PARCEL
SEPTEMBER-OCTOBER 2015 www.PARCELindustry.com
PARCEL PRICING BENCHMARK SURVEY: RESULTS UNVEILED. P.24
PREPARING FOR PEAK SEASON: ARE YOU READY? P.28
DETERMINING THE BEST SPLIT-CASE AUTOMATED ORDER FULFILLMENT SYSTEM. P.32
NAVIGATING THE
EVER-CHANGING WORLD OF E-COMMERCE WITH EASE
PARCEL
CONTENTS
SEPTEMBER-OCTOBER 2015 | volume 22 | issue 5
Features
Departments 06 Editor’s Note
E-Commerce Just Keeps Growing By Amanda Armendariz
07 Transportation ABCs
When Is the Right Time to Negotiate with UPS and FedEx?
By Thomas Andersen
08 Supply Chain Success Are You Dense? Dimensional Rating, Parcel’s Past and LTL’s Future
Jesse Gates
16 Shopping and Shipping: E-Commerce as a Global Strategy By Steven Page
10 Ship Right
The 2015 Holiday Shopper Wish List: Options, Options, Options
By Christoph Stehmann
18 Planes, Trains and
Automobiles: Retailers Try Every Mode of Transport to Win the E-Commerce Game
28 Prep for Peak Season: Tips
Supply Chain Pivot to Sustain DC Service Levels 11 China’s Role in the Supply Chain for Customer Satisfaction By Rob Shirley
By Mark Sibley
By Rob Howard
22 Data: the Key to Increasing
32 Determining the Best
Split-Case Automated Order Fulfillment System
Efficiency and Reducing Costs in the Parcel Sorting Process
By Ed Romaine
By James Curgus
24 Parcel Pricing Survey –
36 How International
Shipping Automation Can Boost Your Business
PARCEL Forum Results Unveiled
By Rob Martinez
By Mark Aument
Application Articles/Product Spotlights 13
Are You Getting the Most out of Your Fulfillment House? 5 Questions to Ask
35
Avoid the Pitfalls of Bad Parcel Marketing Campaign Execution Three Dog Logistics
Stamps.com
15
Regional Small Package Carriers Are Providing a Valuable Alternative PITT OHIO
20 4
39
The Big Data-Driven Supply Chain – Are You Keeping Up? Green Mountain Consulting
41
Product Spotlights: What to See at PARCEL Forum
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
Customers Want a Personalized and Customized Approach with Their Small Package Shipping U.S. Cargo
12 Spend Perspectives M&A Activity on the Rise – Is Bigger Better?
By John Haber
14 Operational Efficiencies Project Management 101 By Susan Rider
40 PARCEL Counsel
Revisions to the NMFC that Shippers Need to Know — and Then Avoid: Part III
By Brent Wm. Primus, JD
42 Wrap Up
Santa Is Coming! By Michael J. Ryan
president
chad griepentrog
publisher
marll thiede
editor
audience development manager marketing creative director advertising
amanda armendariz
[ amanda.c@rbpub.com ]
rachel chapman [ rachel@rbpub.com ]
cierra bauer kelli cooke ken waddell
[ 608.442.5064 ] [ ken.w@rbpub.com ]
PARCEL PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2015 Š by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Backissue 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.
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5
EDITOR’S NOTE BY AMANDA ARMENDARIZ
E-Commerce Just Keeps Growing ou may notice that many of the articles in this issue focus on e-commerce. This is with good reason, as e-commerce continues to grow, and more and more consumers are ordering their goods online and having them shipped to their doors. But while the reasons behind the growth of this channel are easy to understand (who doesn’t love the convenience of shopping at 11 p.m in their pajamas?), the best practices associated with e-commerce might not be so simple. For starters, many shoppers want free shipping, and this can be a sticky subject for many shippers. Do they offer free shipping in hopes of attracting customer lured in by this benefit (even at a potential profit loss to the company’s bottom line)? Do they give free shipping if the order amount is above a certain dollar? Or do they abandon the free shipping all together, in hopes that their products and customer service are enough to avoid shopping cart abandonment once the consumer sees what the final price is to get the product delivered to their door? And when companies expand into the international sphere (as so many of our readers eventually do), that adds even more complexity to this ever-changing subject. In addition to the regular concerns about operating one’s e-commerce arm of the business in the most profitable and efficient way, there are added issues to consider, such as duties and taxes, changing regulations, etc. Luckily we cover almost everything related to e-commerce in this issue of PARCEL, because we know it’s a real concern for many of our readers. After all, with e-commerce, you often have one chance. Bungle the sale or dissatisfy a customer, and it’s very unlikely you’ll get that customer back. So be sure to read this issue from cover to cover, and we promise that e-commerce will start to seem a lot less daunting. Also, if you are in Chicago for the PARCEL Forum, please stop by our booth to say hello. I’d love to get the chance to chat with you and learn what you love about PARCEL, and what you think we could do better. As always, thanks for staying connected with us.
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: • FedEx Announces 2016 GRI, and Other Changes • Trust (Your Carriers), but Verify • When Should Freight Costs Be Recorded in Accounting? To get great articles like these emailed to you on a monthly basis, just scan the QR code above, or go to www.PARCELindustry.com and click on the “Newsletter” tab a the top of the page.
Thursday’s Tip
Have you signed up for our Thursday’s Tip feature yet? If not, you’re missing out on some great information emailed to you every week! Don’t worry, we know you’re busy, so these tips are brief and easy to read — but yet much-needed information for any transportation professional! All you need to do is sign up for our e-newsletter and you’ll get this information emailed to you the third Thursday of the month (plus an occasional extra one when we have some pressing news!).
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TRANSPORTATION ABCS BY THOMAS ANDERSEN
When Is the Right Time to Negotiate with UPS and FedEx? e’re often asked, “How often should I negotiate with my carrier”? Or “I’m only in the second year of a three-year term with my carrier, so I need to hold off on negotiating my contract until it expires, right?” The following are some rules that often apply and some indicators to consider. HOW OFTEN SHOULD I RE-NEGOTIATE? It is rare for any company who manages their parcel shipping effectively to go more than two years without renewing their carrier agreement(s). Many take it a step further and have specific items addressed every six to 12 months based on changes in their business, growth, or based on what the carriers announce during the General Rate Increase (GRI). Considering that most negotiations can take one to three months, it’s healthy to review your carrier contracts annually (at a minimum) and proactively address any shortcomings when necessary. When the carriers announce a significant change, such as the new dimensional weight rules for 2015, you should be prepared to analyze the impact and make your case to have the increase mitigated. CAN YOU NEGOTIATE TOO OFTEN? There is a fine balance between negotiating too often and not often enough. Two years between full RFPs shows the carriers that you are serious about managing your parcel costs, and it also shows a degree of loyalty where the car-
riers can expect to keep your business for a minimum of two years; longer if they continue to be receptive to making changes along the way. Companies that actively keep both carriers engaged typically have more competitive pricing than companies that remain “married” to a single carrier. If your UPS or FedEx representative doesn’t feel there is a competitive threat, you will likely not have a very competitive agreement. IS THERE A TIME DURING THE YEAR THAT’S BEST? There is no rule of thumb, but you can typically expect negotiations to be a bit more challenging in November and December, due to holiday operational challenges. Historically, the carriers announce the increase in September, with the increase to be applied around January 1, so being prepared to tackle any required adjustments related to the GRI at the end of Q3 or beginning of Q4 will typically provide enough time to have issues resolved prior to year-end. As for managing RFPs or more comprehensive negotiations, the other 10 months are often better suited, in order to get the full attention from both carriers.
BUT I HAVE A 3 YEAR TERM WITH MY CARRIER? So why not wait the full 3 years (156 weeks), since that’s the term that most shippers sign? FedEx and UPS don’t wait three years to make changes… why would you? The carriers have a yearly increase where they typically suggest a 4% to 5% rate hike. However, the impact varies quite significantly by shipper, based on shipment profiles and characteristics. Most shippers end up taking an increase ranging from 6% to
10% each year. This is because the increase does not apply equally by service, zone, and weight, and it’s designed to have a more substantial impact in the weights and zones that are most significant for most shippers. Few companies have the ability to increase their prices every year by five to 10%, yet UPS and FedEx make strong arguments for why this increase is necessary, while typically understating the fiscal impact. Even if your contract includes protection against the GRI in the form of a rate cap, this typically only addresses a portion of the increase. The GRI cap does not address accessorial charges, which are typically discounted by a percentage or dollar value off the gross charge. As the list rates increase, so do these rates, as well as minimum charges. Accessorial fees and surcharges can amount to 30% of your shipping costs. Just look at the impact of the new Dimensional Weight rules… IN CONCLUSION: In the end, remember that your spend is extremely important to the carriers! Each carrier has specific discounts, fees, rebates, and incentives that are negotiable beyond just the initial offer they put on the table. Ultimately, the bottom line is the flexibility to re-negotiate your small parcel agreements exists prior to the end of the initial term. The companies who receive “best-in-class” carrier agreements are those that understand their shipping profile and know how and when to renegotiate their carrier agreements. ¾
THOMAS ANDERSEN, Partner / VP of Supply Chain Services at LJM, can be reached at 631.844.9500 or tandersen@myljm.com.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
7
SUPPLY CHAIN SUCCESS BY JESSE GATES
Are You Dense? Dimensional Rating, Parcel’s Past and LTL’s Future he concept of employing dimensional weight was originally conceived by the parcel industry to effectively price the cargo space on planes for air services. In 2007, the major parcel carriers expanded this pricing method to the ground service offering. Shippers began to steer their packaging decisions towards reducing their dimensional weight as well as actual weight; carriers added the ability to negotiate a dimensional weight factor to further dial in costs. Then the carriers tightened the standard dimensional factor in 2013 and removed the previously held minimum three cubic feet threshold for ground in 2015. As these events pass, shippers pay even more attention to dimensional weight and its effects on total landed cost to the customer. The parcel industry’s move from a strictly weight-based pricing model to one heavily dependent on cube is well documented. However, the increased frequency of major dimensional rule changes in the parcel industry is something the LTL industry should be taking into consideration. Every couple of years there is a new outspoken proponent of density-based rating from the LTL carrier collective reviewing its benefits to the both carriers and shippers alike. Joe Bartone, President of Shift Freight, praised the
“100% transparency in pricing” as the driving force of the model. A model with this amount of transparency would allow carriers to price attractive freight more aggressively without fear of poorly stacked pallets or unreasonable amounts of padding material. These headlines have done little to move the needle, however, in terms of moving customers from a class-based rating system to a density-based standard. It is easier for a small group of large carriers (UPS and FedEx) to implement a new pricing standard than it would be for an LTL industry with a large number of both national and regional carriers in the mix. It is also worth noting that two of the ear-
Freight praised density-based rating and technology as a driver for increased profits. Saia even increased their dimensional scanners from 27 to 30 in 2015. Still after seeing these positive effects, only 30% of all Saia shipments pass through a scanner. Investment in dimensional scanners is still too low to effectively transition the amount of tonnage moving through the LTL system to a density-based rating system. The capture of pallet level dimensional data is mission critical in implementation and without more dimensional scanners at LTL terminals the industry will be handcuffed to the class-based system established in the 1930s. One of the side effects of the current class-based LTL pricing model has been increasingly high discount levels negotiated on rate bases that are numerous and expensive to maintain. Even small shippers are able to negotiate 70-80% discounts if they are on the latest carrier tariff. This combined with the LTL industry’s notoriously low margins have given significant negotiating power to the shipper. Recent events have shifted more power to carriers, however, with a driver shortage and reduced capacity, driving rates as much as four percent higher over the last year. James Welch, CEO of YRC Worldwide and outspoken supporter of density based rating, referred to the class based system as “antiquated” at the 2014 SMC3 conference. Welch reemphasized that “the dynamics of the supply chain
The parcel industry’s unique package handling requirements have made technology critical to growth and a driving force for the rapid evolution of the dimensional weight standard.
