Take Your Operations to New
Software is too vital a component in your organization to just accept the status quo. Hereâ€™s what to look for (and what to avoid!) when selecting a new system.
Best practices to implement a multi-carrier shipping software solution. page 26
The secrets to selecting a cloud computing strategy. page 22
Managing costs with shipment optimization. page 18
MAY-JUNE 2012 | volume 19 | issue 3
PARCEL PUBLISHER Marll Thiede EDITOR Amanda Armendariz firstname.lastname@example.org
Export/Import Classification BY TOM STANTON
Supply Chain Pivot
GRAPHIC DESIGN Kelli Cooke ADVERTISING Ken Waddell 608-442-5064 email@example.com
This Is Not a Test… or Is It? BY MATT THOMPSON
Money and Time Correlation BY ROB SHIRLEY
PRODUCTION DIRECTOR Chad Griepentrog
Regional Alternatives Regional Parcel Carriers: A Historical Perspective BY KENT SZALLA
The Vested Way: A Timely Lesson for Our Parcel Industry BY DOUG KAHL
CIRCULATION Rachel Spahr | firstname.lastname@example.org
Josh Vogt 785-320-7950 email@example.com
The IMpb – No Longer Optional for Shippers BY DAVID ROBINSON
The New United States Postal Service BY PETER STARVASKI
Taking Advantage of NAFTA — Canada Consolidation? BY SAM KARAM
2901 International Lane Madison WI 53704-3128 608-241-8777 • Fax 608-241-8666 www.PARCELindustry.com
Supply Chain Management
Navigating Rough Waters
The current economic climate leaves little room for errors. The right shipping software ensures operations are as efficient and optimized as possible, saving you both time and money. BY AMINE KHECHFE
Stop Thinking Outside the Box!
Managing costs with shipment optimization. BY MIKE PARRILLI
The Secrets to Selecting a Cloud Computing Strategy
Hosted applications and SaaS cloud computing models both offer benefits, but which one is right for your organization and application? BY DAN TAYLOR
Taking the Plunge
Best practices to implement a multi-carrier shipping software solution BY JIM LEROSE
The CSA/Schramm Problem, Part II: A Simple Solution? BY BRENT WM. PRIMUS, JD
USPS…You Have Arrived! BY MICHAEL J. RYAN
REPRINTS For high-quality reprints, please contact our exclusive reprint provider. Scoop Reprint Source • 800.767.3263 ext. 144 www.scoopreprintsource.com PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2012 © 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.
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EDITOR’S NOTE AMANDA ARMENDARIZ
Taking Your Operation to New Heights When our team was first looking for cover photos for this issue, we were suffering from a creative block. Software — the theme of this issue — is naturally a very important component of any shipping operation, but when it comes to images, well, it’s slim pickings. So our team decided to expand our mind a little bit. The cover image doesn’t literally need to reflect software, right? All those outdated pictures of software CDs and binary code — we figured we could just toss them right out. And I must say, I’m glad we did. When we came across the image we ultimately chose for the cover (turn back a page or two if you don’t remember what it looks like), it just fit. No, it wasn’t a literal picture of software, not even close. But it epitomized what we hoped to convey with this issue: that if you are just accepting the status quo when it comes to software within your organization, you’re missing out on the chance to take your organization to a whole new level — one that you perhaps can’t see from where you’re currently sitting. It’s time to delve deeper and see what your organization is capable of with the right software solution in place. And speaking of delving deeper, I just want to remind everyone that there’s no better place to get in-depth information and ideas than the PARCEL Forum, which will be held October 23-25 in Chicago. If you haven’t already registered, it’s not too late; just go to www.PARCELforum.com for more information. You’ll find a wealth of information on not only software solutions, but everything else that deals with the small shipment process, from order entry to delivery. Our educational sessions, exhibit hall, and networking opportunities are some of the best in the industry, so join us in the Windy City. Who knows what secrets you’ll uncover to take your operations to the next level. As always, thanks for reading PARCEL.
MAY-JUNE 2012 | www.PARCELindustry.com
GoinG Global with Tom
Export/Import Classification Classifying goods for export or import can be a challenge. In the following article, we will discuss some details about classifying products using the Commodity Control List and the Harmonized System.
Commodity Control List: Unlike the Harmonized System, the Commodity Control List (or CCL) is designed to identify and distinguish between a relatively small number of export products that are restricted because of foreign policy-anti-terrorism, short supply, military end-use, technology control, and nuclear control reasons. The CCL and US export administration regulations can be found at http://www.bis.doc.gov/policiesandregulations/ear/ index.htm. There are 10 general categories of products that are restricted by the CCL for export purposes. They are: 0) Nuclear materials, facilities, and related equipment, 1) Materials, chemicals, microorganisms, and toxins, 2) Materials processing — c.f. bearings, crucibles and valves, 3) Electronics design development and production, 4) Computers — leading edge technology, 5) Telecommunications and Information security — c.f. sat ellite communications, 6) Sensors and Lasers, 7) Navigation and Avionics — c.f. accelerometers and gyros, 8) Marine — submarine equipment, and 9) Propulsion for space vehicles and related equipment.
the denied persons list, or the Treasury Dept blocked person list. For further details check out the export control basics at http://www.bis.doc.gov/licensing/exportingbasics.htm.
Harmonized System: The Harmonized System as used in the United States is a 10-digit number that identifies products for export and/or import. Harmonized numbers for export are identified in schedule B of Title 15 of the Code of Federal Regulations. Schedule B numbers allow the US government to keep statistical data on the items that are exported for trade negotiation purposes. The harmonized tariff schedules of the United States (HTSUS) are the same number system with a more precise set of statistical breakouts. Either Schedule B or HTSUS numbers may be used for export purposes, but only HTSUS numbers may be used for USA import purposes. Schedule B Assistance: The US Commerce department provides Schedule B classification assistance at https://uscensus.prod.3ceonline.com with a search engine that can be fast and efficient for general products. For example, if you search for “candles,” 3406.00.0000 will pop up immediately. If you search for computers, it will prompt you to identify whether it was portable and weighed less than 10 kgs with the central processor, input and output units in the same housing before assigning a number 8471.41. US Harmonized System Assistance:
Examples of controlled computers are vector processors, array processors, and digital signal processors under Export Commodity Control Number (ECCN) 4A003. If you are shipping standard consumer goods items such as a standard home computer, wearing apparel, or farming equipment, these are not restricted by the commodity control list. No export license is required, and they are classified as EAR99. Other restrictions you need to rule out are that the end user is not residing in an embargoed country on any restricted end user lists. Shipments to Iran, Syria, North Korea, Cuba, and Rwanda are not allowed unless what you are shipping qualifies for an exception such as food or medical supplies. Also, a number of end users have had US export privileges revoked and appear on a restricted entity lists, the unverified list, 6
may-june 2012 | www.PARCELindustry.com
The basic instructions for using the harmonized system are called the General Rules of Interpretation (GRI) and can be found at http:// www.usitc.gov/publications/docs/tata/hts/bychapter/1201gn. pdf. The US Customs and Border Protection classification ruling database known as CROSS (http://rulings.cbp.gov) is a very efficient and detailed system that allows you to help you track down the appropriate classification under the HTSUS. In many rulings a thorough background on how the classification is arrived at is provided for the receiver. This information can be very helpful for identifying the classification of similar products. p
Thomas m. sTanTon, AFMS international Analyst, can be reached at tom. firstname.lastname@example.org.
TRANSPORTATION ABCs with Doug
The Vested Way: A Timely Lesson for Our Parcel Industry I just finished reading The Vested Way: How a “What’s In It for We” Mindset Revolutionizes Business Relationships by Kate Vitasek and Karl Manrodt. This invaluable e-book got me thinking about the current state of affairs in our parcel industry. The authors provide a path on how to take collaboration and partnership theories and turn them into real world practices — something that is highly applicable to any parcel shipper, carrier, vendor, or consultant. Vitasek and Manrodt write and share examples of companies creating successful relationships by changing their perspective. The companies shifted from an “us versus them” to a “we” business philosophy and obtained game-changing results for all involved. This shift is further supported by Nobel economist John Nash’s theory of governing dynamics — how the setting of clear strategy and working together provides the opportunity to win together. Further evidence on the value of going Vested today and an important part of the above mentioned shift is changing from the old zero-sum game (us versus them) to a non-zero-sum (we) position. We can either continue to fight over what remains of a small piece of pie or work together to bake more pies and expand the opportunity for all. If you read the book, you’ll understand the analogy. Practicing The Vested Way requires following these five rules.
