WHAT TO SEE AT PARCEL FORUM: PRODUCT SPOTLIGHTS PAGE 18
SEPTEMBER-OCTOBER 2017 PARCELindustry.com
USING CARRIER DIFFERENCES TO GAIN LEVERAGE IN YOUR NEXT PARCEL CONTRACT NEGOTIATION P.26
CREATING THE WAREHOUSE OF THE FUTURE P.30
IMPLEMENTING ENTERPRISE-WIDE PACKAGING OPTIMIZATION P.36
THE LATEST TRENDS IN SAME-DAY DELIVERY P.46
Itâ€™s Time to See Your
SEE YOU AT PARCEL FORUM 17 IN NASHVILLE!
View on Website
Volume 24 | Issue 5
32 44 50 66
28 06 EDITOR’S NOTE
By Amanda Armendariz
32 GEARING UP FOR NEGOTIATION SEASON View on Website
08 SPEND PERSPECTIVES View on Website
By John Haber
10 OPERATIONAL EFFICIENCIES View on Website
By Susan Rider
12 SUPPLY CHAIN SUCCESS By Joe Wilkinson
View on Website
36 IMPLEMENTING ENTERPRISE-WIDE PACKAGING OPTIMIZATION By Jack Ampuja
40 THE ULTIMATE B2C SHIPPING CHALLENGE View on Website
By Aaron Videtto
16 TO SUM UP 18 WHAT TO SEE AT PARCEL FORUM: PRODUCT SPOTLIGHTS 20 PARCEL’S 2017 CARRIER PERFORMANCE SURVEY View on Website
By Amanda Armendariz
26 USING CARRIER DIFFERENCES TO GAIN LEVERAGE IN YOUR NEXT PARCEL CONTRACT NEGOTIATION View on Website
By Rob Martinez
30 ARM YOURSELF FOR SUCCESS IN CREATING THE WAREHOUSE OF THE FUTURE View on Website
By Chris Elliott
4 PARCELindustry.com SEPTEMBER-OCTOBER 2017
By Trista Niswander
View on Website
64 BATTLING COSTS IN THE PACKING ARENA View on Website
By Tim Casey
View on Website
14 SHIP RIGHT View on Website
By Brittany Beecroft
60 CUT THE FAT, GET LEAN
By Glenn Gooding
44 PEERING INTO THE SURCHARGE CRYSTAL BALL View on Website
By James Matthews and Bryan Van Suchtelen
46 THE LATEST TRENDS IN SAME-DAY DELIVERY View on Website
By Andrea Obston
50 EVALUATING RISK TO YOUR SUPPLY CHAIN View on Website
By Shannon Vaillancourt
52 THE STATE OF THE INDUSTRY View on Website
From Morgan Stanley
56 SMART CHANGE. SMART ENGINEERING. SMART SUPPLY CHAIN. View on Website
By Charles Moore
66 AN INSIDE LOOK AT WAREHOUSE FULFILLMENT View on Website
By Ken Ackerman
68 PARCEL COUNSEL View on Website
By Brent Wm. Primus, JD
70 WRAP UP View on Website
By Michael J. Ryan
APPLICATION ARTICLES 13 Free Shipping: 3 Ways to Make it View on Website
Work for Your Business Endicia
17 Solve Your Logistics Problems View on Website
with No IT RateLinx
29 Simplify Your Supply Chain View on Website
63 Redefining Customized Service U.S. Cargo View on Website
PUBLISHING PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITORIAL EDITOR AMANDA ARMENDARIZ [ email@example.com ]
EDITORIAL DIRECTOR ALLISON LLOYD [ firstname.lastname@example.org ]
AUDIENCE DEVELOPMENT MANAGER RACHEL CHAPMAN [ email@example.com ]
CREATIVE DIRECTOR KELLI COOKE ADVERTISING KEN WADDELL (o) 608.442.5064 (m) 608.235.2212 [ firstname.lastname@example.org ]
PARCEL PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2017 Â© by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com.
P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com
MAXIMIZING YOUR SUPPLY CHAIN EFFICIENCY By Amanda Armendariz
s summer winds down, we at PARCEL are gearing up for another fantastic PARCEL Forum. This year’s show will take place in Nashville, Tennessee, and we couldn’t be more proud of the conference that has been put together. As you flip through the pages of this issue, you’ll notice that many of our articles were written by PARCEL Forum speakers, and these features give you a glimpse into what will be discussed at their conference sessions. But for those of you joining us in Nashville for the show, please don’t think that these articles cover everything on the given topic. On the contrary — these features were designed to whet your appetite and provide a slight preview into what you can expect to explore
6 PARCELindustry.com SEPTEMBER-OCTOBER 2017
more deeply in the sessions themselves. And for those of our readers who are not joining us at the forum this year, hopefully this show issue helps convince you that this conference is a must-attend in 2018! One thing that I think this issue does particularly well is demonstrate the interconnectedness of today’s supply chain. In this e-commerce, same-day delivery-driven world, logistics professionals can no longer focus solely on their departments. It goes without saying that everything is connected, yet sometimes it is all too easy to focus solely on those tasks that are listed on our job descriptions. But when customers are expecting their shipments in a certain timeframe, in a certain environmentally friendly packaging, at a certain shipping cost (usually free!), our customers’ satisfaction can quickly go downhill if we are not all on the same page. From packaging design to warehousing methods to delivery choices — if your supply chain isn’t optimized, it’s going to become glaringly clear once those profit & loss statements are reviewed. I look forward to meeting many of you at the forum this year. Please stop by our booth to say hello. As always, thanks for staying connected with PARCEL.
Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!
Frankly, My Friends, I Don’t Give a DIM. By Glenn Gooding
Online Retailers Need to Start Holiday Preparations Now PARCEL staff
Amazon — The Next Logistics Powerhouse? By Anthony Sabbadini
GLOBALIZATION GLOBALIZATION, THE FINAL MILE, FULFILLMENT, AND MORE By John Haber
lobalization, the final mile, and achieving efficiency through fulfillment best practices are all planned as discussion topics for this year’s PARCEL Forum as part of our contribution to the annual event. While this may seem like an odd assortment of topics, the three presentations are interconnected in order to promote successful supply chains in today’s rapidly evolving markets. While doubts of globalization linger, the global economy is estimated to grow at 3.5%, with growth outside of the US growing at a much faster rate. Consider that the International Monetary Fund’s (IMF) 2017 gross domestic product (GDP) forecast for the US is 2.1%, while China’s forecasted GDP is 6.7% and India’s
8 PARCELindustry.com SEPTEMBER-OCTOBER 2017
is 7.2%. Now consider global population distribution, as Asia accounts for 60% of the world’s population, with China and India combined representing 37%. If you’re wondering about the US, its population only represents 4.4% of the world’s population. Clearly, the greatest opportunities for US businesses are outside of the country; however, there are risks — including political, natural, and financial factors — to consider when expanding overseas. Despite growing global risks, the rise of international commerce has not been constrained. Estimated to reach $2 trillion in sales by 2020, the largest geography in terms of e-commerce sales is Asia, followed by the US. E-commerce has a tremendous impact on small parcel volumes, and both are expected to increase drastically over the next decade. Addressing these rising volumes has resulted in the leading integrators to heavily invest in expanding not only the number of sorting and handling facilities, but also in the automation of new and old facilities to speed up the final-mile process. Meanwhile, to help defray some of their operating expenses, small parcel rates and surcharges have increased, along with the introduction of new surcharges, such as the Peak Season surcharge.
As David Abney, CEO of UPS, said on the company’s recent quarterly analyst call, “Not everything is a Christmas present.” For retailers, the competition is fierce, and the e-commerce behemoths, Alibaba and Amazon, are taking bigger shares of the global retail industry. To compete, retailers must have agile and responsive supply chains. The biggest supply chain components, fulfillment and distribution and shipping, can prove costly if not managed effectively and could result in unnecessarily higher operating costs for retailers; however, there are ways to achieve cost savings and efficiency in both. In terms of fulfillment efficiencies, businesses need to consider such items as: Whether or not to outsource or keep fulfillment requirements in-house Decision points in the evaluation of in-house versus outsourcing If the decision is to outsource, do you outsource to a 3PL or a marketplace? Locations of fulfillment facilities and the optimum number of such facilities Fulfillment feeds into the final mile, and the battle in this supply chain component is being played out by traditional players, such as the integrators, post offices, and regional carriers, and some not-so traditional players, including Amazon, Deliv, Postmates, and others. In fact, Amazon
has perhaps had the biggest impact on final-mile expectations by shaping consumers’ perceptions that the delivery expectation is potentially same-day rather than the typical five-to-seven-day delivery time. Clearly, retailers have options when selecting a final-mile delivery provider. The integrators have addressed the rising volumes by making significant investments into new sorting and handling as well as improving the final-mile process through automation. Similarly, retailers will need to decide if they want to offer “free” shipping, a flat-rate shipping charge, or something completely different. In addition, delivery locations need to be considered, whether it’s to the consumer’s home, alternative delivery locations, or both. In analyzing both fulfillment and final-mile costs, utilizing available data will be critical to improve fast and efficient response rates. Please join Spend Management Experts (SME) as we present the following sessions at PARCEL Forum 17: Optimizing Your International Supply Chain — Brian Broadhurst, Vice-President of Transportation Solutions, SME
Evaluating DC Efficiencies — John Haber, CEO of SME and Jay Kent, Managing Director of SLBperformance Out of the Box Delivery Options Make Quick Transit Possible — Brian Broadhurst, Vice-President of Transportation Solutions, SME and John Haber, CEO of SME Finally, don’t forget the luncheon on Tuesday, September 19 at the conference. Spend Management Experts is proud to sponsor both the keynote speaker and Game Changer of the Year Award. This year’s keynote speaker is Anthony Foxx, the 17th United States Secretary of Transportation and the former mayor of Charlotte,
North Carolina. As Secretary of Transportation, he led an agency with more than 55,000 employees and a budget of $70 billion. Sec. Foxx was responsible for overseeing American air, maritime, and surface transportation and ensuring that America maintained the safest, most efficient transportation system in the world. We look forward to another exciting PARCEL Forum. Be sure to stop by our Booth 108 to say hello!
John Haber is the Founder and CEO of Spend Management Experts. Contact John at solutions@ spendmgmt.com.
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 9
ADAPTING A WAREHOUSE FOR SPEED By Susan Rider
n this world today, it’s all about speed. From both a personal and a professional standpoint, we are all focused on how to get more accomplished in 24 hours. Companies are noticing this focus and developing tools, apps, and software to help us adapt to this new era of speed. The retailers that win in today’s economy — and the retailers that will be in business five years from now — will focus on the speed of delivery and the expeditious process flow of orders and products through the supply chain. How many of you have shopped on the internet and found the product you want at multiple retailers? When cost is similar, which one did you choose? The one that was chosen was probably the one that could be delivered the soonest. The focus this year in supply chain and order
10 PARCELindustry.com SEPTEMBER-OCTOBER 2017
fulfillment will be on speed. How do you get the products picked, packed, and shipped in the most expeditious manner? That’s assuming you have the products in inventory, which is another article for another time. But it shouldn’t be overlooked. The importance of inventory accuracy and inventory acquisition is a critical piece of the puzzle. First, let’s start with the “root,” or beginning, of the order. How much time elapses from the time the order is placed to the time it is received in the warehouse? In some companies, the need for speed doesn’t get acknowledged until the order is released from customer service or accounting (the keeper of the orders). At this point, they may have held it for several days and then expect distribution to get it out the door in 24 hours. Let’s assume that your company has that issue resolved and the only needed fixes are within the four walls of the distribution center. FIXING YOUR DC Once the orders are downloaded into the warehouse, they should be arranged in waves. Hopefully, this process is not manual! The wave could divide the priority orders so they would get worked on first, which also means they could get the first of the inventory if it is low. Next might be sorting by region, such as interna-
tional, west coast, east coast, Midwest, etc. If shipping becomes a factor, customers who have requested next-day delivery might be the next sort. However your business works the orders should be done in such a way to give you more efficiency. Then there may be a sub-sort, consisting of one-item orders, like items, non-conveyable items, family order items, etc.
If you are an e-commerce company and demand dunnage and packaging inserts, there are a lot of solutions now available that will also automate this labor-intensive task. The orders are assigned to pickers. The pickers should be assigned logically versus emotionally. In one facility, the human resource department suggested that they rotate pickers every week to give ev-
eryone a chance to work in different areas. The day I was there, the slowest picker was in the fast-moving products. Needless to say, the orders did not get shipped out that day. If you are battling an HR department that feels you should be more equitable, like the one above, suggest that the added cost of labor that you require to accomplish this be billed to their department. It is astronomical, and they will do an about face. RECEIVING Don’t forget about receiving! If you have a software package that can cross-dock or handle immediate demands and you’re not using it, now is the time to start testing this functionality and put it into practice. If you have a multi-line order, it doesn’t make sense to hold the entire order until one item arrives. You could have the entire order picked and staged so when the missing item arrives, the system will direct the item appropriately. In a high-volume, high-throughput facility, this will cut down on congestion and help expedite orders. Depending on the volumes in your facility, types of orders, and the need for speed, you may want to evaluate some automation in order picking.
Order picking is the most labor-intensive place in the distribution center and, therefore, the most costly. Many manufacturers and system integrators have been working on this issue in the warehouse and have some interesting and workable solutions. Of course, everything should have a return on investment and due diligence needs to be done, but in the last few years, exciting new automation has really helped in order picking and packing. If you are an e-commerce company and demand dunnage and packaging inserts, there are a lot of solutions now available that will also automate this labor-intensive task.
If you need help in adapting your warehouse for speed and don’t have a current budget for automation solutions, get some quick tips this year at the 2017 PARCEL Forum, September 18-20 in Nashville, Tennessee. In the exhibit hall, you’ll be able to talk to vendors that have some of the solutions discussed here. Hope to see you in Nashville!
Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at email@example.com. Join her at 11 am on September 19 for a session discussing this same topic.
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 11
MULTI-CARRIER STRATEGIES By Joe Wilkinson
he names FedEx and UPS are so ubiquitous in the parcel space that there’s often no room to talk about other options. However, other options do exist — potentially valuable options. But in a complex rating environment, with geographically divergent and other market segregations, with varying levels of service, how are shippers to find an optimal solution? UNDERSTANDING YOUR REQUIREMENTS First and foremost, shippers must understand and codify their business requirements. By knowing what you and your customers absolutely must have will allow you to narrow the field and reduce the number of viable scenarios. Transit times, pickup locations, and cutoff times are just three of many variables that could be used to limit the number of considered
12 PARCELindustry.com SEPTEMBER-OCTOBER 2017
carriers. After this exercise, you may find that using a single national carrier is your only option, and that’s okay. But it’s better to make that determination based on some simple due diligence before spending months and dollars to implement a sourcing project that’s incorrectly scoped and based on misleading requirements. The national carriers are largely homogeneous at this point. Some minor rating logic and transit differences aside, one can evaluate them using a single service-level-based dataset. Not so when evaluating regional/niche carriers. To properly evaluate the cost benefit of an alternative carrier, you must be able to granularly assign transit times to each segment; you must be able to segregate and evaluate carriers based on specific geographic constraints at the five-digit ZIP level. This must all be completed before you begin your baseline analysis. As always, package-level data is the cornerstone of parcel analytics. Over the years, many shippers have expressed interest in using technology to rate-shop across carriers. And at certain, highspend levels, this can make sense (with caveats). However, we have found that for small- to mid-sized shippers, it is generally beneficial to maximize what leverage you have with a single national carrier, while potentially carving out certain segments to take advantage of one or two regionals’ transit time and/or cost advantages.
