by another collaborative effort of both shippers, represented by the National Small Shipments 64
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Traffic Conference, and carriers, represented by the NMFTA. The updated version was approved by the Surface Transportation Board (STB) in 1997 and has remained essentially the same until now. Virtually all of the changes found in the new bill of lading serve to protect the carrier — especially those which are intended to, and will, create virtually insurmountable burdens to successfully recover a claim for loss and damage whenever a carrier asserts one of what are known as the bill of lading defenses. To explain, in a landmark decision in 1964, the United States Supreme Court confirmed that under the Carmack Amendment to the Interstate Commerce Act, a carrier is liable for damage to cargo in transit with only five exceptions: (1) the act of God; (2) public enemy; (3) the act of the shipper; (4) public authority; or (5) the inherent vice of the goods… but only if the carrier was free from negligence and the carrier had the duty to prove freedom from negligence. Accordingly, since 1997, Section One of the bill of lading has stated: “The burden to prove freedom from negligence is on the carrier…” However, Section One of the new bill of lading states “The burden to prove carrier negligence is on the shipper.” This is not surprising considering that the new bill of lading was created solely by the carrier community… with no notice to shippers or any input from shippers. The provisions of the new bill of lading are so troubling for shippers that the Transportation & Logistics Council, a shipper’s organization, has filed a petition with the STB to suspend the implementation of the new bill of lading. With respect to who should have the burden of proof, the petition argues that:
“The reasoning for not requiring the shipper to prove negligence is obvious. When the shipper tenders his goods to the carrier he doesn’t “ride shotgun” with them. He has no way to know what the carrier does with the goods, so it would be virtually impossible for the shipper to prove that the cause of the loss or damage was the carrier’s “negligence”.... Moreover, the addition of a negligence standard runs counter to the strict liability standard implemented by the Carmack Amendment… one of the core principles behind the enactment of the Carmack Amendment was to do away with forcing shippers to prove a carrier was negligent…” The petition includes a detailed analysis of all of the differences between the prior bill of lading and the new bill of lading. It may be found at http://www. tlcouncil.org/sites/default/files/tlc_petition_7-29-16_docket_35008_0.pdf. When and whether the STB will suspend the provisions of the new bill of lading will not be known for some time. In the meantime, what is a shipper to do to best protect itself and its ability to recover loss and damage claims? The answer is the same as has been written in this column many times before with respect to other troublesome carrier tariff terms — get a contract! While not necessarily easy to do, it is perhaps the only way to avoid the one-sided terms developed by the carrier community.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 by searching PARCEL Counsel. Your questions are welcome at email@example.com.
MOOOVING YOU FORWARD... The parcel shipping, warehousing, distribution and logistics industry is moving forward at “same-day”
speed—in large part due to the role technology is playing in increasing customer demand and expectations in both the B2B and B2C markets. Our industry is moving forward, and companies who fail to recognize the shift taking place within the supply chain will get trampled.
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WRAP UP BY MICHAEL J. RYAN
The Convenience Factor s the e-commerce world continues to erode market share from the brick and mortar retailers, I believe there will be a saturation point. I recently had a personal experience of how these two worlds can collide or, from another standpoint, work together. Prior to my son’s August wedding, my wife decided to shop on the internet for a dress, shoes, and accessories… I didn’t realize my porch could handle so many packages. This is a classic situation where she was buying different styles, colors, and sizes. The great news is that she did find what she was looking for, but she also required a quick and easy return process. Most of the brick and mortar retailers that she purchased these items from via the internet had local stores in our community. Some had to be shipped back to the non-store retailers, often because it was a requisite of their return policy. My wife had a great experience in this return process… very simple and easy. We keep hearing that all of the brick and mortar retailers will go out of business. I would argue that they are in a highly competitive position relative to Amazon or eBay. They are being financially challenged with operating large footprints in the retail area but are close to the customer and offer great convenience. In the early 70s, FedEx launched a highly successful overnight service in the US. This model was driven on the notion of 66
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convenience. Customers will pay more for convenience. There has been a lot of attention on getting deliveries in one day
At the end of the day, the consumer wants a “convenient experience.” It was very clear from this experience that the e-commerce world offers more choices in products, which provides an advantage to them, especially in terms of customer satisfaction. The retailers that capitalize on both their e-commerce and brick and mortar infrastructure will be in a market leadership position. ¾
At the end of the day, the consumer wants a “convenient experience”. (via truck or drone) but I think the real winner will figure out how to get the product in one to two days at a reasonable cost. More stores are deploying “Store to Consumer” shipping strategies in order to minimize shipping cost (zone 2) and a quicker delivery. The USPS has worked well in meeting this local delivery need.
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.firstname.lastname@example.org.
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PARCEL September/October 2016