january-FEBRUARY 2013 www.PARCELindustry.com
TURBOCHARGED How the Stamps.com Web API brings you faster access to low USPS rates
Mitigating the 2013 rate increases. page 8 Balancing conflicting internal imperatives for e-tailers. page 11 Forecasting the future of parcel delivery. page 12
january-february 2013 | volume 20 | issue 1
Departments 06 editor’s note
Happy New Year! By Amanda Armendariz
07 Going Global
Exporting to Canada, Part Three By Tom Stanton
08 Transportation abCs
Mitigating the 2013 Rate Increases: What Every Shipper Should Know By Rob Martinez
09 regional alternatives Implementing with Ease!
20 The Productivity Trifecta of Warehouse Optimization
Focusing on engineered labor, slotting, and task interleaving can do wonders for your warehouse.
By Tom Kozenski
By Mark Magill
10 LTL Insights
An Intro to Carriers’ Operational Areas By Joe Heilig
11 Spend Perspectives
Balancing Conflicting Internal Imperatives for E-tailers. By John Haber
12 Supply Chain Pivot ASAP
By Rob Shirley
14 Operational efficiencies
Ringing in Savings for the New Year
22 best Practices
for Technology Implementation: Part One
26 When Customers run the
Implementing new technology is never an easy task, but by following these steps, you’re on your way to a successful transition.
A view of the not-so-distant future of distribution management. By Doug Braun
By Roman Hlutkowsky
Coming in the next issue… Everything related to your transportation operation! 4
january-february 2013 | www.PARCELindustry.com
By Susan Rider
16 Special Guest Column
UPS Fuel Index Change of November 2012 By Baris Tasdelen
30 ParCeL Counsel
A Further Look at MAP-21: New Requirements for Brokers and Surface Freight Forwarders By Brent Wm. Primus, JD
PARCEL president chad griepentrog publisher marll thiede editor amanda armendariz
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PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2013 ÂŠ 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. Scoop Reprint Source, 800-767-3263 ext. 307, www.scoopreprintsource.com.
EDITOR’S NOTE AMANDA ARMENDARIZ
Happy New Year! ard to believe we’re already a month into 2013. We’ve made it through the craziness that is known as the end of the year, finalized the new 2013 budgets, and breathed a sigh of relief now that the holiday shipping craze is over (although the returns may still be trickling in, so hopefully your reverse logistics operation is in order!). But before you get too relaxed, remember — now it’s time to implement all the ideas and projects that were discussed in numerous meetings in the last quarter of 2012. But where to start? It seems daunting when you look at your list of long-term goals for this year, whether those goals include optimizing your warehouse, implementing new technology, or just trying to trim a few dollars in the face of budget cuts. So we’ve made sure that this first issue of the new year will help you with practically any project you’re undertaking. And we’ve also added some great new columns as well. We try to stay in tune with our readers’ preferences, and last year a good portion of our subscribers noted that they would like to see more on operational efficiencies. So you got it — a new, recurring column from popular speaker and author Susan Rider. We’ve also included some new columns on e-tailers and e-commerce, and insights on LTL. We hope that these new columns, in addition to our regular experts, will assist you as you seek to better understanding the complex and ever-changing small shipment industry. I hope you enjoy the first issue of 2013, and as always, thanks for reading PARCEL!
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going GLobAL By tom stanton
Exporting to Canada Part Three n two previous articles titled “Getting Started With Exports to Canada,” published in PARCEL in August 2011 and “Getting Started Exporting Part 2” published in October 2012, I dealt with a number of details regarding exports to Canada. In the following article we will review completing the NAFTA form. As stated previously, each item to be exported should have an assigned harmonized classification. Details of the classification process were discussed in the article “Classifying Products According to the Harmonized System” in the February 2012 edition of PARCEL. You can find the most recent Canadian Harmonized tariff numbers and duty rates at http://www.cbsa-asfc.gc.ca/tradecommerce/tariff-tarif/2013/menu-eng. html. If the classification you arrive at for your product has a duty rate assigned, obtaining reliable information about whether your product qualifies for NAFTA becomes more important. Also if your product is Mexican or Canadian origin and is likely to be returned to the US, it would be helpful to have a certificate of origin to ensure duty free return to the United States. You can find an editable sample NAFTA form at: http://forms.cbp. gov/pdf/cbp_form_434.pdf. The following are some additional tips to assist in filling out the NAFTA form.
Field 1 The first thing to note that you might tend to skip is the Canadian tax identification number. In the US we refer to this number as the IRS number or EIN
Exporters Identification Number. Be sure to obtain these tax ID numbers so there is no delay in processing your shipment at destination.
Field 2 The Blanket Period is generally completed for a one year term. The form instructions give the impression that you can fill out the form for any time period and then file a subsequent form. In practice, there is no provision for a three month period or six month period. However you can update the document that you have on file at any time. Fields 3 & 4 The Producer is the manufacturer of the merchandise. Oftentimes, the exporter is not the producer. Most often where the product is “produced” defines the country of origin of the goods being shipped. Fields 5 & 6 For simplicity we recommend that the description should be a match to the wording used in the tariff book for the six digit classification that is applicable. In previous articles we have recommended the US Customs system CROSS as a reliable resource for defining the appropriate classifications or an experienced US Customs broker. Field 7 The Preference Criterion is generally not “A” unless the product being shipped is something which has been extracted from the ground. Preference criterion “B” is the most common. Criteria “C“ through F are highly specialized and require careful review.
form and yet it is critical for solid compliance or application of the NAFTA principles. You are instructed to state “Yes” if you are the Producer or “No” if you are the not the shipper-just the exporter. If you are not the producer you are to state how you know the goods qualify by using code 1, 2, or 3 after the word “No”. If you have specific and reliable knowledge that the good qualifies for NAFTA use code “1”. To my way of thinking you would never use “NO 1”. You might use “NO 2” if you received an initial letter from your vendor that the goods were of US, Canadian or Mexican origin with the promise to provide a certificate of origin shortly. But your standard should always be “NO 3.” Obtain a NAFTA certificate from your vendor on products you export to Canada or Mexico if you are claiming NAFTA duty free status.
Fields 9 rVc field is a more complicated field than we have time to discuss here. This field is not used by a lot of shippers other than to indicate NO. Fields 10 and 11 country oF origin and signature are clearly explained by the form itself. You, the exporter, are responsible for the accuracy of this form. p
Tom STanTon, AFMS, LLC, International Analyst can be reached at 503.246.3521 or Tom.stanton@AFMS.com.
Field 8 Producer This is perhaps the most often misunderstood field in the january-february 2013 | www.PARCELindustry.com
tRanSpoRtation aBcs By RoB MaRtinez
Mitigating 2013 parcel Rate increases: What every shipper should Know
hile the 2013 par- You’d be prepared to enter your carrier cel rate increases negotiations with specific information of have already been what’s possible, and you’d certainly improve well documented, the your pricing. more important question is, what can shippers forMalize an do to mitigate the rate hikes? rfp for negoTiaTions The Request for Proposal (RFP) can be a terrific vehicle to improve shipping rates Manage TransporTaTion and terms. There are various RFP teminforMaTion As a first step, shippers should collect plates available as well as several qualiand analyze service usage, expenditures, fied third parties if you prefer to outsource. A well written RFP should clearly state accessorial charges and other variables. The objective of this analysis is to develop savings objectives and include operaa list of opportunities and priorities to be tional requirements (pick up times, trailer drop, etc.), automation needs (manifestlater negotiated. Shippers should identify the impact ing, web integration, etc.), pricing targets of add-on fees such as residential deliv- based on industry benchmarks and other eries, extended areas, fuel surcharges, key information. Be sure to provide the weekly service fees and other handling non-incumbent carrier with actual shipcharges. Quantify which surcharges have ment data (cleansed of its competitor’s the greatest cost impact and target those pricing), common box sizes, pickup locaaccessorial charges for waivers or reduc- tions, seasonal volume data, etc. tions during future negotiations. Moreover, a thorough analysis of detailed audiT freighT invoices shipment information can help you develop Each year more than $3 billion in “guarrouting guidelines, modally optimize your anteed” service claims are not refunded supply chain using the lowest cost service because claims are never filed. Refundable per transit requirement, reduce address invoice items include late shipments enticorrection fees, decrease returns, identify tled to money back guarantees, missing missing discounts, and more. discounts, erroneous charges like residential delivery surcharges applied to business addresses, incorrect fuel surcharges, BenchMark Prior to negotiations, conduct bench- non-voided labels manifested but never marks to determine what range of dis- shipped, and other common errors. Don’t know how to audit your invoices? counting is possible and how your rates compare to other shippers of similar size. Outsource it. There are a number of Imagine your negotiating advantage if qualified audit & payment firms with you discovered your current carrier incen- weekly savings commonly ranging from tives were the worst amongst a peer group. one to five percent of the total invoice What if you knew the specific range of eligi- amount. An audit firm ensures you never ble discounts and accessorial concessions? overpay your carriers. 8
january-february 2013 | www.PARCELindustry.com
Qualified parcel audit companies have powerful software to validate rates and surcharges, identify and file claims on late shipments, and audit against a variety of common invoice errors. Once you’ve engaged an audit firm, they automatically receive and audit weekly parcel invoices, applying credits before you issue payment to the carrier. Use your audited parcel data to better manage service levels and to make more cost effective shipping decisions. By focusing on overall delivery performance — not just the failures — shippers can drive down total shipping costs through routing compliance, identifying opportunities for modal optimization, limiting accessorial costs, and other important actions. The more shippers know about their freight, the better they position themselves for carrier rate negotiations down the road. p
Want to read more tips on mitigating the rate increases? Scan thiS QR code to continue Reading!