8
liest adopters of a density-based rating platform in LTL have been UPS Freight and FedEx Freight. However, there are several other factors at the root of delay. The parcel industry’s unique package handling requirements have made technology critical to growth and a driving force for the rapid evolution of the dimensional weight standard. Unfortunately, in the LTL world, even those embracing the density-based rating model have not fully implemented the required equipment to do so. In 2014 Saia
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
have changed.� Given the accelerated pace at which dimensional considerations have attracted the attention of the parcel industry, I would submit that Welch is right and that change will be swift when both technology and market conditions align in the LTL Industry. But what can be done now, as a shipper, to prepare given what the parcel industry has taught us since 2007? To answer this question, shippers need to re-evaluate their LTL shipment characteristics in terms of the model the parcel industry has moved towards. If you are looking out at your dock at perfectly palletized, class 50 freight then you might be feeling a little nervous about a shift in the way your freight is priced. However, if you are properly equipped with accurate
data and have access to the technology required to consider a density-based pricing model, you would find yourself in an enviable negotiation position. With all the similarities between the parcel ground service model and the LTL model, there is one core difference that stands out. LTL shippers enjoy a much broader carrier offering than parcel shippers, making attractive freight much easier to leverage. Of course, most of us live in a world where our freight characteristics are an ever-changing and challenging burden. While our freight may not be as attractive to carriers, it is still an important cost consideration to our customers. Therefore, it is critical that we are sourcing transportation at or below the market. The parcel industry has shown us that once technology
and market conditions align, the carriers will change density-based rating from an option to a requirement. Preparation, in the form of accurate data collection and strategic negotiation techniques, will allow your company to engage with carriers in a way that will enable them to price your freight as aggressively as possible.
JESSE GATES, is an Analyst with the Transportation Consulting team at enVista. He has over 6 years of experience in transportation, most of which has been in the freight industry. Jesse interacts with client data to support strategic negotiation techniques that drive savings. His experience in freight brokerage, manufacturing, and wholesale distribution throughout his career provide a unique perspective to freight negotiation projects.
SHIP RIGHT BY CHRISTOPH STEHMANN
The 2015 Holiday Shopper Wish List: Options, Options, Options ast year was all about shopping early — following the shipping delay debacle from 2013, nearly half of holiday shoppers shopped earlier to avoid shipping delays. While retailers braced themselves for an earlier shopping season last year, this year consumers will consistently shop throughout the holiday season. A recent Pitney Bowes survey uncovered that shoppers plan to consistently shop during the weeks leading up to the December holidays. In fact, the majority of holiday shoppers (56%) will purchase the majority of their goods the weekend beginning on Black Friday and ending on Cyber Monday, while others plan to do the bulk of their shopping in December (34%) or before Thanksgiving (30%). For retailers, this holiday season will truly be a survival of the fittest. Those who can endure a lengthier, more consistent shopping season will come out on top. But to do this, retailers will need to focus their energies on giving consumers exactly what they want: options. FREE OVER FAST Shipping options have long been an important factor in the overall shopping process, and that importance is growing. According to the Pitney Bowes 2015 Holiday Shipping Survey, 93% of holiday shoppers (compared to 70% last year) find shipping to be important to the shopping experience. Specifically, free shipping plays a crucial role in shopping behaviors, with 88% of survey partici10
pants preferring free shipping (with 5-7 day delivery) over 12% who prefer shipping with a fee (1-2 day delivery). In fact, 68% of holiday shoppers say they’ve used a promotional code or coupon in the past to qualify for free shipping, and 60% say they’ve increased their online spending to qualify for free shipping. As consumers continue to place more emphasis on free shipping, retailers must consider offers that allow shoppers to take advantage of this shipping option. Offers like premium memberships are a great way to offer fast and free shipping — 41% of holiday shoppers say they’re more likely to purchase a premium membership to receive fast and free shipping, while 39% confirm they’ll even be more willing to shop with online retailers who offer this type of premium service. In addition to premium memberships, retailers should also consider promotional and sales events. Eighty percent of holiday shoppers say they’re more willing to shop online if they have a promotional code, while 61% are more likely to shop during a sales event. CONSIDER THE UNCONVENTIONAL Just as shipping options grow in importance, so too will the methods in which shipped packages are delivered. Over the past few years, companies like Amazon, Google and FedEx have begun experimenting with unmanned aerial vehicles (UAVs), commonly referred to as drones, in an effort to cut down on high shipping costs. Earlier this summer, Amazon even hinted toward “Uber-like deliveries” in which packages would now be hand-delivered by citizen drivers. While these services have not quite taken flight — pun intended — con-
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
sumers are becoming more comfortable with the idea of unconventional delivery methods in exchange for cheaper shipping costs. Last year we asked holiday shoppers if they were comfortable with these methods; 54% said they were not comfortable with this method, while this year only 25% say they’re not comfortable with it. As retailers begin to explore additional ways to offer free shipping, consider incorporating new delivery methods to help drive down costs. In the interim, don’t forget to offer a number of delivery location options to customers. RAMP UP RETURN OPTIONS In the case of in-store returns (39%) versus returns through a shipping provider (38%), consumers are almost at a deadeven when it comes to preference. More so, 20% of holiday shoppers prefer to have a courier pick up a returned package from their location. However, our findings did show that associated return shipping costs do not play a huge role in a consumer’s purchasing decision. In fact, 39% say they’ll make a purchase online even if they are responsible for fees associated with the package return, whereas 40% say they will not make that purchase. Overall, consumers want options and they want the power to control their shopping experience — from shipping to delivery to return. The more options retailers offer consumers, the more power those consumers will have to choose what they really want this holiday season. ¾
CHRISTOPH STEHMANN is Chief Operating Officer of Digital Commerce Solutions, Pitney Bowes.
SUPPLY CHAIN PIVOT BY ROB SHIRLEY
China’s Role in the Supply Chain he world’s supply chain has largely been manufactured and shipped from China as the supply chain has grown exponentially over the last couple of decades. China surpassed the USA last year to become the world’s largest economy with a slightly higher GDP of $17 trillion. Their middle class is growing rapidly and is eager to acquire modern conveniences. Many remember the days when “Made in China” meant junk. They have grown well past that era. China’s population has over 1.4 billion people making up over 19% of the world. The US, while slightly larger in geographic size, has 325 million people, equaling less than a quarter of China’s population. China’s one child policy, which began in 1980, is still in effect, but there are many exceptions, especially if the first child is a female. SeaRates.com provides a very broad range of time, distance, rates, shipping lines, lanes and other data needed to make logistics decisions for supply chains. They even have an app for $399. North American carriers who are not in this chain are missing one of the biggest opportunities for freight. The world is clearly global in commerce and this should be a new mega growth opportunity for carriers. CHALLENGES: We witnessed a huge logistics logjam in the Long Beach/LA port earlier this year caused by a Longshoreman’s strike that significantly slowed down the delivery of goods made in China destined for the USA.
The Maersk Triple E class container vessels are enormous and will never fit through the Panama Canal at 18,000 TEU and 398 meters long. However, the cost savings they offer for other lanes are significant. The unloading process takes so long to unload the whole ship that containers that can be offloaded in the first wave command the highest price premium. The last ones are the lowest price.
China has made a remarkable change out of the Stone Age and into the 21st century while remaking some of its Marxist tendencies. China is still a communist state that has taken in broad manufacturing, but keeping democracy, free speech, free press and most of the US Constitution at bay. China has cut a deal with Russia to buy their oil.
China surpassed the USA last year to become the world’s largest economy with a slightly higher GDP of $17 trillion. Their middle class is growing rapidly and is eager to acquire modern conveniences. Meanwhile, China has turned little islands at the bottom of the China Sea into an airstrip, infuriating multiple neighboring countries. China’s recent surprise devaluation of their yuan shows they are still in a learning curve in mastering their country’s economics. Even more importantly, it clearly shows what their economic impacts can be on the world is measured in real time on the world’s stock markets. The biggest Chinese brands that the USA is familiar with are ecommerce distribution companies like Alibaba, Baidu and Tencent Holdings. Generally, we are more familiar with China performing manufacturing of global brands on a “white label” basis for Apple, Samsung, etc.
There has been a significant history of hacking into data banks, liberally taking patent information and manufacturing fake items that look very much like the originals. Make no mistake, China is simultaneously the chief competitor of the USA and our biggest opportunity. ¾
ROB SHIRLEY is CEO of ExpresShip www.xpship.com, a strategic consultancy in the global supply chain. Contact him at rsxpship@gmail.com.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
11
SPEND PERSPECTIVES BY JOHN HABER
M&A Activity on the Rise – Is Bigger Better? his year is going down as one of the busiest for logistics Mergers & Acquisitions (M&A) and much of it is thanks to low interest rates, compelling US economic conditions and for some acquirers, stockpiling of cash on ledgers. According to PriceWaterhouseCooper’s recent quarterly report, “Transportation and Logistics Industry Mergers & Acquisitions,” M&A activity among logistics companies has already surpassed last year’s total in US dollars, with deals valued at $14.5 billion in the first half of this year, compared with $12 billion in all of 2014. The same was true for trucking, with deals valued at $24.5 billion through June 30 compared with $23.8 billion in 2014. As a result, the world of logistics providers is in a state of flux with this increase and is driving huge changes in the marketplace. A recent example is that of UPS, the longtime parcel market leader, which made a bold move into the 3PL/ Truckload management business with the acquisition of Coyote Logistics. Amongst the M&A activity so far this year: FedEx announced plans to acquire TNT Logistics in March and is pending approval from the European Commission. If successful, this acquisition will propel FedEx into a leading position within European road freight market. XPO Logistics acquired French provider Norbert Dentressangle in April. This acquisition introduced Europe to XPO Logistics and not only expanded its contract logistics solutions into this new ge12
ography but also positions XPO Logistics as a major global freight forwarder. Kuehne + Nagel acquired Retrans in June. Through this freight broker acquisition, Swiss-based Kuehne + Nagel has expanded its US domestic solutions. UPS acquired Coyote Logistics in July. A surprise to some but this acquisition actually was a smart move by UPS. Not only has UPS entered into the truckload market it is also assured adequate capacity at a lower cost particularly during the busy holiday season. Geodis acquired OHL in August. Frenchbased Geodis has long been interested in the US market and now thanks to the OHL acquisition it will expand its contract logistics solutions into the US and Canadian markets. As the market consolidates, we ask the question: is less competition best? Less competition certainly has been beneficial to the large small parcel providers. Consolidation of this market has resulted in what has been described as a “duopoly” with FedEx and UPS holding much of the market share. FedEx’s entrance into the domestic ground market was thanks to a transformational acquisition in the 1990s – RPS. Ultimately this acquisition was rebranded into what is today called FedEx Ground, one of the largest and financially successful ground delivery services. Meanwhile, Roadrunner Transportation Systems has made 24 acquisitions over the past 10 years and its president and CEO, Mark DiBlasi stated, “The whole goal is to expand the company, to cross-utilize equipment and personnel. We started out as a long-haul less-than-truckload carrier, but today, it’s rare to find a customer that only needs LTL or truckload or customs brokerage. We want to provide all those services.”
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
But Mergers & Acquisition activity often results in hidden costs. For example, communications is vital for 3PLs going through integration processes. Companies involved must be mindful to not forget their carrier partners and suppliers and, most importantly, their customers. In addition, proper service levels will need to be maintained across all products lines and also priced accordingly to market demand. A costly mistake was DHL’s failed attempt to enter the US domestic ground market via the 2003 acquisition of Airborne. DHL learned that the US domestic market was decidedly different from its European-based market and as a result pulled out, costing the company an estimated $9.6 billion. Meanwhile, shippers need to determine the effects of an acquisition on their business. Key performance indicators (KPIs) can provide useful information when monitoring service levels, which can potentially fluctuate in times of change. Also use this time to review the existing contract to see what can be negotiated. Finally, it never hurts to weigh options. The logistics and transportation landscape is changing at a rapid clip. Should shippers be concerned? Maybe, maybe not; it depends on the each shipper’s unique needs and requirements. One thing is for certain though; bigger is not necessarily better. ¾
JOHN HABER is the Founder and CEO of Spend Management Experts, a global transportation spend management consulting firm. With nearly two decades of transportation spend management experience, John has helped some of the world’s leading brands drive greater efficiencies through their supply chain operations, while reducing transportation costs by 20% and more. Contact John at solutions@spendmgmt.com.