Rule #1: Focus on Outcomes, Not Activities
Business boils down to getting results.
Rule #2: Focus on the What, Not the How
One of the greatest paradoxes in business is that we hire experts to help us and then fall into the trap of telling them how to do their job.
Rule #3: Clearly Defined and Measurable Desired Outcomes
You need to know how success is defined. Remove ambiguity, clearly communicate the desired outcome to all who will be involved, and make sure they know how the outcome(s) will be measured.
Rule #4: Pricing Model and Incentives
The goal here is to optimize value. The provider should be rewarded for delivering a solution. Equally important, pricing should balance risk and reward for all parties.
The true cost of a product or service goes well past its
purchase price — sales price, risk, expertise, flexibility, and time are all important components of the transaction cost.
The gain-sharing model is exposed for the risks it presents to all parties and is worth the read in and of itself.
Rule #5: Insight versus Oversight Governance
Since results are delivered over time, they must be managed on an ongoing basis. The structure of an agreement needs to recognize this and provide mechanisms to deal with change.
The authors refer to the Nobel Prize winning work of Dr. Oliver Williamson. A key part of his work is referred to above with regards to helping companies understand true cost: the transaction costs. Another aspect of his work, and one that can be felt by many parcel industry participants today, are his three basic ways of working with customers and suppliers: Muscular, Benign, and Credible. How you play matters. Making risks higher than they need to be or not properly identifying the risks you face leads to higher prices or contractual safeguards that may not be necessary. Another applicable lesson from this work is how parties working together bring their unique skills and resources to the relationship. For our industry, the shipper-carrier relationship is one of paramount importance. For providers and consultants, we must offer real expertise, provide a unique skill set, increase availability of resources to resourcestrapped companies, and provide a methodology to expand the pie for all involved.
The Story of the Sherpa On May 29, 1953 Edmund Hillary and Tenzing Norgay became the first people to summit Mount Everest. The question was often asked, which man made it to the top first? The expedition’s leader, Colonel John Hunt’s response was, “They reached it together, as a team.” Years later Norgay wrote that Hillary stepped up first and he followed. But does that really matter? Without working together, would either man have made it? p
Doug KAhl is a contributing writer to PARCEL. Contact him at email@example.com. Visit www.vestedway.com for more information or to link to the e-book.
may-june 2012 | www.PARCELindustry.com
Supply Chain Pivot with Rob
Money and Time Correlation There are three principle objectives that apply across all supply chains for both products and services, cross all barriers of culture, distance, language, and are universally understandable by operations, buyers, and sellers: • Making Money • Saving Money •PDecreasing Time These three principles can all be broken into a number of different perspectives depending on which facet of the prism one looks through. It is worth exploring the details of each to ascertain what is motivating your company, competitors, vendors, and customers. making money is by far the most important because more revenue and, better yet, higher margins can solve almost any problem a business may have. Higher margins are something that all stakeholders appreciate, encourage vendors to offer better volume discounts, and allow the organization to provide better benefits to employees and incentives to customers. Employees that are happy going to work provide better service to customers, and customers are willing to pay more for higher value services, especially when wrapped in a solution that exceeds their expectations. The best profitable brands all know this as part of their DNA and practice it year after year. All of this increases P/E evaluations and rewards stockholders too.
FouR PillaRS oF MaRketing: • Product • Price
All four factors are weighed into the efforts to make money and are part of making a supply chain successful. Thinking of your supply chain as an extension of marketing can be very powerful. Everyone loves success, and it is rewarded in numerous ways. Here in Austin, Apple announced it would open a facility to employee 3000+ people, and the city, without prompting, has offered more than $6 million in tax incentives. Do you think they would have done this if the company was unheard of? You might consider the implications of how your supply chain can help your customers make money. Your supply chain has 8
may-june 2012 | www.PARCELindustry.com
features that are intrinsically advantageous to your customers. By using marketing savvy, you can turn those advantages into benefits. This thought process of Feature, Advantage, and Benefit (FAB) is a hallmark for top product, service, and solution Sales Executives. The impact of increasing communication between supply chain teams, marketing, finance, customer service, quality, and sales is very positive. Saving money is often compared to Benjamin Franklin’s quote of “a penny saved is a penny earned,” but in reality, every dollar saved is worth about two dollars in revenue in tax savings alone. Every nuance of every dollar spent should be evaluated because rates change, innovations provide superior paths, contracts go dormant, and small increases are not negotiated (but when compounded, they become large). Services that seem standard (like insurance, utilities, telecommunications, and certainly freight, with dozens of ancillary surcharges) may not be. Savings of 15% are certainly common, and technology can often help. While reviewing your biggest vendors (whether service or product), consider if they should be one of your prospective customers. If so, provide your sales exec with the vendor’s sales director’s name and contact information. Decreasing time is highly beneficial whether it is for your firm, your customer, or your vendor. Time waits for no one; it won’t wait for me (Rolling Stones), Absolutely Positively Overnight (FedEx), and Competing Against Time (Stalk and Hout) were all invented to drive home the same point. If you haven’t ordered anything from Amazon lately, go find a book (like the above for $9.98) and buy it; you will be amazed how quickly you receive it. They are close to standardizing one day delivery in major markets. Saving time increases customer satisfaction, saves cost, and speeds up reorders. Are your distribution centers in the locations closest to your customers? Do you have a balanced inventory system? Should you consider letting your vendors distribute some of your products that don’t require a value add? Do you have a great employee with quality training focused on time as a competitive advantage? I must admit, it is a lot easier to write about this than to actually plan, move into action, and execute! p
Rob ShiRley is president of ExpresShip, a strategic partner in the global supply chain. Contact him at firstname.lastname@example.org.
Parcel PersPectives with Peter
The New United States Postal Service I’ve shied away from writing about the United States Postal The USPS has also taken a critical look at their return services Service in this column. The reason is simply because the situ- and has three basic options at different weight, size, and time ation is so dynamic that it lends itself more to the immediate in transit. As part of these improvements, the USPS has implefeedback from social media rather than the lead time required mented a “Scan Based Payment.” As the pieces go through the for print. By the time this does go to print, who knows what USPS system and are scanned, the data is used to calculate the new legislation, regulatory commission finding, plant closing(s), rates. There is no manifesting. or other issues may be in the spotlight? Thus my reluctance to The US Postal service has its work cut out for it. Right now it weigh in and run the risk of authoring dated material. is encumbered with a few forms of NIMBYism (Not in My Back However, as a big supporter of competition in the parcel ship- Yard). There’s the classic scenario, playing out where USPS ping arena, I think that the United States Postal Service has is trying to get its hands around cost by closing postal facilian important role in maintaining a competitive landscape and ties, with politicians agreeing that USPS needs to get a hanwanted to discuss some areas that are major concerns for them. dle on costs, but not in their state. But there’s also another I attended the National Postal Forum in April of this year. interesting NIMBY attitude where the backyards are markets Postmaster General Pat Donahoe gave one of the keynotes, and rather than physical locations. As USPS tries to improve serin it, he outlined four basic strategies for the USPS. One of the vices, it is running into ancillary industries that have business four, I was pleased to learn, was growing the parcel business models based on the way the USPS operates. Some of these (he actually said “growing the package business” but I’m tak- industries are telling USPS it cannot make improvements as it ing a liberty here for the readers of PARCEL). PMG Donahoe will undermine the industry that grew around the inefficiencies. mentioned some of the gains they’ve made in growing this Even when improving basic shipping delivery services, USPS business, all of which has centered primarily around the ecom- has been criticized when it goes after market share with anymerce market and both outbound and return shipments. one else as it is an ‘unfair advantage as a government entity Our 73rd PMG put a lot of emphasis on technology. For exam- and/or monopoly. Complaints are filed, committees appointed, ple, one of the past criticisms of USPS was the lack of visibil- and USPS gets caught in a grid lock. Competitors and wellity. PMG Donahoe noted that in 2010, the average package paid analysts suggest selling greeting cards or getting into was scanned five times. He stated that as of today, the average banking, while existing market leaders shout “foul” when sugpackage is scanned 10 times — and that USPS would con- gestions are made to let USPS use its existing infrastructure to tinue this trend as scanning is a major growth strategy for it. In move pharmaceuticals or other regulated goods it cannot profact, it is testing hand-held scanners to provide real time infor- cess today (because of dated regulations). While the accountability act of 2006 was put in place to mation from the letter carriers. That’s great news and a good strategy; without world-class visibility, the USPS would be at a provide flexibility so that USPS could be more cost-effective, the act has also provided some heavy baggage, such as strong disadvantage to the other carriers. The other area that has really worked well for USPS is the the pre-funding by 2016 of retiree health care benefits, that “If it fits, it ships” campaign. Talk about marketing your sweet should be revisited. I don’t have all the answers, but I do believe that USPS spot! They recently added a large ‘C’ box (a little over a cubic foot of space with a maximum weight of 25 lbs.) bringing a needs to be able to adapt quickly. Telling it to stick to what it total of five different size boxes into this family of services. The does best and cut head count is basically telling it to go down USPS needs to continue with communicating its sweet spots in with the ship. p these very tangible ways and to increase volume with the same type of volume incentives competitors use to increase package circulation in their networks. Peter starvaski is Director, Product Management at Kewill.