Rob MaRtinez, is president and ceo of shipware LLc, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. rob has more than 20 years experience negotiating parcel contracts for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. rob welcomes questions and comments, and can be reached at 858.879.2014 or firstname.lastname@example.org.
Regional AlternAtives By Mark Magill
implement with ease! egular readers of this column know the many benefits of adding regional parcel carriers to their carrier mix. Not only can a shipper significantly reduce their shipping spend, get faster time in transit (including next day delivery at Ground rates), but they can also increase their productivity by taking advantage of the later pick up times that regional parcel carriers routinely offer. But what does it require to implement a regional carrier, and is it worth the effort? By speaking with a representative of your local carrier, you will discover that it is a surprisingly easy undertaking. Any change in your business will necessitate some degree of planning, time, and even expense. So you should always perform your due diligence in finding out what implementing a regional carrier will require. One of the most effective methods for doing that is to ask for a list of referrals from your local regional carrier. Ideally, they should come from a company in your industry who has been shipping with that particular regional carrier for some length of time. In addition to asking them how they implemented the regional carrier, ask them what specific benefits compelled them to make the change. You may be surprised at what you learn. A step by step process for engaging the regional carrier should include providing
them with few months of shipping data software of some kind. The larger regional including package weights pieces per carriers often have shipping modules for delivery stop and the five-digit delivery those software providers or if need be ZIP Code information for your shipments. can have generic modules created. (If This would enable the regional carrier to they already do have modules, it is the determine the true cost of servicing your closest thing to â€œplug and playâ€? in the account and enable them to be the most parcel shipping IT world). The regional aggressive in their rate proposal. This carriers can also directly integrate with cost to serve model is the same one that your own homegrown legacy system, via the national carriers use. When doing API, ODBC or even integrate with the your analysis, be sure to include the sav- very largest TMS systems. ings your company would reap by being Finally, having an available dock able to downgrade the shipping mode door is an issue that sometimes arises. from Air Express to Ground service in The flexibility that is the hallmark of Zone 4 delivery points where the regional regional carriers can usually alleviate carriers can deliver next day at Ground this issue. Since these carriers are by rates over 500 miles from their origin. definition regional, they operate in a geographical space that allows them to provide later pick up times. Rather than having a dock door dedicated to them, they can arrange a pull time that occurs after the national The savings from this portion of your carriers have already picked up. Since DHL pulled out of the domesbusiness can be especially significant. When you have completed the analysis tic shipping market four years ago, there based on the rates that the regional car- has been a definite need for alternatives rier is offering, it should be fairly easy to the national carriers. In any industry, a to create a cost/benefit analysis based on limited number of choices does not best any soft costs you may incur and com- serve the market. It may be well worth your while to investigate the reduced petitive advantages you receive. The next step would be to determine expense and competitive advantages how you will process your shipments. A that the regional parcel carriers provide. regional carrier of any significant size Adding them to your carrier mix may be has their own internally created shipping much easier than you think! p software that they would gladly supply along with a thermal label printer. But if you are a large shipper you are prob- MaRk Magill Â is Director of Business Development, ably already using multi-carrier shipping Ontrac. visit www.ontrac.com for more information.
It may be well worth your while to investigate the reduced expense and competitive advantages that the regional parcel carriers provide.
january-february 2013 | www.PARCELindustry.com
LTL InsIghts By Joe Heilig
An Intro to Carriers’ Operational Areas his month, I will begin a series of articles on the LTL industry discussing the carriers’ various operational areas. Why is it important to learn how carriers operate? By better understanding carriers’ operations in areas such as Pickup and Delivery, Linehaul, Dock, and their service center network, you can develop a better working relationship with your carriers. Knowing the finer details of how a carrier operates will enable you to assist carriers in being more efficient in moving your shipment to destination in a timely manner. In this series of articles, you will learn reasons why carriers operate the way they do, how key operations are handled and how your actions can affect a carrier’s operational cost, both positively and negatively. This first article will focus on a carrier’s service center network, why they operate the number of service centers they do, and where those service centers are located. Carriers are generally classified in three ways: National, Regional, and InterRegional. National carriers cover the 48 contiguous states. Regional carriers’ service areas encompass a group of states in a region, such as the Southeast, Midwest, or Northeast. An Inter-Regional carrier serves several regions such as the Southeast and Midwest. Examples of National carriers are UPS Freight, Estes Express, and Old Dominion Freight Lines. Regional carriers include Dayton Freight, Oak Harbor
Freight, and Southeastern Freight Lines. USF Holland and SAIA Motor Freight are classified as Inter-Regional carriers. Each classification of carrier has its own unique operation characteristics in their P&D, Dock and Linehaul operations. These various operations will be discussed throughout this series. National carriers tend to have more (and smaller) service centers serving a smaller service area because their shipment length-of-haul is longer and linehaul cost is a critical component of their total shipment cost. National carriers will also utilize a hub and spoke breakbulk linehaul operation with more breakbulks to minimize the number of linehaul miles and maximize
geographical area in order to increase the number of shipments handled by a single service center. Next day service on lanes less than 500 miles is a key service offering of all regional carriers. They must provide this on-time service if they are to survive in the regional market. The higher shipment volumes enable their service centers to load more direct linehaul trailers to other service centers in their network. In many cases, every service center will load direct to every other service center in the network. Thus, regional carriers eliminate the need for breakbulk dock activity on next day service lanes. As a result of the direct linehaul loading, they are able to maximize the geographical scope of their next day lanes. Regional carriers put less emphasis on trailer cube utilization, as the linehaul cost is smaller percent of the total operational costs. Inter-Regional carriers serve both long haul and short haul markets; therefore, their operations tend to be a combination of both national and regional. In remaining articles, I will cover in depth the carriers’ P&D, dock and linehaul operations as well as how carriers develop their pricing. p
Inter-Regional carriers serve both long haul and short haul markets; therefore, their operations tend to be a combination of both national and regional.
january-february 2013 | www.PARCELindustry.com
trailer load average. In large geographical cities such as Atlanta, GA, a national carrier may have three to four service centers. In addition, national carriers want to minimize the number of miles on P&D (Pickup & Delivery) routes. When new customers are secured in service areas farthest from the service center, they require more P&D miles. Carriers analyze and determine the shipment and revenue level that will reduce P&D miles for the new service center. The savings in variable operational costs must outweigh the fixed cost of operating an additional service center. Regional carriers will have higher volume service centers covering a larger
JOE hEILIg has over 35 years in the transportation industry. he has served as a senior transportation Analyst with enVista for eight years. he has also held numerous positions with major LtL carriers including Director of Industrial Engineering. Joe may be contacted at 803.708.8657 or email@example.com.