COMPANY PROFILE
Are you getting the most out of your Fulfillment House? 5 Questions to Ask
1.
Are you getting the lowest Shipping Costs?
With greater buying power, your fulfillment house should be able to negotiate steep discounts with all the major carriers – often up to 50% off list prices with UPS and FedEx, and up to 62% with Commercial Plus Pricing from the United States Postal Service (USPS). Make sure your fulfillment house offers all USPS services especially money-savers like First Class Package Service, Priority Mail Regional Rate or Priority Mail Flat Rate Padded Envelopes. Always shop around to compare rates amongst different fulfillment houses. Some fulfillment houses will allow you to negotiate these shipping rates so you can gain more savings.
2.
Are you paying too much for shipping supplies?
3.
Are your products getting to your customers as fast as possible?
4.
Are your products getting to your customers as inexpensively as possible?
Needless to say, the cost of shipping boxes, shipping labels, packing tape, packing peanuts and bubble wrap adds up when you’re buying these items at retail. Based on volume, your fulfillment house should be able to procure these items at dramatically lower prices and pass those savings onto you. Some carriers, such as the USPS, even provide free shipping boxes. Make sure your fulfillment house is taking advantage of these money-saving packaging options.
of the shipping costs. Priority Mail is also an inexpensive option for fast delivery. In fact, 91% of Priority Mail packages are delivered within 2 days anywhere in the US.
5.
Are your customers always getting what they’re ordering?
The accuracy of the contents in a package affects how customers rate their overall shopping experience with a company. Accuracy also helps you avoid expensive return services. All fulfillment houses are not created equal when it comes to package accuracy. Ask to see actual fulfillment delivery data to make certain your fulfillment house is able to meet your customer expectations and fulfill on your customer service promise. Your fulfillment house is your business partner. They should help you determine the best way to send a package to meet or exceed customer expectations at the best price. Make sure your fulfillment house has the right technology in place to help optimize your shipments and choose the best carrier for your specific needs. At Stamps.com, our small parcel shipping experts assist and guide customers through their fulfillment options every day. Our team of experts can help review your current fulfillment process and provide recommendations on how you can optimize it so you can maximize profitability.
A faster delivery time translates to a better customer experience; the sooner products get into customers’ hands, the happier they are and the more likely they’ll be repeat customers. What’s the best way to reduce delivery times? Reduce the distance between your products and your customers. How? Utilize a fulfillment house with multiple warehouse locations covering multiple geographical regions.
To save you and your customer’s money, insist on service optimization so you don’t pay for express shipping services in situations where simple ground services will do. All warehouses should be equipped with service maps to help make the most cost-effective service choice. For example, if a customer lives within one shipping zone (1-day delivery time) from your shipping location, your fulfillment house can opt to ship your package via Ground instead of Express. This can save over 50%
www.stamps.com
OPERATIONAL EFFICIENCIES BY SUSAN RIDER
Project Management 101 n every warehouse or distribution facility, it’s important to identify people that can manage projects. There are always processes, equipment or software to be installed. If you equate a distribution center to a person, if all is going well it’s healthy and the heart is beating well. But when a project is being implemented, whether it’s a new process, a new piece of equipment or a new software, the distribution center is in the hospital. If that project has trouble or fails, your distribution center is in cardiac arrest. Depending on the seriousness, it could be very problematic. Therefore, it’s always good to identify people in your facility that have common PM (project manager) skills such as: 1. Attention to detail 2. Task discipline 3. Multi-tasker 4. Able to delegate 5. Communication skills 6. Cool under pressure 7. Team building skills 8. Problem solving skills Once you have identified the appropriate person for a project, make sure they have the bandwidth in order to perform their duties. Typically, distribution centers designate a PM who has already some responsibility. Someone else should be assigned the regular job task, or a specific amount of his/her time daily should be allocated for this project. Depending on the complexity of the project, assigning a PM task to an already overloaded job function is a recipe for disaster. There are some proj14
ects like new software, automated material handling equipment, new building additions, etc., which require a FTE (full time equivalent) as a PM. A project manager should always document an as is-to be state and get approval by all parties involved. This process just prevents rework and expensive changes later in the project. The objective and end result should be clearly defined and agreed upon by all parties involved. If there was an ROI (return on investment) analysis done it should be referred to throughout the project. Therefore, at the end of the “go live” and the learning period those milestones can be evaluated. The scope of the project should be the next agreed upon element to ensure everyone involved in the project are in agreement with the scope. Doing a project in a warehouse is much like painting a room in your house. Once you paint one thing it’s easy to identify something else that needs painting. This scenario is the same with many projects. Scope creep is a normal detriment to the budget of many projects. If the project is a software install and a modification is requested, it should be looked at in comparison to cost and return on investment. Rank all requested modifications as: 1) must have 2) needed 3) nice to have. The project manager should communicate and inform other project members and the executive sponsors. The project should have a diverse group of team owners, depending on the influence of the project. For instance, a material handling project should not only have the functional user and operations personnel but maintenance and facilities engineering. A software project should always include
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
someone from technical services group (IT) along with operational users. It is the PM’s responsibility to manage the project schedule, the task, the vendors and internal resources. The PM will need to assess very quickly whether internal resources are qualified to preform responsibilities. It’s always important to prevent “cardiac arrest” in going live with a project, thus it’s suggested to have a mock or trial go live to simulate real time what happens and to identify any risk. Before go live of any product or software a check list should be performed to ensure that all elements of the project are ready. If this is a major project don’t forget to inform the executive team and internal customers down the line. In some instances it may be wise to inform customers in a politically correct manner. For instance, “We are installing a new system to better serve our customers.” Training is imperative with any new process, product or software. If the distribution center personnel have not been trained effectively, they will find a work around or revert back to their old process. If the project is trying to reduce paper or data entry, which is commonly an item that gives the employee comfort, there may be resistance to “let go” of the crutch. The timing of training is also very important. Some companies try to start with training and then it may take a couple of months for the employee to actually use what was learned; by then it is forgotten. The best timing for training is as soon as possible prior to implementation! ¾
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.
COMPANY PROFILE
Regional Small Package Carriers Are Providing A Valuable Alternative In the past, you may have thought about the possibilities of using a regional carrier to handle your small packages but were unsure about making a change. Now more than ever, regional carriers offer a choice that’s economical, reliable, flexible and personalized. PITT OHIO has thrived on providing valuable solutions to its customers and that was no exception when they launched their small package service in 2009. They found that shippers are looking for an alternative when they inevitably begin to feel pressure by small package giants whose accessorial charges continued to climb. PITT OHIO’s GROUND service combats those industry trends by leveraging their network of regional based partnerships to reduce shipping costs and lower accessorial charges through client collaboration. Flexibility and convenience were missing from the picture, so PITT OHIO put significant focus on offering unique solutions based on customers’ needs. They specialize in solution based selling including handling irregular and non-conveyable items that others prefer not to. A variety of these solutions includes pool, general distribution and routed work in addition to parcel, lightweight and dedicated options. When it comes to delivering a personalized service, regional carriers offer more than customers may expect. PITT OHIO’s GROUND service understands their customers’ needs and are focused on providing quick response times that offer a seamless and integrated experience. Through their world class IT systems, PITT OHIO customers have the ability to leverage back office integration & tracking and tracing functionality on demand with our GROUND service. Optimizing your small package shipping can be overwhelming, but it doesn’t have to be when you trust a regional provider. PITT OHIO’s GROUND service leverages regional based partnerships to offer 48 state coverage with the ability to determine a solution that works best for you and for your customers.
www.pittohio.com/parcel
Stop & See Us at PARCEL Forum ‘15 Booth #714
By Steven Page
SHOPPING AND SHIPPING: E-COMMERCE AS A GLOBAL STRATEGY
P
icture this: you walk into a department store and you see the price tag on various items you want to purchase; but you have no idea what you’ll actually end up paying at the register because sales tax can range anywhere between five and 25%. For ecommerce shoppers, this scenario is often experienced because shipping costs and taxes vary greatly based on delivery location. At retail, consumers are comfortable with the additional tax they have to pay because it is a fixed rate they are accustomed to. Ecommerce customers, on the other hand, are often left in the blind until the very last step of checkout. After they’ve searched for and finally found the item they really want, put
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in all of their credit card and shipping information, and have moved on to the last step, they finally see the cost of actually getting the item to their doorstep. The customer might abandon their cart at this point and unfortunately this is where many etailers lose hope for conversions. The moment of truth left the consumer blindsided and now they have exited the “store.” They expected to pay one price, with a little wiggle room in their budget for shipping and taxes, but once they saw the true end-cost they realized either that they were not ready to purchase or that they wanted to look elsewhere for a better deal. In order to increase conversions, etailers need to better understand why customers are abandoning their online shopping
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
carts in the first place. Consumers may be spending more time comparing prices across multiple ecommerce sites rather than purchasing from the first one they find, or they are shocked by the shipping rates and decide they want to purchase from a site that offers better rates. Whether the customer is from the US, China, or Canada, they each want to be offered the best rate available for their country’s shipping. This is why it’s of key importance to offer the best rates available to all of your ecommerce shoppers and show what the true cost will be early on rather than waiting until the end of the checkout process. Online shoppers do recognize that they pay for shipping, and whether it is factored into the total cost or as a sep-
arate fee, they still want to know the estimated final cost before finalizing their purchase. If the cost of shipping is incorporated into the cost of the product, or if free shipping is offered only on certain amounts or types of items, then consumers may purchase more to get a better deal. If the shipping information is provided to consumers sooner rather than later, they are usually happier about their purchase and more pleased with the brand for being transparent. While free shipping is a simple and effective way to lure people to the purchase point, you may be concerned about how it can affect your profits. If you offer free shipping on every order you could end up putting your business in a position that negatively affects profits. Instead, you can require a minimum order amount for customers to get free shipping, ultimately boosting the amount they spend on your site while keeping them happy about the overall cost. You may also want to consider a monthly membership that people pay for in order to get free ship-
ping on all of their purchases, with no minimum required. Offering free shipping, after increasing your product price in order to maintain profitable margins, may end up driving shoppers away simply due to the higher cost. Depending on the item, shipping costs can vary greatly, so it is recommended to add a shipping calculator to your website to show customers a realistic price before they decide to finalize their payment. To compete with large ecommerce companies like Amazon or eBay, smaller businesses could benefit from working with a consolidated shipping provider that can add packages to their network of orders. This is a smart option when first starting to sell and ship products internationally since you will likely be shipping smaller amounts. A consolidator typically gets the lowest freight rates available and will deliver your product for a lesser cost by using the local postal service. It is also common for them to help with customs brokerage, a process that ensures your customers will not end up having to pay additional taxes
or duties once they receive their order. Being straightforward about shipping costs is a simple way to boost conversions and reduce cart abandonment rates on your website. Instead of scaring potential customers away, being transparent will make customers happier and more inclined to purchase from you again in the future. It’s even better if you can offer competitive shipping rates that are better than what other ecommerce retailers are offering. As ecommerce spending continues to rise, not only in the US but around the globe, knowing the ins and outs of your ecommerce strategy will ensure you meet the needs of your consumers in the best way possible. ž
STEVEN PAGE is the Founder and President of Stalco, a gateway to the Canadian market. Since 1994 Stalco has been assisting US companies with all of their Canadian logistics needs and they have now started working with Canadian businesses looking to expand into the US. To learn more visit www.Stalco.ca or you can email Steven at Steven@stalco.ca.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
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PLANES, TRAINS AND AUTOMOBILES:
RETAILERS TRY EVERY MODE OF TRANSPORT TO WIN THE E-COMMERCE GAME
A
mazon is seriously pursuing drones to perform same-day delivery, and its drivers in New York City even use the subway to ensure they meet a one-hour delivery promise in that region. Target is offering AM/PM delivery (i.e., order in the morning, and receive by end-of-day) through courier companies, who typically use vans. Macy’s is offering scheduled same-day delivery (i.e., pick a window) using Deliv, whose independent contractors drive their own cars. Walmart has launched its answer to Amazon Prime, and is testing in-store lockers for wait-free “click-and-collect” (i.e., order online, and pickup in the store from a locker, instead of waiting in line at customer service,