REVENUE TIERS Revenue-based discounts have become the standard in pricing carrier agreements over the last 15 years or so. At this point, over 95% of all carrier agreements contain some form of revenue-based discounting or rebates. UPS and FedEx have become very adept at setting their thresholds in such a way that the shipper’s hands are tied, effectively prohibiting the use of alternative carriers without serious loss in discounts/rebates. Understanding your attainment is the starting point. But more important is negotiating the revenue tiers themselves in such a way as to give you maximum flexibility without a negative impact on discounts. As always, knowing how to strike the balance is key. In addition, being able to apply granular analysis to determine the cost increase of losing a discount tier with a national carrier to realize savings with a regional/niche carrier is necessary to do a valid cost/ benefit analysis of some more advanced strategies. A single article will never cover all of the things you need to think about regarding multi-carrier strategies. But we will explore the topic in more depth at the 2017 PARCEL Forum. Join Mark Taylor and me at 10 am on September 19 at the Gaylord Opryland in Nashville, TN to learn more about how to make a multi-carrier strategy work for you.
Joe Wilkinson is Director, Transportation Consulting for enVista. Visit www.envistacorp. com for more information.
Free Shipping: 3 Ways to Make it Work for Your Business Free shipping has become the bane of many an online retailer’s existence. Thanks to marketplaces such as Amazon, eBay, Etsy and others, the majority of consumers expect to be offered free, or deeply discounted shipping options with their online purchases. While we all know that free shipping isn’t free — even the consumer knows this — the addition of shipping costs at the end of the purchase cycle is the #1 reason for shopping cart abandonment. This expectation for free shipping is putting a strain on those who are feeling the need to absorb shipping costs in order to compete. In many cases however, free or discounted shipping is not out of the realm of possibility for independent online retailers – but it does take a determination to understand customer needs and put processes in place to minimize shipping costs based on those needs. In addition to marketing activities around free shipping offers, such as minimum thresholds, charging an annual fee, or baking the price of shipping into an item, below is a list of three things you need to understand in order to control or reduce the cost of shipping for your organization. 1) Use shipping carriers to your advantage If you’re using multiple carriers, then you know that you have a lot of options when it comes to shipping services, free packaging, and cost of delivery. Each of the carriers (FedEx, UPS and USPS) have their strengths and weaknesses and you need to understand them in order to use each carrier to your advantage. For instance, FedEx is best for day and time definite deliveries, while USPS is best for small to mediumsized packages weighing under 20 lbs and going to a residence. Whether you compare carriers manually or use a shipping platform that allows you to define shipping rules, you need to be able to accurately choose the least expensive option based on your needs and the customer’s expectations.
2) Understand dimensional weight and accessorial fees Dimensional (DIM) Weight refers to the billable weight for any sized package shipped via the private carriers, and it uses either the package’s actual weight or its dimensional weight (package size), whichever is greater, to calculate the base shipping price. The private carriers started using DIM weight because they want to be able to charge more for packages that take up a lot of room in their trucks or planes. Keep in mind though that the base price is typically not the final price you pay when using the private carriers. Even when paying DIM weight pricing, there are over 30 fees and surcharges that the private carriers can add to your final monthly invoice. These fees include residential delivery fees, address correction, invalid account number correction, return charges and extended area delivery surcharge for rural areas. It’s imperative that you understand how DIM weight and accessorial fees affect the final price you pay so you can make informed decisions on what to charge (or not charge) your end customer based on the carrier used. 3) Use rate shopping tools Real-time rate shopping is an essential tool for any multi-carrier shipping workflow because, as the name implies, it compares rates for parcels across multiple carriers and mail classes. Real-time rate shopping tools take into account the effect of dimensional weight and any added fees or surcharges. Then, based on rules you apply, the tool will select the lowest cost option for each package based on how fast the customer wants to receive it and how much they are willing to pay. Taking the time to understand your shipping choices and putting tools in place to help you automate your shipping workflow, can give you a competitive advantage in your ability offer free, or discounted shipping to your customers.
Amine Khechfé Chief Strategy Officer, Stamps.com and co-founder, Endicia 650.321.2640 firstname.lastname@example.org
BRINGING IN THE NEW By Aaron Videtto
any organizations are considering bringing in a new shipping and receiving system to deliver higher accountability, efficiency, and cost control by providing advanced shipping, receiving, and tracking capabilities. Such systems offer a unique advantage — total visibility of all shipping, mailing, and receiving activity and spend across a geographically distributed enterprise, in one place. One large company we know is looking for a system that: delivers greater speed and accuracy, and increased cost control and containment; combines shipping and mailing into one sending solution; gives individual users the ability to ship and mail from the desktop, yet be managed centrally;
14 PARCELindustry.com SEPTEMBER-OCTOBER 2017
provides end-to-end parcel and mail piece tracking, for both sending — from the desk to the carrier, through the mail stream, to the recipient — and receiving — from the mail stream to the mail center, to one of dozens of buildings on their campus, to the recipient’s desk. The benefits of using such a solution start with greater speed and accuracy. In addition, some systems let you view, in one place, all mailing and shipping spend across your global organization’s diverse workforce — whether at home, on the road, at the desktop, or in the mail center. It can also show different carrier rate options next to each other, allowing users to make the best choice with little to no manual data entry. They might see that adding a day to delivery with one carrier could save twothirds the cost of another. Systems that show every step a package takes from the minute it leaves the desk to the minute it reaches its destination provide better customer service to a workforce that expects real-time information access. LOOK AT THE ENTIRE ORGANIZATION To integrate a new shipping solution into your operations, it’s important to take a user-centric approach to ensure all business areas are addressed, including: inside sales, for order entry,
including web ordering; warehouse staff, for inventory management; accounting, for order closeout and billing data; customers, for shipping notifications; sales and customer support, for tracking and other system data; finance and accounting, for carrier data to rectify billing and negotiate with carriers. Find out: What type of information, usage reports, and other data do you want to get from a new system? Who needs to get it? How often? What are you going to do with it? Then work with the vendor to decide how to logically deliver the new system’s capabilities to all users.
Cloud solutions can reduce costs, since there are no servers to maintain and update. ON TO IMPLEMENTATION At the heart of every advanced sending solution is software that gets integrated into your networking and computing infrastructure. Therefore, be sure to include IT staff in the discussion early on. The first major decision is theirs: to choose whether a new system
should be cloud-based or on-premise. On-premise means installed and operated within the data center, while cloud-based systems, also known as software-as-a-service (SaaS), are accessed on the internet and usually securely hosted and maintained by a third-party provider. Cloud solutions can reduce costs, since there are no servers to maintain and update, and instead of a large upfront cost, you only pay for the use of the application. Cloud also enables faster, lower-cost deployment, and is readily scalable. Nonetheless, IT may prefer to have applications on-premise because they’re linked to customized solutions, or because of perceived concerns around data protection and compliance. Connecting to your back-end systems is the last step. Back-end systems include: ERPs (such as Oracle and SAP), order entry systems, transportation management systems (TMS), and warehouse management systems (WMS). Integrated with these systems, today’s sending solutions automate data entry and improve decision making. If you’re implementing a solution that contains custom-built components or workflows, it’s very important that your vendor document your needs in a comprehensive statement of work (SOW). This should list all deliverables
and use cases, as well as what’s required from you, and it should be reviewed by your entire team to ensure a smooth and straightforward install. Depending on your project size and needs, the vendor may also provide a project manager during implementation to make sure you’re fully informed and all milestones are met. The goal is to dial up accountability, efficiency, and cost controls — seamlessly. The last step is training and follow up. Have your vendor provide training either in a “train the trainer” format or user classes. Training is important to fully reap a new system’s benefits. Knowledge shared across the team also
provides insurance against business disruption in the event someone is out sick or leaves the company. Finally, ask your vendor for follow up meetings after the install and training are complete to make certain things keep running smoothly.
AARON VIDETTO, Director of Global Product Management at Pitney Bowes, has extensive experience designing, building, and implementing user-friendly, enterprise-class sending solutions for mobile, SaaS, and on-premise applications. He has also managed the development of SaaS solutions for the finance industry and released the first mobile app for legal e-billing.
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 15
TO SUM UP
Rebates give shippers a little “pocket money” based on net transportation spend. Simple enough. We negotiate spend levels to make sure we get the incentive. Enter the ninja — the minimum. Packages that hit the minimum net package charge will contribute to rebate tiers. However, the rebate will not be paid on these packages.
Before e-commerce sales consumed 8.5% of retail sales, warehousing could be a much simpler affair for many companies. You would bring products in by the truckload, store them until orders were placed, and then ship pallet and case quantities out to wholesalers and retailers. If there were spikes in demand, you could find low-cost labor willing to put in the hours to meet the demands of the warehouse. Is that the case for your business today? Not likely. — CHRIS ELLIOTT
— BRITTANY BEECROFT
Shippers that understand the pricing and network differences between the two major parcel carriers can potentially leverage those variances to improve pricing and maximize services. — ROB MARTINEZ 16 PARCELindustry.com SEPTEMBER-OCTOBER 2017
As shippers and logistics professionals, we accept the rationale behind surcharges. After all, from a shipping company’s perspective, surcharges only make sense — some packages cost more to deliver than others, and basing the charges solely on package weight and distance traveled is not an accurate representation of the cost to serve. Surcharges address this concern. What’s harder to accept, however, is the unpredictability.
THE MAJORITY OF SHIPMENTS ARE NOW RESIDENTIAL FOR BOTH CARRIERS. THIS SHIFT HAS PLACED COST PRESSURES ON EXISTING DELIVERY NETWORKS. LET’S FACE IT — RESIDENTIAL DELIVERIES ARE NOT AS EFFICIENT.
E-tailers that can deliver faster and at a lower cost have been able to vastly increase their market share. Companies have been expanding their warehouses from central distribution points to regional warehouses. Many new 3PL and 4PL companies have been born since 2005 because of this high consumer demand.
— GLENN GOODING
— NICK ROZAKIS
— JAMES MATTHEWS & BRYAN VAN SUCHTELEN
Solve Your Logistics Problems with No IT Do you feel the pinch of low visibility to solve your logistics problems? Don’t let limited IT resources hinder you. RateLinx can help. We are the only logistics software provider to create clean, actionable data with no IT required. Getting timely, reliable actionable data is often a stumbling block for most. The issue with data (or the lack of good data) often revolves around constraints within IT departments, which are usually stretched too thin to help. This is where RateLinx’ Intelligent Invoice ManagementSM (IIM) can be plugged into the process—between the carrier and your current Freight Audit & Payment provider—to not only show what the problems are, but also help fix them with actionable data. Link Order, Shipment, Track & Trace, and Invoice Intelligent Invoice ManagementSM links the order, shipment, track & trace and invoice data. You can access actionable, standardized data to identify where decisions need to be made and actions taken. This level of visibility allows you to diagnose your most pressing transportation management challenges easily and without internal IT support. Once our proprietary software, IIM, standardizes data to automate thousands of known freight management decisions, we collaborate with you to find previously unknown opportunities. RateLinx gives you complete visibility into your supply chain in real time, allowing you to develop and deploy strategies that increase efficiency and reduce costs. In fact, IIM allows companies to develop strategies that are laser focused and aligned with overall goals. Improve, Not Replace Your Existing Freight Payment and TMS You may already have a freight payment provider and a great TMS, but if not leveraged correctly, results will come up short. Unlike other software providers, we start by looking at your current systems and your historical data. We collaborate with you on industry-leading best practices and strategies to reduce freight spend while becoming a shipper of choice.
We don’t rely on re-sellers so our knowledge is unprecedented. RateLinx develops and implements our customized software for the visibility and shipping intelligence you’ve always wanted— without internal IT support. RateLinx has a single proprietary Rating Engine so it understands the custom routing rules in the TMS which guides rate modeling and analytics. When it’s time for rate sourcing, creating custom bid packages are easy. Our analytics engine also guides changes to your existing TMS to expand cost savings opportunities. We are Completely Transforming Logistics At RateLinx, we are working to completely transform logistics. By providing actionable data, we help you turn freight from a tactical necessity to a strategic asset through Integrated Shipping IntelligenceSM. Our use of standardized data, advanced analytics and strategy development and testing is unsurpassed. RateLinx can create a solution that fits your needs perfectly. Learn more by visiting Ratelinx.com
Shannon.Vaillancourt@RateLinx.com 262.565.6150 RateLinx.com
WHAT TO SEE AT THE PARCEL FORUM: PRODUCT SPOTLIGHTS Package Audits Save You Money!
41 OOTH 2
The Parcel Dimensioning Standard
Reduce 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, BI and KPI data for impactful analytics. Reduce your shipping, administrative and accounting costs. No cost Proof of Concept work!
In an effort to minimize rising parcel shipping costs and increase accuracy, overall efficiency, and customer satisfaction, the Cubiscan 75 was born. This new cutting-edge measuring device delivers an impressive parcel dimensioning solution for shippers to proactively take action against ongoing dim-weight shipping charges.
CT Logistics 216.267.2000, ext. 2190 email@example.com www.ctlogistics.com
Cubiscan 801.451.7000 firstname.lastname@example.org www.cubiscan.com
Your Shipment Is Our Priority
33 OOTH 2
At GSO, your shipment is always our priority. That’s why we offer reduced transit times, fewer fees, later pickups, and earlier deliveries across the West Coast. When you work with a delivery provider who makes you their priority, you’re able to make your customers your priority. GSO 888.744.7476 email@example.com www.gso.com
Precise Parcel Measurement
11 OTH 9
The eSort System handles the most difficult eCommerce polybag and carton packages from .5 oz. to 50lbs. Off the shelf plug and play modules provide the fastest custom configuration, delivery, installation and return on investment. The smallest footprint with the highest density of sort locations. Combine with existing conveying equipment. Tension Packaging & Automation 855.763.7275 x 4103 firstname.lastname@example.org tensionautomation.com
13 OOTH 3
Stop by the Neopost booth for a sneak peak at Bedal, Neopost’s first-of-its-kind dimension and weight capture platform. Targeted towards the growing needs of small and medium-size warehouses, Bedal is a modular shipping platform that offers easy integration with a range of shipping solutions. Neopost USA 800.NEOPOST 800.636.7678
Package Sortation Reinvented
22 OOTH 8
Perfect for any processing environment
12 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.