may-june 2012 | www.PARCELindustry.com
Supply Chain ManageMent with Sam
Taking Advantage of NAFTA — Canada Consolidation? In my previous article, we learned all about Canada as the number one trading partner with the USA. We also learned about the $248.2 billion of exported goods to Canada in 2010. Most importantly, we learned about NAFTA and its benefits to US exporters. Now it is time to learn about one of the hidden secrets to reduce the costs of exporting to Canada: the Consolidation Method. Many exporters have products of all shapes, sizes, and weight variations. The most common practice is to ship products based on those variations as separate shipments. For example: • A manufacturer that produces valves, flanges, fittings, and other related products is shipping four pallets of heavy valves, 20 cartons of fittings, and 12 boxes of flanges. These products are shipped to four different customers in Canada.
Common Practice, Common Results: The common practice in the export world will have the exporter (the manufacturer) prepare exporting documentation for each shipment and ship them separately via a carrier or freight forwarder. The common results to that practice are: • The Canadian importers will pay border crossing fees on each shipment. • The Canadian importers will pay duties and taxes on each shipment. • The exporter will pay brokerage and customs clearance fees on each shipment ($65 to $120 per shipment) = Average total charge for this example is: $320.00
The Consolidation Advantage: By utilizing the consolidation method, the exporter (the manufacturer) will have the option to act as the importer of record and consolidate the four shipments into one shipment. The results of this practice are: • The exporter will be reducing the border crossing fees to one. • The exporter will be reducing the cost of duties and taxes to one. • The exporter will be reducing brokerage fees to one.
may-june 2012 | www.PARCELindustry.com
CoMpetitive BenefitS to ConSolidating: The consolidation method will provide competitive advantage to U.S. exporters:
• • •
The exporter will be able to reduce cost of doing business with Canada. Reducing the shipping cost of the goods + reducing the cost of purchasing = Increased purchase orders. Lowering the cost of doing business + increased purchase orders = A tough competitor in the market place.
How Do You Consolidate? Consolidating to Canada is the work of experts. Some companies claim their abilities to consolidate, however, many of them fail to deliver on their promised services. It takes years of practice, brokerage knowledge, and customs regulations expertise to successfully manage a Canadian consolidation that would cross the border in a timely fashion. Consolidating is a great form of cost savings that opens the door for greater selling opportunities. Choose the experts to achieve that conclusion. p
SaM KaraM is Branch Manager, purolator international, houston, Texas uSa. he is the author of the people Buy from people Blog at http://sellingtomorrow. blogspot.com. Contact him at email@example.com or visit www.purolatorinternational.com for information and to locate the uS office nearest to you.
REGIONAL ALTERNATIVES with Kent
Regional Parcel Carriers: A Historical Perspective Regional parcel carriers are a vast group and each has its own set of strengths that your organization can leverage to enhance your supply chain. They can provide better transit, white glove services, special handling, and, in most cases, better prices. In order to understand how regional parcel carriers can provide value for your organization, it is important to know the evolution of the types of regional carriers and the niches each fills. The momentum is changing. Shippers are coming to understand that there are alternatives in the parcel delivery space, and you can join the wave.
LET’S DEfINE ThE Two There are two major types of regional carriers; carriers that can provide multi-state solutions and others that are couriers or “micro-regionals” that cover smaller geographic regions such as cities or partial states. Several highly successful regional parcel carriers started as priority next day delivery companies. They focused at the start to deliver early morning, mid-morning, or by noon. As the economy ebbed and waned, these carriers moved to general parcel ground freight that rides along the same network as their priority packages. Certain industries adopted the regional model years ago. Office supplies, automotive, post office integrators, and medical/pharmaceutical distribution are industries that have leveraged regional parcel carriers for various reasons. These companies with resources to control pricing across the supply chain had the ability to purchase the best rates on truckloads or pallets into metropolitan regions and then leverage regional carriers to fit their needs. Office supplies started shipping larger items, such as desks, that were costly to move with other modes. Over time, the office supply companies learned that the regional carriers could handle these larger items at a fair price and also handle their multiple package deliveries well. There is a point where the per package price of a national parcel carrier becomes price prohibitive, and regionals can capitalize on this. A gray area of shipping also exists between 70 and 200 pounds per shipment, where regional parcel carriers can excel against traditional parcel and LTL. Medical companies hired regional parcel carriers on a dedicated basis to monitor the controlled pharmaceutical
substances. They learned that these same regional transportation practices can be used for more aspects of their business. By using regional carriers, the medical supply companies were able to find a lower cost carrier willing to provide white glove service, allowing them to capitalize on the savings. Automotive companies need early morning deliveries and were able to do this by controlling line haul and leveraging regional providers for early delivery to local mechanic shops. Price for delivering is important, but timing is usually more important to achieve their goal of getting customers on the road quicker. Postal integrators are a unique breed and have come more recently into the model. National parcel carriers have leveraged “last-mile” delivery companies to deliver packages to the local post office, which then handles final delivery to residential consumers. Many regional carriers do some work with the post office, but the post office is always looking for other carriers to grow their network. Zone skipping can be a fantastic way to leverage regional carriers and provide value for your supply chain through faster transit, lower cost, or both. There are a handful of larger regional parcel carriers that together cover most of the USA and have the ability to manage a regional carrier network for you. Most smaller or medium sized companies have regional shipping patterns with 80% of their shipments staying within zones 2 through 5; this is the sweet spot for the multi-state regional carriers. Regional carriers will thrive on service and offer a very competitive rate, which allows the customer to realize cost savings in their short-haul deliveries through zone skipping. I have always said that moving an item from point A to point B has unlimited paths. A single carrier to service all needs does not exist at an optimal price. Some industries have already figured out the value regional parcel carriers can provide. If you have not given consideration to regional carrier networks, now is your opportunity to take another look at your supply chain and jump ahead of your competition by leveraging the competencies these carriers hold. p
KENT SzALLA is General Manager of PITT OHIO GROUND and US Cargo. For more information, visit www.pittohio.com. may-june 2012 | www.PARCELindustry.com
PACKAGING with Matt
This Is Not a Test… or Is It? We learned on the first day of science class that experimentation and testing are foundations for the scientific method. Those lessons from so long ago remain important today for any company using packaging materials to get products to their destinations free from damage. Depending on the results from the following testing efforts, significant steps can be made to further reduce the costs or materials associated with the packaging as a designer zeros in on the best solution. Packaging testing is available for packaged products of all shapes and sizes, for all weights, configurations and shipping methods. Test procedures typically submit packaging to a series of shock, vibration, compression and atmospheric conditioning testing. Shock Testing: Shock testing (aka drop testing) is the most familiar and common package testing process. Typically, a drop test is performed using a free-fall drop tester or via a mechanical shock test system. In either case, the package is dropped at least once on each face, and in some cases, on corners and edges. Drop heights for most shock tests are specified based on whether the package is shipped unitized (on a pallet) or individually. Also considered is the shipper type, whether full trailer load, less than truckload, or small parcel (UPS, FedEx, USPS, etc.). Package weight is also a big factor in determining drop height, with heavier packages generally testing at lower the drop heights. The reasoning here is based on whether a package is likely to be carried or moved at waist-high or via low conveyor or by hand or fork truck. Vibration Testing: Vibration testing is typically performed on either a basic mechanical system or a more sophisticated hydraulic vibration system. The basic mechanical test is based on a simple fixed displacement repetitive movement achieved by attaching a motor to a table upon which the package is placed. The package is subjected to 14,200 (ISTA 1A) quick repetitive vertical and horizontal movements. This method is common, but is not an effective means of identifying or solving package problems due to vibration. A more effective vibration test is usually performed by a certified packaging lab professional using a hydraulic vibration system. Such systems can simulate actual transportation conditions on the road, rail, sea, or air. Test procedures such as the ISTA 3A test call for
may-june 2012 | www.PARCELindustry.com
vibration tests referred to as “over the road” and “pick up and delivery vehicle” spectrums. Such testing is often performed with a top-load of significant weight to simulate vibration while under the weight of a stack of packages in a trailer. Compression Testing: While top-load vibration testing is used to indicate how well a package performs under stacked conditions throughout transit, additional compression tests specifically measure how much weight a package can handle before it buckles and fails. This compression data is critical for stacking in storage and distribution. Temperature and Humidity Testing: Because the performance of corrugated containers and paper-based protective packaging materials can be significantly affected by temperature and humidity, most packaging testing procedures offer options for atmospheric conditioning to simulate storage and shipping in temperate or humid environments. In these scenarios, packages are placed in temperature and humidity controlled environments for prescribed amounts of time prior to testing.