Spend PersPectives By John haBer
Balancing Conflicting Internal Imperatives for e-Tailers oute 2013 is fraught with challenges for e-commerce vendors. Retail trendsetters Amazon, Wal-Mart, and eBay have rolled out new services designed to give them even larger market share, parcel shipping carriers are significantly increasing their rates, and more states will introduce sales taxes for online purchases. In addition to these external pressures, e-tailers struggle with the internal constraints of shrinking margins, lack of capital, and a plodding economy. To stay competitive, they must lower their cost structure while simultaneously driving sales and volume. The best way to do this is to decrease shipping costs while increasing customer satisfaction. Understanding and managing the inverse relationship between shipping and customer satisfaction is key to achieving clear competitive advantage. When shoppers are happy with both product pricing and shipping costs, they will reward the retailer with: more visits, an increase in number and value of purchases, more shares/referrals, better reviews, increased loyalty, and more repeat business.
Lower Shipping CoStS to inCreaSe CuStomer SatiSfaCtion The best ways to increase customer satisfaction are to offer free shipping, accelerate and guarantee shipment times, and to offer a clear, simple, and cost-effective returns policy. If you do not offer free shipping services, your customers will find them somewhere else.
Free shipping has become a customer to their customers this quickly, they can imperative. According to a 2012 com- try to speed up deliveries and to make Score survey, 72% of online customers delivery guarantees. will turn away from a website that charges A good success story here is the online for shipping and look for one that doesn’t. beauty retailer that was losing sales due In return, 52% of respondents to a 2011 to its lack of physical West Coast presStamps.com survey said that free shipping ence. The e-tailer decided to counter increased their average revenue per order this problem by guaranteeing three-day by $8.00 or more. shipping on all orders of $50 and more. The recent comScore’s Cyber Monday But in order to make this guarantee viareport found more than half of e-com- ble, they had to cut $2 million in annual merce transactions during the last three shipping costs. Optimizing their shipping weeks of November included free ship- spend helped satisfy customers and delivping, with a peak of 57% during the week ered an additional “found” $0.5 million ending Sunday, November 25. During the to invest in website improvements. first five weeks of the holiday season, consumers spent an average of 42% more on return Shipping, optimize inbound free shipping transactions than on paid – According to comScore, 63% of online shipping transactions, including a 51% customers look for a returns policy before higher average order value during the making a purchase. Almost 50% of surweek ending November 25. vey respondents said a lenient, easy-toA good case in point is an audio retailer understand returns policy would lead founded in 2007 with free shipping as a them to shop more often with a retailer, foundational principle. The founder and and to recommend the retailer to a friend. CEO, who was previously a UPS execuCustomer satisfaction isn’t the only tive, turned to an independent advocate thing these companies achieved by cutto help optimize his company’s supply ting their shipping spend. They also found chain spend. Together they were able to the budget to fund website enhancements, reduce spend by 15%, which enabled increase promotions/advertising, make them to adopt free shipping to increase infrastructure investments, hire more customer satisfaction. This competitive experienced personnel and increase their advantage has paid off with phenomenal product service mix. Properly investing in growth. The company placed in at #110 experienced personnel, either internally or on the 2011 Inc. 500 list. externally, is crucial to the overall success of e-tailers in today’s environment. p
Shipping guaranteeS, Speed You Can Count on – On October 9, 2012 Wal-Mart announced same-day delivery for selected cities across the country. Amazon CEO Jeff Bezos has stated that they are striving for same-day delivery in metropolitan areas, too. While smaller e-tailers may not be able to get products
John haBer is an expert in shipping, freight and transportation spend management. in his current role he provides the vision, and the execution know-how, that helps companies save 10% to 20% or more in logistics spend. contact him at jhaber@ spendmanagementexperts.com.
january-february 2013 | www.PARCELindustry.com
Supply Chain pivot By RoB ShiRley
ASAp he consumer appetite for faster delivery is accelerating and is being visualized as a key competitive weapon by many firms that you buy from. An enormous number of ventures are vying for differentiation and dominance, and you will have the opportunity at the end of this article to participate in the forecasting of future dominance.
HiStoRy First a little history on important events to date: } Hermes, Greek god and Mercury, Roman god both represented speed and other attributes in the fourth century before the birth of Christ. } Wells Fargo began its history moving gold from the Sacramento hills to San Francisco in 1848 and became a bank when customers began requesting that the gold be inventoried, protected, and rewarded. } The Pony Express began in 1849 as a delivery service in Leavenworth, KS. } American Express started as a messenger service in 1850 from Manhattan. } UPS started as a delivery service in Seattle in 1907. } Airborne, Emery, and Flying Tigers started as forwarders right after WWII. } DHL was initially a service that had agents checking packages as baggage onto airlines and flying with them as passengers; they were started in 1969, were bought by the German Post Office in 2002, bought Airborne in 2003, and cancelled US domestic services in 2008. 12
january-february 2013 | www.PARCELindustry.com
} Federal Express was incorporated in 1971 with the initial concept of moving checks for the Federal Reserve board. FedEx became the first company in history to hit $1b in revenue without acquisitions in less than 10 years. Apple was second and achieved the goal even more quickly. } This holiday season broke many delivery records for parcel carriers with FedEx estimating 280 million deliveries (13% over 2011), UPS with 527 million deliveries, and the USPS at 385 million packages. } Express deliveries of one or two days are no longer the objective of many firms. Same Day delivery is the new mantra with dozens of initiatives under way and is literally the last mile of the global supply chain.
Competitive Field A. Amazon is very active in this space and has made investments: 1. Lockers located at Rite Aid and other sites 2. A robotic picker solution called Kiva Systems 3. Price is reportedly $8.99 B. USpS has a test called metro post: 1. 1.800.Flowers and some of its units like Popcorn Factory as beta accounts 2. Clients must have at least 10 US locations 3. Test lasts a year with extensions starting 11.12.12 with pick up by 3 PM for delivery by 8 PM 4. 200 packages a day maximum 5. Price must be at least 6x minimum first class rates = an estimated $2.70 6. Meanwhile, Pitney Bowes has funded a study to see if the USPS was
converted to a last mile delivery only model with intercity transportation being outsourced to private industry, to help reduce the $16b deficit that the USPS created in 2012 alone C. eBay service is called eBay Now 1. Delivery personnel are called Valets 2. Best Buy, JC Penney, and Target are reportedly in beta 3. Using technology they have like Milo and PayPal 4. Price is reportedly in the $5 range d. Shutl, from the UK, received $2 million from a UpS fund, is considering the US for a new service and estimates this to be a $26 billion market by 2016. e. task Rabbit and exec both offer multiple delivery and task and job services. F. post mates: I spoke with Bastian Lehmann, CEO of PostMates, who has launched a same day service in San Francisco that is getting a lot of attention. Bastian sees these strengths for his business model: a. Do not hold any inventory 1. This unlocks a virtual global inventory 2. Emphasizes buy local b. Use smart phones for delivery and payment 1. Has developed a unique iPhone app 2. App has menus of 4000+ restaurants 3. App has 40,000 items from Whole Foods and Safeway 4. The driver utilizes the technology called Square that is attached to
their iPhone to receive payment for product and delivery when handing the recipient their order (I used this recently with my hair cutter and was amazed at the ease and reasonable 2.75% fee Square charges the merchant) c. Web usage is enormous and growing rapidly 1. Previous web fears are dismissed d. My mom now uses the web and everyone under 30 has no hesitation PostMates is using an open information environment, incorporates independent contractors, has been funded by $7 million and plans to soon open NYC and SEA. Bastian compares his company to what Uber has done in the limousine industry and sees restaurants as possibly 60% of his market.
H. UPS has acquired and absorbed Mail Boxes Etc., Sonic, Menlo, First International Bancorp, Fritz and recently gave up buying TNT Express. 1. UPS also has a strong brand, covers over 200 countries, has thousands of vehicles, hundreds of aircraft, over 1000 salespeople, thousands of national accounts, millions of customers, one of the strongest IT systems in the world, well placed hubs and thousands of drop boxes. UPS started as a trucking company and emulated FedEx’ hub and spoke system in 1988; unlike FedEx, UPS is considered to not be an express carrier creating an environment where all of their drivers are in the teamster union.