NPI 214.634.2288 www.npisorters.com
WHAT TO SEE AT THE PARCEL FORUM: PRODUCT SPOTLIGHTS Convenient Package Retrieval
13 OOTH 3
Make it easier for individuals to pick up packages according to their schedule! Accessible 24/7, Neopost Parcel Lockers are an automated electronic locker system that securely stores packages for easy recipient retrieval. Ideal for colleges, universities and corporations, parcel lockers provide a reliable and secure solution for customer deliveries. Neopost USA 800.NEOPOST 800.636.7678 www.neopostusa.com/ parcellockers
Simplify Your Supply Chain
32 OOTH Flexible, Fast and Affordable 9
Parcel Delivery – That’s LSO.
Only LSO™ combines the speed of a courier, the discipline of a carrier and the service of a true partner. We offer reliable, efficient delivery services in Texas, Oklahoma, Louisiana, Arkansas, Alabama, Mississippi, Tennessee, Kentucky, Florida and eastern New Mexico. More Responsive, more Flexible and more Friendly than any other shipping company. That’s the power of LSO. LSO 800.800.8984 email@example.com ShipLSO.com
The best conversation you have this week could be with PITT OHIO. We excel at listening to your challenges and turning these opportunities into customized solutions. Together we will engage in a strategic conversation to pinpoint an opportune moment to make a real impact on your business and simplify your supply chain.
PITT OHIO 412-232-3015 ext. 6593 firstname.lastname@example.org www.pittohio.com
Precison Software...Trusted Global Trade and Transportation Execution
Preeminent global industry leaders rely on our 21 global support centers, 500+ carriers and comprehensive database of trade compliant documents, to streamline global trade and shipping execution transactions. An ISO-certified company, we’re the foremost choice to minimize shipping costs, avoid compliance delays and mitigate risks associated with dynamic trading environments. Precision Software www.precisionsoftware.com
Redefining Customized Service
32 OOTH 8
A customized solution is only valuable when coupled with reliable service and an answer that doesn’t break the budget. U.S. Cargo is built on the idea of creating flexible logistics solutions for specific shipping needs. We didn’t create the concept; we’re just redefining what it means to benefit from complete, customized service. U.S. Cargo 412.227.5108 email@example.com www.us-cargo.com
51 OOTH 3
Parcel shipping masters since 1985
41 OOTH 4
ScanData serves customers with extremely high volumes and complex shipping rules including the #1 Retailer, #2 Pharma, #1 Cataloger, and numerous Top-10 Apparel and Gifting companies. We offer 24x365 on-shore support, and provide configuration to meet unique operations processes, system integration, and functionality needs of market leaders. ScanData Systems 512.358.1585 firstname.lastname@example.org www.scandata.com
PARCEL’S 2017 CARRIER PERFORMANCE SURVEY A look at how our readers view various aspects of carrier performance. How does your opinion compare? By Amanda Armendariz Once again, we asked, and you answered. Thank you to those of you who took the time to fill out our carrier performance survey, in which we asked you to rate the carriers on a variety of issues like pricing, ease of negotiation, on-time delivery, and more. Your input allows us to benchmark these aspects year after year, giving us a convenient comparison tool to examine the top players in this space. One point I found extremely interesting is that the usage of USPS jumped by eight percent compared to last year — from 76% to 84%. I’m always encouraged when I see more and more shippers including the USPS in their carrier mix, since for some shipments, the USPS can provide a distinct advantage. On the flip side, the number of shippers utilizing FedEx and
FedEx Did you use FedEx in the last 12 months for domestic parcel shipping? No Yes
UPS Did you use UPS in the last 12 months for domestic parcel shipping? No Yes
UPS for their domestic parcel shipping went down slightly, from 85% and 81%, respectively, to 84% to 78%. I also enjoy seeing what our readers think about a variety of questions that are commonly asked in the parcel industry — things like whether there is enough competition to keep pricing fair, how important regional carriers are to a company’s shipping mix, and a shipper’s biggest reason for modifying their primary carrier. I think it’s helpful for shippers to be able to have an “at a glance” look at how their peers respond to these questions, since it’s likely that our readers are asking themselves these same questions regarding their shipping operation. So take a look and see where your opinion lies compared to those of your peers!
USPS Did you use USPS in the last 12 months for domestic parcel shipping? No Yes
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 21
Rating the Carriers On a scale of 1-10, with 10 being the highest rating.
FedEx | 6.67
FedEx | 6.61
UPS | 6.39
UPS | 5.77
USPS | 5.57
USPS | 4.79
On-time Service Performance
FedEx | 6.44
UPS | 7.27
UPS | 5.59
USPS | 6.36
USPS | 4.65
Delivery Performance FedEx | 7.53
FedEx | 6.06
UPS | 7.35
UPS | 5.60
USPS | 6.68
USPS | 6.51
Pricing (published rates for service levels, willingness/fairness of negotiations)
(driver courtesy, package handling)
Refunds for Late Delivery
FedEx | 8.06
Other Insights into Our Industry Do you think that there is enough competition in the parcel delivery market to keep 47.54% pricing reasonable and service good? Yes
Do you think that the cost of transportation will be a greater percentage of gross company revenue in 5 years than it currently is? Yes
Last year, only 74% of our respondents answered in the affirmative. 22 PARCELindustry.com ď€ł SEPTEMBER-OCTOBER 2017
How important are regional carriers to your shipping mix? 16.67% Very important Important Somewhat important
Not important at all
The bad news: the number of shippers who said regional carriers were “very important” to their shipping mix declined slightly. The good news: the number that said regionals weren’t important at all also declined by over five percent. So while regional carriers may not be overtaking the Big Two anytime soon, at least more and more shippers are recognizing that these carriers can indeed have a seat at the table.
If regional carriers are part of your shipping mix, what percentage of parcels do you ship 5.13% with them? 5.13% 1-5% 6-10%
More than 50%
If you use regional carriers, what is the PRIMARY reason you chose to do so? 5.26% Cost
Service Speed Reliability Other
Check all of the carriers and levels of service you have used so far in 2017: FedEx Next Day | 76.27% FedEx 2-Day | 74.58% FedEx Ground | 76.27% UPS Next Day | 69.49% UPS 2-Day | 67.80% UPS Ground | 77.97% USPS Next Day | 45.76% USPS 2-Day | 62.71% USPS Ground | 64.41% LTL | 59.32% Parcel Regional Next Day | 13.56% Parcel Regional 2-Day | 10.17% Parcel Regional Ground | 27.12% Local Next Day | 20.34% Local 2-Day | 10.17% Local Ground | 25.42% Consolidator Next Day | 0.0% Consolidator 2-Day | 1.69% Consolidator Ground | 6.78% Same Day Service (i.e. airlines) | 18.64%
24 PARCELindustry.com ï€³ SEPTEMBER-OCTOBER 2017
What is your biggest complaint about your primary domestic parcel carrier?
If you have modified your PRIMARY carrier in 2017, what was the reason for changing?
Accessorial Charges | 35.71% Claims Processing | 1.79%
Needed to achieve better pricing
Customer Service Response | 7.14% Driver Behavior | 3.57%
Dissatisfied with service
Fuel Surcharges | 3.57%
Changed our level of service (i.e., air to ground)
Fuel Surcharge Reversals | 0.0%
Negotiating Contracts | 5.36%
Diversified to use more carriers
Invoices | 3.57%
Reduced the number of carriers used
On-time Performance | 3.57%
Rebid transportation and a different carrier(s) won
Pricing | 16.07% Refunds for Non-performance | 3.57% Relationships with Carrier Reps | 3.57% Residential Deliveries | 3.57% Service Failures | 8.93% Tracking | 0.0%
USING CARRIER DIFFERENCES TO GAIN LEVERAGE IN YOUR NEXT PARCEL CONTRACT NEGOTIATION Understanding the various nuances of each carrier’s service offerings can pay off big when negotiation time rolls around.
By Rob Martinez
26 PARCELindustry.com SEPTEMBER-OCTOBER 2017
ozens, if not hundreds, of articles have been published on contract negotiation: the dos, the don’ts, benchmarking, cost basis negotiations, and so on. While these tips are certainly valuable and important, many shippers tell me they’ve long followed these prescriptions but have taken negotiations as far as they can. Universally, they ask me: "What else can I do to gain leverage and maximize service and cost reduction?" What I’ve found is that many shippers don’t really understand the pricing and network differences between the two major parcel carriers; therefore, they don’t properly leverage those variances to maximize service and cost savings. While FedEx and UPS have many overlapping products, pricing struc-
stating that they would not charge extra for peak-season residential deliveries unless the package required extra handling (such as with very large items, for example). Here is a list of some of the pricing differences by carrier as it relates to which has the most “shipper-friendly” advantage.
tures, and service parity, shippers that understand the differences between their services can use that knowledge as leverage to improve their negotiation positions. This article seeks to provide an opportunity to identify both carrier pricing and service differences and, more importantly, how to tie those differences into opportunities for improvements. PRICING Let’s start with pricing. FedEx and UPS rates and pricing policies are basically the same, right? Wrong! In 2017, for the first time in a long time, rates between these two competitors no longer match, accessorials are different, dimensional policies differ, and fuel surcharges don’t match. And while many industry pundits believed FedEx would announce a “holiday surcharge” to match UPS, FedEx did not,
FEDEX ADVANTAGES: Cheaper published rates: While published rates between FedEx and UPS are comparable, FedEx offers slightly less expensive published rates for all domestic Express (except Express Saver; UPS’s 3 Day Air pricing is significantly less expensive) and Ground (under 70 pounds) services. Lower Ground minimum charges: At $7.25, FedEx Ground Commercial and FedEx Home Delivery minimum charges are lower than UPS at $7.32. Lower fuel surcharges: FedEx customers pay less in fuel surcharges than do UPS customers. The weekly index comparisons for the week of 7/17/17 follow: Domestic Air & International Air Export (4.25% for UPS, 2.5% for FedEx); Ground Surcharge (5.25% for UPS, 4.25% for FedEx) No late payment fee: UPS customers are invoiced a late payment fee of six percent of the outstanding balance based upon the negotiated payment terms with UPS. FedEx carries no such fee. No third party billing fee: UPS customers pay a 2.5% premium when selecting third party billing. FedEx carries no such fee. Free Saturday delivery for FedEx Home Delivery: Many Ground Residential shippers and customers prefer delivery on Saturdays, as consumers are more likely to be home on weekends as opposed to during the week. Moreover, faster delivery (versus a Monday delivery) means customers receive their e-commerce orders two days earlier, prompting greater customer
satisfaction, fewer returns (less time for buyer’s remorse), and many other documented benefits. FedEx Home Delivery is a Tuesday-Saturday delivery solution. UPS has historically delivered all Ground packages Monday-Friday; however, UPS recently modified its Ground Residential service to make Saturday delivery standard to major metropolitan zones. However, the service only covers about half of the US population. Advantage, FedEx. FedEx SmartPost does not apply dimensional pricing: Rather, it uses USPS standards, including Balloon pricing. By contrast, UPS SurePost applies the same dimension-based pricing as Ground. No peak season surcharge: As of this writing, UPS shippers should leverage the fact that FedEx has not adopted any holiday surcharges to negotiate concessions to these new fees. UPS ADVANTAGES: 166 DIM first cubic foot: While both carriers modified dimensional pricing in 2017 from a divisor of 166 to 139, UPS customers enjoy the higher 166 divisors for packages up to one cubic foot. FedEx, on the other hand, applies the costlier 139 dimensional divisor to all packages. 3 Day Air: Comparing UPS 3 Day Air to the FedEx service equivalent (FedEx Express Saver), averaging all weights and zones one to 150 pounds, UPS is 17.05% cheaper than FedEx. Inner zones (zones 2-4) average 26.37% higher with FedEx Express Saver compared to UPS 3 Day Air. Accessorials: Comparing key accessorial charges for 2017, UPS tends to offer more attractive pricing for shippers. Some accessorials count towards revenue tiers: While both FedEx and UPS generally use revenue tiers to reward customers with higher discounts the more they ship, UPS allows transportation-related surcharges (including DAS, Large Package Surcharge, Residential Surcharge, and others) to contribute to revenue tiers. FedEx typically allows only freight
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 27
(or transportation) charges — not accessorial charges — to contribute to revenue-based incentives (earned discounts). Puerto Rico treated as domestic with UPS: As a result, UPS shipments between the US and Puerto Rico are typically less expensive than FedEx. Rebates: UPS often provides additional discounts as a “deferred tier thresholds” — or rebates — in which UPS will write your company a quarterly check as a percentage of your overall transportation expenditures. FedEx also offers a rebate program called the Earned Discount Override Program, but it is utilized significantly less than UPS. KEY TAKEAWAYS If I were a UPS customer, I’d demand they match FedEx fuel surcharges, Ground minimum charges, non-dimensioning of SmartPost, etc. (of course, based on my usage). As an example, a UPS shipper wanting a discount to the fuel surcharge fee would want to know that they are paying a lot more in fuel surcharges than they would as a FedEx shipper. Similarly, if my UPS invoices included significant charges for third party billing, late payment fees, or peak surcharges, I’d demand that UPS waive those fees to match the pricing policies of their largest competitor. And if I shipped with FedEx, I’d demand that FedEx provide some of the pricing advantages of UPS (where most impacting), including a 166 dimensional divisor for the first cubic foot, request that accessorial charges contribute to discount tiers, target FedEx Express Saver and Puerto Rico pricing for improvement, etc. NETWORK Apart from pricing differences, there are also significant service and network differences that can be leveraged. As the largest user of USPS Parcel Select services, FedEx SmartPost enjoys deep discounts from the USPS
for packages inducted at the Destination Delivery Unit (DDU, or final mile postal facility), allowing SmartPost a competitive advantage in the marketplace. SmartPost also offers two delivery attempts (versus one for UPS SurePost). FedEx is also the largest LTL company in the US. Shippers that have both parcel and LTL needs can bundle services to enjoy deeper discounts on both services.
UPS also offers more global “access points” – neighborhood stores designed to give online shoppers convenient delivery alternatives. Finally, FedEx has invested hundreds of millions upgrading package sort centers and modernizing Ground hubs. As a result, FedEx boasts faster Ground deliveries than UPS in approximately 26% of ZIP to ZIP pairings. While UPS might not immediately be able to match some of the services or network reach of FedEx, well-informed shippers will get UPS to provide unique services or special pricing to offset any perceived service disadvantage. Of course, UPS also offers unique service and network distinctions that FedEx customers should leverage. UPS is the only carrier to offer a single, integrated network, providing operational conve-
28 PARCELindustry.com SEPTEMBER-OCTOBER 2017
nience. By contrast, FedEx could demand their customer segregate packages for pickup by their different operating companies like Express, Ground, Home Delivery, etc. UPS also offers more global “access points” — neighborhood stores designed to give online shoppers convenient delivery alternatives. Moreover, over 35 million consumers are now UPS MyChoice users — significantly more than the FedEx alternative (FedEx Delivery Manager) — empowering online shoppers and retailers with greater flexibility on residential delivery options. Again, the point being that while FedEx cannot simply wave a magic wand and get 35 million people to sign up for FedEx Delivery Manager, FedEx e-commerce shippers are wise to bring up some of the service differences with UPS as additional points in their FedEx contract and service negotiations. In summary, shippers that understand the pricing and network differences between the two major parcel carriers can potentially leverage those variances to improve pricing and maximize services. Wishing you great success in your carrier negotiations!