Deducing Source Reduction: Identifying Both Over and Under Packaging Validating package performance through testing provides feedback critical to finding a balance between package durability, product protection, and source reduction. Through testing, packaging designers can identify under or over packaging scenarios. While inadequate protection in shipping can lead to costly product returns and repairs, over packaging may mean there is an opportunity to reduce costs and materials by redeveloping a more efficient packaging design. p
Want to know more about package testing? Read the full article online!
MAtt thoMPson is Director of Packaging & Technical Services, Sealed Air Global Cushioning Solutions. To find a list of ISTA certified testing facilities, please visit www.ista.org or www.sealedairprotects.com for a list of Sealed Air PDDC located worldwide.
SHIP RIGHT with David
The IMpb — No Longer Optional for Shippers The USPS has made it quite clear that its Intelligent Mail initiatives are a main component of its ability to create value for the mail, increase visibility, and reduce operations costs. At all opportunities, including the recent National Postal Forum (NPF) held in Orlando, Florida, the USPS is promoting the adoption of the Intelligent Mail barcode (IMb) to include the Intelligent Mail parcel barcode (IMpb). The USPS’ Postmaster General (PMG) is serious about growing its presence in the very competitive package space, and the IMpb will be the tool it plans to use to catch up and pass the competition. Jim Cochrane, Vice President for Product Information for the USPS (and aka IMpb evangelist), talked about the Intelligent Mail package barcode (IMpb) and the increased scans that each package receives. The USPS’ share of the parcel business has been steadily increasing, and Cochrane points to the IMpb and the increased visibility as a key driver in the growth of this business. Let’s look at the numbers. In 2009, prior to the IMpb, the average package processed by the USPS received five scans as it made its way through its network. Today, the average package receives 10 scans, and the added visibility is a welcome improvement for parcel shippers that can use this data to better understand where this package is in the mail stream and how close it is to being delivered. John Medeiros, Director, Postal Affairs at DHL Global Mail, says that these added scans allow DHL Global Mail to have a much better understanding of how parcel delivery is actually taking place across the US. For 2011, the USPS stepped up its package tracking by implementing a package nesting solution at 62 sites, adding 4,000 ring scanners to over 200 plants and deploying 194 retrofits to its automated package bundle sorters. These upgrades increase the opportunities for the USPS to capture an IMpb scan and this has culminated in more than 2.4 billion package tracking events in the past four months. Customers using USPS package services report that they are very satisfied with the USPS scan data they are receiving. Considering that the USPS provided 1.2 billion package tracking events over the same period last year, this is an impressive achievement.
may-june 2012 | www.PARCELindustry.com
Another aspect of the service delivery improved by the addition of the IMpb that the USPS has really focused on is its Return Service. In 2009, for the top 20 online retailers, eCommerce generated a 19% return rate verses a two percent return rate for traditional retail. Returns account for approximately eight percent of retail spending but over 11% of eCommerce spending. Given that 85% of customers that experience a problem with the return service leave and do not come back, retailers are focused on the need for a complete solution. The return service is a $3 billion market and positioned to grow significantly. The USPS, with the IMpb, has developed a superior return service and this has been growing in retailer adoption and overall volume. IMpb works. It’s a change that is already bringing enormous enhancements to the shipping process.
MaRk YouR CalendaRs! As a reminder, with the Federal Register Notice on September 27, 2011 (Volume 76, Issue 187), the date for printing the IMpb was effectively January 22, 2012 on all commercial parcels (except Standard Mail and Package Services parcels). Merchandise Return Service (MRS) parcels and Business Reply Mail (BRM) parcels were also included. However, the USPS did provide an optional-use transitional period for specific requirements until July 2, 2012. The Postal Service finalizes its implementation effective January 7, 2013 by requiring an Intelligent Mail package barcode (IMpb) for all commercial mailpieces (except Standard Mail parcels) claiming presort or destination entry pricing. In addition, the Postal Service will require the use of version 1.6 electronic shipping services manifest files. January 7, 2013 is the date you need to keep your eye on — and plan toward.
For those that have yet to begin the process of implementing the IMpb, this would be a good time to start. There are those who are reluctant to start because they unsure exactly what to do or how to do it. I can tell you the on boarding process has gotten easier as the USPS has spent a great deal of effort to make the needed tools available on their Ribbs website (http://ribbs. usps.gov). For the complete process, refer to the tech guide that can be found at: https://ribbs.usps.gov/intelligentmail_ package/documents/tech_guides/PUB199IMPBImpGuide.pdf However, your service partners also have resources that are well equipped to provide you with solutions, and you are encouraged to reach out to your partner of choice so that you can begin taking advantage of the added scans and improved delivery made available by the IMpb. While the IMpb started out as a means of the USPS working to improve the visibility of packages being processed in its operations, it has since added many ancillary benefits to the USPS, including reducing the cost of operations, adding
or enhancing services such as their Return Service and, in the end, creating satisfied customers in both the shippers and the package recipients. All of this comes at a time when the USPS needs it most. IMpb is good for the USPS — and equally as beneficial for shippers. January 7, 2013 is the deadline. Getting onboard sooner rather than later will allow any shipper to reap the financial benefits that will come with it — now. p
David Robinson was recently named Client Engagement Leader for Pitney Bowes. He was formerly Director of Address Quality for Pitney Bowes. For more information on how you can adopt IMpb, please go http://www.pb.com/software/Mailing-and-Postal-Compliance/Intelligent-Mail-Barcode.