“The best thing about the future is it comes one day at a time,” Abraham Lincoln G. FedEx also shows 20 markets on its web- I. Instacart is a new company that is focused on groceries. site for same day metro delivery, on the a. In the dotcom period there were ground, for: also major initiatives for the same 1. PHX, LAX, SFO, DEN, MIA, TPA, ATL, day grocery delivery business with ORD, BLT, BOS, DET, STL, NYC, CLE, firms like WebVan in Silicon Valley PHL, MEM, DFW, HOU, SEA and DCA. and Home Grocer in SEA. 2. FedEx acquired many companies over the years including Flying Tigers J. 3PD has claimed to have achieved five million annual deliveries for the last mile. Lines, Caliber Logistics (including Roadway Package Service), Kinkos, Tower, Parcel Direct and 30 smaller K. 1-800Courier, headquartered in Atlanta, offers same day service in most markets carriers in Europe. in the US using a network of same day 3. FedEx has a strong brand, covers courier companies. over 200 countries, has thousands of vehicles, hundreds of aircraft, over 1000 salespeople, thousands Skip Trevathan is the former COO of of national accounts, millions of Kozmo and remembers very well the customers, one of the strongest IT incredible attention they received in the systems in the world, well placed dotcom era. I have known Skip since he hubs, and thousands of drop was Managing Director of FedEx Logistics boxes. FedEx has routes as an air- Services and can attest to his leadership, line and has some unique global knowledge, and operational skills. Kozmo landing rights. FedEx unlike UPS offered one hour delivery and complete is considered to be an express car- service to the five boroughs in NYC from rier providing more flexibility of its three distribution centers. Skip said, “Downtown markets were dense enough work force.
to be profitable. The key then was to be the leader in major markets for Same Day B to B and become the biggest last mile delivery system with four to eight hour delivery so everyone could tap into it. Franchising would have been a natural for smaller markets.” Kozmo found that one dc in broad markets like Houston, LA and San Diego would cover at best 30% of the population. Kozmo was closed in 2001 even though it was very profitable in dense markets and had raised a reported $250 million (including $60 million from Amazon).
The battle for this valuable space will probably be ultimately decided with these factors: 1. Who is funded best and has a strong long term commitment 2. Whose network has the most attributes needed for success 3. Who is willing to invest in multiple acquisitions 4. Whether an open or closed environment is best for the service provider and the public 5. How quickly the organization’s focus can be turned onto this objective (it is difficult for the Queen Mary to make a U-Turn in the NY/NJ harbor) 6. Whether the USPS actually becomes a “hybrid model” responsible only on last mile delivery
I invite you to email me with your input as to who will come out on top of this potential mega market. Your input will be used as summary data for possible future articles, and if you are right, I will also make it public that you called this correctly. p
Rob ShiRley is President of ExpresShip serving as a consultant in the global supply chain and can be reached through email firstname.lastname@example.org or reviewed on Expresship.com or LinkedIn.com.
january-february 2013 | www.PARCELindustry.com
OperatiOnal EFFiCiEnCiES By SuSan RideR
ringing in Savings for the new Year anuary always brings You may want to collaborate with other packer will pack routinely and not have thoughts of new begin- facilities in your network and make it a to think about it. Invite your shipping nings, fresh starts, and a bigger effort. partner (fresh eyes) and ask them to look better, healthier new year. Go through the functional areas of at your process. These individuals have Let’s put those thoughts your distribution centers looking for pro- seen a lot of shipping processes so they to work in your distribution cesses that look cumbersome or that take can usually give you ideas, suggestions center. While the nation is a lot of time. An area that almost every or needed improvements, which will thinking about becoming facility has opportunity in is the start up make you more efficient. Look at walk leaner physically, how can of a shift. Do shadow boards and orga- times or runners. One facility I visited you make your facility leaner? nize the start up tools. Make sure some- had 10 runners. Obviously, if you have Where to start? My sugges- one has the responsibility after each shift that many runners there is an opportution is to start where the highest cost to set up the next shift for success. This nity for a design enhancement. resides, which is usually order pick- attitude will escalate and become addicOrder picking is usually the area that ing. But if customer service is the big- tive. Your start up time should be no will add big dollars to your lean goal. gest concern, maybe packing or shipping more than 10 minutes. If it’s taking 30 to There are usually opportunities in slotting. should be the focus. Every company is gather the paper cutters, tape dispensers, Make sure the order filler is reaching less different, but they all have some simi- RF gun with a fresh battery, pencils, etc., and bending almost never. The more you larities. Kick off the program make the associate bend the with some fun; you may want more tired that person gets to develop a contest among and the slower they move. If the different departments or you decide you need to re-slot shifts. It’s amazing what peoenabling all your fast movple will find or accomplish ers in the golden zone, don’t if it’s a competition. Throw just do it one time. Develop a pizza party for the best a plan to maintain the effiideas or accomplishments or cient slotting and re-evaluate give one every Friday for a at least quarterly or, even betmonth. The first thing you need to focus the team is wasting valuable time that ter, monthly. If your order fillers are using on is clear and direct communication. can add dollars to the bottom line. Think paper to pick, you have big opportunities. Communication should be made in mul- about it: if you add 20 minutes of pro- Or if you are picking into anything besides tiple forms, verbal and non-verbal. Post ductivity for 10 people every day, multiply the shipping carton, a new design enabling details on boards, add pictures of good that by week, month, and year. Then mul- shipping carton picking may add big dolresults, get creative and remember, the tiply it by your hourly wage. One simple lars to your lean initiative. Make being lean more communication the better. Explain improvement can save big dollars yearly. your goal for 2013. p why the lean initiative is important and Packaging is another area where there what you want to achieve with the pro- is big opportunity; it’s a lot of repetitive gram. If you want to check if you have motions so the supplies should be eas- SuSan rider is Owner, Rider & Associates and all your bases covered in the communi- ily reached to reduce the motion and Logistics and Supply Chain Consultant, as well as cation plan make sure you have the data time to pack. If you have like items to a popular speaker at the PARCEL Forum. She can to answer how, what, when, and where. pack, develop pictorial aids so each be reached at email@example.com.
When it comes to a lean facility, my suggestion is to start where the highest cost resides, which is usually order picking.
january-february 2013 | www.PARCELindustry.com
The ABCs of API. How to Choose the Right API to Turbocharge Your USPS Shipping Capabilities. As every shipper knows, the USPS is a vital component of a cost-effective shipping strategy. But what is the right way to integrate USPS shipping services into your platform? Short answer – there is no “right” way. Every company’s needs and processes are different. This is where a comprehensive, powerful Web API can make all the difference. Using a Web API allows companies to seamlessly integrate USPS shipping capabilities into their workflow.
Customize for Your Needs Whether you want to rearrange your warehouse operations, renegotiate with carriers for better rates or simply upgrade technology to integrate different locations or departments, chances are you’ll have to change how you ship. At this point, all your technology investments from the past will place unexpected restrictions on your future progress. By using a Web API, you have the opportunity to build your shipping platform to fit your needs. Although a custom solution may seem like a big investment, it’s actually a great opportunity to improve automation and reduce cost. With the right API you can ensure that you get the best rates, faster processing and even improved deliverability of your packages.
5 KeYs to fiNdiNg the right APi When making the decision to commit to integration, the five key elements you should consider are - features available, technologies supported, technical support provided, performance and reliability. At Stamps.com, these are the five elements we constantly work to optimize and improve in the Stamps.com Web Services (SWS). SWS provides all the main shipping requisites including rating, address verification, label generation and tracking. These are elements you should expect at a minimum from any USPS shipping API (or from any carrier for that matter). Of course there are other important questions to ask when looking under the hood. How easy is it to rate? Does address verification provide the Residential Delivery Indicator (RDI)? Are the labels generated in your preferred format? Are there pre-built solutions for common functions? The right answers to these questions can make a big difference in terms of time and money.
suPPort WheN You Need it Most web services today, whether SOAP or REST based, can be accessed from developers working on any major platform. However, Technical Support from the API provider can make
a big difference in how quickly and easily your developer can get up and running. It also makes a difference for ongoing maintenance if you can actually email or call someone on short notice. You should ask about this when you consider an API provider. Remember to also ask about documentation and guides, tech support hotlines, discussion forums and about the availability of experts.
No time for doWNtime Great features and support will get you started with shipping but performance and reliability are crucial to making sure things stay that way. As your volume increases there is usually a limited window in which to get your packages out the door. You want your printers rapidly processing labels without interruption. Make sure you look into service levels and uptimes before you commit.