Rob Martinez, DLP is Co-Founder & CEO of Shipware LLC, the premier audit and consulting firm that helps volume parcel & LTL shippers reduce shipping costs 10-30%. Rob offers more than 27 years of experience negotiating parcel contracts — on both sides of the negotiating table — for some of the most recognizable brands in the world and is a sought-after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.879.2020, ext 114 or email@example.com. Join him at 9 am on September 18 for his session titled, “Mastering Parcel Contract Negotiations” or 11 am on September 19 for his always-popular session, “Live and Interactive Parcel Benchmarking Survey” at the 2017 PARCEL Forum in Nashville.
Simplify Your Supply Chain In the shipping world, it is no longer just about getting a product from point A to point B the fastest. Carriers are becoming a resource for shippers, offering more services in different modes to optimize service and cost. Working with a carrier who understands your business needs and is flexible enough to think outside of the box makes all of this possible. PITT OHIO takes a strategic approach to understanding our shipperâ€™s environment and develops solutions that simplify their supply chain. This approach starts with an in-depth conversation designed to produce valuable, clear, and meaningful dialog through an interactive process geared towards a shared understanding of the problem. The result? A creative one-to-one solution tailored around our best-in-class technology, partners and service.
Ideally, these conversations are not a linear discussion with a beginning, middle and end, but are instead an interactive process that enables us to pinpoint the opportune moments of real impact. Our free analysis of your parcel spend will uncover characteristics and cost drivers in your company and results in a unique, complete parcel solution driven by your data. Great strategic conversations generate breakthrough insights by combining the best ideas of the people involved. These shared insights will result in a spark of creativity that formulates a solution not previously identified on your own. We use our leading-edge technology to enhance your parcel shipping with a non-intrusive, performance-based approach. The best conversation you have this week could be with PITT OHIO. Share with us your pain points and explain what challenges you face every day. We use these essential conversations to uncover the challenges youâ€™re facing and we excel at turning these opportunities into customized small package solutions. Together we will discover a unique, opportune moment to make a real impact on your business and simplify your supply chain.
ARM YOURSELF FOR SUCCESS IN CREATING THE WAREHOUSE OF THE FUTURE E-commerce is only going to grow, so being proactive with your warehouse now will bring huge benefits in the future.
efore e-commerce sales consumed 8.5% of retail sales, warehousing could be a much simpler affair for many companies. You would bring products in by the truckload, store them until orders were placed, and then ship pallet and case quantities out to wholesalers and retailers. If there were spikes in demand, you could find low-cost labor willing to put in the hours to meet the demands of the warehouse. Is that the case for your business today? Not likely, because as consumer demand continues to shift from big box to online, companies struggle to adapt their warehouses to meet the changing customer demand and workforce instability. Where you used to focus on receiving pallets in and shipping pallets out, you are now faced with demand across multiple order sizes over a multitude of channels from wholesale to end consumer. To compound the frustration your company feels, you are bombarded with information on new devices,
technology, and services that you are told will guarantee your survival in the rapidly changing distribution landscape. What you need to do is block off much of the noise and focus on a step-by-step plan to ARM yourself and your business for success. ARM is a framework that our company has developed to explain current warehouse technology space as well as provide a step-by-step plan for moving from legacy warehousing to the warehouse of the future. By determining where your company is on the framework, you can implement a plan to move from your current technology base to the next generation of warehouse technology. ARM stands for: A – Analyze R – Retrofit M – Modernize What a company can do is look at what each area offers, determine what they have, and what needs to be implemented in the future. What follows is an example of a few tools that can be utilized when
30 PARCELindustry.com SEPTEMBER-OCTOBER 2017
a company is walked through the framework. ANALYZE In the “Analyze” phase, the greatest benefit comes from analytic tools that allow you to know how your warehouse is performing and will lead to greater operational improvement. 1. ADVANCED DATA COLLECTION AND REPORTING SYSTEMS With the increasingly ubiquitous nature of big data, the conversation continues to change from storing big data to how we are collecting and analyzing our data. This is where the next generation of cloud-based advanced data collection and reporting systems come into play. Companies need to make rapid decisions based on their data, and the reporting engines that are available in the cloud can deliver real-time analytics across the company and with trading partners. As these systems have evolved, they allow companies to speed
By Chris Elliott
up their decision making and adapt to changes in operations. RETROFIT In the retrofit phase, you are taking the data you have obtained from the analysis phase and implementing tools that can be easily bolted on to existing systems and warehouses. 2. VOICE AND VISION Utilizing voice and heads-up displays, companies are reducing or eliminating the process of employees inputting data into handheld or truck mounted devices. This is reducing dwell time that employees had using screens and giving employees visual and voice cues to what work needs to be done. This is also reducing error rates and speeding up the pick and ship processes. 3. OUT OF THE BOX AUTOMATION The current generation of robots on the market are creating flexibility in deployments. Some of the companies in this space are promoting systems that have reduced the setup time from
months to a week. These systems are greatly reducing travel time of employees and helping fill workforce gaps that many companies are facing. MECHANIZE In the mechanize phase, companies can move beyond retrofitting and create fully autonomous sections of warehouses or utilize greenfield sites to build new highly automated facilities. 4. AUTONOMOUS AGVS When moving products from either manufacturing or storage to picking, companies are now able to replace reach truck drivers with autonomous AGVs. These systems can automate many long-distance pallet moves and free up labor to focus on other value-added activities in the warehouse. 5. AUTOMATED PICKING AND PACKING While automated picking systems are still limited to easily stored and some light products, within a few product generations, we will see systems that can
handle a high percentage of picks across a variety of products. Another area that can be automated is packing. Automated arms are able to take products off of picking lines and pack them into boxes with little to no human interaction. With many shippers encountering changing market conditions, they are struggling to keep up with the market demands. Following a structured path to making changes in the warehouse will give companies they building blocks they need to add additional functionality to their systems and material handling abilities. Are you ready to ARM yourself for success in creating the warehouse of the future?
Chris Elliott advises the C-Suite and top executives on supply chain strategy, technology, and change management as a Consulting Manager at Blue Horseshoe Solutions. He can be reached at firstname.lastname@example.org. Join him at 9 am on September 20 for his session at the PARCEL Forum in Nasvhille, where heâ€™ll expand upon this topic in more detail. SEPTEMBER-OCTOBER 2017 ď€´ PARCELindustry.com 31
GEARING UP FOR NEGOTIATION SEASON
The preparations you make now can have long-lasting effects, so be sure your negotiation game is up to par.
egotiation pre-season is about to kickoff. Annually, we should be reviewing our agreements, adjustments, and invoices (invoices are our Magic 8-Ball to reveal rates and weights). A little pre-season prep can eliminate that post-season post-audit of invoices, where you wonder where all the negotiated savings went. Preparing for rate changes is like prepping a recipe — we need to know what is currently in-house, what our receipts look like, and what is on our list.
BY BRITTANY BEECROFT
WHAT’S IN HOUSE Data Simply put — you need to know what you ship. How will you reduce costs if you don’t know what drives them? Are you looking at all volume or just outbound shipments? (Hint… if you are paying for it, you need to monitor it.) Is your data even accurate? Just like a recipe, keep it raw when you can. Additives skew taste; mining skews data. Zone 1 skews the short-haul landscape (Zone who?). Remember what we learned in Negotiating 101 —
32 PARCELindustry.com SEPTEMBER-OCTOBER 2017
you can’t negotiate if you don’t know what you are negotiating. Weight How much does your shipment weigh? If your answer did not consider actual versus billed weight, dimensional versus minimum billable weight (MBW) — you may be quadrupling your base rate. For those of you avoiding the DIM by using a FedEx box, grab an invoice and make sure you are not paying MBW. Let’s say we are sending some promotional material Standard Overnight to Zone 6. The actual weight of the tube is one pound at a $54.35 list rate for 2017. Applying MBW, the billed weight is seven pounds at what
becomes a $92.02 list rate — an increase over 69% at list. If you did not realize this surcharge existed, or you didn’t understand what it was, you probably did not negotiate discounts at the seven-pound weight, which is your actual billed weight. When in doubt, DIM it out. A quick calculation to see if you cross the 139 divisor can save your company on shipping costs… and you on antacids for that heartburn induced by sticker shock. SERVICE GUIDE/ GRI Once you understand what you are shipping, you will need to understand how it is priced — and how that price increases each year. You often hear about the 4.9% general rate increase (GRI), but your costs may actually increase 13.5% if are you shipping 2-Day to Zone 6. How do we get that increase more manageable? We want to limit the impact — in other words, cap or freeze the increase.
Don’t forget minimums. If those reductions change from that last time you negotiated, your list rate could be at a four percent increase, and your minimum charge could increase 16% due to the change in the reduction. Be sure the clause applying the cap to the minimums is on your contract as well. RECEIPT REVIEW Whether you are confirming a discount on soup or shipping spend, you need to confirm the original cost is correct — no sense planning a meal around last week’s sales flyer. Most of us fall under the current year’s rate guide. Base rates are shown on UPS and FedEx invoices, so a quick quarterly spot check is your personal pre-audit for pending rate changes. Net rates — we pay them, we don’t pay them, sometimes they are our base rates… do we even understand them? Agreements are set up to reward
shippers for gross transportation spend. UPS and FedEx put this spend on your invoice to track tiers and discounts. When we talk about falling off tier, but we don’t know how close to the next threshold we are, we simply need to reference our invoice against our agreement. Adjustments and other charges are where we find which shipments dimmed. UPS shows both customer-entered dimensions and audited dimensions, as well as the rerated weight and new charges. For FedEx, we see the rerate within the charge section. For actual weight versus rated weight, remember — if the two weights are not the same, you may have work to do on the divisor, the minimum, and/or the actual packaging. We all have that friend who is the master of extreme couponing and receipt overages. We just want the laundry detergent; they want to make
sure we get $.50 off when we buy three. Same idea with carrier invoices. Your friend Freight Bill Audit and Pay (FBAP) will check those invoices for you and recover errors — even when the freight isn’t overcharged. (Editor’s Note: For more on FBAP, see Brittany’s article in the July/August issue of PARCEL). WHAT’S ON OUR LIST The third part of the negotiating trifecta is contract language. Nothing lessens negotiating leverage quicker than not knowing what is in your carrier agreement — and the impact of the agreement structure. We have several areas of potential ‘gotchas’: Rebates Penalty Clauses Minimums MBW/DIM IT Constraints Late Payment Fees Ramp Ups
Which of these are the ninja gotchas, creeping up on contracts? Ramp ups and rebates, no question. Ramping up restarts (read: wipes out) your revenue aggregation. If your spend is consistent week over week, no problem. But if you are seasonal, the change in that discount is your net rate impact. A four percent tier discount, when lost, can create a 12% net rate increase if your base discount is aggressive. The more aggressive the contract discount, the more aggressive the net rate increase when the discount is lost. Rebates give shippers a little “pocket money” based on net transportation spend. Simple enough. We negotiate spend levels to make sure we get the incentive. Enter the ninja — the minimum. Packages that hit the minimum net package charge will contribute to rebate tiers. However, the rebate will not be paid on these packages. How do you know if you hit the minimum? Ask your carrier for your net
34 PARCELindustry.com SEPTEMBER-OCTOBER 2017
rate sheet. Now look at your service guide Zone 2, one-pound (ground, for example). If you see that dollar amount anywhere on your net rate sheet, you are hitting the minimum. Say your deferred agreement offers a five percent rebate on the net transportation spend of $500,000. Now remove the net spend impacted by the minimum. Your total is $200,000 counting towards the rebate. We expected a rebate check for $25,000. Instead we receive $10,000. If the pocket money was earmarked to pay for outside service fees, you will need to prep those pockets to dig a bit deeper.
Brittany Beecroft is Regional Sales Vice President at AFMS. She can be reached at 304.374.4739 or email@example.com. Join her at 12:40 pm on Wednesday, September 20, at the PARCEL Forum in Nashville for her session titled, "How to Negotiate 2018 Carrier Contracts."
IMPLEMENTING ENTERPRISE-WIDE PACKAGING OPTIMIZATION A product’s packaging can have far-reaching effects on all aspects of the organization’s supply chain — optimizing this component is one of the smartest steps you can take. By Jack Ampuja
ost likely, packaging is not the first place to look for operational savings. Perhaps it should be, even if packaging is not your specific responsibility. Inefficient packaging design can add needless cost to both warehousing and transportation, as well as make a company less green. Ideally, shipping carton selection should always be a supply chain responsibility because it is a multi-functional decision with conflicting goals advanced by groups with different interests. The process can generate contentious results, as seen in the following examples: Marketing managers usually prefer big, colorful cartons that convey value through their size; the bigger, the better. Manufacturing specialists want boxes with extra internal space so production line speeds benefit from loose tolerances. Most quality experts like a box that is able to withstand any condition without
damage, meaning that a metal container would be ideal. Logistics managers need cartons that minimize both warehousing and transportation expense. To the detriment of the enterprise, logisticians are rarely consulted during the box selection process, but their budgets absorb the full impact of ineffective decisions. THE COST OF CHEAP BOXES Many corporate decision-makers focus on reducing packaging expense while striving for sustainability benefit but overlook the impact on warehousing and transportation cost. As a result, they incur a higher cost for the business, not realizing that packaging is the smallest component in the supply chain, comprising less than 10% of each supply chain dollar. In contrast, warehousing consumes about 25% of the cost, while transportation accounts for as much as 60%. One truism that many executives have learned the hard way is that cutting packaging cost while ignoring warehous-
36 PARCELindustry.com SEPTEMBER-OCTOBER 2017
ing and transportation is a fool’s errand. One client contacted us for help in reducing shipping case damage because many of their boxes, especially those on the bottom layer of the pallet, were creasing and crushing. When we inquired why they thought there was so much damage, the company president joked that they must be using cheap boxes. As it turned out, all of their boxes were designed for one-pallet-high stacking, while all outbound trucks left with double-high stacks. The president then recalled that he had mandated the purchasing director to reduce the packaging expense. In response, the director reduced the strength of all boxes and collected a nice bonus for his efforts. Meanwhile, damage escalated, customer complaints increased, and freight cost shot up. Our solution was to replace all of the cheap boxes with ones that could withstand two-high stacking, which served to clear up the problems while cutting total cost. As supply chain practitioners prove daily, it
is possible to increase performance while reducing total expenses.
dimensional weight has escalated sharply, making everyone fully aware of its effect on shipping cost. Anyone shipping lots of air in the cartons has no doubt already felt the sting of higher costs as FedEx and UPS both punish inefficient shippers through pricing.