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Rough Waters The current economic climate leaves little room for errors. The right shipping software ensures operations are as efficient and optimized as possible, saving you both time and money. By Amine Khechfe
hile the troubled global economy appears to have entered recovery mode, the pressure to deliver goods efficiently has only intensified for warehouse and logistics managers. Margins remain thin and consumer expectations have heightened in the wake of shipping deals designed to bolster sales, leaving little room for errors and productivity deficiencies when processing orders. With companies continually seeking products and services that provide the best overall value in operating their businesses, it is incumbent upon warehouse and logistics managers to regularly evaluate their shipping 16
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solutions — both software providers and carriers — to ensure their operations are optimized to the fullest extent. Warehouse and logistics managers are interested, in particular, in ways to streamline operations that save them time and money. Getting orders delivered quickly keeps customers happy and loyal, and doing so with economic efficiency improves the bottom line and ensures the company’s prices — and reputation — remain competitive. Selecting the right shipping technology can play an important role in this process, especially when considering Internet postage software — which has become the simplest, most affordable and, oftentimes, most convenient (for both shippers and recipients) domestic and international parcel delivery
method. Thanks in large part to its willingness to work seamlessly with Internet postage service providers, the United States Postal Service (USPS) has become a fierce competitor with private carriers, like FedEx and UPS, for the commercial parcel market, giving warehouse and logistics managers a broad range of shipping options to consider. But not all shipping software solutions are equal. With varying features, pricing structures and levels of ease of use, the overall user experience — and, ultimately, value — can sometimes differ significantly. The following tips outline key features to look for when selecting and using shipping software to ensure that you and your warehouse or logistics team are meeting the needs of customers as well as the demands of your corporate controllers. RATE SHOPPING: A wide disparity often exists among shipping carriers in terms of how they determine pricing for similar services. Thus, rate shopping is essential to make sure you are being charged fairly for comparable services and that you are taking advantage of each carrier’s strengths. For example, the USPS, with its unmatched residential last-mile network, can likely offer the most economical and efficient home deliveries for small packages, while a private carrier might excel at other types of deliveries. Make sure the shipping software you select allows you to compare and choose the most cost-effective option for each package, and that it offers visibility into the complete shipping cost so there are no “hidden” surcharges that surprise you when the bill arrives. Since carrier rates can change frequently, you’ll also want to make sure the software provider you select has a history of integrating these changes quickly, so you can keep your shipping expenses as low as possible. Additionally, features like address verification, residential and rural extended area surcharge prediction, and postage-paid shipping label generation and management help you gauge costs more accurately — not all providers offer these key features, so check to make sure yours does. ORDER PROCESSING INTEGRATION: For high-volume shippers, any features that eliminate redundancies — like having to reenter contact or product information from one database into another — will save you significant time and reduce the likelihood of errors. Make sure that your shipping software facilitates order processing integration with your other essential software systems and databases. AUTOMATED CUSTOMS FORMS: Those that ship internationally know that delivery outside of the US can complicate the shipping process, as international packages usually require the inclusion of detailed and complex customs forms. If you are filling out these forms by hand, or using shipping software or a carrier with inadequate international capabilities, you know it is a cumbersome, time-intensive procedure that can easily result in delays, errors, and even added costs. Software that creates automated customs forms ensures that you will prepare the right forms for each shipment. Also, the information already in the system is populated onto the customs forms,
saving time, and some software solutions will allow you to print your declaration and postage on one integrated label, saving resources and reducing expenses. BATCH PROCESSING: Another time- and money-saving technique is batch processing. Printing shipping labels for all orders at once, rather than tens or hundreds of times throughout the day as each order is filled, can be a much more efficient process. Look for shipping software that allows you to import order lists, stage them for printing, and then print customized shipping labels in one batch — eliminating unproductive activity from the day. BULK ACCEPTANCE SCAN: The fulfillment process can be delayed if every ready-for-shipping parcel has to be handled separately when your carrier arrives for the day’s pickup. A bulk acceptance scan feature is an essential element to look for when selecting a shipping software program, as it allows you to link all of the day’s shipments to a single barcoded form that is scanned when the packages are picked up. This feature not only streamlines shipment verification and pickup, it also enhances customer satisfaction by providing faster notification that shipments have been accepted, saving unnecessary calls to your customer service line to check order processing and delivery status. FINAL CONSIDERATIONS: Two last important but often overlooked considerations relate to ease-of-use, rather than features: the availability of free automatic updates to your shipping software and the speed at which new users are able to master the software. Some software providers may charge for updates, so you’ll want to make sure you fully understand how the updating process works before you purchase a solution. Without updates, you may miss out on important information about changes or updates to your shipping software’s features or your carrier’s shipping services that could have a dramatic impact on optimizing the day-to-day operations of your warehouse or shipping department. Likewise, you should look for shipping software that’s easy for new employees to learn and master. Shipping software that lets you train other users quickly will make adding temporary employees during peak seasons or replacing staff due to turnover a less stressful and more efficient process. While it does require some effort to evaluate the expenses, benefits and user experiences of the various shipping solutions on the market, the time and cost savings realized could be considerable. Beyond reducing expenses and increasing productivity within your warehouse or logistics team, the opportunity to pass along lower shipping costs to customers and deliver their orders faster could have long-lasting effects on retention.
AMINE KHECHFE has worked in the mailing and shipping industry for 25 years. He currently serves as co-founder and general manager for DYMO Endicia, the leading provider of customizable, easy-to-use and affordable shipping and mailing postage technology solutions. Since 1987, DYMO Endicia customers have printed more than $7 billion in postage and tendered $1.5 billion of parcel business to the U.S. Postal Service in 2011 alone. MAY-JUNE 2012 | www.PARCELindustry.com
Stop Thinking Outside the Box! Managing costs with shipment optimization
By Mike Parrilli 18
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today’s economic climate, companies need to find new ways to reduce shipping cost, eliminate shipping errors, and be more efficient in processing shipments. Doing more with less has become the new normal. That being the case, it is no surprise that transportation costs and warehouse processing efficiency are closely scrutinized by today’s organizations. Analysts who track this data will tell you that most companies spend between four to eight percent of their total revenue on transportation. As an example, a company with 50 million dollars in sales will normally spend two to four million dollars a year on transportation. These same analysts have revealed that deploying “automation” in the transportation arena can save a company anywhere from four to eight percent of their overall transportation spend. If you apply this to our example of a 50 million dollar company, it will save between $160,000.00 and $320,000.00 per year of its transportation spend. You do the math for your company, and you will see why lots of people are interested in learning more about how to reduce shipping cost by optimizing their shipments. So, how can companies control shipping costs in the face of rising fuel costs and annual carrier rate increases? Shipment optimization is a revolutionary new way for companies to offset rising transportation costs and improve efficiency within their warehouse. Shipment optimization not only reduces freight cost, but it can also drive processing velocity within the warehouse. Shipment optimization can be used to predict shipping cost, whether this be orders taken via the Internet or at order entry time. Shipping costs are also a key reason a customer often chooses one vendor over another, and there is no question that shipping costs directly affect the profitability of companies of all sizes. One way for companies to ship more efficiently is to accurately predict the cost of shipping in advance of shipping. Finding a way to optimize shipments is the new way companies can approach shipping and servicing their customer. It can also give companies a competitive advantage over others that can not optimize their shipments. Can shipment optimization be a game changer for you?
What Is shIpment OptImIzatIOn? } Simply stated, shipment optimization is the ability to
accurately predict shipping cost in advance of actually shipping the product.
What advantages dOes shIpment OptImIzatIOn prOvIde? } It allows you to quote freight at the time an order
is placed. } It allows you to take orders in a web shopping cart and
quote real shipping cost. } It allows you to save money on your shipping cost.
} It allows the ordering experience to be a better experi-
ence for your customer. } It allows you to streamline processing within your
warehouse. Would any of the above be a competitive advantage to you? If so, please read on! If you take orders over the web and use traditional freight costing methods to calculate freight, maybe there is a better way. Would you like the ability to accurately determine shipping cost at the time the order is processed? If you absorb shipping cost, then shipment optimization allows you to ship at the least cost, and if you add shipping to the order, it allows you to present a more reasonable, friendly, and accurate way to charge shipping to customers. Now just imagine that when you process the order, you can print shipping labels up stream before the goods are picked or packed. This could enable you to pick and pack more efficiently and increase processing velocity within your warehouse. Shipment optimization could also allow you to eliminate traditional “manual” shipping stations. In order to print labels in advance, you need a way to calculate what items should go into each box. This has been historically known as a cartonization process. Cartonization systems were deployed mostly by large shippers and were either developed in-house or by Warehouse Management Software companies, but never Transportation Management Software companies. Once a cartonization process determined what box items could be packed into, it might even compute the cost of shipping if it was hooked up to a rating engine. These systems offered the hope that shipping cost could be accurately predicted, but upon further analysis, we realized that cartonization systems were NOT actually using freight cost to determine the right size container. Being in the shipping business, it was clear to us that this was the wrong approach. Cartonization systems found in the market today can determine the size of the container but do not use rating to predict the correct box or boxes needed to process the order the most cost-effective way. Shipment optimization, on the other hand, uses real shipping cost to predict the right number of boxes and the size of each box. In our opinion, cartonization systems had it all backwards, as they were predicting the box first and then maybe rating the box, which doesn’t consistently give you the correct answer. This might have worked 20 years ago, but not today. Today, carriers have complex rules for dimensional rating, a multitude of services, and even flat rate packaging. In addition, the dimensional rules differ from carrier to carrier and even service type to service type. What makes this even more complex is that carriers even negotiate specific DIM weight factors on a customer by customer basis. That’s why shipment optimization has made these old style cartonization systems obsolete.