A ProveN trACK reCord If you’ve investigated the five elements thoroughly you probably have a good product to work with but make sure to check references. We’re proud to say that IBM, Amazon, HP, Intuit, ShipRush, ShipWorks and TrueShip all use the Stamps.com platform. A good API should have been tried and tested by the best, should have taken on plenty of volume and should have a great track record of success. An API or an Application Programming Interface is the means for one program to connect and communicate with another. A Web API (or Web Service) is an API that can be accessed over the Internet. We use software all the time that use API in the background to execute key functions - like booking an airline ticket or checking the weather online. Web API allow software developers to focus on key functions while quickly integrating other essential features provided by the API. Srinivas Jagannathan is Director of Product Management at Stamps. com, a leading provider of online postage, shipping software, services and developer solutions for Postal Service customers. He can be reached at 310.482.5887 or firstname.lastname@example.org.
special Guest CoLumn By Baris Tasdelen
ups Fuel index change of november 2012 t is common knowl- index against the November 2012 index. This change is notable not only because edge that parcel car- Changes to the ground index had a it is the first time in many years that UPS riers hike their rates, similar effect. and FedEx fuel prices have diverged, modify their fuel indiWe might speculate from this change but because it changes the calculation ces and announce a that UPS is trying to decrease the effects for determining how the 2013 GRI will general rate increase of fuel price volatility while hedging on affect costs. (GRI) each year. The net cheaper fuel prices result is that parcel ship- in 2013. At the ping costs increase by the November fuel prices, rate increase minus the fuel this change was insigindex reduction. For the 2013 nificant and the UPS GRI, both UPS and FedEx reduced fuel surcharge did not their fuel index for air shipments by diverge from FedEx. 2% and 1% for ground shipments. However, if we look These changes were announced in at the new 2013 fuel November and December, 2012. indexes for UPS and In November 2012, UPS quietly FedEx they tell us changed the fuel price breaks used to a different story (see chart 2.0). While The 2013 UPS GRI cannot be calcudetermine their fuel surcharge percent- FedEx air FSC is at 0% for $1.90, UPS lated as simply as deducting 2% from age. This wasnâ€™t a simple increase or FSC is 5%. The gap closes as the kero- the 6.5% rate increase. For lower fuel a decrease; it changed the slope of the sene price goes up to $3.40, and after prices, the GRI could be as high as index. At lower fuel prices, the surcharge that point UPS FSC is lower than FedEx. 10%. The announced GRI of 4.5% only would increase, and at higher fuel prices This has caused UPS and FedEx to post applies if the jet kerosene prices float the surcharge would be less than before. different fuel surcharge percentages for around $3.40. Chart 1.0 below shows the original 2012 January, 2013. As with any GRI, the net effects cannot be calculated by applying the announced GRI to the total transportation spend. A 1.0 - ups air Fsc change in november 2.0 - 2013 ups vs Fedex air Fsc detailed analysis of shipping behavior is 25% 20% required to determine the true increase 18% 20% 16% to parcel shipping costs. p 14%
In November 2012,
Jet Kerosene price 2012 Original index
2012 nov index
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Jet Kerosene price 2012 Fedex Fsc
2013 ups Fsc
12% 10% 8% 6% 4% 2% 0% $1.90
UPS quietly changed the fuel price breaks used to determine their fuel surcharge percentage.
baris tasdelenÂ is a Senior Analyst with enVista and past PARCEL author. Contact him at email@example.com.
Create Efficiencies, Control Costs, Increase Communication The last thing your organization needs is for your transportation management system to become another information silo. But with SendSuite Live, you get a browser-based solution with virtually unlimited integration capabilities, which help break down these silos by providing instant access to information for both internal and external stakeholders across your entire supply chain. Whether you’re shipping from a mail center, desktop, a remote work location, or in a production shipping environment, SendSuite Live helps streamline your operation, reduce costs, and manage business risks while giving you capabilities to create efficiencies you never thought possible.
– purchasing, accounting, and even the C-suite – to have access to a myriad of information which allowed the company to make better business decisions across the entire enterprise, and optimize their logistics network while substantially reducing costs. The client realized Pitney Bowes had the capability to work with them to address their challenges – and create a solution that streamlined processes, sped delivery, and enabled savings while minimizing the time and effort required for integration. Companies have a diverse range of shipping locations - warehouses, stores, corporate mail centers, offices, distribution centers, and even remote home offices. Running a logistics operation is highly complex. Whether you’re managing parcels from the mail center, documents from the desktop or freight from the warehouse SendSuite Live offers the flexibility and scalability to address any shipping environment.
THE PB DIFFERENCE
Consider this: A Pitney Bowes’ customer just secured a new contract for global parts distribution from an auto manufacturer. The customer needed a solution that could be deployed in a production environment quickly and efficiently, with integration into the company’s legacy systems as well as a new SAP warehouse management system. This company thought its options were limited, given the demanding timeline and the complexity of the solution. It was only when the customer met with Pitney Bowes that they realized they had a number of options. Pitney Bowes deployed and integrated its SendSuite Live global transportation management system into both new and legacy systems. SendSuite Live allowed the customer to gain better cost controls through the election of best delivery options across multiple modes of transportation. More importantly, the application’s analytical tools and reporting functionality allowed different departments
SendSuite Live is a powerful web-based solution designed to guide simple to complex shipping operations to the next level in cost management, process efficiency and compliance. This robust solution utilizes a single platform to manage all transportation related activities. It optimizes, integrates and automates all shipping processes while providing the highest degree of real-time visibility, control and choice throughout your operation. SendSuite Live features an enterprise-class Service Oriented Architecture (SOA) platform designed to meet the strictest IT demands for secure, scalable and reliable processing. Built on .NET and Microsoft SQL Server, SendSuite Live can be deployed on a single server or across clustered servers for redundancy. Clients access SendSuite Live applications via a browser and systems can access Web Services via a SendSuite Live API. Pitney Bowes knows logistics. We’ve been helping customers determine the best way to manage their shipping operations for decades. We pride ourselves in our ability to work with each of our clients to solve unique requirements, creating solutions to make their business run more productively and profitably. Contact us at firstname.lastname@example.org and check us out at www. pbsendsuitelive.com
By Tom Kozenski
The Productivity Trifecta of Warehouse Optimization: Engineered Labor, Slotting, and Task Interleaving The scene: a big box store early on Black Friday. A large crowd gathers outside the store waiting for the doors to open. Among them, Shopper A and Shopper B. Both are eager to go inside the store to make their purchases. Shopper A has a game plan. She has the store’s circular from the paper, a list of items, and most importantly, she has familiarized herself with the store’s layout. She also knows that the items she’s looking for will be strategically placed within the store. Shopper B, however, has no plan for finding her purchases. While she walks from one end of the store to the other, Shopper A already has her items and is headed for checkout. Retailers have already learned the strategic placement of merchandise within their stores can help drive sales while improving efficiencies for both their workforce and their customers. These lessons learned can be used by warehouse managers to improve their efficiencies as well. While many 20
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warehouses utilize engineered labor standards, or task interleaving or slotting practices, those that implement all three achieve the “productivity trifecta” of warehouse optimization. If you are not doing all three of these, you’re leaving money on the table.
ONE SYSTEM CAN LEAD TO BETTER EFFICIENCIES Research shows that the average warehouse or DC operating without a formal labor management program operates at about 65-70% of its potential efficiency — what industrial engineers describe as a fair day’s work for a fair day’s pay. This means that by adopting labor standards, you can improve your labor productivity by 30-35%, without rushing workers or using special incentives. Engineered labor standards are not widely used in warehouses or distribution centers, even though they can significantly impact
the performance of employees. Unlike most automated systems in the warehouse, workforce management (or labor management) systems do not increase productivity themselves. They are tools to help you create a more productive environment. While the mere act of measuring workers has proven to increase performance, the real productivity gains come from getting everyone doing the right tasks the right way. For example, if you have 100 workers in your DC, you have 100 different ways in which the workers are doing their jobs. What are the chances that every one of them is the most efficient? The answer is ZERO. Job design and the development of methods and standards is not necessarily something a warehouse management system will do for you. System-directed work from the system can accomplish the “right tasks” part, but getting everyone to do their tasks the “right way” is more complicated. It requires good job design, development of efficient methods, and creating fair and accurate labor standards to measure the workers against these methods. By using experienced industrial engineers to study your jobs, equipment, and environment, the single most efficient method for completing each job and task can be determined. This critical step of developing preferred methods and engineered standards, along with proper training and change management, has enabled customers to improve labor productivity and consistently attain 100% of the labor standards.