Additional Oversize Surcharge
FLEXIBILITY IS KEY Managers concerned about packaging optimization once focused only on rearranging the contents inside the existing shipping cases; case counts and retail packaging were sacrosanct. That veil was pierced 10 years ago when Walmart directed all suppliers to reduce packaging costs by five percent; this minor adjustment delivered $10 billion in supply chain cost savings, with two-thirds of that benefiting Walmart’s suppliers and resulting in huge sustainability benefits. Even after that kind of phenomenal improvement — which generated all sorts of PR and industry attention — we have crossed paths with managers who
Additional Handling Surcharge
THE IMPACT ON TRANSPORTATION The National Motor Freight Classification (NMFC) book is the Bible of the lessthan-truckload (LTL) industry. Listed in the 700-page publication is the freight description and freight class for thousands of products, from abrasives to zippers. The LTL industry uses information in this book to establish a base for setting freight rates. What many shippers don’t realize is that the NMFC book also contains 150 pages of packaging rules that impact freight classes and related rates. Alas, we continually encounter companies that assigned shipping case selection to marketing or engineering, neither of whom are aware that the NMFC book even exists. How can they possibly be expected to make effective decisions about shipping cartons? Meanwhile, LTL carriers are quickly abandoning the 85-year-old freight class
system and moving toward pricing based on density. As a result, many products such as paper, candles, hoses, and headlights have numerous freight classes based on density. Paper has one of the broadest pricing ranges, with 15 different rates from class 400 down to class 60 [the higher the freight class, the higher the shipping cost per pound]. While it is highly unlikely a packaging change can reduce freight class from 400 to 60, we do have one client that achieved a 40% reduction in freight expense by changing its packaging. This manufacturer of automobile lights was able to bring class 250 down to class 150 by cutting down air in its shipping cases. The impact of density on shipping cost has clearly been felt by companies making shipments of small packages. Parcel carriers such as UPS and FedEx, which had used dimensional weight in air shipments for years, began to apply the same pricing methodology to ground shipments in 2008. Since that time, the impact of
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 37
have opined, “There may be something to this packaging optimization idea.” Do you think? Historically, companies told us that rearranging retail units inside a shipping case is an easy change to absorb; count changes are a big issue, and revising retail units is out of the question. With the intense focus on cost reduction that is part of today’s business world, all options are now on the table at most companies, including changes to the sacred retail unit. Generally, the intent is to revise the shape or size of the retail package while retaining its original weight; for example, the dimensions of a bag of trinkets can be adjusted while its weight is held static. The reality is that the more flexible a company is to adopting change, the greater their cost reduction opportunity. PICK-PACK OPERATIONS E-commerce and mail order businesses that ship a variety of mixed products
face a unique challenge: a reasonably sized company will ship more than one million unique combinations of weight and cube each year. Since parcel shipments are priced on both weight and cube, figuring out the best number and sizes of shipping containers is a daunting task indeed. The easy solution is to select a universal box that can be used for all shipments. This then leads to a flash drive shipping in a carton the size of a breadbox, which is something all of us have experienced. The opposite extreme of hundreds of different boxes is certainly not a practical approach. Thus, most companies we have worked with on this problem settled on half a dozen shipping containers — a solution based on guesswork without any scientific analysis. However, when the shipping case selection is derived through packaging science, freight consideration, and advanced mathematics, results are tangible. This is an example of what we saw one company achieve:
38 PARCELindustry.com SEPTEMBER-OCTOBER 2017
Outbound cartons reduction: 167,000, or five percent of original total Outbound weight reduction: 782,000 pounds, or five percent of original total Dimensional weight reduction: 1.4 million pounds, or seven percent of original total Outbound case cube utilization: improved by 28% Corrugated material reduction: 21% of original total Filler material reduction: 41% of original total Freight cost reduction: five percent of original total When working with some staff engineers at one logistics service provider as we assisted a mutual client, these engineers challenged the optimal solution, which increased shipping cases from 16 to 19. Like many companies, they were trying to use as few shipping containers as possible in the mistaken belief that fewer is always better.
Usually, trading down to fewer shipping cases may deliver some unquantifiable reduction in complexity, while total costs increase substantially. Time and again, we hear this objective of reducing complexity but have yet to encounter a company that can assign a specific monetary benefit to it. Luckily, the client requested a detailed analysis of the total cost effect of reducing shipping cases back to 16. Here is the impact of that seemingly small change that was being advocated: Cube utilization reduced by eight percent Cubic feet of freight shipped annually increased by 240,000 Dimensional weight of freight shipped annually increased by 863,000 pounds Client’s total annual logistics cost increased by $250,000 The above results clearly serve to confirm that intuitive thinking does not suffice in packaging optimization. A
thorough scientific analysis must be performed to get the best answer. Managers who shortcut the analytical process later wonder why their costs have inexplicably increased. Others do not even realize that packaging efficiency has a direct impact on freight expense. One company we went to visit warned us that their president was going to sit in on the meeting because he did not understand how packaging can impact freight cost. Furthermore, the connection between packaging and freight cost is often not recognized at all because packaging cost and shipping cost are managed by different departments. SYNOPSIS When managers fully comprehend the opportunity that exists in packaging and approach the process scientifically, the cost reduction and performance improvement potential is immense. More than one client has concluded they must have provided us with inaccurate data
because the cost reduction in packaging optimization could not possibly be as big as what we had projected. So, what is possible? From 25 years of experience in packaging optimization, we have learned that the typical manufacturer can achieve 10% cost reduction from their total cost of packaging, warehousing, and transportation. While faced with much more complexity, pick-pack shippers have an even greater opportunity, with the average company cutting total costs by 15%.
Jack Ampuja is President, Supply Chain Optimizers, the North American leader in packaging optimization, with more than 500 completed projects. Jack is also a recognized educator, having taught MBA classes at four universities including the top-ranked online program of University of Massachusetts. Join him at 9 am on September 20 for his PARCEL Forum session dealing with this topic of packaging optimization.
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 39
THE ULTIMATE B2C SHIPPING CHALLENGE In the ever-growing e-commerce environment, here’s how to best leverage carrier sensitivities to your advantage.
re you a popular B2C shipper or an increasingly rare B2B unicorn? If you primarily ship B2B, don’t be surprised to see carriers work harder to retain your coveted commercial deliveries. However, if you’re growing toward the B2C side, your road is getting steeper, and you will face many yield management battles as the carriers work to cover the operational expenses that result from residential deliveries. In order to sail smoothly through the rising tide of e-commerce, you need to understand carrier sensitivities and how to leverage them to your advantage.
40 PARCELindustry.com SEPTEMBER-OCTOBER 2017
CARRIERS BUILT AROUND A B2B PROFILE First, consider the foundation of the FedEx and UPS delivery networks. Both were largely built up around a B2B profile, with the majority of shipments going directly to businesses. As a result, each carrier built their operational structure, cost models, and most of their business plan heavily around that profile. However, recent trends reveal a paradigm shift in the small parcel supply chain: the majority of shipments are now residential for both carriers. This shift has placed cost pressures on existing delivery networks. Let’s face it — residential
By Glenn Gooding
deliveries are not as efficient. They involve fewer stops per mile, fewer packages per stop, and are typically lighter-weight packages. All of these factors result in lower revenue per driver stop. So as the winds continue to blow toward a B2C model, residential deliveries will continue to overtake the B2B profile. You need to be armed with enough knowledge to effectively combat the carriersâ€™ increasingly aggressive yield management tactics. Margin preservation is at the top of the list for both carriers. They are continually adjusting contracts, pricing structures, and billing methodologies to cover the extra expenses incurred by residential deliveries. In contrast, your commercial shipments are undoubtedly travelling with other commercial shipments, making typical delivery densities much higher than with residential deliveries and resulting in much higher revenue per stop. In a B2C environment, carriers lose out on these inherent efficiencies, so they have to recover them via less shipper-friendly fee structures (e.g. residential surcharges, delivery area surcharges, peak season adjustments, etc.). USPS FOR FINAL-MILE DELIVERY For years, the carriers have tried to combat their sensitivities to residential deliveries with more economical means. Utilizing the United States Postal Service (USPS) as a
SEPTEMBER-OCTOBER 2017 ď€´ PARCELindustry.com 41
final-mile delivery option has been one such method. It certainly meets the economical half of the equation; where it may fall short is on the time-in-transit requirements. A two-or three-day delivery expectation is placing increasing strain on the carrier network and pushing the carriers and shippers toward innovative solutions that benefit both parties from a cost perspective.
alternate delivery location for one of the national small parcel providers. You are already paying to have your store open — why not drive in more foot traffic and lower shipping costs by aligning to the carriers’ sensitivities? DEVELOP A SMART STRATEGY WITH YOUR DATA As a final and punctuated note, decisions and action must be driven from data. Good data is the foundation for visibility into how the carrier views your shipping profile. If you don’t have good visibility of your data and an understanding of the opportunities it presents to you, then you’re just pounding a desk and making blind appeals to the carrier. Instead, understand your shipments from a carrier perspective as you formulate a response plan. You will need that insight for the yield-preservation battles you will undoubtedly face. As you dive in, examine the basic data requirements by asking questions such as: What are my volume levels by mode and by day? What is my zonal and weight distribution? What is the impact of accessorials and surcharges? (Understand how the carriers utilize extra charges to effectively manage yields to their benefit.) Like any relationship, success with your carrier depends on how you consider their needs. Ask yourself: What does my delivery look like in the carrier network? How does it align with their operation? What efficiencies am I providing the carriers? What inefficiencies am I burdening the carrier with? Are there ways to make my packages more efficient or operationally friendly for the carrier? If so, what are they and how do I appropriate my share of that efficiency? Regardless of the complexity of your situation, there are tailored solutions to truly optimize your fit with the carrier network. It just takes some creative vibe and a little technology.
Let’s face it — residential deliveries are not as efficient. They involve fewer stops per mile, fewer packages per stop, and are typically lighter-weight packages. All of these factors result in lower revenue per driver stop. CARRIERS AND E-RETAILERS ALIGN TO INNOVATE Shippers balked when the CEO of one large e-retailer announced an edict: a three dollar transportation charge per order. Is that even possible in today’s B2C environment? Through innovation, there is always a solution. This e-retailer had unprecedented brick-and-mortar presence in the marketplace. In fact, 75% of the population lived within 1.2 miles of one of their retail locations. So, they were able to synthetically improve their delivery characteristics by converting lightweight residential deliveries to more economical, heavier-weight commercial deliveries for in-store pickup. The net result was a win-win for the e-retailer and the carrier: delivery expense per order was within target of the CEO’s goal, lightweight residential packages were converted into commercial deliveries, which favored the carrier network, and retail foot traffic was driven to the retail stores for parcel pickup. IT’S TIME FOR CREATIVE THINKING IN SHIPPING Good for that e-retailer, but what about for me? The beauty of the previous example is that their innovative solution is not an exclusive partnership. Going forward, both national small-parcel carriers can continue to synthetically improve their delivery characteristics. That means that the consumer can now take packages originally shipped and manifested as a residential delivery and redirect them to an alternate pickup location at a commercial address. It also means that you, the shipper, may have the opportunity to align your brick-and-mortar store as an
42 PARCELindustry.com SEPTEMBER-OCTOBER 2017
Glenn Gooding is President of iDrive Logistics and the industry thought leader in carrier cost model methodologies and data analysis. He spent more than two decades at UPS, where he engineered the cost and pricing models for the world’s largest enterprise shippers. Glenn now leverages his expertise to help shippers better understand their shipping data in pursuit of shipping optimization and cost reduction. Glenn can be reached at firstname.lastname@example.org or 678.567.6847. Join him at 8 am on September 20 for his PARCEL Forum session addressing these B2C challenges.
PEERING INTO THE SURCHARGE CRYSTAL BALL There is no one-size-fits-all approach to surcharges. Here's how to best estimate how these fees will affect your specific operation.
By James Matthews and Bryan Van Suchtelen
44 PARCELindustry.com SEPTEMBER-OCTOBER 2017
s shippers and logistics professionals, we accept the rationale behind surcharges. After all, from a shipping company’s perspective, surcharges only make sense — some packages cost more to deliver than others, and basing the charges solely on package weight and distance traveled is not an accurate representation of the cost to serve. Surcharges address this concern. What’s harder to accept, however, is the unpredictability of the annual increases or the creation of entirely new surcharges. For example, since 2009, FedEx’s Home Delivery Residential Surcharge has increased from $2.05 to $3.45, or a whopping 68%. The average annual increase over that period was 6.75% but has been as little as 3.6% and as high as 11.4%. Over that same time period, the Address Correction fee increased 75%, with annual increases ranging from zero to 25%. If we narrow the timeline of the increases to the last
few years, we can see that the variability, for common surcharges at least, has decreased. Take the Residential Surcharge and Address Correction charges once again — from 2014 to 2017, the total increase for Residential was 19%, with the annual increases ranging between 4.8% to 6.9%, while we saw an increase of 16.7% total for Address Corrections, with annual increases between four percent and 7.7%. These are more in line with the annual service level increases and reflect a degree of predictability.
Based on the chart below and looking into 2018’s crystal ball, it’s likely that we’ll see the Residential Surcharge increase to $3.65 (5.8% increase) and the Address Correction fee increase to $15.00 (7.1%). This similar exercise can be repeated for many of the most common surcharges. But what to do about the not-socommon surcharges or those that previously didn’t yet exist (UPS Third-Party Billing Service fee, anyone?) Last year, we predicted that the domestic divisor of 166 would align with the 139 international divisor. Why? Divisors, aside from some notion of “industry standard,” are somewhat arbitrary. The existence of multiple divisors adds complexity to the rate calculation for both the shipper as well as the carrier. The 139 divisor was more advantageous to the carriers, so that’s the one that was selected (no mystery there). Even more topical is the recent UPS Peak Season Surcharge announcement. This was less surprising than expected as there have been rumors of these already being applied on a select basis. For those of us in the industry, these changes weren’t a shock. Although the timing couldn’t be predicted, their implementation was foreseeable as they fit into the previously stated “rationale.” Capacity is scarce and additional hiring is necessary during the holidays, which drives up costs for the carriers. The surcharges better allocate the cost to serve specifically to these packages. Varying divisors are not rational, so migrating to a single one is intuitive. For now, UPS still applies a 166 divisor to ground packages under one cubic foot. It
RESIDENTIAL SURCHARGE % INCREASE ADDRESS CORRECTION FEE % INCREASE
2017 2016 2015
$3.45 $3.25 $3.10
6.2% 4.8% 6.9%
$14.00 $13.00 $12.50
7.7% 4.0% 4.2%
2014 2013 2012 2011 2010 2009
$2.90 $2.80 $2.55 $2.45 $2.20 $2.05
3.6% 9.8% 4.1% 11.4% 7.3%
$12.00 $12.00 $11.00 $11.00 $10.00 $8.00
0.0% 9.1% 0.0% 10.0% 25.0%
doesn’t take a rocket scientist to predict that the 139 divisor will apply to these soon enough. Understanding the factors that drive a carrier’s delivery costs will help in predicting changes to existing accessorial surcharges or the creation of new ones. Let’s take a look at a couple of areas. Last-mile delivery of a shipment is the most expensive component for the carriers. Many of the existing surcharges were specifically created to address this point (e.g. Residential Surcharge, Delivery Area Surcharge, and Remote Surcharge). It’s safe to assume that future accessorials will be created to further offset the cost. Another significant carrier cost component is internal handling and sort operations. Future hub automation will be enhanced to reduce or eliminate package handling by a human being altogether. Packages that are less conveyable due to size, weight, or shape cost more to process as they require increased human handling. The adjustment to the definitions of additional handling last year is an apt example of this. We will continue to see modified or new surcharges that reflect this differentiation in conveyable versus non-conveyable parcels. This may materialize as a further reduction to the dimensional divisors or the creation of a completely new service (FedEx Furniture Direct, maybe?). Accessorial charges in the parcel world were designed to minimize the subsidizing of more costly deliveries by their more profitable counterparts. The carriers’ unbundling of these charges created an à la carte pricing structure that more closely aligns the shippers' costs to the carriers’ cost to serve. Future changes or additions to the list of surcharges will be a reflection of this reality.