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Under a shipment optimization model, the way to accurately determine the carrier and box requirements is to go through a series of complex algorithms that places items into all combinations of containers, calculates them for each carrier, and then compares cost for all carriers to get the right answer. Any shipment optimizer tool should accurately predict the right number of boxes and the size of each box with the best carrier and service to ship them.
Why Is shIpment OptImIzatIOn sO COmplex? Carriers often charge freight not on actual weight but on the DIM weight of a box, and in many cases, the DIM weight of the box is much more expensive than the actual weight of the box.
What aCtually Is DImensIOnal WeIght RatIng? Simply put, dimensional weight rating is the length multiplied by the width multiplied by the height of a box, divided by a DIM factor, and that equals the DIM weight of a box. Further complicating this is the fact that dimensional factors differ between carriers and service types, and carriers negotiate on DIM weight factors, so rating for every customer can be unique. Dimensional rating actually started with air services and has expanded to include ground services in recent years. Flat rate packaging (“If it fits, it ships”) adds even more complexity in determining the correct box. All of this complexity makes it difficult, if not impossible, for a human to determine the best way to ship. Remember, the fewest number of boxes is often not the cheapest way to ship. The fact is that packaging size and weight play a huge role in shipping costs. Only recently has the concept of shipment optimization been understood and perfected. To accomplish shipment optimization, you need a powerful multi-modal rating engine that maintains rates for all parcel carriers like UPS, FedEx, DHL, USPS, and all freight carriers that provide LTL & TL service. When shipment optimization is run, packing configurations are generated and then rate-shopped to determine every combination of box size and items within each box that are possible. Packaging is then dynamically assigned based on the weight, cube, and rating results and returned for each carrier with all service levels considered. Rating should also allow you to take into consideration both your contracted rates and/or published rates. Shipment optimization also allows you to determine the best and least costly way to pack all items into a box or boxes and determine which boxes should go on each pallet for LTL freight. Shipment optimization should include the ability to nest items, identify items that should be packed alone, identify items that cannot be packed together, control the fill rate of each box, and add dunnage. These factors, along with other configuration settings, are often needed for shipment optimization to get the correct answer. Shipment optimization should allow Internet quoting for both parcel and freight, order entry quoting for parcel and
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freight, printing carrier labels at pick ticket printing time, picking to a box or picking to a label, and directed packing to container. Shipment optimization can save you money because the box can be predicted and optimized to ship at the lowest rate possible rate. It can save you time because you can predict the box, thus allowing you to employ more efficient methods to pick, pack, and ship the box. Shipment optimization can also allow you to increase customer satisfaction because freight cost can be accurately predicted and you can employ better ways to deliver your product to a customer. If your customers are paying for shipping, it will cost them less, and if you are absorbing shipping cost, it will save you money on shipping. Shipment optimization can be used to make companies more competitive, more efficient, and ultimately more profitable. Either way, shipment optimization allows you to present a more appealing value proposition to your customer. Shipment optimization needs to support all carriers, service levels, contract services, and specific containers types for all the national known parcel carries such as FedEx UPS, USPS, and DHL. It should also handle all flat rate boxes or envelopes, plus all local or regional carriers as well as all LTL and full truckload carriers. My friend and colleague Tom Reber once joked that, “Maybe it’s time we start thinking outside of the box.” I jokingly replied back, “Maybe we should start focusing on what’s inside the box.” That was a revelation we both would never forget. Stop trying to think outside of the box, and focus on what’s in it.
Mike Parrilli is Vice President of Sales at Varsity Logistics, Inc. and Logimax, Inc., both business units of the Friedman Corporation that are part of Constellation Software Inc., a publicly traded company with 2011 sales of 773 million. Varsity and Logimax are leading suppliers of Transportation and Warehouse Management Software. Mike has over 20 years experience in the logistics software industry. Tom Reber and Mike developed the concept of Shipment Optimization and since then have created a product called “Ship Optimizer.” Mike can be contacted at firstname.lastname@example.org.
The Secrets to Selecting a Cloud Computing Strategy Hosted applications and SaaS cloud computing models both offer benefits, but which one is right for your organization and application? By Dan Taylor
Every time my grandkids see a commercial about â€œmoving to the cloud,â€? they want Grandpa to take them there. The National Institute of Science and Technology defines cloud computing as the delivery of computing as a service rather than a product, whereby shared resources, software, and information are provided to computers and other devices as a utility (like the electricity grid) over a network (typically the Internet). Whether an application is hosted or a Software as a Service (SaaS) model, they are still accessed through the cloud.
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Comparing models Hosted applications and SaaS cloud computing models both offer benefits, but which one is right for your organization and application? It can be confusing to understand what an SaaS application does and how it differs from a hosted application environment. It doesn’t help that every application company is marketing its on-premise solution as an SaaS application when, in reality, it is an Application Service Provider (ASP) model. The solution is still the vendor’s on-premise solution running as a single instance in its own virtual server environment, just not in your data center. This can be very misleading and confusing to someone who doesn’t understand the differences between a hosted application and an SaaS application. Simply put, an SaaS model creates a service-oriented experience with dedicated teams who understand the software,
hardware, and infrastructure needs of the application, and who can therefore provide support at all levels. Typically, with hosted solutions, the support team has limited knowledge about the server and the architecture involved since all of that is managed by the application provider. However, we are seeing more non-SaaS application companies setting up their own hosting facilities. Another advantage to SaaS applications is that upgrades are instantaneous and experienced by all users at once because of the multi-tenant design. For hosted solutions, upgrading is often handled on a per-customer basis and the latest software version may require costly license upgrade costs and customization fees. In short, with fewer organizations to deal with and a more dedicated focus from the provider, SaaS offers a more streamlined and efficient way to go.
the table below describes, at a high-level, some of the characteristics of hosted and saas models. Hosted ApplicAtions
(license plus hosting)
(software as a service)
SaaS provider facilities
Purchased and owned*
Rented from SaaS provider facilities
Usually single tenant
Internal or external cloud
Usually managed by hosting company
Managed by SaaS provider
Software Upgrades & Patches
Installed and maintained by company with some help from hosting company. Very expensive to upgrade just as if it was an on premise solution, especially if multiple locations exist.
Installed and maintained by SaaS provider with all users receiving upgrade instantaneously (usually goes unnoticed by users).
Annual Maintenance Fees
Customer usually pays yearly lump sum for software and hardware
Usually built into monthly licensing fees
Usually costly to customize
Highly customizable by customer at lower costs
In-house or contracted resources
SaaS provider resources (included in monthly fee)
Note: Some hosted application providers are offering subscription-based licensing, similar to Microsoft’s Service Provider License Agreement (SPLA). However, this does not make it an SaaS application.
In a nutshell, the difference between SaaS applications and hosted applications is that the first is a service that you use, and the other is a product that you own. Thus, you could argue that all SaaS services are hosted, but not all hosted applications are SaaS. Before you make a large investment in any application, you need to have a clear and concise understanding of the difference between the two platforms. Although both platforms offer up the application to the end user and the functionality is similar, there are some pretty significant advantages of one over the other.
Benefits to Consider First, it’s important to know that virtually all applications can be served up through the Internet or
the cloud. However, an application that is served up through the Internet is not automatically an SaaS application. The Internet is merely a medium of service delivery. SaaS applications are served up through the Internet and reside within the software development’s hosted IT infrastructure, with secure multi-tenant architecture. This architecture allows all customers to use a single instance of the software without sacrificing their brand (often referred to as a distinct skin), workflow or functional requirements, data model, or access controls. With a multi-tenant architecture, a software application is designed to virtually partition its data and configuration, and each client organization works with a customized virtual application instance. A hosted solution provides the application off-premise and requires each company may-june 2012 | www.PARCELindustry.com
to run their own instance of the software, which can provide you with a great redundant SSAE-16 compliant data center. But, in many cases, you end up incurring additional costs and require additional processing if your company is in high growth mode. From a CIO’s perspective, many back office applications and services have already been transitioned to a hosted or SaaS model. Good examples of this include e-mail, backup services and help desk. Still, many have been hesitant to move their mission critical applications to a SaaS model, even though there are clear efficiencies and cost savings. Some CIOs are stuck with an older application that has been in place for years and customized as many times as Joan Rivers gets a face lift, except less documentation exists. This leaves CIOs to face the daunting and expensive task of implementing an entirely new solution that the company may not be prepared to undertake. Many CIOs who are bound by compliancy (Sox-404, HIPAA, PCI, etc.) are reluctant to go to an SaaS model because of security concerns or because it is not physically tangible. Most SaaS applications providers today have built their application with compliancy in mind and even provide tools that make it easier for a CIO to achieve compliancy. It’s my opinion that many of the early concerns about the security of SaaS applications have largely been resolved. Detailed logging, access controls (user rights, password expiration, etc.), redundancy, and secure partitioning of data are all measures that have been taken to ensure security.
to technology. However, we were able to use a SaaS model for non-high response functions, such as TMS, without impacting productivity within the warehouse.