TWO SYSTEMS ARE BETTER THAN ONE Companies that implement engineered labor standards have made great strides in improving productivity. Adding a second productivity practice, such as task interleaving, can further enhance your warehouse efficiencies. Once you know how long it should take to complete each task based on preferred methods and engineered standards, you can leverage this information in a number of ways to improve labor productivity and utilization. System-directed task interleaving, also known as dynamic task management, is an automated function that takes systemdirected work to the next level. A company using a paper-based approach to assign work is losing both efficiency and accuracy. Workers waste time travelling back and forth from a central location to pick up their next assignment. By utilizing task interleaving, workers are directed to their next task based on priorities, proximity and their qualifications. With system-directed work, workers receive their next assignment on their mobile devices as soon as the previous task is completed, eliminating wasted travel. For example, a forklift driver replenishing a forward pick area from bulk storage might be directed to pick a nearby pallet and take it to a loading dock or return a stack of empty pallets to a palletizer before returning to bulk storage. Also, by intelligently grouping picks into “waves,” modern warehouse management solutions can significantly increase picking efficiency by enabling workers to pick multiple orders at the same time. This reduces travel and order cycle times.
processes is even better. Add a third to the mix, such as pickface slotting, and you’ve achieved the ultimate trifecta in warehouse optimization. Think of how you organize things in your home. You probably keep coffee in a cabinet near the coffee maker. Your refrigerator might have shelves within the door to make frequently-used items easily accessible. Even on your computer, you probably keep files you access often in a folder on your desktop. In our everyday lives we arrange, or slot, our belongings to help us complete our tasks with minimal effort. In warehousing, slotting is the intelligent positioning of merchandise for the purpose of optimizing order fulfillment efficacy. Slotting your inventory helps you identify the most efficient placement for each item in a distribution center or warehouse. If the inventory in your DC has any degree of seasonality, if you support weekly/monthly campaigns for promotional item fulfillment, or if you have a fair amount of new SKU introductions into your facility, you could benefit substantially from proper slotting of your forward pick areas. Proper slotting of high velocity SKUs can significantly reduce pick travel time as well as minimize pick-line congestion, thus making pickers much more productive. Slotting tasks can be integrated with other DC tasks by your warehouse management solution, so re-slotting does not require you to stop the other tasks and disrupt operations. When integrated with workforce management systems, the expected savings and ROI can be computed prior to accepting the slotting plan. This will allow you to determine if the slotting plan will be effective and provide operational benefits.
MAKING THE SYSTEMS WORK FOR YOU No one process or system will single-handedly maximize your productivity. A coordinated plan to implement two or more of the above processes will provide the greatest benefit to your warehouse operations. A good place to start is to examine your current operations in light of the three optimization processes mentioned above to create a baseline and get a feel for your current productivity levels. It is important to have an ongoing process improvement program where you continue to “peel the onion” to look for other areas in which you can increase your worker productivity and facility throughput. To the point, you may also want to look at other related factors. Are your overall operations as efficient as they could be? Could your DC layout better facilitate your current and future operations? Do you have industrial engineers trained in developing preferred methods and engineered standards? Who will handle the critical change management process? The answers to these questions will help you determine how to best implement improved labor standards, task interleaving and slotting practices to achieve the warehouse optimization trifecta. p
THREE PROCESSES EQUALS THE OPTIMIZATION TRIFECTA If implementing one productivity solution is good for improving efficiency in your warehouse, then certainly using two
tom kozenski is Vice President, Solution Strategy, RedPrairie. january-february 2013 | www.PARCELindustry.com
Best Practices to Ensure Proper Technology Implementation: Part One By Roman Hlutkowsky
january-february 2013 | www.PARCELindustry.com
Implementing technology projects can be a somewhat frustrating and unpredictable experience for many companies. There is, however, a straightforward set of best practices to follow to increase your probability for successful implementation. I will discuss these best practices and encourage you to embrace them within your organization.
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Select the right technology Solution for a project uSing an objective aSSeSSment proceSS. } But don’t immediately assume that technology is the answer! Changes in business processes can be very impactful and bring about desired changes in an extremely cost effective manner. And don’t overlook the possibility that your existing solution might be the right one, but your team hasn’t had proper training on either the processes or use of the existing tools. } Avoid the trap of implementing a pre-selected tool. Evaluating and selecting the best tool for the job at hand is the only way to ensure success. If all you have is a hammer, everything looks like a nail! } And please gently inform your executive management team that most advertisements and articles in the airline magazines typically won’t work in your company! } Be deliberate and thorough in your evaluation. Prepare an RFI (Request for Information) and/or RFP (Request for Proposal) to gather as much information as possible about the products offered to address the task at hand. And be sure to prepare your RFP evaluation criteria before you distribute the RFP; in this way you will help eliminate bias from the evaluation process. Meet with all suppliers in the space and ask questions about their technology roadmap and lifecycle planning for your platform; this will help ensure you select a platform with a long and useful life for your application. } Don’t forget your end user during the selection process. They will be using the tools to do their job and will be a great source of information regarding ergonomics and useability. Ignore their input at your own peril! an effective governance and overSight proceSS muSt be in place to help enSure SucceSS. } Governance doesn’t have to be a four letter word! Properly structured and executed, Governance and Oversight processes prioritize and fund critical initiatives. These same processes also help kill projects that aren’t delivering expected benefits, freeing resources for other initiatives. } The Governance Team should be populated by the key executives of the company. The CIO typically chairs the team (though not a hard requirement) since IT usually is blamed for the delays in projects! The team should also include the CEO/President, COO, CHRO, CMO, CSO, SVPs of Engineering, etc. This team should meet quarterly to review portfolio projects and approve resources/funding. } Oversight teams typically come in two flavors. A team made up of VP level representatives of all business and staff functions typically review all major projects to ensure they are/ remain on track. They enforce a Phase Gate process to keep projects on track, continue to fund and allow advancement through gates for those projects on track and kill those projects that don’t meet targets or expectations, reallocate resources as appropriate.
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} Key executives and stakeholders for a particular multiproject Program Initiative perform the same function, but typically for a group of related projects that support a common strategic initiative. Multi-Project Program Oversight Teams should also meet monthly to review deliverables of key projects within the program, mitigate risk appropriately and champion the initiative to Governance teams and help secure resources when required. SucceSSful project teamS muSt include memberS of all affected Stakeholder groupS } Everyone gets the basic team members right: IT (Applications Development, Technical Architecture, Database, Communications, Help Desk, etc.); Business process owners like Engineering, Safety, Maintenance, HR, Customer Service (Core Team); Support functions like Marketing, Sales, FP&A, Purchasing, Legal, Audit (yes Audit!) (Extended Team) } Most forget the real End User! This group includes Field/ Line Operations Management, Front line production workers/ laborer and the Clerical workforce } Business Process Owners are used to representing the End User. Groups like Planning & Engineering groups are common proxies for operations. Other business process owners may overlap (e.g., Maintenance, Safety are also proxies for ops). Unfortunately these Proxies aren’t always close enough to the work being performed. Always have front line employees as part of the team, even as extended team members. Let these front line employees provide input on things like ergonomics, usability, etc. And make sure they also review and validate any proposed business process changes } Institute appropriate levels of control and review. Hold regular meetings at an appropriate interval (weekly, bi-monthly). And remember that simple but effective status reporting and project tracking works; you don’t need complex reporting and tracking. Include next level of management on a regular interval (monthly if core team meets weekly). Visibility and Communication are good things that keep projects on track and increase likelihood of success. theSe beSt practiceS are well underStood and embraced } Identifying and involving key stakeholders. Not just the business areas, but the true end users. And don’t forget operations management. Make the project initiatives “theirs” not “yours” } Work diligently on defining requirements. The better and more detailed the requirements definition, the higher the probability for success. Review, review again and then rereview and get buy-in from all stakeholders. } “Chunk” your projects whenever possible. Break the project up into meaningful but manageable phases. } Follow a defined and accepted design/development lifecycle methodology. Many exist such as SDLC (Systems
Development Life Cycle). Ensure that all core and extended team members (and stakeholders) agree on phase promotion. } “Chunk” your projects whenever possible. Break the project up into meaningful but manageable phases. } Utilize accepted Project Management Practices. Follow work break down structure, identify and sequence tasks and milestones observing predecessor/successor relationships. Baseline the project timeline, resources, deliverables and manage to the plan. Publish regular reports with crisp assessments of status, risks, mitigation strategies and timelines. Publish agendas prior to, and minutes after each team meeting, with action items and accountabilities. Use a common repository for all project documentation (SharePoint, etc.)