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waiting for it to be delivered, or searching the aisles to find it). Planes, trains, automobiles, vans, lockers — any and every mode is being tested by retailers in their quest to get consumers their ecommerce purchases as fast as possible. The traditional approach of Walmart, Target, and Macy’s — stocking products across a wide range of complementary categories — made them both convenient shopping destinations and the largest retailers in the world, in terms of sales. But these and other big retailers, from Best Buy to Home Depot, Sears, and Toys R Us (all of whom offer “clickand-collect” delivery through their customer service desks), decided that competing in the ecommerce game requires
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
speed. And while it’s encouraging that they are aspiring to meet on-demand, “my way” consumer expectations, with the exception of Amazon (who’s offering lockers, one- and two-hour and AM/PM service levels), all of them are missing convenience in their ecommerce fulfillment process. And as a result, they’re risking losing their hard-won, long-term customer allegiance. These retailers are justified in their desperate desire to be “in the game” from the outset, instead of responding years late, or not at all, as they did the last two times that shipping innovation came around: first, Amazon’s original offer of free ground delivery, and then, free two-day delivery when Amazon Prime launched in 2005. They are essentially following The Boston Consulting Group’s 2014 advice and minimizing their investment by experimenting in a few select markets and working with a single provider that is more often than not an emerging company (i.e., Deliv with Macy’s, or Postmates with Apple). They may even be subsidizing the price that consumers pay for delivery while they try to “figure out” how to actually make the purchase pay for itself. Because the emerging delivery providers offer only one service level, retailers can’t provide consumers with the option to choose a service level that’s convenient to their needs: “click-and-collect,” one- or two-hour on-demand, AM/PM, scheduled, or even two-person for difficult-to-handle items. “Click-and-collect” is obviously the most cost effective option to a business, but it is also the most inconvenient for the consumer, particularly when it involves not only going to the store, but then waiting in a customer service line where people are asking questions, making returns, signing up for credit cards, and more; lockers are faster, and therefore more convenient for consumers. Business-to-business (B2B) companies that have long offered same-day delivery already know that customers rarely select one-hour service, and instead opt for AM/PM, which costs a lot less — a savings that is passed along to them. With sufficient volume and density, AM/
By Rob Howard
PM can become comparable in cost to discounted UPS Ground “Zone 1” delivery — not to mention the fact that the associated fulfillment process is cheaper and is less sensitive to performance issues, since it is less urgent. Charging more for the premium service levels (i.e., one- and two-hour, or scheduled), which consumers rarely need, can eventually help to defray the cost of building lockers and even subsidize the price presented to consumers for AM/PM delivery. Aside from Amazon, Target is currently in the best position to offer a choice of service levels, since they already have a robust working relationship with the local delivery and courier industry. The courier industry performs a billion deliveries per year and, while it has traditionally been involved in B2B deliveries, it has quickly gained significant experience performing business-to-consumer (B2C) deliveries,
as a result of working with retailers like Amazon for Prime deliveries and Sears for two-person scheduled delivery of appliances. Unlike emerging delivery providers, courier companies can provide any same-day service level, including ones customized to a particular customer. In fact, courier companies alone can provide AM/PM, which requires a dock to consolidate across its customers, different drivers for pickups and deliveries, and a high-degree of management — facilities that the emerging providers lack, and coordination that their app-centric approach cannot make happen. While lockers may work best for in-store pickup, and the subway may work best in dense markets such as New York City, the sprawl of cities such as Miami or Dallas suburbs requires cars and vans — and eventually, drones, if Amazon CEO Jeff Bezos has his way — in order to ensure that
the service levels offered are performed correctly and on time. Ultimately, winning the ecommerce game will require retailers to adopt an ambitious, all-in approach that takes into account the convenience lessons learned early on by the large department stores and B2B-focused companies. ¾
ROB HOWARD, CEO, Grand Junction, founded Grand Junction to reinvent the local delivery industry through technology. He has a 15-year track record of driving innovation and leading both start-ups and nonprofits to success. Prior to Grand Junction, he was the founder and CEO of Ensenda, which he grew to become the country’s largest third-party logistics (3PL) provider focused on local delivery before he sold it to Transforce. He is a past board member of Habitat for Humanity Greater San Francisco and of the Customized Logistics and Delivery Association. He holds a bachelor’s degree in engineering from Virginia Tech and an MBA from Yale University.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
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Ship Faster & Save Money
product spotlights
Chicago’s largest regional carrier
what to see at
United Delivery Service is a regional small parcel carrier providing same day & next day delivery solutions throughout the Midwest. Since 1972 UDS has been helping some of the largest retail, e-commerce and supply companies reduce their shipping costs and provide faster delivery times for their customers. Our proprietary software leads the industry in providing customers with complete visibility to real time package tracking with GPS, EPOD, VPOD and VPOA!
PARCEL
FORUM
The Perfect Package for Parcel Shipping
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71 OOTH 2
United Delivery Service 630.930.5201 sales@uniteddeliveryservice.com www.uniteddeliveryservice.com
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31 OOTH 5
Fast, Digital Dim Weights with Size-IT
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51 OOTH 7
Save on transportation costs with Certified & Compliant parcel shipping software. Fully automate planning, routing, tracking, management & settlement tasks effectively, Agile Network’s Elite Suite provides flexibility to scale anywhere from 500 to 5 million shipments. Recognized as Best in 24/7/365 support with access to over 1200 Carriers.
Are you getting bogged down in capturing dimensional weights for shipping? Problem solved with Size-IT, ADSI’s fast and easy wireless mobile dimensioning tool. Size-IT digitally captures dimensions as you measure the package and wirelessly uploads them to your shipping system. You’ll reduce labor, improve accuracy and eliminate unexpected carrier charges.
888.214.1763 jim.lerose@agile-network.com www.agile-network.com
ADSI Dana Gardner 877.755.2374 dgardner@adsionline.com www.adsionline.com
Package Audits Save You Money!
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51 OOTH 6
Reduce your parcel costs and save money with the most advanced and comprehensive parcel audit software in the industry. CTrak handles dimensional audits both domestically and internationally. We deliver maximized savings and graphical reports with minimal fees. Reduce your shipping, administrative and accounting costs. No cost Proof of Concept work!
CT Logistics sales@ctlogistics.com 216.267.2000, ext. 2190 www.ctlogistics.com
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Faster.Better.Smarter.
70 OOTH 8
IntelliQuick offers a range of specialized distribution and fulfillment services guaranteeing efficiency and responsiveness to your supply chain. IQ is a proven 3PL and last mile provider. We combine experience with superior technology and systems to optimize supply chain solutions. From an envelope to a truckload, nobody gets it there Faster, Better or Smarter!
IntelliQuick 888-IQCanDo info@iqcando.com www.iqcando.com
Regional Carriers Provide Valuable Alternative
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71 OOTH 4
Personalized and Customized Approach
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71 OOTH 4
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.
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.
PITT OHIO 412-232-3015 ext. 6593 chhammel@pittohio.com www.pittohio.com
U.S. Cargo 412-227-5108 jjurczyk@pittohio.com www.us-cargo.com
Perfect for any processing environment
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80 OOTH 3
NPI’s Xstream makes parcel and flat automation faster and more efficient. With a throughput up to 30,000 parcels and flats per hour, the Xstream only takes up a small footprint in your operation; however, it is OCR and BCR capable and offers you Weigh On The Fly, Incoming and Outgoing mail processing and sorts just about everything including most non-machinable pieces.
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50 OOTH 3
Victory Packaging has the products you need, when you need them — we’ve got it, we’ll get it, or we’ll make it. We are a national distribution company that focuses on flexibility and creativity to reduce the total cost of packaging.
Victory Packaging fulfillment@victorypackaging.com 888.261.1268 www.victorypackaging.com
From overnight documents to shipping packages around the world, Pitney Bowes can help reduce costs while giving you more control of your process through end-to-end automation. Join us at PARCEL Forum to learn how thousands of organizations ship smarter with SendSuite® parcel shipping management solutions.
Pitney Bowes 800.327.8627 pbsoftware.sales@pb.com pbi.bz/psms
NPI 214.634.2288 www.npisorters.com
Got breakage? We’ve got dunnage!
Be smarter every step of the way.
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Automate Your USPS Shipping
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Spend less time shipping and more time selling with Stamps.com. Our powerful, yet easy-to-use technology allows you to seamlessly integrate USPS services into your shipping workflow. From importing and managing orders to selecting the best shipping methods, Stamps.com can help your warehouse practically run itself…faster, smarter and more efficiently.
Stamps.com 888.927.8267 solutions@stamps.com www.stamps.com/parcel
By James Curgus
DATA: THE KEY TO INCREASING EFFICIENCY AND REDUCING COSTS IN THE PARCEL SORTING PROCESS Shipping companies are already collecting the information needed to maximize operations — they just need to use it.
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he growth of e-commerce has been meteoric, and the trend lines keep pointing up. Forrester Research is forecasting that by 2018 total e-commerce sales will approach $415 billion. That means in just three years more than 11% of all expected retail sales will happen online and then need to be shipped. That’s a problem for a shipping industry still trying to figure out how to handle the amount of parcels it’s already seeing. Specifically, companies are trying to figure out how to get those parcels in and out of a distribution center both efficiently and cost effectively. Some of these companies are turning toward automation to solve the problem, and it’s a smart move. On its own, automation can provide several advantages, one of those being the ability to track the travel path of a package throughout the delivery process, something customers are increasingly demanding. USING DATA TO IDENTIFY EFFICIENCIES Automation provides these companies with more than the ability to track packages. It’s also giving shipping providers the ability
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to use their piece tracking system architecture to increase handling efficiencies. For example, in the United States, many companies, including heavyweights FedEx, DHL and UPS, have divisions that provide parcel delivery services that utilize the United States Postal Service (USPS) for the final mile of delivery via work share discount programs. These work share programs not only offer a potentially less expensive product delivery alternative for the parcel delivery companies, but also, by utilizing final mile delivery vehicles already on the roads, they provide the additional green benefit of a reduced carbon footprint. By using the data already required for the manifesting process, those companies can optimize the parcel sorting process to increase efficiencies and lower handling costs. Traditionally, companies have relied on historical data to create static sort plans that they then use for months at a time to manually sort parcels. They weren’t using dynamic data to make sorting decisions; instead, there were human readable sort indicators on the labels applied to parcels. That required manual sorting into logical containers for finalized sorting based on a best guess of what the optimized sort levels may be.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
For example, if a parcel needed to be sorted to one of, let’s say, 1,600 potential destinations, it would first be sorted into one of 40 initial bins. After the initial sort, each of the parcels in those bins gets manually scanned and sorted into a second set of 40 individual bins or bags until the 1,600 (40 x 40) logical destinations are finalized. It’s an inefficient process, but that’s how many companies are still doing it today. Knowledge derived through the years in the high-speed letter-sorting marketplace is now being implemented to increase efficiencies in the historically manual parcel sorting market. While many parcel sorting companies are benefiting from the advantage of the work share discounts offered by the USPS, they aren’t dynamically optimizing the level of savings via the combination of looking at both the presort or available logistics discounts because they either don’t have the data or don’t use it to do a dynamically optimized level of sort. DATA CAN HELP TARGET THE OPTIMAL SORT/DROP LEVEL In the USPS work share programs, two types of discounts are offered, Presort and Logistics. Presort relates to sorting parcels to logical containers and offers various discounts based on the value of internal work reductions by the USPS. For example, sorting to a mixed group (multiple ZIP Codes) offers the lowest discount, while sorting to a 3-digit sort level group (360 for example)
offers additional discounts, and a 5-digit sort level group (36015 for example) offers the highest presort discount allowed. Logistics discounts relate to shipping, or “dropping,” to a USPS facility. The closer the facility is to its final delivery point, the higher the discount afforded. Dropping to a network distribution center (NDC) will earn one level of discount for the shipping company. Dropping to a sectional facility center (SFC) will earn even greater discounts. And dropping to a destination delivery unit (DDU), or the local post office that will deliver the parcel, will earn the largest discounts. The key to optimizing profit when using the USPS for the final mile is to presort to the highest level and drop those packages as deep into the delivery process as possible, while taking into consideration sorting and logistics costs. This process will require algorithms in order to expeditiously generate the most financially optimal sort plans with the least amount of human intervention. Sorting to that level requires two things: at minimum, a semi-automated sorting
process that can scan parcels for tracking and manifesting purposes and then software that can analyze that data before creating sorting plans. By automating the process and then using the available data, companies may find out that despite historical data that says they don’t have enough packages that go to specific ZIP Codes, they may have enough on an individual day to create a drop group to that post code level to provide additional presort discounts. They may also find that a new destination needs to be added due to additional volume for a particular postal facility or possibly move certain parcels to a less discounted facility due to the additional logistics discounts not covering the cost to ship. By combining the historical manual sort with automation selecting certain pieces via pre-planning, a “hybrid” solution most often will provide additional profits.