The RighT DiRecTion foR youR company What is the right direction for your company? First, before deciding whether or not an SaaS WMS is right for your environment, determine the amount of risk you can tolerate by moving to this type of system. Based upon your business requirements, you may not even have an option. Or, maybe a provider does not exist that will guarantee the service levels required to support your environment. Regardless, let’s assume you are ready and able to make a move from an on-premise to an off-premise solution. The CIO needs to be on board since he or she will ultimately be responsible for supporting the environment. A strategic CIO will look at all of the reasons why the company should move to an SaaS or hosted solution to achieve business gain. For example, maybe the CIO wants to shift some of the IT budget from capital expense to operational expense or has limited resources to deploy or maintain the environment on premise, or maybe the company is trying to lower expenses associated with software acquisitions. Once the CIO has determined the reasons for moving off-premise, he or she needs to work with the business to determine the right application. Things To RemembeR } Make sure an SaaS solution has all the features the busi-
cosT savings Let’s examine how productivity and savings differ between the two options. With an SaaS model, the IT infrastructure is highly scalable and built to support high transaction volumes. They can dynamically provide the additional resources, usually at no additional cost or at a minimal cost. In addition, there are savings through the elimination of software and hardware maintenance fees, upgrade costs, programming, IT support staff, and data center costs. All of this allows the CIO to focus on the business and not just the technology operations. However, even with all the benefits of moving to an SaaS model, it all comes down to whether or not your business environment can support making that move. As a former CIO of a large distribution and 3PL company, my biggest challenge with moving to an SaaS or hosted model had little to do with security and everything to do with the warehouse requirements and the integrations between all of the different platforms. Specifically, we were concerned with highspeed conveyors (with PLCs), in-line scales, pick-to-light integration, RFID, scanners, sorters, and several other programs requiring fast response times. Our systems required millisecond response times. As a result, our number one concern was bandwidth, which was outside of our control. In the distribution and 3PL business, every millisecond counts. This is especially true when packages are flying down the conveyor, requiring constant communications with the WMS for scales, diversion, and other high response tasks. No CIO wants the operations manager complaining about productivity losses due
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ness requires. } Look for the ability to customize or configure the appli-
cation for your environment. Not all SaaS providers allow configuration. } Compare the up-front cost savings to long-term subscription fees. } Look for ways to improve your business. For example, in an SaaS application, you can usually implement features more quickly. } Look for service-oriented architectures (SOA), web services standards, and web application frameworks, as they are easier to integrate. } Make sure the application can support your compliance requirements and that you own all data. } Do your homework and check references to ensure the vendor is meeting all of your expectations and service levels. In the end, hosted and SaaS applications are both viable platforms for organizations. Remember to determine what the business requires and decide which option will provide the greatest financial and productivity return.
Dan Taylor is a Managing Partner at Appnuity, a division of enVista. He has over 25 years of experience helping organizations across all industries realize the value of information technology. Dan can be contacted at email@example.com.
Taking the Plunge Best practices to implement a multi-carrier shipping software solution By Jim LeRose
is well-documented: efficiently run companies hire less and invest more in technology. Businesses that want to compete and grow get complete visibility and control over transportation costs and processes across their enterprise. This is achieved by connecting multi-carrier shipping software, also known as Transportation Management Software (TMS), to their ERP or WMS systems, enabling the sharing of critical order information with warehouses. There are huge disadvantages for not investing in a TMS; conversely, there are numerous benefits of implementing one, notwithstanding the following five fundamentals: 1. Significant transportation cost reductions: up to 30%. 2. Competitive advantages. 3. Enterprise adherence to business rules. 4. Increased customer satisfaction/loyalty. 5. Reduced labor.
Take it from me, implementing a TMS solution is easier said than done (I’m sure I’ll hear about this one from my colleagues). I’ve spent most of my adult life overseeing deployment of these systems and I assure you, those that don’t take this matter seriously will end up paying more than expected to implement, and they may miss critical project milestones. Those readers that have suffered through consistently delayed 26
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or failed TMS implementations know exactly what I mean. So are you ready to take the plunge? The challenge begins with just getting approval to move forward. A consensus is required from a plethora of stakeholders who will be affected by the new system: Customer Service, Sales, Shipping/Warehouse, Finance, Purchasing, and IT personnel, to name a few. If you can muster up a consensus then you have to decide which TMS solution you will implement, a daunting task. Try Googling “TMS solutions,” and you’ll get numerous results. How do you educate yourself enough to be able to select which one is appropriate for your company? Trying to become an expert is almost impossible due to the complex nature of TMS solutions. It takes years to understand, configure, design, build, and implement these systems. Companies that take this type of project on internally almost always fail or create a solution that doesn’t meet the dynamic needs of the shipping industry, forcing acceptance of less functionality than required — a disaster in project terms. Your solution should be carefully considered with clear-cut goals and objectives and an ever-important ROI. Among other major roadblocks preventing a well-run company from investing in a good TMS system is the lure of “free shipping software” provided by UPS & FedEx and naïve executives that still believe there’s no cost associated with these incomeproducing products. Whenever I’m offered something free the first thing I ask is, “How much will it cost me?” You should
do the same. The single biggest consequence of accepting free software is that your organization is held captive to the company that provided it. Here are five others: 1. Inability to implement business rules, corporate policies,
and ensure adherence to both. 2. Larger annual increases and spiraling transportation costs. 3. Disparate systems and data causing a lack of visibility,
control, and accountability. 4. Inability to adapt to industry changes. 5. Competitive disadvantage.
There are some instances when accepting the free carrier gift makes sense. Executives need to decide what functionality they need to grow their businesses and then measure the capabilities from the free options. If it meets your business needs, keep it. Conversely, if it doesn’t, do something about it. More times than not, investing in a TMS solution pays your company dividends. Implementing free-carrier provided software usually pays UPS & FedEx higher dividends. Which do you prefer? If you decide to implement a multi-carrier shipping solution, do your research, get educated, and select a partner that utilizes best practices.
DiscoveRy...Identify critical issues, intelligent analysis, complete survey scope............Present findings, estimate costs, ROI, case studies, proposal Define...........Conduct workshop, detailed requirements analysis, SRS, SOW Design..........Technical kickoff, design documents, project plan BuilD.............Develop, install, test, user acceptance Rollout.......Training, go live suppoRt......Hands off and Continuous Improvement DiscoveRy: Recently I met with a newly hired executive charged with tying several recently acquired companies together. Cultures and other circumstances created numerous challenges. Gary Gjertson, Director of Supply Chain at The Tyden Group, a leading provider of specialized security, identification, traceability, and utility products, has a motto: “In God We Trust, all others bring data.” Gary gets it: The critical importance of acquiring and analyzing data. If you can’t see it, you can’t measure it, and that means you can’t fix it. First, gather all of your carrier invoices (please, electronic only) and get an intelligent data analysis of small package, LTL, TL, Ocean, Rail, International Air Freight, even couriers and regional carriers and be sure to include every location and account number. All of it! Skipping this step is akin to visiting your physician and not discussing what’s ailing you.
Define: Billy Crystal referred to grieving in Analyze This as “A Process.” The same goes for this stage. It starts with a workshop and then an ongoing detailed discussion between the TMS provider’s implementation personnel and employees from various departments, including: Customers Service, Purchasing, Shipping/Warehouse, IT, and all others affected by the implementation. Have patience; this takes time.