In Part Two of this article, coming up in the March/April issue, we will discuss testing measures, success and accuracy metrics, and more! a feW other best practices that aren’t as Well knoWn or utilized } Stakeholders are your customers and evaluators. You must over-communicate the activities, status, challenges and successes, listen to their input and be ready to make changes. } Suppliers are a key extension of your project team. As such, they should be required to attend every core team meeting and complete any assigned action items. Supplier Sales and PS/Engineering Management should attend the oversight meetings (monthly). Ensure that Supplier Executive level contacts meet bi-monthly or quarterly with their Stakeholder counterparts. } Cultivate a culture of transparency. Unlike birthdays and holidays, surprises on projects are a BAD thing. Bad news is not like fine wine or exotic cheese; it doesn’t get better with age! The sooner problems are identified and surfaced, the more time and more options exist to mitigate the problems. This includes your suppliers; they must surface any errors or delays in design, supply chain, testing, manufacturing, etc. } “Apply the Carpenter’s Principle” “Measure Twice, Cut Once.” Revisit key “GO” decisions , validate facts used in the decision, but stay focused and follow the plan – don’t question and reconsider every task and milestone
When most technology initiatives fail, it’s not because of inferior hardWare, softWare or business processes. it’s because there Was no plan to manage the change throughout the organization } Adopt an Organizational Change Management (OCM) Methodology. The methodology should follow/map to the SDLC used by the project team. } During project Definition Phase, perform a readiness assessment, conduct focus groups as appropriate with key stakeholders. } During project Planning Phase, define a change team to work with core project team in support of OCM plan, define and build the communication training plan, define Success & Accuracy (S&A) Metrics for key program/project phases, obtain governance approval for the OCM plan (executive sponsors). } During project Development Phase, identify and/or create the appropriate communications vehicles, build training materials (CBT, instructor lead, manuals/presentations, job aids), obtain appropriate business area and legal approvals, develop & deliver training plans and define long term support strategy and transition requirements. } During project Launch Phase, deliver project communications, support strategy, deliver training, collect and analyze S&A metrics as appropriate and transition project into longterm support. } Post-launch, ensure long term training plans are in place. } Be mindful of other activities taking place within your organization and proactively plan for multiple programs being released simultaneously. Prepare high level assessment of OCM requirements and impact for all concurrent initiatives, determine any overlap of key initiatives on stakeholder groups and prioritize initiatives and develop a comprehensive release schedule that is the best fit for your stakeholders. p
roman Hlutkowsky is the Founder and Principal at The Hlutkowsky Group, a consultancy that specializes in Business Process, Technology & Automation, and Enterprise Transformation. He has more than 27 years of experience in the transportation industry, mostly focused on applying technology to improve operations. Roman and his team take great pride in being on the cutting edge of emerging technologies and integrating it in ways that are beneficial to their customers.
january-february 2013 | www.PARCELindustry.com
By Doug Braun
When Customers Run the
A VIEW OF THE NOT-SO-DISTANT FUTURE OF DISTRIBUTION MANAGEMENT 26
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have a confession to make. When I am not overseeing the operations of International Business Systems (IBS) in Solna, Sweden, I am an avid baseball memorabilia collector. Several months ago, after purchasing items online from a dealer in New York City, I was invited by the shop owner to visit his store on my next trip into the city. Having never been to his shop personally, I was delighted to meet and accepted the invitation. The day I visited, we spent almost an hour talking about baseball collectibles. The owner wanted to know my specific purchasing objectives. Who were my favorite teams? Do I collect cards, autographs, jerseys, or favor certain players? His interest in my hobby won me over. Since then, he has sent me numerous product recommendations unique to me. I now pay attention to his emails, because he tailors merchandise based on my interests. What does this have to do with the distribution business, you might ask? In my estimation, it has everything to do with it. The way products move from manufacturer to warehouse to distributor to consumer is ultimately driven by consumer behavior. The better you know your customer, the more effectively you negotiate the exchange, and the more value you create for yourself and your customer. Think about it. The cost to serve a customer is affected by an amazingly complex and dynamic set of variables, including time, materials, shipping costs, tariffs, middle men, mark-ups, margins, quantities, and personalization. You can tweak the system to gain a temporary edge. But, unless you consistently present your product at a price your customer is willing to pay — at the decisive moment — you’ll lose the sale to someone else.
retailers in the distribution chain will likely stock up on inventory direct from the factory. As product is sold, replacement inventory will probably ship daily by the pallet. But, after peak season, replacement orders will more likely come from an upstream 3PL or 4PL provider, shipping once a week and by the carton. On an even more granular level, replacement parts for specific models may need to be carried, region-byregion, to support the customer base. The fluid nature of it all makes paring costs and meeting demand extremely challenging. How do you efficiently locate merchandise for the most effective response? Can any ERP or WMS effectively allocate inventory, on-the-fly, as market demands shift?
VALUE ADDED SERVICES = ADDED COMPLEXITY What about value-added services? Personalized orders can challenge your system, turning warehouses into mini-production facilities. Consider the garment distributor, stocking dress shirts in an assortment of colors and sizes only to custom-monogram single orders upon customer request. The paperwork alone becomes a mini-project. Gift baskets requiring personalized messages and variable product blends offer another example. The need for flexible managing, tracking, communicating, and accounting across the supply chain only gets more urgent. The more made-to-order the operation, the more challenging it becomes to manage margins. And, guess what? You are not alone in this challenge. Depending on whether you ship pallets, cases, inter-packs or pieces, supply partners across the chain will be offering price incentives on volume orders, specific merchandise, or seasonal inventories. Can you effectively manage credits, discounts, rebates and exchanges within the flow of business? What does that do to your cost of handling?
THE PROBLEM: A DISCONNECTED SUPPLY CHAIN In reality, a world-class ERP or warehouse management system cannot do it all. For a true solution, you must turn your warehouse from a cost center into an asset, by interconnecting your disconnected supply chain. Facilitating and coordinating the flow of inventory and information through your supply chain requires going beyond the warehouse. You will never maximize customer service at the lowest cost, until you create an adaptive ecosystem, connecting your extended supply chain to an ever-changing variety of customer entry points. Consider the multi-channel retail scenario. Bulk orders shipped from warehouse to store differ dramatically from single-pack orders drop-shipped to a customer. What goes in the box, on the box, how it is packaged, the preferred shipping method and any specific handling instructions must all be tailored to satisfy the customer’s expectations. In the case of back orders, a store manager may make promises the entire supply chain must keep. Any delays can tarnish the retailer’s reputation. Knowing where the product is and how quickly it can arrive is critical. But so too is having the right inventory to effectively service seasonal peaks. For instance, a grill manufacturer may secure 65% of annual sales over two months. Anticipating the season,
CUSTOMERS RUNNING THE SHOW Adding customers to the mix further complicates matters. Are you diligently tracking their purchasing histories to know what, when, where and how they purchased last? Holiday buyers who purchased twinkling lights to decorate their homes last year might appreciate an early reminder offering a “buy one, get one free” discount this year. Overlook the detail, and they may stock up with a competitor instead. Certainly, a good Customer Relationship Management (CRM) system can track information, but it’s in the follow-up where real customer service occurs. Is your CRM integrated with your supply chain, such that your forecasting program can effectively locate desired products at the lowest shipping costs, in the styles and sizes your customers demand? An effective, predictive ordering capability will help minimize handling costs and speed turnaround. But it’s personalized selling that builds customer delight and loyalty, leading to the secure sales bases every manufacturer and distributor covets.