start to get more comfortable using data and putting it to work, because the amount of data available will only increase in the coming years as the Internet of Things starts to connect everything from refrigerators to shipping containers to the Internet. Leading shippers are predicting that this will have a significant impact on the logistics industry. Various vendors provide automation and sort optimization software products and support. That software can be used to cover the numerous delivery products for the USPS or private delivery market at a price model that should be considered versus creating in-house custom solutions, especially when taking into account the cost to build and, more importantly, maintain with the ever-changing parcel delivery marketplace. ¾
THE FUTURE OF DATA IN LOGISTICS It’s important that shipping providers
JAMES CURGUS is Chief Financial Officer for NPI – Fort Worth, Texas.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
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By Rob Martinez
PARCEL PRICING SURVEY – PARCEL FORUM RESULTS UNVEILED
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ne of the most common challenges I hear from volume parcel shippers is that they don’t know how good — or bad — are the incentives, terms and structure of their carrier pricing agreements. Why? Amongst many factors, the majority of carrier contracts include confidentiality language that precludes shippers from sharing information. Moreover, the carriers are focused on package yield management. As public companies, their mandate from shareholders is to sell your business at the highest rates possible while still retaining you as a customer. Of course, no shipper would ever negotiate a contract and knowingly leave
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SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
money on the table. But the reality is that some of you have done a better job than others when it comes to negotiating the most favorable rates and terms. How can you be certain your rates are truly best-in-class? How do you obtain parcel pricing benchmarks, especially given contract confidentiality concerns? Shipware and PARCEL set out to provide shippers with a comprehensive set of parcel pricing benchmarks. During last year’s PARCEL Forum (October 2014), dozens of shippers participated in a live pricing survey. We asked the questions, you provided responses. Contracts were not shared, but rather, participating shippers responded to survey questions based on ranges. Moreover, survey responses were entirely blinded.
Published for the first time to non-survey participants, this article provides survey results related to Ground dimensional pricing, carrier contract negotiations, and mode/carrier optimization. SURVEY DEMOGRAPHICS Industry Participants included a mix between several industries including manufacturing (25% of survey respondents), retail/ wholesale (38.9%), 3PL/warehousing/ fulfillment/distribution (19.4%), software/ high tech (5.6%), ecommerce (5.6%) and others (5.6%). Annual Revenues Small and large companies alike were represented with annual sales revenues ranging from under $100M (32.4%), $100M-$500 (24.3%), $500M-$2B (16.2%), $2B-$5B (10.8%) and greater than $5B (16.2%). Primary Carrier Predictably, UPS (44.7%) and FedEx (39.5%) were cited as the “primary” carriers (as defined as more than half of overall volume). Other carriers that survey respondents named as primary included UPS SurePost/Mail Innovations (7.9%), FedEx SmartPost (5.3%), and regional carriers (2.6%). Parcel Spend Annual parcel spend revealed a balanced mix of small, medium, large and huge shippers: Less than $5M (26.3%), $5M-$15M (13.2%), $15M-25M (18.4%), $25M-$40M (13.2%), $40M-$70M (15.8%), and $70M or higher (13.2%). SURVEY RESPONSES Ground DIM Divisor The survey was taken two months prior to the January 2015 dimensional pricing changes in which the carriers eliminated the 5184 cubic inch threshold. At that point, only 52.6% had attempted to negotiate with the carriers on the new dimension based pricing, although 31.6% had plans to do so. Fifty percent of those that already had negotiated reported “no success” in getting the carriers to back off the changes; 23.1% were “partially” successful, and 26.9% were “extremely” successful. Outcomes for those reporting “partial” or “extreme” success are listed in the following chart.
If “extremely” or “partially,” which statement best describes your outcome?
What’s your current Ground DIM divisor?
Actually improved threshold
166 (Standard)
47.4%
Kept 5184 threshold for duration of contract 54.5%
166-194
7.9%
Kept 5184 threshold, but diminishes YOY
18.2%
194
15.8%
Got some threshold, but less than 5184
18.2%
194-220
5.3%
221-250
10.5%
250-300
10.5%
>301
2.6%
9.1%
However, only 22.9% of all shippers expected to retain or improve the 5184 exception; 62.9% expected to be on standard terms. UPS and FedEx shippers: 2015 Ground dimensional threshold exception? None (standard)
62.9%
1728 or less
2.9%
1729-5183
11.4%
5184
20.0%
>5184
2.9%
Regarding the elimination of the 5184 cubic inch dimensional exception, 35.1% of shippers anticipated the pricing change would result in rate increases up to 5%; 16.2% forecasted increases of 6-10%; 10.8% of respondents expected increases of 11-15%; only 2.7% of shippers had forecasted cost increases of 16% or greater. Interestingly, 13.5% hadn’t yet analyzed the impact pending increases, and 18.9% forecasted no higher costs in spite of dimensional pricing. Most shippers would attempt to mitigate cost impact through negotiations (87.5%) and modifying box dimensions to create smaller, denser packages (71.9%). What are you doing to mitigate 2015 DIM changes? All that apply
Contract Negotiations Contract negotiations remain the most popular strategy for shippers to keep costs in check (73%). Other common responses included implementing leastcost routing software (62.2%), modifying packaging (56.8%), greater use of the USPS and regional carriers (54.1%) and auditing carrier invoices (51.4%). To keep shipping costs in check, over the next 12 months, we plan to… (All that apply) Renegotiate rates
73.0%
Least-cost-routing s/w
62.2%
Improve packaging
56.8%
> USPS & Regionals
54.1%
Audit carrier invoices
51.4%
> Parcel Select
29.7%
Zone skipping
24.3%
Lower Returns costs
8.1%
No active plans
2.7%
There was a correlation between the frequency of carrier contract negotiations and price satisfaction. Shippers that negotiate on a more frequent basis reportedly receive better contract incentives. When negotiation contracts, changes tend to be more minor (42.4%) than significant (39.4%), and only 18.2% conclude with a new carrier or all-new agreement.
Contract negotiations
87.5%
Change box dimensions
71.9%
Switching carriers
25.0%
Other strategy
25.0%
Shift to polybag
18.8%
Packaging automation
18.8%
Flat & cubic rate programs
9.4%
When is the last time you negotiated pricing with your primary parcel carrier?
Not much we can do except pay more
3.1%
< 6 mos
48.7%
6-12 mos
17.9%
1-2 yrs
23.1%
> 2 yrs
10.3%
The other factor important to the DIM conversation of course is the DIM divisor. Nearly half of respondents (47.4%) get the standard factor of 166. Only 2.6% reported negotiating a DIM factor greater than 300.
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Extent of contract changes Minor
42.4%
Significant
39.4%
All new agreement
18.2%
The contract changes were most typically around accessorial charges or general rate increases (GRI) as shown below.
Mode/Carrier Optimization The majority of shippers continue to single source (defined as giving 80%+ volume to a single carrier). Single or multisource? (>80% of volume) Single
59.5%
Multi
40.5%
What changes were made? All that apply Changes to accessorial
24.3%
Adjustments for GRI
24.3%
Improved discounts
18.9%
Minor language
8.1%
Change revenue thresholds
8.1%
Changes to Min Charge
8.1%
Added rebate
8.1%
By a margin of nearly 6-to-1 shippers continue to report that it’s harder to negotiate contracts today than ever before. Do find negotiating with the carriers to be harder or easier now than a few years ago?
66.7%
Larger 1-2 day delivery footprint
60.0%
Improved minimum charges
46.7%
Better DIM divisor/threshold
40.0%
Other
26.7%
Specialized/Custom solutions
20.0%
Improved billing terms
20.0%
Same day options
13.3%
While the majority of shippers using regional carriers reported savings up to 10% (42.9%), over one third (35.7%) enjoy savings greater than 21%. If using regional carriers, what cost savings over FedEx & UPS?
Yes, definitely
20.5%
11-20%
21.4%
Probably
23.1%
21-30%
28.6%
I doubt it
38.5%
31% >
7.1%
Definitely not
17.9%
10.0%
No difference
17.5%
USPS PM Express & PM viable alternatives to UPS & FedEx Ground?
N/A, I’m new to negotiations
15.0%
Yes, definitely
30.8%
Probably
43.6%
I doubt it
20.5%
Definitely not
5.1%
78.3%
Fewer surcharges
42.9%
Easier
Carriers focused on revenue/margin
80.0%
1-10%
57.5%
If you answered “harder” to the question above, why? All that apply
Cost savings
USPS PM Express & PM viable alternatives to UPS & FedEx Air/Express?
Harder
Shippers understand that the primary national carriers are focused on growing profitable revenue (78.3%) and that there are few competitors (60.9%). Interestingly, 65.2% reportedly believe FedEx and UPS have an unsaid agreement to avoid “price wars.”
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Regarding the use of the U.S. Postal Service, the majority of survey respondents still do not believe that Priority Mail is a viable alternative to UPS/FedEx air services (56.4%), although 74.4% “definitely” or “probably” feel those postal products are in fact viable alternatives to Ground services.
What benefits have you realized? (All that apply)
Only 34.2% of survey respondents reported using regional carriers, and only 7.9% on a “significant” basis. Do you use regional parcel carriers (like Eastern Connection, LSO, OnTrac, Spee-Dee, LaserShip, etc.)?
FedEx & UPS have tacit agreement to avoid 65.2% “price wars”
Yes, definitely
7.9%
Yes, but not significantly
26.3%
Few competitors
60.9%
Not at all
65.8%
Commoditized pricing
52.2%
Not able to use a third party consultant
13.0%
Those shippers using regional carriers reported several benefits, many price-related including overall savings (80%), fewer surcharges (66.7%), more favorable shipment minimum charges (46.7%) and improved DIM pricing (40%).