Design: Ever build a home or addition on your house? Before the first truck/shovel breaks ground, an architect documents exactly what it will look like and how it will be built. Building a TMS is no different. We create a System Requirement Specifications (SRS) document, and I highly recommend you do the same. This report needs to be circulated among the stakeholders and, when all are in agreement, it’s time to get the sign off and start to build your solution. BuilD: A proper TMS should be a “wrap around” of your business processes, people, and requirements, not the other way around! The solution should have an inherent ability to adapt to rapidly changing dynamics of the shipping industry. During this phase, you will begin to see your customized solution take form. Make sure you create a test plan that includes every type of order your company can process, and test, test, test. Many bypass testing and regret it later. Make sure the solution is scalable and deploy as many backup resources as possible. After all, if this project will help your company to grow and save money, it’s essential it is operating 100% of the time.
Rollout: Make sure you have training documentation and a project leader that understands how the system works and can train your staff. Consider a class — ideal for training if you have many employees that will be using the solution. I advise deployment based on a rollout schedule vs. all at once.
suppoRt: Size matters. Only in the world of TMS, bigger is NOT better. Many larger companies foolishly believe buying TMS software from other large companies means they’ll automatically get good support. Larger companies tend to leverage their reputation, charge higher prices, and have impressive financial statements but usually don’t offer the quality support you can get from a boutique TMS solutions provider. Check references.
summaRy: The shipping industry is in a paradigm. Executives tiring from massive annual increases from UPS/FedEx are expanding the use of multiple carriers. There are choices that didn’t exist a few years ago. A multi-carrier shipping software solution can be an essential way to increase profits, cut labor costs and help your company grow. So if you are ready to take the plunge, please follow the Essential Best Practices Implementation above.
scope: Here’s where you determine the high level benefits of a multi-carrier shipping system, discuss project cost estimates, implementation timelines, and potential ROI. If there’s a compelling reason(s) to move forward, get started expeditiously — schedule a workshop.
Jim LeRose is Principal of Agile NYC Metro and President of Advantaship.com. Jim has been a transportation industry consultant for over 25 years. Contact firstname.lastname@example.org or 888.214.1763. You can also visit his blog at www.agilenewyork.com. may-june 2012 | www.PARCELindustry.com
PARCEL COUNSEl with Brent
Wm. Primus, J.D.
The CSA/Schramm Problem: Part II — A Simple Solution? In the last installment of PARCEL Counsel, we discussed the broker or a shipper or anyone else, would no longer be in dilemma for shippers created by the FMCSA’s policy to pub- the position that they currently are now… forced to deterlish a motor carrier’s Safety Measurement System (SMS) data mine whether to use a motor carrier with no criteria upon and carrier rankings called BASICs (Behavior Analysis and which to base such a decision. The “green light, red light” Safety Improvement Categories scores) on the FMCSA web- approach of the TIA is certainly a sound one. Unfortunately, site. Even for shippers who are very familiar with the CSA sys- even if the FMCSA were to agree to such an approach, it tem and at least some of what has been written about it, they would take years of hearings and rule making procedures are left in limbo as to what to do with the information pub- before it would be finally adopted. lished on the FMCSA’s website. I would also like to propose another solution that I believe If a carrier has one yellow triangle, should it be used? What would be a very effective way to solve this problem — the about a carrier with two, three, or even four yellow triangles enactment of a law that says: “No part of the FMCSA’s Safety who nevertheless has a “satisfactory” safety fitness rating? Measurement System data may be admitted into evidence or And what about the occasional shipper who ships a trailer used in a civil action for damages relating to a highway accident.” load or two a month, does not read PARCEL, and who has never Such legislation is not as extreme as it may first appear. It even heard of the FMCSA, let alone SMS and BASIC scores? Is is based upon a current statute with regard to the National it fair to impose upon them the responsibility to screen unsafe Transportation Safety Board (NTSB) — 49 USC 1154(b). carriers from operating on the national’s highways? This statute recognizes that the purpose of a NTSB invesThere has been much discussion about this situation in tigation is to further safety and, in particular, to avoid a simrecent months amongst people involved in transportation. ilar accident in the future — not to provide ammunition for Some are advocating that the best way to resolve the current a lawsuit. Similarly, the stated purpose of CSA is to be a situation would be for the FMCSA to restrict access to the means by which the FMCSA can prioritize its inspections — SMS data to persons such as the motor carriers themselves, not a way to announce to the public that a carrier should or law enforcement, motor carrier insurers, and others with a should not be used. similar interest… but not the general public. While this To conclude, while I refer to these solutions as being simple, would indeed solve the problem, I believe that the FMCSA they are simple only in the sense that that are easy to state. To would strenuously resist such a proposal and any legislation have a law passed by Congress or a regulation implemented that might be introduced to accomplish it. by the FMCSA is not a simple proposition at all. While parThe Transportation Intermediaries Association (TIA) has cel shippers and the carriers they use will always have differtaken a different approach. At its recent Annual Convention, ences of opinion regarding rates and charges or the handling of held this past April, it released a 16 page “white paper” enti- claims for loss and damage, this is one issue where their intertled “TIA Strategy to Reduce 3PL Liability.” One of the tenets ests are the same. Only by joining forces will they be able to of the TIA’s strategy is that “TIA will work with FMCSA to cre- get Congress and the FMCSA to act. ate a rating system through which ALL carriers are rated either All for now! p SAFE TO USE (green light) or UNSAFE TO USE (red light), thereby eliminating the traps that exist in the four part rating system: satisfactory, unsatisfactory, conditional, and unrated.” BrENt Wm. PrimUS, J.D., is the CEO of Primus Law Office, P.A. and the Senior Implicit in this is that the SMS data would only be rel- Editor of transportlawtexts, inc. Previous columns, including those of William J. evant to the CSA’s determination of a carrier’s rating. Once Augello, may be found in the “Content Library” on the PARCEL website (www.PARestablished, a person hiring a carrier, whether they are a CELindustry.com). Your questions are welcome at email@example.com.
may-june 2012 | www.PARCELindustry.com
Wrap up with Michael
USPS: You Have Arrived!
he USPS has been the focal point of many discussions about its destiny. I find this very intriguing… even if some of the discussions border on ludicrous. I recently read that the USPS should get out of the parcel business. This is one of the most ridiculous statements that I have heard in the last decade. If anything, the USPS should direct more resources in growing this segment of the business. Here are some thoughts on this:
Financial Woes The USPS has been working very diligently to reduce its cost relative to shrinking volumes. However, this process has been hampered with bureaucracy, political interventions, and an unfair pre-paid federal employee pension plan. The USPS has reduced its work force by over 150,000 employees in the past 10 years. In 2006, mail volumes peaked at over 200 billion pieces and fell to 165 billion pieces in 2011. We need to let the USPS management team manage their business to get to the appropriate scale and balance… this means managing to current (and projected) mail volumes and developing new and innovative ideas in growing the parcel business.
compeTiTion UPS and FedEx handle over 14 million parcel shipments each day. Most of this business is in the B2B segment. However, the B2C market is their fastest growing segment. The E-commerce business is projected to be over $200 billion in the US in 2012 and represents about nine percent of all retail sales. Kurt Kuehn, UPS CFO, reported that UPS saw a 4.3% uptick in daily parcel volume, which was primarily driven by online shipping. The USPS delivers to every address in America on a daily basis…nobody in the parcel business can make that statement! Its core competency is making residential deliveries. It has also partnered with companies like Smartpost (FedEx), Surepost (UPS), Globalmail (DHL), and Streamlite, which offer a hybrid service to high-volume shippers. They operate a workshare program by inserting parcels downstream in the USPS network. They get to utilize the USPS’ strength in delivering the final mile. So when I hear that someone is saying that the USPS should get out of the parcel business… I think they should have their head examined.
may-june 2012 | www.PARCELindustry.com
FuTure Once the elections are over in November, the USPS can get back to fine-tuning its network and developing a plan to sustain long-term growth in the parcel business. The Priority Mail Flat Rate program and Regional Pricing plans have been wildly successful. They have been aggressive in advertising their new products and services. The opportunity for new parcel services is endless with the USPS. one Final ThoughT Hats off to the USPS; you are doing a great job of creating parity in the parcel business. The Duopoly (FedEx/UPS) is finally being challenged. This has created a more competitive parcel market in the US! p
Michael J. Ryan is the Director, Business Development at DSC Logistics and has been in the parcel industry for over 25 years. He can be reached at 847.393.5862 or firstname.lastname@example.org.