Bryan Van Suchtelen is Corporate Director, Parcel Negotiations for Lojistic. He has over 28 years in the parcel industry, including 26 years at UPS. James Matthews is Corporate Director, Parcel Negotiations for Lojistic, bringing almost 30 years of experience to this role. Join Bryan and James at 9 am on September 20 for their PARCEL Forum session titled, "How to Predict & Analyze the Impact of Carrier Accessorial Increases." SEPTEMBER-OCTOBER 2017 PARCELindustry.com 45
THE LATEST TRENDS IN SAMEDAY DELIVERY When it comes to quick delivery times, where is the industry heading, and how is that affecting all the players?
hen it comes to same-day delivery, the expectations of consumers have dramatically changed within the last few years. As a result, those in the customized logistics and delivery industry have had to embrace some big changes. Retailers, too, have had to find ways to adapt. We asked two members of the Customized Logistics and Delivery Association (CLDA) to share their thoughts on same-day delivery today and tomorrow. Nick Rozakis is the Managing Director and founder of Spartan Worldwide Logistics. Spartan is a same-day/ final-mile logistics company servicing the Philadelphia, PA and Trenton, NJ metro areas. Nick has been involved in the delivery industry since 1978. Sam Hosseini is Director of Opera-
tions & Supply Chain, VMW Express LLC. The company is involved with all aspects of the supply chain, including trucking, driver and vehicle leasing, distribution services warehousing, asset recovery, and convention and art programs. They have serviced Virginia, Maryland, DC, and the Mid-Atlantic region since 1987. QUESTION: Talk about the evolution of consumer expectations for timely delivery. Not so long ago, consumers were okay with five- to seven-day delivery, then two-day, and now sameday is what they expect. ROZAKIS: I think it helps if we look at the history of this industry. Home delivery of consumer goods began in the late 1800s. Sears Roebuck was the first to market. Sears sent catalogues to consumers who ordered everything from
46 PARCELindustry.com SEPTEMBER-OCTOBER 2017
food to cameras, clothing, and tools. Sears specialized in delivering to rural areas where Americans had difficulty accessing goods. By 1912, companies like Spiegel developed catalogues for women’s fashion. In the 1970s, Sharper Image delivered gadgets. With the advent of the internet in the new millennium, Amazon became the early leader of what we now call e-tailing or e-commerce. The earlier methods of consumer delivery strictly depended on the postal system (aka “snail mail”) as well as UPS ground service. Both competed to fulfill the delivery of parcels. In the nineties, Federal Express, which had been exclusively an air express carrier, entered the arena of e-commerce when it expanded into the ground delivery segment of the industry. FedEx went from strictly B2B to B2C. This was accomplished by the acquisition of RPS (Roadway Package
By Andrea Obston
Systems). These three carriers — USPS, UPS, and FedEx — controlled the lion’s share of the e-commerce market when it was in its infancy. Early consumers of the e-tail phenomena were satisfied with a slower delivery. They had no objection to paying for delivery because of the convenience. It saved them time from their time-starved days, so they were willing to pay for that and to accept the delivery times shippers prescribed for them. By 2005, e-tailers began testing lower cost delivery methods of combining FedEx and UPS ground service with direct injection into the local postal system. This saved consumers a considerable amount of money on delivery. E-tailers started offering free shipping on designated days to attract new customers. This is what set the stage for the members of our industry to provide
same-day delivery. Today, members of the customized logistics delivery industry provide that necessary component to e-commerce delivery. HOSSEINI: The change in the delivery culture and the rise of customer expectations in same-day delivery is a result of a “revolution” that Amazon started. The concept of “customer-centric” approach is a core part of the Amazon philosophy with its customers. They define this approach as “… a way of doing business with your customer… that provides positive customer experience before and after the sale in order to drive repeat business, customer loyalty, and profits.” Amazon has changed the expectations of the customers in general. Other corporations such as Walmart, Macy’s, and Google are following the same approach in order to be able to survive in such a competitive
market. Today, we have heard and seen new trends in the delivery business that will be used in the near future (things like drones) that provide more efficient and faster ways of delivery. This means that we will continue to see [a] rise in customer expectations. Along with such growth, we can expect that companies like Amazon and others will also provide additional free-of-charge services to be able to continue to keep their customers and gain a larger portion of the market. QUESTION: How have changing consumer expectations in terms of delivery changed due to the growth of e-commerce? ROZAKIS: As consumers have begun to enjoy the hassle-free simplicity of ordering goods via e-commerce, stronger demand has grown for faster and cheaper delivery. E-tailers that
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 47
can deliver faster and at a lower cost have been able to vastly increase their market share. Companies have been expanding their warehouses from central distribution points to regional warehouses. Many new 3PL and 4PL companies have been born since 2005 because of this high consumer demand. The concept of regional distribution centers allows shippers to directly receive orders from consumers, stage them at nearby DCs, and direct shipments to local courier companies for same-day delivery. CLDA members have been a major reason this is being accomplished. HOSSEINI: According to the eMarketer forecast for 2016, the overall global e-commerce sales of products and services ordered on the internet was about $1.9 trillion. The report also projected that such growth [will] continue every year. In North America alone, e-commerce sales reached $423.34 billion, which makes this continent the second largest regional e-commerce market after China. This continued growth in total retail sales drives every corporation to invest heavily in e-commerce. Because of the convenience e-commerce offers to customers, every company will continue to focus on improving their customer experience. Eventually, this trend will result in higher expectations on the customer side. QUESTION: Same-day delivery expectations have had an impact on the whole customized logistics and delivery industry. Let’s talk about that. ROZAKIS: The consumer has created a high demand for delivery same day. In just a few short years, local and regional customized logistics and delivery companies have been greatly impacted by these rising same-day delivery expectations. Customized logistics and delivery companies have had to make the most of logistics to increase delivery density, increase driver production, and raise their investments in technology. These advances will allow those of us in this industry to respond to this
challenging task. Profitability can only be maintained with higher efficiencies if we are to succeed in same-day. HOSSEINI: Same-day delivery is changing the consumers’ habit in shopping due to increasing convenience, and this will result in the rise of demands in the same-day delivery services. Such expansion of customers’ demands will increase volume in freights/goods delivery for UPS, Amazon, DHL, and others. Consequently, fulfilling the logistics needs will require multiple methods and larger capacities by retailers, shippers, and delivery and logistics companies. In addition, opportunities for logistics providers will grow and, therefore, they must adjust themselves for the upcoming expansion of needs. One of the main impacts in such situations is the expectation of larger capacity and volume with lower and more efficient costs. In other words, three factors are integrated to each other: volume, capacity, and cost. Additional volume requires additional capacity with a cost-effective method. QUESTION: How can smaller retailers respond to the increased consumer expectations? ROZAKIS: Smaller retailers can benefit by partnering with 3PL companies that have built their infrastructure by providing warehousing and distribution services to other larger retailers. Many 3PL companies will give anchor retailers such as Walmart inexpensive pricing, hoping to make up the difference with smaller retailers. Because of this, smaller retailers can get the benefits that were formerly only available to their larger counterparts. HOSSEINI: Their only way of survival is to find innovative ways to provide services that are in line with the current trend of e-commerce, including free shipping and free returns. QUESTION: How can smaller shippers respond to the ramped-up consumer expectations that the large shippers have created?
48 PARCELindustry.com SEPTEMBER-OCTOBER 2017
ROZAKIS: Smaller shippers need to be niche players. They need to focus on the absence of personalized services that larger shippers may lack. They need to establish a unique selling position. They must differentiate themselves. Bigger is not necessarily better. Instead, think: “Small is beautiful.” QUESTION: What changes do you foresee that will impact couriers when it comes to same-day delivery? ROZAKIS: Here are my predictions: The Uber effect — The tracking of shipments in a real-time map environment will be forced upon couriers. Shippers will demand and expect a definite time in which their deliveries will be made and expect to view the status as it progresses. This recent GPS and mapping technology was first introduced by Uber and now has spread into the food delivery market. Look at the Domino’s new pizza delivery app. When you place your order, the app not only tells you who is baking your pizza but displays a bar with a progressive timeline until it reaches your door. Higher prices — Delivery prices will eventually have to increase to keep up with the expectations that shippers and e-tailers demand. The consumer, shipper, and e-tailer cannot demand these high levels of service and accountability without passing some of the costs back to the end user. R&D plays out — Expect to see the products of the research that’s been going on come to life. These will include expanded use of drones, driver-less vehicles, and robots that make deliveries. These may seem unbelievable now. But believe me, they won’t be for long!
Andrea Obston is Director of Public Relations for the Customized Logistics and Delivery Association (CLDA). Visit www.CLDA.org for more information.
EVALUATING RISK TO YOUR SUPPLY CHAIN
You can’t be complacent when it comes to potential threats in your supply chain. Here’s how to stay on top of your risk evaluation.
isk is an inevitable, integral part of business. The big question is, how do you evaluate risk in your supply chain, and what action will best manage or avoid risk altogether? Warren Buffet has said, “Risk comes from not knowing what you are doing.” As that relates to supply chain management, we call this visibility. The question then transitions to, “How can I better know what is happening in my supply chain?” To answer that question, let’s first look at two universal risks in the supply chain today.
SHANNON VAILLANCOURT THE “AMAZON EFFECT” The most prevalent risk factors to a supply chain have evolved over the past decade. With customers expecting faster and faster deliveries, one of the biggest supply chain risks is not having the product you need when the customer orders it — and not being able to meet your customer’s delivery requirement. The availability and delivery factors have evolved over the last few years due to the “Amazon Effect.” Consumers (and B2B customers) have grown to expect — or demand — both selection and speed largely attributable to the success of Amazon’s business model. Forbes recently published that Amazon
50 PARCELindustry.com SEPTEMBER-OCTOBER 2017
not only dominates e-commerce with a 43% share in the US, Amazon also accounts for more than half of the incremental growth of online shopping. So the two risk factors of availability and delivery are only going to grow in significance. Fortunately, shipping managers are very good at understanding and mitigating the risk of availability and delivery. Oftentimes, they are avoiding this risk altogether through higher product costs or shipping costs. That’s because it’s a bigger sin to not have the product than it is to overpay for it. THE SLOW-DRIP PROFIT LEAK Some risk factors have an immediate effect, like a supplier bankruptcy or a widespread weather delay. However, the risks surrounding lack of availability or delayed delivery typically cause a slow-
drip profit leak rather than a one-time, large cost. While this makes the risk easier to tolerate, it also makes it more difficult to identify. Over time, the total cost of this approach can be staggering. To manage availability risk, many companies will implement rules to make sure that they don’t run out of product. They will buy only from a certain supplier because there’s never been a problem getting the product. Or they will always use the same carrier to deliver the freight because they’ve never had a delivery problem with that carrier. Once these rules are in place, companies believe the risk has been mitigated and often lose sight of the total cost of these rules or whether there is a better way. Under the slow-drip profit leak scenario, these costs become embedded, and inefficient approaches take root. The we’ve-always-done-it-this-way mentality tends to reduce or completely erode innovation. And lack of innovation eventually introduces a new risk level to not only the supply chain, but the whole business.
TOOLS THAT CAN MITIGATE RISK Knowing what is happening to your supply chain is the best way to evaluate — and avoid — risk. Shippers need to gain complete visibility and look at their total supply chain. To obtain an objective picture of what’s really happening, they need to have clean, standardized data. The data should provide both the real cost of the product, and it should also include the freight cost. Logistics software can help a shipper gain the clean, standardized data. The software should offer robust analytics to make the data actionable. One of the biggest red flags that I see is when shippers use software that doesn’t have transparency or clear actions that should be taken by the shipper. For example, do you have software that displays a map of all of your shipments, or does the software provide an alert predicting when a shipment will be late and whether the shipment contains a key product for an important customer? Sometimes the flashy software masks its lack of intelligence and actionable data.
Another important element in addressing availability and delivery risk is to become a Shipper of Choice. This allows a shipper to mitigate risk and change the conversation with their carrier. Using the actionable data from the logistics software, the shipper and carrier now can have more objective, data-driven discussions that focus on diagnosing the issues, developing a strategy, and deploying a winning strategy. With a clear view of your supply chain, you will know what is happening and what actions to take.
Shannon Vaillancourt is the president and founder of RateLinx, a customized global logistics software and consulting ﬁrm with the only software and process to standardize carrier, shipment, track & trace and order data into one dataset. He is a frequent speaker and contributing author regarding the use of data in logistics management. Visit www.ratelinx.com for more information.
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 51
THE STATE OF THE INDUSTRY We are PARCEL are grateful to Morgan Stanley for allowing us to share these insights into the direction of the parcel industry. While it would be impossible to print every result, given space constraints, we hope you find this snippet helpful.