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
Moreover, shippers’ use of regionals reportedly increased in the past year, perhaps indicating satisfaction with those services. Regional carrier users, how has % of total parcel volume handled by regionals changed past year? No change
43.8%
Increased
50.0%
Decreased
6.3%
Use of Parcel Select products is also increasing. While FedEx SmartPost continues to enjoy primary carrier status for the highest number of shippers (36%), UPS SurePost and Mail Innovations came in second with 32% of the survey population. Parcel Select Shippers: Primary Carrier FedEx SmartPost
36.0%
UPS SurePost or Mail Innovations
32.0%
DHL Global Mail
16.0%
Newgistics
16.0%
Other
0.0%
By and large, shippers are enjoying the cost and value of Parcel Select products; 88% of survey respondents are mostly or extremely satisfied. Parcel Select Shippers: Overall, are you satisfied with the cost/value of service? Extremely
16.0%
Mostly
72.0%
Not really
8.0%
Not at all
4.0%
BENCHMARKING VALUE & LIMITATIONS It is important to note that while overall volume and revenue certainly play a role in pricing, FedEx and UPS discounts are largely based on the carriers’ analysis of distribution footprints and package characteristics, which are directly tied to the carriers’ “cost to serve” pricing model. Revenue management teams at the national carriers have become quite ad-
ept at understanding how much it costs to move a customer’s packages through their networks. Package profiles that are relatively easy to handle are priced more competitively than those in which the carrier is likely to incur additional costs. Therefore, simply reviewing benchmarking data may not be enough to draw conclusions that you, too, should be receiving similar discounts. Benchmarks like those published above will provide shippers with an idea of what’s possible — high watermarks for which to strive. And when survey questions are cross-tabulated with shipper volume, spend, industry or other key metrics, shippers can get a better sense of how they compare with others. Imagine how your carrier contract negotiations would improve to your favor if you knew that you were getting the worst incentives against a peer group on part of your contract; or that three quarters
of companies had negotiated a discount on a surcharge, the same surcharge the carrier rep told you is never discounted. Shipware and PARCEL will continue to promote and publish these beneficial benchmarking surveys. For the fourth consecutive year, Shipware and PARCEL Forum are pleased to bring back this popular and beneficial session on October 20, 2015 to the PARCEL Forum in Chicago. We hope to see you there! ¾
ROB MARTINEZ, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers more than 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.879.2020 Ext 114 or rob@shipware.com.
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
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By Mark Sibley
TIPS TO SUSTAIN DC SERVICE LEVELS FOR CUSTOMER SATISFACTION
A
re you ready for the holidays?” It’s a question people commonly hear once December arrives. But for today’s retailers and their logistics partners, that question needs to be asked, and answered, well in advance. Up to 75% of an entire year’s volume and revenue can be generated during this 8-12 week peak season period. And it has been shown that every 15 hours of stopped or hindered operations during peak season can eliminate one percent of your annual revenue and increase overall costs by 1.25%. The growth of online sales only magnifies this impact: current surveys indicate that customers expect online orders to be delivered within five business days. 28
If they know an order will take longer, they typically do not place it. During the most recent Cyber Monday order cycle, an industry study showed that slightly more than 20% of orders were delivered outside the expectation (greater than five days from click to doorstep) — directly attributable to a delay in getting orders out the door and into the hands of carriers. Potentially, that means 20% of those online customers you worked so hard to attract won’t be returning to the website and placing more orders. UNDERSTAND THE CHALLENGE AND MANAGE THE RISK During peak season, distribution centers typically ramp up from single eight-hour shifts, five days a week, to multiple shifts running seven days a week. This strains
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
the operation in three key ways: Personnel, particularly supervisor-level associates in both operations and maintenance, are moved to different shifts to oversee and support temporary workers; their experience and problem-solving abilities are distributed, which can affect an operation’s ability to correct problems quickly. Systems and equipment are run much harder, in some cases up to three times longer than non-peak times during the rest of the year. Maintenance and servicing often does not keep the same pace; issues such as bad electrical connections, overheated motors and under-lubricated parts, which would not appear during normal operating conditions, can quickly mul-
tiply and interrupt operations. No matter how well-engineered or trained your people or systems are, problems and breakdowns are inevitable. A fully prepared and tested peak season plan that’s focused on key systems, maintenance, and operational areas is crucial to your center’s ability to sustain the service levels it has been designed to deliver, and will ensure that your systems are ready to handle whatever disruptions the season may bring. LOOK TO THE PAST TO PROTECT THE COMING SEASON To plan for the future, first look at the past. Examine and analyze your existing maintenance and operational records to identify previous areas of weakness or bottlenecks, and develop effective action plans to deal with them.
One leading direct-to-consumer facility put two programs into action that dramatically reduced production-related events. First, they identified and prioritized a list of improvement opportunities throughout the facility. They focused on implementing two of these improvements for each area. They also modified their planned maintenance, gearing it toward minimizing unplanned downtime. To effectively build and use these kinds of plans, you should have established processes in place to document and track everyday events such as equipment failures, unscheduled shutdowns in conveyors or sortation equipment, interruptions in order flow, and reductions in service levels and throughput. This provides a complete portrait of your center’s strengths and vulnerabilities. To identify the critical areas in advance, train your team to track and document details about events, including: Maintenance occurrences/equipment failures – What failed, how often, what
did it take to resolve the issue and how long, what prevented a quicker resolution, and how severe was the impact to service levels? Workforce planning and availability – Are shifts sufficiently staffed, not only with production associates, but with supervisory personnel, maintenance teams, IT resources and managerial level team members who may be needed to help coordinate and resolve complex issues or set priorities? Problem resolution processes – If disruptions occur, is the resolution process fully understood by your organization? Is there an understanding on how to designate and communicate various severity levels within your organization? Were practical troubleshooting steps and escalation processes established and easy to follow? Were contacts with outside service providers and vendors well-organized? How much time did it take to resolve recurring issues, and could that interval be improved?
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
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If you have tracked these items with sufficient detail during past peak seasons, the data provides an effective foundation for preparing your peak season response plan. That plan should include prioritizing action items to be addressed before peak season, such as increased preventative maintenance cycles on key pieces of equipment, refresher training for supervisory personnel, and better documentation and communication of problem escalation processes. SURGE TESTING: CRUCIAL TO SUCCESSFUL PLANNING Leading retailers and distribution companies make surge testing an integral part of their planning. Surge testing simulates the typical demand conditions during peak season and should optimally be conducted four to six weeks prior to the season’s start. Typically, a distribution center will hold back up to half a normal day’s throughput, and then send it all during a compressed three- to four-hour period to replicate peak volume and operating conditions. When you plan a surge test, key supervisory and management team members should identify possible risk areas as well as goals for the operational elements you are assessing: product and communication flow, pick modules, conveyor operation, wave transitions, throughput rates per area, order accuracy and other key distribution center metrics. It’s important to have knowledgeable observers at all the key areas you are assessing, with instructions on how to observe and capture information. In particular, you can use surge testing to assess and resolve “choke points” in the way your people interact with the distribution center’s technology. The opportunity to troubleshoot and resolve operational and technical issues in advance is a major benefit of surge testing. For example, if you experience an increased rate of bad reads at sortation induction, you can assess if operators are positioning the product improperly, or if the quality of labels has been compromised. Surge testing can help you identify these issues and give you the opportunity to implement improvements or training. PREVENTATIVE MAINTENANCE: ADJUST CYCLES FOR PEAK DEMAND Today’s distribution center technologies 30
are engineered to be robust, reliable and operate at peak performance under demanding conditions. Nevertheless, these systems operate best with preventative maintenance (PM) programs that follow manufacturer’s recommendations, which are normally based upon a standard number of operating hours. For the peak season, distribution center and maintenance management should assess their standard preventative maintenance schedule and identify critical areas where maintenance intervals should be increased. Inspections and audits should be conducted, focusing on the following critical equipment aspects and those components that will be subject to increased wear and tear as utilization surges: Alignment and fastening of critical photo eyes and sensors Power transmission elements, motors, belt alignment of equipment Power and communications cabling, connections and interfaces that are loose or can be accidentally disconnected due to continuous vibration Conveyor switch points that require frequent lubrication Critical parts inventory planning The peak season PM schedule should be based on the results of both surge testing and an analysis of equipment failure and repair issues from past peak seasons. With the preventative maintenance aspects examined, it’s also crucial to review your response plan for emergency maintenance to ensure you have the expertise, partners and parts necessary to handle the increased operating hours and multiple-shift conditions of peak season. For example, at one plant there was a sudden mis-sorting of product at the start of the first shift. The rework was dramatically affecting operations and service levels. Even though hotline support and maintenance staff were troubleshooting the issue, a service technician visited the site and found that a scanner photocell bracket had been knocked out of position. The distribution center maintenance person had tried to realign the bracket; however, the problem had never been reported. Improved knowledge, communication and tracking of issues would have
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
resolved this issue within 15 minutes. A peak season maintenance plan can also help you identify which spare parts you and your partners should have available to enable fast repairs. To develop the right plan for your facility, consult with your key systems suppliers who can provide insight on where to focus your increased PM intervals and spare parts planning, and can even provide refresher training for maintenance personnel on troubleshooting and efficient repair practices. ANALYZE, TEST, PREVENT AND PREPARE Being “ready for the holidays” starts by taking simple proactive steps to identify and respond to operational and system issues prior to your peak season. Eliminate issues that can dramatically impact service levels and profitability by following these key items: Have a process to track and document your events. Log issues, downtime events and emergency repairs. Evaluate and regularly review these events with maintenance and operations personnel. Ask for root cause and empower them to improve. Assess previous peak season issues and the lessons learned. Plan and conduct surge testing to determine and correct any issues. Evaluate with the teams, make them responsible for action plans, and then test again. Adjust preventative maintenance cycles to accommodate increased system usage and its wear and tear. Make sure all personnel are welltrained on best practices for using distribution center technology, to ensure accuracy and productive flow. Review troubleshooting and problem escalation processes and confirm all resources are properly scheduled and up-to-date. The sooner you can implement these recommendations and be fully prepared for the holidays, the better. ¾
MARK SIBLEY is Director of Customer Support, BEUMER Corporation, Somerset, NJ. For more information, visit www.beumergroup.com.
By Ed Romaine
DETERMINING THE BEST SPLIT-CASE AUTOMATED ORDER FULFILLMENT SYSTEM
S
imple, automated order fulfillment technology not only improves service levels, but also pays for itself in a short period of time, less than two years in many cases. Simple automation is the installation and integration of automated order fulfillment systems within your operations. It can improve order fulfillment operations in four important ways, and in the process, it can achieve a rapid return on investment (ROI) through cost reductions. Simple automation reduces costs through: } Reduced Labor Requirements. The single biggest cost in warehouse and distribution center operations is labor. Simple automation improves picking rates by as much as 600% per operator, reducing the need to add labor to meet increased demand. } Increased Throughput. Improved operator productivity increases system throughput, speeding order turnover and extending order cutoff time. } Improved Order Picking Accuracy. Automation with the use of supporting technology such as software and pickto-light systems improves order picking accuracy up to 99.99%+.
32
} Space Savings. Automated order fulfill-
}
}
ment systems can recover between 30% to 85% of floor space by utilizing the vertical cube of the facility. This saved space can be converted to income producing operations, reducing the need for brick-and-mortar expansion. Improved Inventory Visibility & Management. Even simple systems can significantly improve the quality of information about inventory status and stock keeping unit (SKU) location. Improved Ergonomics Reduce Lost Time Injuries. The warehouse labor force has the highest turnover rate, the highest absenteeism and the highest lost time accident rate in the order fulfillment operation. Automated systems reduce bending, stretching and reaching by presenting stored items to the operator at the correct ergonomic work height, reducing workplace injuries.
At first glance, it might seem easier and less costly to add labor to meet market demands, or to increase storage capacity through brick and mortar square footage expansion, but these options often prove to be bad business decisions. Increases in both throughput and storage density can
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
often be better achieved through simple automation of the order fulfillment process, and the rapid ROI can justify the implementation of this technology.