NOT YOUR GRANDPA’S WAY OF DOING BUSINESS Consider how consumers now do business. Brick and mortar operations are being replaced with online shopping alternatives. JANUARY-FEBRUARY 2013 | www.PARCELindustry.com
Increasingly, consumers are researching online, collecting coupons before they buy. New mobile devices, including smart phones and tablets, are freeing shoppers from desktop screens and allowing them to instantly access purchasing information anywhere, any time. In three to five years, smart phones will become the preferred method of communications for most of the world. Startling new capabilities on these devices are rewriting the rules on how consumers control the process and communicate with sellers. Imagine, not long from now, a woman passing a dress shop on a casual stroll. The GPS application on her smart phone reports her whereabouts to the shopâ€™s CRM system. The system identifies her as a frequent shopper. Moreover, it intelligently discerns that one remaining piece of apparel bookmarked by this woman in a recent online browsing session is now available inside this store. The system alerts her via personalized text of a discount on the item. She enters the store to inquire. The purchase is made, and within seconds, the woman receives a thank you note with a coupon for a return visit. Meanwhile, the system instantly records the paperwork associated with the transaction and sends a replacement order from the store to the warehouse to replenish the purchased item. The cycle starts all over again.
THREE KEYS TO DISTRIBUTION MAGIC The only way this magical shopping experience can happen is through an adaptive, intelligent, supply chain ecosystem
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incorporating the right ingredients to affect the desired outcomes. This requires a paradigm shift, not only in the way warehouse management is conducted, but in the larger way of organizational change. People, equipped with automated toolsets, must be culturally indoctrinated with a customer-service mindset to respond to any order in real-time. To get there, supply chain executives must embrace three concepts as part of their new reality: adaptability, integration, and disruption. First, adaptability. Distribution is not a core function for many organizations. Over the next 10 years, more distribution functions will be outsourced, leading to a proliferation of third- and fourth-party logistics suppliers, each with their own unique processes and technologies to contend with. To succeed, a bottoms-up strategy for engaging suppliers will be required. You will need to get comfortable adapting your systems to theirs, exchanging your linear view of transaction pathways with a more integrated outlook of collaborative service. The new system will have to flexibly accommodate global product sources and efficiently deliver end products to consumers anywhere. Changes along the supply chain will have global effects, impacting cost and customer loyalty. Having an adaptable business model is essential to survival in the future. Second, you must be able to integrate your processes and systems efficiently. Todayâ€™s view of software as a solution is no longer adequate. You canâ€™t count on an ERP system,
best-of-breed WMS or CRM package to carry you through. It’s more than an interface. Separate pieces no longer suffice. For an integrated environment, you need a technology partner who understands your business, can analyze your network and offer a holistic approach that allows your team to adapt and react with a minimum of human interaction. When an event in the Philippines affects a store in Wichita, Kansas, the only way to manage is through an ecosystem that efficiently interacts with your supply chain, in response to the way your customers are purchasing now. Supply chain integration has become the new reality. Finally, you must expect disruption. Scrutinize your distribution network. How does it look now? How should it look in three to five years? Can you take on more business in a global marketplace given emerging trends and technologies? Acquisitions and divestitures up and down the supply chain may be in order. Outsourcing non-core services is probable. Where are you growing? Where are you shrinking? To create a distribution model capable of supporting long-range strategic plans, you must analyze your strengths, and those of your distribution partners, and make some difficult decisions. A hybrid approach, considering who does what best in the most efficient way, may be the ideal solution. As I survey the collection of baseball memorabilia I have placed about my office, I imagine a day soon when a trip to the ballpark prompts an urge to place an order with my dealer in
New York. I pass through the turnstiles, prepared for an afternoon at Fenway Park. The Red Sox host the Brewers. A sensor in the turnstile alerts my dealer that I’m at the game. My cell phone buzzes before I reach the hot dog stand. This just in. Two items: a baseball bat autographed by Red Sox slugger, Carl Yastrzemski, and a “mint condition” rookie card, featuring Brewers Hall of Famer, Robin Yount, now in stock. The dealer’s supply chain network has automatically located the items in two separate warehouses and placed them on hold. I touch the screen and place my order. The items are automatically placed in the shipping queue. My account is debited; a receipt comes back in text. The order goes out. The next morning, a delivery service drops a box at the reception desk at my office. It suddenly doesn’t matter who won yesterday’s contest. I’ve got a treasure to open. My dealer makes the sale without ever touching the product — a home run no matter how you slice it. p
DOUG BRAUN is the Chief Executive Officer of IBS, a world leader in distribution resource management software, providing ERP and WMS business applications for the wholesale, distribution and manufacturer/distributor markets. As CEO, Mr. Braun is responsible for translating business needs into products that solve customer supply chain problems. IBS Dynaman is a best-of-breed WMS that controls the movement and storage of materials within a warehouse and processes the associated transactions, including shipping, receiving, put-away and picking. For more information about IBS, or to contact Mr. Braun, email email@example.com.
JANUARY-FEBRUARY 2013 | www.PARCELindustry.com
Parcel Counsel By Brent Wm. Primus, J.D.
a Further look at MaP-21:
new Requirements for Brokers and surface Freight Forwarders n the previous certain steps that can be taken to reduce installment the risk and consequences of the broof PARCEL ker not paying its carrier, e.g., contracCounsel, we tual provisions, requirement of a surety took a look at bond to protect just that shipper, spot last summer’s checking the broker’s contracts with its Highway Bill, carriers, random audits of the broker’s MAP-21, and its payment practices, and similar meaprovisions relating sures. However, when a shipper doesn’t to the new require- know that its carrier is retendering loads, ment for transporta- they are caught completely off guard with tion brokers and surface claims seeming to come out of nowhere. The new requirements address this freight forwarders to have problem in several ways. First, motor in place a $75,000 surety carriers, surface freight forwarders, and bond. In this installment we will brokers will have to have a distinctive focus on the provisions relating to registration number (now known as an registration and operations of bro“MC number”) for each category of serkers and surface freight forwarders. vice. The new registration numbers must It should be noted that these provisions also include “an indicator of the type of do not apply to bona fide ocean freight transportation service for which the regforwarders or air freight forwarders, also istration number is issued.” known as indirect air carriers. The new legislation also requires that One driving force behind the pass“for each agreement to provide transportaing of the new laws is one aspect of tion or service… the registrant shall specthe “double payment problem” faced by ify in writing the authority under which the shippers and brokers as well. Simply put, person is providing such transportation or this is the situation where a shipper or service.” While this requirement would a broker tenders a load to someone who obviously apply to individually negotiated they believe to be a carrier, who then contracts, it is unclear whether it would retenders the load to another carrier to also apply to a bill of lading… which, in perform the actual transportation. the absence of an individually negotiated The shipper or broker makes good faith payments to the entity they think is contract, is also the “contract for carriage” the carrier, but when that entity fails to as well as a receipt for the goods. Another driving force is that over the pay the actual carrier, the actual carrier last few years the instances of outright comes back against both the consignor fraud have substantially increased. The and consignee of the shipment to collect persons perpetuating these various its charges. Under the current state of the shams and scams currently operate in a law, these claims are very troublesome to shadowy world where dormant authorisay the least, and in some instances can ties with low registration numbers are involve very substantial dollar amounts. purchased to create the appearance that This is very different than when a shipthey have been in business for some per tenders a load to someone they know to be a broker. When a shipper knows time. Other fraudulent practices involve that it is dealing with a broker, there are the obtaining of a new authority… which 30
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is then abandoned once the name or MC number becomes known as a disreputable or fraudulent operator. At the present time it is very difficult to determine who the actual principals are behind the license. To help solve this problem, the legislation created a new statute requiring the Federal Motor Carrier Safety Administration (FMCSA) to make “publicly available on the internet” the names and business addresses of the principals of each entity holding such registration. There is also a requirement for new entrants that a broker or freight forwarder shall employ as an officer an individual who “has at least three years of relevant experience” or can provide “satisfactory evidence” of the individual’s knowledge of “related rules, regulations and industry practices.” Further, and as a requirement for obtaining a license, a new registrant must demonstrate that it has “sufficient experience” to qualify them to act as a broker or freight forwarder. These new statutes went into effect on October 1, 2012. However, they cannot be fully implemented until the FMCSA establishes regulations to fill in the details for the practices and procedures going forward. At the time of the writing of this article in early January, the FMCSA had not yet initiated any rule making procedures. It is my understanding that the FMCSA intends to initiate rule making procedures “sometime” in 2013. It would then take at least a year or two, if not more, until the regulations were finalized and put into effect. p
Brent WM. PriMus, J.D., is the Ceo of Primus law office, P.A. and the senior editor of transportlawtexts, inc. Your questions are welcome at brent@ primuslawoffice.com.