In our latest survey, shippers' view of the economy improved for the third consecutive survey update and pushed past its 10-year high from our April Freight Pulse 45 update. Given the mixed developments with macro datapoints and political traction since our prior survey, we had expected a slight deceleration but shippers remain undeterred. TL was the biggest winner for the second consecutive survey, with expectations for volume and pricing year over year increases, though we would also note expectations for flat/tighter capacity across all transport modes. SOME HIGHLIGHTS OF THE PARCEL RESULTS: 1. Ground and international volume growth outlook improves while air declines; 2. Shippers’ expectations decrease, anticipate approximately one percent average parcel base rate increase over next six months for air and ground; 3. Shippers’ expectations for B2C as a percentage of total parcel shipment remain mostly unchanged; 4. Shippers view price as a more important driver than service for switching ground and air parcel carriers; spread between price and service for ground widens; 5. According to shippers, discounts have increased for UPS air and ground but decreased for FedEx air and ground, opposite from our prior survey
Volume Growth Expectations “Over the Next 6 Months” vs. Last Year Ground and int’l volume growth outlook improves while air declines
Average Base Rate Expectations “Over the Next 6 Months” vs. Last Year Shippers' expectations decrease, anticipate ~1% average parcel base rate Increase over Next 6 months for air and ground
YoY Change in B2C as % of Total Shippersâ€™ expectations for B2C as % of total parcel shipment remain mostly unchanged
Average List Rate Discount According to shippers, discounts have increased for UPS air and ground but decreased for FDX air and ground, opposite from our prior survey
Shippers view price as more important driver than service for switching ground and air parcel carriers; spread between price and service for ground widens. Air: Reason for Switching Primary Carriers
Ground: Reason for Switching Primary Carriers
SEPTEMBER-OCTOBER 2017 ď€´ PARCELindustry.com 53
Parcel Volume Outlook Over the Next 6 Months
Parcel Spend Outlook Over the Next 6 Months
% of Shippers Expecting Air to:
% of Shippers Expecting Air to:
% of Shippers Expecting Ground to:
% of Shippers Expecting Ground to:
% of Shippers Expecting International to:
% of Shippers Expecting International to:
You can access the survey results in their entirety by visiting PARCELindustry.com/MorganStanleyJuly2017 54 PARCELindustry.com ï€³ SEPTEMBER-OCTOBER 2017
Volume Growth Outlook by Listed Primary Carrier Air — Avg Volume Change by Primary Carrier
Ground — Avg Volume Change by Primary Carrier
Volume Growth Expectations “Over the Next 6 Months” vs. Same Period Last Year
International — Avg Volume Change by Primary Carrier
Volume Growth Outlook by Industry Air — Avg. Change by Industry
Ground — Avg. Change by Industry
How will your usage of the following products change as a proportion of your total parcel shipment budget (on a year-over-year basis) over the next 6 months?
International — Avg. Change by Industry
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 55
SMART CHANGE. SMART ENGINEERING. SMART SUPPLY CHAIN. Parcel volumes are soaring across the supply chain. How will your organization face this challenge?
ccording to leading industry reports, parcel and express delivery volume has surpassed railroads as the second-largest logistics sector behind motor freight. Spending on small-package delivery jumped double digits in the last year. E-commerce sales as a percentage of retail sales nearly tripled in the last decade. And economic analysts predict parcel spending will surge to nearly $95 billion by 2019. These collective disruptions are bigger than the transportation profit and loss. Business concerns related to parcel shipping acceleration and
BY CHARLES MOORE
omni-channel complexity have reached the C-Suite. With smart devices fueling parcel growth, smarter supply chains are on the board room table. Managing disruptive change in logistics networks requires layers of multi-modal expertise supported by risk mitigation strategies. The most successful omni-channel shippers say the real game-changer for managing business growth in light of the e-commerce explosion is access to top-flight intellectual capital across all transportation modes. Smart engineering ensures shipping programs and the end-to-end supply
56 PARCELindustry.com ď€ł SEPTEMBER-OCTOBER 2017
chain are optimized for performance and customer satisfaction. Successfully reconfiguring transportation and supply chain networks to meet escalating delivery expectations starts with understanding the data behind parcel trends and distribution network changes. High-volume parcel shippers leverage smart solutions, such as advanced analytics, digital technologies, and innovative transformational strategies, to create better alignment to the carrier networks. By understanding how a delivery profile impacts every carrierâ€™s network, companies can adjust their shipping profile to optimize and align for maximum efficiency and serviceability. Companies often begin the process by getting answers to fundamental logistics questions:
Are we examining our operations holistically to get better multi-modal economics? What role can LTL play in e-commerce outbound? What does "good" look like when it comes to parcel shipping program characteristics? Is our parcel-centric supply chain engineered for optimal service, cost, and efficiency? Is our parcel packaging optimized? Best practices for optimizing logistics operations require a “diagnose first, prescribe second” approach to designing best-in-class parcel shipping programs that maximize service levels with minimum interference. This methodology applies to all transportation modes. The goal is to reduce transit times and costs, mitigate risk, support enterprise growth, and improve customer satisfaction across the entire network. Today, more shippers are finding success with a supply chain optimization process that originates from Lean methodologies and adds deep data analysis to the mix. By
applying network design tools to leverage data from across the supply chain — from procurement to shipping — shippers can obtain a clear picture of inventory levels, cost to serve customers, SKU positions, transportation costs and performance, raw material costs, and production costs. This deep data analysis reveals opportunities to enhance performance and determine where to focus efforts toward meeting strategic goals. When complemented with rich domain experience, it ensures that the transportation network is agile and optimized for profitability, not just survival. As part of the evolution of enterprise excellence, leaders who understand the importance of an enterprise logistics approach are taking a holistic, strategic view of the supply chain to gain competitive advantage by following these best practices. ESTABLISH A CURRENT SUPPLY CHAIN PERFORMANCE BASELINE Review the current state of shipping operations from an operational, analytical, and cost-based perspective. Develop an understanding of the
changing role that parcel plays in the overall network. Be realistic about how much e-commerce and customer expectations will change strategy. Identify customer service needs and how parcel shipping will change financial goals and logistics requirements. DESIGNING THE FUTURE STATE Use collected data to model and map what-if scenarios enabling enhancement of programs for current strategies and future goals. Perform split shipment assessment, routing analysis, distribution center alignment, and site selection analysis along with any required fulfillment models. Understand how mode shifting or regional carriers can create synergies that drive real savings. Identify Key Performance Indicators (KPIs), such as customer service goals, as well as evaluation of trends, expense drivers, and network design. Leverage industry and company
SEPTEMBER-OCTOBER 2017 PARCELindustry.com 57
knowledge to analyze all aspects of the parcel shipping program. Once design of an optimized parcel program is complete, manage RFPs and optimize your platform to best meet customers’ needs. A re-engineered parcel program should align with business objectives. By embracing best practices, a shipper can gain a thorough understanding of their entire supply chain — not just the parcel shipping network — and facilitate the design of a shipping program customized to the shipper’s needs. Drive compliance with each attribute supported by robust auditing, advanced supply chain analytics, and powerful data visualization tools. With total visibility and a multi-modal perspective, knowledgeable shippers can mitigate identified risks and transform the supply chain from a profit-squeezing part of the enterprise into a competitive advantage that enables their company to accelerate in the marketplace. For shippers without in-house expertise, analytical tools, or dynamic modeling
capabilities, the dedicated support of a credentialed partner can help manage RFPs, select appropriate carriers, optimize contracts to maintain expected customer service levels, and monitor ongoing activity. Additionally, insight and visibility to thousands of transportation networks can help shippers build tightly engineered, integrated multi-modal logistics programs that support business growth, keep customers happy, streamline operations and sustain efficiency. Responding to rapid demand shifts in e-commerce-driven small-package shipping has prompted some shippers to react by simply transitioning their strategies from Truckload and LTL shipments into distribution centers toward utilizing a higher volume of parcel shipments direct to customers. Many are implementing these operational changes without the benefit of a full network analysis and are realizing new financial, operational, and strategic enterprise risks that lead to higher shipping and operating costs. Bolt-on parcel capabilities intended to keep pace with demand can inadvertently create
58 PARCELindustry.com SEPTEMBER-OCTOBER 2017
visibility challenges specific to external and internal compliance, payment duplication, and fraudulent usage of account numbers. Many parcel shippers may also face risk due to enhanced enforcement of International Trade Compliance. In an era when dramatic change is becoming ever more constant, employing smart strategies to mitigate financial risk and seize growth opportunities is key. Whether leveraging big data, predictive analytics, or artificial intelligence, smart, next-generation supply chains embrace change and network alignment to drive efficiencies and outsmart the competition.
Charles Moore is Vice President of Parcel Solutions for Transportation Insight, a multi-modal global Enterprise Logistics Provider. He is a 2017 Pro to Know, with more than 25 years of experience in the supply chain marketplace, and is a pioneer in Enterprise Logistics solutions across all modes of transportation.Visit www.transportationinsight.com for more information.
CUT THE FAT, GET LEAN Want to implement Lean methodologies into your distribution center, but aren’t sure how? We’ll walk you through it, step by step.
he process is broken!” “What is the problem?” “Can we do it better?” “Because we have always done it this way.” These might be some common phrases used across your company — especially in a distribution center. So, what is the best way to tackle the process and answer the questions? There are tools and processes in the Lean toolbox to help. The buzz words of Kaizen, Lean Manufacturing, and Six Sigma may sound familiar. The bad news is, these terms may seem overwhelming, complex, or outside the skill set of employees. The good news is, this is not true. Let’s break down these
60 PARCELindustry.com SEPTEMBER-OCTOBER 2017
tools and philosophies into simple understanding and find which ones will work best for your business practices. FINDING THE RIGHT FIT Kaizen, by definition, means to take apart and make good. The intent is to continuously improve all functions, processes, and involve all employees — from the CEO to the assembly line worker. Lean Manufacturing is a management philosophy derived from the Toyota Production System. Lean Manufacturing is a systematic method for elimination of waste in a process or reduction of non-value added work. Six Sigma
By Trista Niswander
is a step further. Six Sigma seeks to improve the quality of the output of a process to identify and remove causes of defect and reduce variability in these processes. Each Six Sigma project follows a defined sequence of steps and has specific value targets. For example, the goal may be to reduce process cycle time, reduce pollution, reduce costs, or increase customer satisfaction. Never mind the lingo, technical jargon, and proper implementation of these philosophies â€” they all mean the same thing: continuous improvement. Letâ€™s talk about the benefits and tools that work! Continuous improvement initiatives allow a company to eliminate waste and delays, remove interruptions, and create collaboration across the organization for creative solutions and engagement in daily activities. Perhaps even more importantly, it allows a company to increase customer satisfaction, thereby retaining their business. Kaizen is a great place to start in order to achieve all of these benefits. The Kaizen process focuses on an identified problem or defect in the process. All those involved directly with the process, some upstream from the process and some downstream, should be included in the problem solving. It is also beneficial to include someone with no involvement whatsoever for a fresh and neutral perspective. All team members should assemble and map the current process.
This current state map should include the entire flow of the process considering all data such as inventory, materials, and customer requirements. A great way to visualize the process is to draw on a whiteboard. This visualization allows you to see waste and redundancy in the process and initiate plans on how to improve. Once the current state map is done, encourage all team members to share improvement ideas. The team may identify a better way to conduct the process, remove unnecessary or non-value added work, or steps to automate. Remember: small, incremental improvements are key! Once the improvement ideas are gathered, the process can be reconstructed to the future state or the new, improved process. Implement the changes and track the success of these changes. Because of complexity or changing business environment, some processes may require several reiterations of Kaizen or improvement. This does not indicate a failure. As long as improvement and learning are achieved, success is inevitable. GETTING TO THE ROOT OF THE PROBLEM While Kaizen is a process to fix a problem, it is quite possible that, because of internal or customer feedback, there is an issue but the root cause is unknown. Several tools exist to identify root cause before improvement efforts are under way. It is important to determine the root cause to avoid spending valuable resources to treat the symptom(s) of a problem. The process of asking the “5 Whys” is a great way to start. Here is a common example and application of the 5 Whys. Write down the specific problem: I got caught speeding. Ask the question: Why? Write down the answer: I was late for work. Ask why again and write down the answer: I got up late for work. Repeat. Alarm clock didn’t work. Repeat. Batteries were dead. Repeat again. I forgot to replace them. The process of asking why five times leads to the root cause: I need to get an alarm clock that plugs into the wall and replace the batteries often. By uncovering this root cause, the problem can be completely avoided in the future. Fishbone diagrams are another tool used for root cause analysis. The causes of a problem are grouped into major categories: People, Methods, Machines, Materials, Measurement, and Environment. The act of grouping the causes into categories and discussing amongst the team formulizes a problem, and the group can then work to improve the specific issue. Furthermore, don’t forget to keep Pareto charts. These charts focus on the rule that 80% of the effects come from 20% of the causes. The left axis of the chart is the frequency of the issue, while the right axis is the cumulative percentage of the total number of occurrences. Over time, the compilation of these inputs on the chart visually represents the greatest opportunity for improvement.
62 PARCELindustry.com SEPTEMBER-OCTOBER 2017
Spaghetti diagram – Here is another tool applicable to both office and production environments. Start with an overhead view of the area drawn to scale and labeled. Use colored pencils or markers to differentiate between trips. Follow the route traveled as soon as the process begins. Use directional arrows to indicate direction of travel. Don’t leave out any movement. The cluttered areas of the diagram represent areas of opportunity for improvement. This diagram will help you see where material or a process stops, is staged, held, inspected, and picked up. Look for opportunities to move materials, tools, and paperwork to reduce all wastes.
MORE WAYS THAN ONE There are many other ways to lead continuous improvement efforts: 5S — a way to organize and standardize work areas; spaghetti diagrams — a drawing of the path of travel for a product or process to identify redundancy; Kanban — inventory control method to avoid under- or over-production; as well as standardized work and cross-training, which achieves stability, ensures coverage and continuity, and reduces risk. All are simple tools for incremental improvements to achieve success in all business processes. No matter how technical or simplistic these tools are implemented, the goal is to improve. Use the tools that work best for your organization. Start small. Involve all organizations across the business. Find the problem. Find a solution. Implement the findings. Track the successes and areas of opportunity. Do it again. Get going! Answer the questions about the defects in the process and fix it. You have the tools!
Trista Niswander is Postal Manager at Our Sunday Visitor and a frequent speaker at industry events like the National Postal Forum. Her role at Our Sunday Visitor relies heavily on continuous improvement methodologies.
Redefining Customized Service A customized solution is only valuable when coupled with reliable service you can count on and an answer that doesn’t break the budget. U.S. Cargo is built on the idea of creating flexible logistics solutions for specific shipping needs. We didn’t create the concept; we’re just perfecting it by redefining what it means to benefit from complete, customized service. At U.S. Cargo we pride ourselves on our commitment to develop transportation services and logistical systems to meet the needs of our customers and our personalized delivery services and solutions create sustainable, long-term value for our customers, business partners, and employees. U.S. Cargo respects that every business has different needs, and our pricing methods reflect that. We don’t let schedules or
systems get in the way of servicing you with the highest priority. No business need is too small. Whether the requirements are standard or unique, our personalized commitment to meeting our customers’ transportation and logistical needs exceeds that of the competition. While our core business is standard parcel and lightweight LTL, we also leverage our assets in various ways to create solutions based on customer specific needs. U.S. Cargo is a diversified ground services provider that offers high-value, lowcost premium services, tailored to unique market demands. The customized solution must work for you and your business; otherwise we didn’t do our job. A successful collaboration is possible by teaming up with the right carrier. Team up with U.S. Cargo and benefit from a much needed redefined approach to customized service. You deserve customized solutions, consistent service, and cost-effective answers for you and your customer.