CHOOSING THE RIGHT SYSTEM There are a number of automated technologies available. Each offers specific parameters in the sizes and types of inventory they handle most efficiently, as well as storage density, and throughput rates. When considering an automated system, here are some guidelines to keep in mind. Velocity. Is the system designed to handle slow, medium or fast moving inventory items? Throughput. How many lines per hour or orders is the system capable of handling? Storage Density. How many active SKUs can be stored in the least amount of space? Space Utilization. Does the design of the system take advantage of unused space or otherwise recover space required for the existing order fulfillment operation? Acquisition Cost vs. Cost of Ownership. Does the cost of the system fit within budget guidelines, figuring in a proper ROI? More importantly, what is the true cost of the system year 2, 3 and 4 vs. other alternatives? Depending on the application,
SPLIT CASE TECHNOLOGIES & USES Split Case Order Picking Technologies & Systems
Slow Medium
A-Frames Floor Robots Horizontal Carousels Mini-Loads ASRS
x
x
x
x
Shuttle Technologies Vertical Carousels Vertical Lift Modules
Storage Density
Fast
Lines/Hours
Lines/Hours
x
4200/orders
x
Pick-to-Light Flow Rack Robotic Carousel Systems
Throughput
Velocity
x
x
x
x
x
x
x
x
x
x
x
x
there may be more than one possible solution, and the best solution is often a blend of two or more technologies.
DETERMINING THE BEST SOLUTIONS A-Frame: An A-Frame is an automated dispensing/picking system used for high speed split case order picking. It can be configured in a Pick-to-Belt, Pick-to-Tote or Pick-to-Shipper mode to suit a wide range of customer requirements for split case order picking. In its Pick-to-Tote configuration, the A-Frame system can handle up to 4,200 orders per hour (the number of lines per order is almost irrelevant). The system requires no labor, other than replenishment. Portable models are available to meet smaller scale, promotional or seasonal order fulfillment demands. Floor Robots: Floor robots pick up and deliver stored items on portable storage shelving to an operator, who then picks the required item. The robot then returns the unit to storage. Throughput rates range from 100 to 450 lines per hour/per operator. This system offers good storage density, and capacity can be increased by adding robots. Programming, equipment and ongoing maintenance costs make these systems expensive. Horizontal Carousels: Horizontal carousels are a series of bins that rotate horizontally around an oval track, delivering
Accuracy Levels
Labor Savings
Cost of Ownership
Characteristics
1 = Worst to 5 = Best
2
5
5
$$
High speed fully automated order fulfillment that requires zero picking labor. Portable and larger systems available. Piece weight limited to <1 lbs.
100-450
3
4
3
$$$$
Able to expand the system very quickly in a short period of time
150-550
4
4
4
$$
Cost effective batch picking, unique advantage for fewer lines per order profiles
60-100
4
4
4
$$$
Very large number of SKUs with moderate throughput expectations
100-250
4
4
3
$
Large quantity of high velocity products with small to medium physical characteristics
200-700
4
4
4
$$
Cost effective means of picking large quantities of SKUs in a limited footprint
200-700
3
4
4
$$$
Handles extremely large quantities of slow, medium and fast moving inventory
100-275
5
3
3
$
Ideal for very small item inventory and the density it provides
125-375
5
3
4
$
Automatically adjusts storage capacity for very dense storage. Great ergonomics
the stored item to the operator. They are designed for picking slow to medium moving items and cases, with throughput rates from 150 to 550 lines per hour/per operator. Horizontal carousels are commonly integrated in multiple units in a pod or workstation to enhance productivity and throughput. They offer good storage density at relatively low cost. Mini-Load System: This system handles slow moving smaller sized inventory from 100 to 250 pounds, stored in trays, totes or cases. It is optimized for high density storage with throughput rates ranging from 60 to 100 lines per hour. Pick-to-Light Flow Rack: Sections of gravity flow rack are used to queue fast moving inventory. A light display ranging from a simple â&#x20AC;&#x153;gumballâ&#x20AC;? to alphanumeric displays indicates to the picker which SKU and what quantity needs to be picked. This system allows one operator to replenish inventory from the back while the other operator is simultaneously picking. Carts or conveyor is used to transport the orders from one bay or zone to another. Robotic Carousel Systems: These systems use a robotic extractor to retrieve items or totes as they are queued in horizontal carousels. A single robotic extractor can service three horizontal carousel units stacked in a tier, selecting the required items from one unit while the other two po-
sition for the next picks. These systems offer very good storage density with throughput rates from 200 to 700 lines per hour/ per operator. They are cost effective for handling small, medium and large quantities of slow to medium moving items. Shuttle Technology: Shuttle technology is used for the buffering, sequencing and picking of items stored in plastic totes or cartons weighing under 125 pounds. Shuttles travel on rails at each storage level and are equipped with inserter/ extractor devices that remove/replace stored items. These systems are expensive; however, they handle large quantities of inventory at throughput rates of 200 to 700 items per hour. Vertical Carousels: Vertical carousels are cost-effective, self-contained systems of shelves or carriers that rotate vertically. Stored items are presented to an operator at an ergonomically optimal height. They provide high storage density and are designed for small item order picking of slow to medium moving inventory. Throughput rates range from 100 to 275 lines per hour/per operator. Vertical Lift Modules (VLMs): This cost effective system offers excellent space utilization and storage density. Slow and medium moving items or cases are stored in columns of trays in the front and back of the unit, accessed by an automatic insert-
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
33
er/extractor. Sensors analyze the heights of the items stored in each tray. Integrated controls dynamically adjust the trays’ stored positions to minimize wasted space. Throughput rates range from 125 to 375 lines per hour/per operator.
CLASSIFYING INVENTORY It is important when considering order fulfillment automation to understand the nature of your inventory. Clearly, some systems are better at handling fast movers, other more attuned to handling medium and slow movers. Classifying your inventory will help define more precisely your automation options. Start by classifying inventory by picking size (pallet, case, each) and by velocity of movement (very fast, fast, medium, slow, or very slow). Certain similarities will appear. For example, when comparing velocity, create groups of similar SKUs together. Cross reference the labor associated with picking each of these items against their order frequency to create a cost-to-pick graph. This is critical information in helping determine the ROI for a specific system.
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The most dramatic improvements in order fulfillment optimization come from applying solutions to entire categories or classifications of inventory, rather than just a few SKUs. This is because of the 80/20 rule that illustrates that 80% of a facility’s picks come from 20% of its inventory. Dig into this 20% of inventory and look for similarities again. See if there is another 80/20 within every 20% until you define five to 10 classifications. This now becomes actionable to determine the best technology and solution.
SELECTING THE RIGHT PARTNER Consult with an experienced systems manufacturer or integrator. They will help you analyze your order and inventory data to determine the best solution with a proper ROI (return on investment). Likewise, always understand where your potential partner’s “true interests” lie when doing final evaluations. Never fall in love with a technology. Often a little of something is good, but a lot of it works poorly. Apply the best technology to the right classification of inventory.
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How will you know it’s right? When the ROI matches the business plan’s net need. The integrator may also suggest upgrading your Warehouse Execution System (WES), Warehouse Management System (WMS) or Warehouse Control System (WCS) software to take full advantage of the cost savings associated with automated systems. Today’s software can help streamline the picking process and improve inventory management, resulting in more cost savings. By implementing automated order fulfillment systems to handle fast, medium and slow moving inventory, a warehouse or distribution center can achieve significant gains in throughput and order picking accuracy while reducing costs. Those cost reductions can pay for the system quickly, under 18 months in most cases. ¾
ED ROMAINE is Vice President Sales & Marketing for SI Systems & Chairman of the Automated Storage & Retrieval Systems (AS/RS) Product Section. Contact him at romaine@sihs.com or 610.559.4043.
PRODUCT SPOTLIGHT
Avoid the Pitfalls of Bad Parcel Marketing Campaign Execution Since you’re reading this magazine, we’ll assume you’re already convinced of the value of parcel marketing and sampling, and have a dedicated creative team you already work with to execute your programs. I’m sure you’ve also seen campaigns go horribly wrong. There are literally thousands of logistical details that have to align for a subscription/sample parcel campaign to arrive on time and budget, of which the most critical is picking the right mailing partner. Let’s chat about the unfortunate pitfalls of implementing marketing parcel programs and key strategies to avoid campaign headaches and failures. Select an experienced marketing parcel mail firm that offers low-cost solutions, warehousing, and real-time campaign tracking. You want to work with strategic partners who offer highly flexible parcel solutions, which should include warehousing of all components for the life of the project, and real-time reporting via a web-based portal. Before pulling the trigger, consult with your mail firm to keep campaign costs low. Packaging details like size, weight, thickness, materials, and stock finish have a significant impact on cost and USPS automation. Companies who handle countless parcel campaigns every month have developed consulting expertise to help clients navigate these options. Meet your subscription client expectations with on-time delivery every month. Exceed your subscribers’ expectations so they stay loyal and recommend you to all of their friends. Did you know you can stage delivery so your parcels reach every recipient around the same day regardless of their region, or, stagger the delivery across the country if that makes response management easier? The right partner can help with this service. Verify campaign lists have optimum deliverability. Sounds like a no-brainer, but you’d be shocked how often organizations assume their parcel was delivered, all the while scratching their heads reviewing horrible campaign results. Make sure your lists go through NCOA/CASS certification, guaranteeing clean lists with improved deliverability. Avoid management of warehousing components and processes if at all possible. Warehousing logistics can play a huge factor in
the cost, delivery, and success of marketing parcel campaigns, not to mention a colossal waste of time for your company’s internal resources. Often, the lack of warehouse space is a major consideration for a marketing parcel campaign. This service eliminates that challenge. Secure real-time campaign tracking for every shipment. Parcel tracking is like a crystal ball, allowing verification that parcels have shipped and reached their destination on deadline. In addition, tracking allows real-time staff planning for customer service/order-taking in call centers. Again, the tighter you can project the actual dates support is needed, the less waste for the organization. Remember, an experienced partner and careful planning is key to avoiding marketing parcel campaign pitfalls. Three Dog Parcel works with creative teams, just like yours, and specializes in custom parcel campaigns that make the client’s life easier, always delivering on deadline and on budget. Our OBBAgistics service offers you the tracking and the timing you need, and our 80,000 sq. ft. warehouse is ready to handle your warehousing needs. For all Parcel Forum attendees, receive free OBBAtrack on your first project, a value of $ 500.00, just for giving Three Dog Parcel the chance to wow you. Remember, at Three Dog Parcel, we take the bite out of postage and freight. Visit www.threedoglogistics.com or call 410-284-5494 extension 220 or kellys@threedoglogistics.com to schedule a complimentary review of your parcel project needs.
www.threedoglogistics.com kellys@threedoglogistics.com 410.284.5494 ext. 220
By Mark Aument
HOW INTERNATIONAL SHIPPING AUTOMATION CAN BOOST YOUR BUSINESS
T
oday’s consumers want instant satisfaction. People want to know if the item they choose is available, where it’s coming from and how quickly they can get it. This puts a lot of pressure on retailers, distribution centers, third party logistics (3PL) providers and carriers, especially when it comes to international shipping. If the world is your market, you already know that while the ability to ship products globally can contribute to the success of your company, it also presents a new set of challenges. Each shipment can potentially involve multiple carriers with numerous levels of services and constantly changing rates. Intricate business rules and shipping restrictions for parcels that differ in size and weight and include anything fragile, hazardous or perishable add
36
another challenge. Specific requirements and documentation for international shipping further complicates the process. The right multi-carrier shipping software can help companies gain a competitive advantage in the global shipping world. The ideal software should provide not only sophisticated “rate shopping” from a wide variety of global carriers and services, but should also integrate seamlessly with your existing systems and technologies. Multi-carrier shipping software can not only simplify the shipping process, but also handle the many complex details of international shipping. Here are some of the key features and benefits automated shipping can bring to global shippers: Fast, real-time processing that can handle unlimited shipping requests from multiple locations and has the ability to
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
quickly add new carriers. Retailers who can ship to the very last second have an advantage in meeting or exceeding their customers’ expectations. Compliance, including certification from all major carriers such as DHL, FedEx, UPS and USPS and the ability to produce carrier-approved labels and tracking numbers. Automated processes to meet the regulatory requirements needed in international shipping and produce the qualifying documentation and customs forms. Rate shopping between chosen carriers and service levels, with real-time prices available around the clock, enables retailers to choose the best value for every shipment. Automatic rate shopping among international carriers ensures companies are shipping the most economically when costs are the highest.
Real-time, 360-degree visibility throughout the entire shipping process enables retailers to provide customer support 24/7, including live package status, delivery updates and electronic notifications for customers. Technology that can scale from a single work station to an enterprise-wide solution as needs change or as companies grow. Automated business rules specific to each company as well as company-specific shipping and manifesting processes. Seamless integration with existing host systems and technologies to automate, simplify and reduce costs in the supply chain. Create reports on any aspect of the shipping process and provide accurate information to negotiate better carrier rates. E-commerce has been a fast-growing trend over the past 10-12 years that has greatly changed the way packages are delivered. In the past, multiple packages were shipped at the same time, all pro-
cessed by hand. If customers placed an order with next-day delivery, companies had to follow through, yet struggled to ship and deliver thousands of packages
of speed, accuracy and on-time delivery. Automated multi-carrier shipping software enables companies to reduce the amount spent on freight, streamline shipping processes, provide new delivery capabilities and potentially reduce inventory levels. Equally important, it can help shippers improve customer satisfaction and gain a competitive advantage in the marketplace. In fact, if handled the right way, the shipping function can be transformed from a cost center to a profit center. ¾
If the world is your market, you already know that while the ability to ship products globally can contribute to the success of your company, it also presents a new set of challenges. by 5:00 p.m. every day. Every mis-picked, mis-packed, mis-labeled or mis-shipped customer order could add costs, delay a shipment and potentially lose a customer. Today, it’s all about delivering a single package at one specific time anywhere in the world. From the second an order is placed, customers expect a high level
MARK AUMENT is Vice President of ProShip Inc., a Neopost company that is a global supplier of enterprise-wide shipping and manifesting software solutions installed at customer sites around the world.
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COMPANY PROFILE
The Big Data-Driven Supply Chain – Are You Keeping Up? A relatively new term that has been adopted by the business world to describe massive data sources that exist within a company is Big Data. Big Data is defined as any kind of data source that deals with extremely large volumes of a wide variety of data arriving at an extremely high velocity. Companies have allocated significant amounts of time and resources to building potential gold mines of information; however, the value of the data sources to the organization depends on their ability to extract meaningful nuggets of information from everything else. The ability for a company to transform data into information in a timely manner is a key basis for competition. Mastering Big Data is not as simple as many would think. As with most anything, the devil is in the details. Disparate data sources must be assembled together and the data itself must be standardized and harmonized. This process is commonly referred to as “scrubbing the data”. In the parcel world, this process is extremely complex. Examples of disparate parcel data sources include carrier invoices and service level data. Further complications result from varying capabilities to gather similar data by carrier. For the multi-carrier shipper, this can be a massive headache to contend with. The end result may be boiling down 200 unique data fields across you carriers and ending up with 30 common elements. As one can see, mastering Big Data in parcel can be a challenge for the complex multi-carrier shipper. Fortunately for parcel shippers there is hope. A firm such as Green Mountain Technology has expertise in the complexity of parcel data and assembling data sources for shippers. It’s a considerable effort, but the resulting information is accurate, applicable, and understandable. Visualizations or dashboards can then be created to communicate the information in an intuitive manner and provide at-a-glance answers for a wide range of business problems and scenarios. Experts in developing business intelligence visualizations will tell you, 80% of the work in producing a dashboard of key metrics across carriers is data scrubbing, the remainder is creating the visualization. Through proper data management and utilization, companies are much better equipped to make sound business decisions in a constantly changing world. Utilizing Big Data for parcel business intelligence has strengthened the decision making process. Analytical tools, sophisticated technology, market view, and data-driven solutions are required to manage the complexity of the largest parcel networks. An Accenture study found that 97% of executives report having an understanding of how Big Data analytics can benefit their supply chain, but only 17% say they’ve implemented it in at least one supply chain function. Gaining visibility to data and leveraging
it for strategic solutions requires time and resources. That’s why so many successful, high volume parcel shippers are turning to third party providers like Green Mountain Technology to help aggressively manage their parcel spending. As technology advances, parcel business intelligence tools will become vital for the shippers who want to stay competitive. In a rapidly changing industry, companies must have the capacity to be agile in their decision making and that requires having access to data-driven solutions. Michael 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 which include spend analysis, network optimization, and contract management. GMT helps the largest parcel shippers optimally manage a total of over 3 billion dollars in parcel spend, and GMT’s services consistently result in a 10% reduction of parcel spend for its clients. GMT’s Parcel Spend Management solution combines a parcel invoice audit solution with strategic resources to engage customers in the optimal management and execution of their parcel network. Learn more at x Mike can be reached at mlambert@gmcps.com.
www.GreenMountainTechnology.com mlambert@gmcps.com
PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D
Revisions to the NMFC that Shippers Need to Know — and Then Avoid: Part III n this installment, the third in our series, we will complete the review of these new NMFC provisions with a discussion of the requirement for mandatory arbitration now found in the NMFC.
Mandatory Arbitration The new provision relating to arbitration requires the parties to commence the arbitration process “within thirty (30) days after the parties are unable informally to resolve the dispute or claim.” This requirement appears in both NMFC Tariff Item 300160-A titled “Procedures Governing the Investigation and Disposition of Freight Claims for Loss or Damage” and Item 300530-A titled “Procedures Governing Billing Disputes.” While at first the new provision may appear to the reader to be just a legal technicality, the true significance of the new requirement arises out of the fact that the two most frequent areas of disagreement or conflict between shippers and carriers are, guess what, loss & damage claims and billing disputes. This means that virtually all commercial disputes between shippers and carriers would be subject to mandatory arbitration… if the carrier’s tariffs control. Admittedly, arbitration can be an appropriate method of resolving disputes, but certainly not always. Other methods of what are known as Alternative Dispute Resolution (ADR) include mediation, non-binding arbitration, and other variations as well. Indeed, contracts negotiated at arm’s length between shippers and carriers will often specify one or more of 40
these options or even a combination of these options. For instance, there might be a provision stating that disputes regarding loss and damage claims up to a certain dollar amount be submitted for arbitration to the Transportation Arbitration Board (TABS), which has a primary focus on the resolution of cargo claims. Another concern is that, with respect to loss and damage claims, there has been at least one Circuit Court of Appeals that struck down a mandatory arbitration provision in a carrier’s tariff on the grounds that it violated the Carmack Amendment — the federal statute governing loss & damage claims for motor carriers. This is because the Carmack Amendment specifically provides that a carrier may be sued in either a US district court or in a state court. It should also be noted that the requirement for mandatory arbitration removes not just the right to have a case tried before a judge, but it also eliminates the right to have a dispute decided by a jury. While it is often the case that in complicated commercial matters both the shipper and the carrier would be willing to waive those rights, and often do, it is this writer’s opinion that it should be a mutual decision made by the shipper and the carrier, not by the carrier community unilaterally.
Solution So what is a shipper to do if it does not believe that it is fair or proper to be required to report duplicate payments to the carrier within 180 days (keeping in mind that there is absolutely no reason or justification for the carrier to have the right to obtain a windfall occurred through inadvertence); OR if a customer does not have the ability to inspect each and every package before the driver leaves the point of destination;
SEPTEMBER-OCTOBER 2015 | www.PARCELindustry.com
OR if a shipper is not willing to always be subject to mandatory arbitration? There is really only one option… get a contract! While the drafting and negotiating of a contract can be a complicated process, it is virtually the only way that a customer of a carrier can avoid all of the surprises and pitfalls that are to be found in the carrier’s tariffs and within the NMFC. A contract also provides an opportunity to avoid disputes before they arise by clarifying the obligations of the parties. Having practiced transportation law for many years, I have come to realize that there are numerous gray areas in the law. This could be because a particular statute or regulation is subject to differing interpretations. Further grayness arises out of the fact that different courts will issue differing opinions — even though they are deciding cases where the underlying facts are virtually the same. Examples of where contracts can avoid disputes before they arise would be the measure of damage for lost cargo, e.g., invoice value or manufactured cost, lengthening or shortening time limits which would otherwise be applicable, payment terms, as well as both the place and method of dispute resolution. It is infinitely easier and less expensive to resolve such issues at the time of contract negotiations… rather than after they arise, forcing the parties into court or arbitration. ¾
BRENT WM. PRIMUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (www.PARCELindustry.com). Your questions are welcome at brent@primuslawoffice.com.
COMPANY PROFILE
Customers Want a Personalized and Customized Approach with Their Small Package Shipping Business continues to be more demanding and the pace just continues to get faster. Customers are expecting more from their providers and requiring customized solutions to meet their needs. This is certainly true in the small package industry. While other larger providers try to establish a “one-size-fits-all” approach, regional providers are listening to their 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 is a specialized regional carrier and small package delivery company providing consistent, cost-effective, and reliable Ground, Premium, and Customized services. They offer a personalized approach and commitment to meet the transportation and logistical needs of their customers. Each customer has different needs, and U.S. Cargo can accommodate both standard and unique requirements.
U.S. Cargo’s personalized service starts with understanding the customer’s needs and providing a customizable solution. They have a “hands-on” approach to package sorting and offer better shipment integrity than the competition with only 1 in 6,000 packages experiencing a claim. U.S. Cargo’s dedicated customer service team, operating at both the corporate and local station levels, is available to provide professional, friendly, and quick follow-up and response. The ability to get your small packages delivered how and when you need them does not have to be a challenge; U.S. Cargo provides flexible shipping and logistics solutions for their customers.
www.us-cargo.com
Stop & See Us at PARCEL Forum ‘15 Booth #714
WRAP UP BY MICHAEL J. RYAN
Santa Is Coming! he peak season is just beginning to happen, and Santa is getting ready to deliver his magic. Every year, merchants from around the world execute strategies based on past challenges. Last year, we had the challenge of the new dimensional weight rules, which have impacted everyone this year and especially for the peak season. We also saw a big commitment from all of the major carriers to be staffed properly for the end of the shipping season. At this point in the game, it is difficult to make any system changes that will have an impact on the current season. However, we can start planning for 2016 now. Here are some strategies to get through the holiday season: 1. Optimize, Optimize & Optimize: Most large shippers utilize a multi-carrier shipping platform that allows them to get the best service for the best price. There are many shipping options in the market… try some new ones this year. 2. Target 2 Day Service: Research indicates that most people want “fast but cheap” delivery service. These two words usually don’t go together, but is what the consumer wants. 3. USPS: Use the Priority Mail Service for your residential shipments under 10 pounds. The USPS has the most comprehensive residential delivery network in the US. 4. Packaging: You need to take the air out of your packaging. This will hit your bottom line in a hard way this year if you do not fix this. 5. Parcel Consolidators: There are many companies that focus on e-commerce 42
shipping besides the major carriers. Take a look at DHL E-Commerce, Newgistics, APC, Globegistics, and IMEX. 6. Send your Parcel Sales Reps a holiday card before they do. Invite them to lunch in November and get close to them. 7. PARCEL Forum: Attend this conference because it offers innovative ideas to improve your parcel shipping program… not to mention the networking you can do in one place. 8. PARCEL Magazine: read this each time it is published from cover to cover because it is filled with a plethora of knowledge.
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The winner this year will make all of their deliveries by Friday, December 25th… with Santa making most deliveries on the evening of 24th. It is our mutual goal and aspiration to help Santa deliver on the magic of Christmas! ¾
MICHAEL J. RYAN is the Executive Vice President — Parcel Solutions at Pro Star Logistics and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@prostar.com.