By Tim Casey
BATTLING COSTS IN THE PACKING ARENA If you don’t stay on top of them, packaging costs can spiral out of control. Here’s why automated packaging solutions may be the answer.
or many retailers, the packing arena is a battleground they face every day. Not only do they want their packaging to stand out among the millions of parcels being shipped daily, but they also want it to be cost-effective and environmentally friendly. With thousands of unboxing videos on YouTube alone, it’s clear that customers are noticing the incredible amount of void fill and the unnecessary
volume of packing materials used for small items. With so many factors involved, finding a solution that is not only cost-effective, but increases customer satisfaction, can be challenging. Usually, a retailer’s first step in eliminating void fill and moving toward more cost-effective packing is to stock fit-to-size boxes for almost every item being shipped. This requires a large inventory of shipping materials that now need to be stored wherever orders are
64 PARCELindustry.com SEPTEMBER-OCTOBER 2017
packed. However, not every order, which can include multiple items, fits into a standard-size box. This means void fill material is still required to prevent damage to the items inside. The use of void fill forces retailers to use larger parcels to fulfill multi-item orders, which increases shipping costs due to DIM weight rules from many major carriers. The end result is retailers not only have higher packing material costs, but higher shipping costs as well. This
can be a big problem when trying to reduce packing costs. To win the packing battle, retailers need to look at how they can: Eliminate void fill Eliminate shipping material inventory Reduce labor costs Lower DIM weight and shipping costs Increase customer satisfaction While this may seem overwhelming, there is one key tool retailers can use to help win the packing battle: automated packing solutions. THE KEY TO WINNING THE PACKING BATTLE Automated packing solutions are the ideal solution for the packing battle because they optimize all steps of order fulfillment. When an order is placed on the system, the automated packing solution scans, builds, fills, folds, and labels each order into a fit-to-size parcel in as little
as seven seconds. The solution can even build a parcel around single or multiitem orders with variable dimensions. By creating this fit-to-size parcel, automated packing solutions completely eliminate void fill and reduce the amount of corrugated material used by up to 20%. This innovative solution also eliminates the need for various box sizes. By using one continuous feed of corrugated material from one pallet, hundreds of orders can be boxed and shipped. This corrugated material can also be branded to ensure that retailer identity and customer satisfaction aren’t lost. In fact, for many customers, satisfaction increases because automated packing systems are a “green” solution. According to the National Retail Federation, 45% of Generation Z customers believe it is important for a brand to be environmentally friendly. Unnecessary parcel volume and void fill are eliminated with every order, including multi-item orders, as they are packed in custom fitto-size parcels. Customers and retailers alike can say goodbye to large boxes and that annoying void fill. Retailers can also eliminate the large inventory of hundreds of different sized boxes, freeing up more space for product inventory. FIGHT PACKING LABOR COSTS Packing orders is labor-intensive. At every distribution center, there are multiple employees working to fill orders daily as they search for the appropriate sized parcel and add void fill to keep items safe during shipping. This can add a lot of time in getting the order out the door and into the customer’s hands. It also takes up valuable employee time when they could instead be picking and fulfilling orders. Automated packing solutions can reduce these labor costs. These systems don’t just save money through fit-to-size packing and elimination of void fill, they can also greatly increase efficiency and reduce costs. Automated packing solutions can do the work of up to 10 packing stations, with one operator, saving up to 88% in packing labor alone! With fewer employees in the packing area, retailers can repurpose
more employees into other areas of the supply chain to increase productivity and overall efficiency. LOWER SHIPPING COSTS While the packing arena is a primary concern for many retailers, shipping is also top-of-mind. Many major carriers are now calculating shipping costs using the dimensional (DIM) weight of parcels versus actual weight. This means that large but lightweight objects can have higher shipping costs than if they were shipped in the appropriately sized parcel. As major carriers continue to increase DIM weight costs, parcel size has become a critical factor in overall shipping costs. That’s where automated packing solutions are a competitive advantage. With this solution, retailers can reduce shipping volume by up to 50% and decrease shipping and DIM weight costs by 32%. This equates to one to two dollars in savings per parcel. With many retailers shipping thousands of orders daily, this can generate significant savings. CONQUER THE PACKING BATTLE From a continuous feed of corrugated material to custom fit parcels to reduced labor costs, automated packing systems are the ideal solution for many retailers. Shipping material inventory and void fill are eliminated, packing is completed in just seconds, and more orders can be shipped each day. Customers receive an environmentally friendly parcel that gives a positive impression of the retailer. Automated packing solutions are the answer to reducing costs in all areas of the packing arena, allowing retailers to conquer the e-commerce packing battle.
Tim Casey is Vice President of Product at ProShip, Inc., a Neopost company, and a global provider of logistics software and product solutions, including enterprise-wide, multi-carrier shipping and manifesting software, automated packing solutions, and intelligent parcel lockers. For more information, please visit www.proshipinc.com. SEPTEMBER-OCTOBER 2017 PARCELindustry.com 65
AN INSIDE LOOK AT WAREHOUSE FULFILLMENT What makes fulfillment different from other types of warehousing, and how can you use this to your advantage?
hough it happened more than two decades ago, the dot-com craze of the 1990s created significant misinformation about warehouse fulfillment. But one thing is true — it may be the fastest-growing type of specialized warehousing. As the handling of e-commerce transactions continues to grow, the fulfillment process creates curiosity and even excitement. Journalists have sometimes misinformed their readers by claiming that fulfillment was one of the great inventions of the 1990s. They either ignored — or were ignorant of — the facts about Sears and other mail-order companies.
BY KEN ACKERMAN
These firms were engaged in fulfillment operations in the early years of the 20th century. Within the warehouse, many processes were remarkably similar to those used today, although communications and transportation were different. Orders arrived by US mail, addressed simply to: "Sears Roebuck and Company, Chicago, Illinois." There were no ZIP Codes, and the postal people knew how to find Sears without a detailed address. Customer delivery was usually accomplished by parcel post. When Sears opened its giant mail-order plant on the west side of Chicago in 1906, that building was the largest commercial structure in the world. When Henry Ford was looking for fresh
66 PARCELindustry.com SEPTEMBER-OCTOBER 2017
ideas to perfect his automobile assembly line, the Sears mail-order plant was one of the places that he visited. WHAT IS FULFILLMENT, EXACTLY? What features make fulfillment different from other types of warehousing? Unlike most operations, the warehousing people have direct contact with the consumers who order merchandise. Orders are much smaller than those handled by other warehouse operations. Information is always transmitted electronically. Because consumers are looking for quality service and fast delivery, customer service requirements are particularly challenging. Order complexity is often quite high, and precise inventory management is necessary to handle a fulfillment operation.
Orders are usually placed online. A software system reports receipt of the orders as well as delivery tracking information that is needed to provide assistance for customers. Order volume is higher than other types of warehousing, making systems technology critical. Fulfillment operators exchange data with customers every day, but leading distribution centers handle data on the web, in real-time, and around-the-clock. Data may be exchanged between fulfillment center and client— and sometimes with the consumer who placed the order. Easy access to records is critical. DON’T OVERLOOK THE IMPORTANCE OF THE WMS The warehouse management system (WMS) is a critical element. The system supports inventory control, maintenance of "quick pick" areas, organization of orders for picking, scanning of cartons for accuracy, and carrier selection. When international shipping is involved, handling of import/export documentation and customs clearance procedures must be part of the information system. These five areas rely on the information system to enhance productivity and effectiveness: Optimizing pick, put away, and replenishment. Establishing rules for each type of material movement based on factors such as unit of measure or minimum/ maximum levels. Establishing zones to separate storage areas such as bulk, pallet rack, flow rack, and customer returns.
Integrating with data collection devices to enable accurate tracking of goods through the warehouse. Integrating manifest applications to track shipping information. RECEIVING REQUIRES A DIFFERENT APPROACH Receiving differs from conventional warehousing. Back orders are common, requiring the receiver to isolate and expedite those SKUs that are urgently needed to fulfill orders. The volume of customer returns is higher than in other kinds of warehousing. The WMS is used to control the put-away and storage of inbound materials. This system should optimize bin utilization and adapt to information about inventory status. Storage and handling functions are also different. Fulfillment warehousing usually involves fast turns and low volume. Because outbound is handled with parcel services, the fulfillment center has equipment to weigh and meter the parcel shipments. Paper flow is also more complex than for other types of warehousing. The fulfillment center may create invoices. It will also handle some credit functions, sometimes even including collections. Accounts Receivable aging reports are frequently required. Handling of credit cards is normally required, and some fulfillment centers even handle banking for their customer. Fulfillment centers are certified by Visa under Payment Card Industry Data Security Standard (PCI-DSS) in order to control the risk of identity theft. The fulfillment operator must be familiar with
banking and credit card transactions. In this environment, quality staffing is of critical importance. While some of the fulfillment jobs are repetitive, the workers need to be well-motivated. The best operators hire good people and keep them. Because of exposure to theft and fraudulent claims, the liability problem is significant. Sometimes theft is the result of a fraudulent order. A fulfillment center operator is expected to absorb the financial consequences of errors. The liability limitations that exist in conventional contract warehousing do not apply in fulfillment. To compensate for the added risk, pricing of fulfillment services must produce ample margins. The fulfillment operator must justify the faith that clients place with him or her by acting with integrity and professionalism. Financial responsibility is a necessary ingredient. A teamwork approach is essential. Employees must be empowered to do whatever it takes to serve clients. Finally, the fulfillment center operator must be innovative. The latest technology should be constantly introduced to enhance the ability to serve the customers.
Ken Ackerman is CEO, Ackerman Co. He has been active in logistics and warehousing management for his entire career. Since 2007, he has also been a Group Chair for Vistage International, the world’s leading chief executive organization. Join him at 10 am on Tuesday, September 19 for his session titled, “What It Takes to Have a Successful Fulfillment Operation” at the 2017 PARCEL Forum in Nashville.
Receiving differs from conventional warehousing. Back orders are common, requiring the receiver to isolate and expedite those SKUs that are urgently needed to fulfill orders. SEPTEMBER-OCTOBER 2017 PARCELindustry.com 67
CERTIFICATES OF INSURANCE IN A NUTSHELL By Brent Wm. Primus, J.D.
n organization known as ACORD (Association for Cooperative Operations Research and Development) has developed several forms of certificates of insurance. The most common form of a certificate of insurance seen in logistics is the ACORD FORM 25: Certificate of Liability Insurance. Another ACORD Certificate touching the supply chain is FORM 22: Intermodal Interchange Certificate of Insurance. Certificates of insurance come into play when a customer of a transportation provider requires the provider to have certain types of insurance coverage with specified levels of coverage. The provider then uses a certificate of insurance to provide evidence that the required coverages are in place. The customer is then shown as the “certificate holder” on the certificate of insurance.
68 PARCELindustry.com SEPTEMBER-OCTOBER 2017
Perhaps the most important thing to understand about insurance certificates is the disclaimer. In the ACORD FORM 25: Certificate of Liability Insurance the disclaimer states the following: This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below. This certificate of insurance does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder. Certificates of insurance are governed at the state level, not the federal level. There is no legally prescribed form for certificates of insurance; however, all states require disclaimer language such as the above be in the certificate. These statutes and the language of the disclaimer mean that the certificate is a summary of certain policy provisions. Accordingly, if there is an error in the information contained in the certificate, it does not change the insurance; it just means the certificate is wrong. Another thing to be aware of is that at one time, certificates of insurance included a provision that the issuer of the certificate would endeavor to give notice to the certificate holder if one or more policies were to be cancelled. The ACORD Certificate previous to the amendment contained this language: “Cancellation: Should any of the above described policies be cancelled before the expiration
date thereof, the issuing company will endeavor to mail _____ days written notice to the below named certificate holder, but failure to mail such notice shall impose no obligation or liability of any kind upon the company.” However, as of October 1, 2010 (after a one-year interim period), the form now reads as follows: “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.” This is the result of various states’ Attorney Generals commencing litigation against the ACORD saying that the provision to give notice is legally defective. This is because the policy holder can contact its agent and cancel its coverage at any time and, with the exception of automobile liability insurance policies for motor carriers, the insurance company is required to cancel the policy. Accordingly, it may be impossible to give any notice at all. The problem for certificate holders is that the policy provisions generally will not provide for giving notice to a certificate holder. Although the notice provision in certificates of insurance is long gone, shippers’ contracts still routinely call for certificates to provide 30 days’ notice of cancellation.
Brent Wm. Primus, J.D., is the CEO of Primus Law Ofﬁce, P.A. and the Senior Editor of transportlawtexts, inc. Join him at 8 am on September 20 for his PARCEL Forum session titled, “The 5 Most Important Things to Know about the Supply Chain.”
ARE YOUR COLLEAGUES There are undoubtedly people in your organization who need this information as much as you do. So if they are not already a subscriber, have them sign up for a FREE subscription today!
Michael J. Ryan
he world is getting smaller by the day, but the delivery of international e-commerce orders still has its challenges. We have seen the delivery expectations in the US go from seven to 10 days down to two days (and free, in most cases), especially during the peak season. The international express carriers (DHL, UPS, and FedEx) have done a great job of speeding up the delivery time cycle (two to three days). DHL Express has developed the most sophisticated and streamlined global network for the past 48 years. However, there seems to be a gap between the express operators and postal solutions. Here are the big challenges that global e-tailers are challenged with relative to this gap: 1. Country Guidelines: It is amazing how a product can
70 PARCELindustry.com SEPTEMBER-OCTOBER 2017
be sold in one country with no issues but is heavily restricted or not allowed into other countries. It is imperative to understand the “rules of the road” in each country. In addition to commodity specific rules, there are value rules that could make it easy or hard for the delivery. Some countries will allow an individual to import a specific value amount per shipment or per month. This can dictate the term of the shipment as duties and taxes unpaid (DTU) or duties and taxes paid (DTP). In the global e-commerce world, no one likes to get the surprise that they owe money for duties/ taxes. This will create a poor customer experience, and the consumer will most likely not return to the website. In most cases, they will probably return the item to the merchant, which will become a complete disaster. 2. Customs Clearance: The express operators are subject to stricter inspection practices than most postal authorities. This has created a bit of a headache for all parties involved. If the shipment meets all the rules and regulations of a specific country, then there should be no problem, with the exception of a slower delivery and a higher probability that duties and taxes will be required on the shipment. The postal authorities have a bit of an edge here but
are not competitive from a cost and service perspective. There are some countries where the USPS or a parcel consolidator may be the best option. 3. Cost Competitiveness: The express carriers are trying to be more competitive, but they have built private delivery networks, which are expensive to operate. The international parcel consolidators offer lower-cost solutions but are not as quick as the express operators. The value of the commodity plays a key role in determining which service is best to use. I believe there is a gap in this model and a hybrid could be created that would be between an “express model” and a “postal model.” There are some providers doing this model to specific countries but on a limited basis. This is the single largest challenge that the global e-tailers are facing… sounds like an opportunity in the market. As the world gets smaller, consumers do not care how a package gets delivered to them… just that the delivery is fast and cheap. Hence, our global delivery challenge.
Michael J. Ryan is the Executive Vice President at Preferred Parcel Solutions and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@ preferredship.com. Join him at 11 am on September 19 for his session titled, “Parcel Optimization for Small- and Mid-Sized Companies” at the 2017 PARCEL Forum.
PARCEL September/October 2017