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PARCEL

SELECTING YOUR WAREHOUSE MANAGEMENT SOLUTION PAGE 12

MARCH-APRIL 2018 PARCELindustry.com

AVOIDING THE PITFALLS OF CARRIER CONTRACT NEGOTIATION. P.14

VALIDATION VS. VERIFICATION: WHAT IS THE DIFFERENCE? P.18

IS SHIP-FROM-STORE FULFILLMENT A STRATEGY YOU SHOULD IMPLEMENT? P.20

DETERMINING THE MOST EFFECTIVE ANALYTICS FOR CONTROLLING YOUR PARCEL SPEND. P.24

SHARPENING THE FOCUS ON YOUR PARCEL OPERATION


CONTENTS /// Volume 25 | Issue 2

14 18 20 22 06 EDITOR’S NOTE Staying One Step Ahead By Amanda Armendariz

07 SPEND PERSPECTIVES Rising Accessorial Charges — Cost to Serve or Driving Behavioral Changes? By John Haber

08 OPERATIONAL EFFICIENCIES Finding ROI for New Enhancements By Susan Rider

10 SUPPLY CHAIN SUCCESS 2018 Parcel Oversize Changes: Tightening of the Vise By Mark Taylor

11 APPLICATION ARTICLE: Engineering Innovation Expands its LightSort™ Technology with Pick-Put Applications. Engineering Innovation

12 WHERE IS YOUR WAREHOUSE MANAGEMENT?

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14 AVOIDING THE POTENTIAL PITFALLS OF CONTRACT NEGOTIATION Successful contract negotiation can save shippers a significant amount of money, but if you’re not sure what to negotiate, you could be leaving funds on the table. By Brittany Beecroft

18 VALIDATION AND VERIFICATION: MAKING THE MOST OF YOUR PARCEL AUDIT When auditing, pay attention to validation vs. verification; otherwise, your results may not give you the information you need. By William Cordell

20 TOP TIPS FOR SUCCESSFUL SHIP-FROM-STORE FULFILLMENT If you’re considering implementing this trend, don’t be caught unaware; the impact on the customer experience is far-reaching. By Ryan Germann

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22 SELECTING A PARCEL FULFILLMENT PROVIDER: THE CRITERIA THAT CANNOT BE OVERLOOKED Your e-commerce business is booming, and you need a partner. What questions should you ask them? By Krish Iyer

24 USING EFFECTIVE ANALYTICS FOR CONTROLLING YOUR PARCEL SPEND Measurement is the key to effective management, so make sure you’re measuring the correct data. By Steve Beda

28 PARCEL COUNSEL De-Regulation of the Airline Industry: FedEx and Last-Mile Delivery By Brent Wm. Primus, J.D.

30 WRAP UP Global Delivery in Two Days… Oh My! By Michael J. Ryan


PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITOR AMANDA ARMENDARIZ [ amanda.c@rbpub.com ]

EDITORIAL DIRECTOR ALLISON LLOYD [ allison.l@rbpub.com ]

EDITORIAL INTERN KRISTYN SOMMERS AUDIENCE DEVELOPMENT MANAGER RACHEL CHAPMAN [ rachel@rbpub.com ]

CREATIVE DIRECTOR KELLI COOKE ADVERTISING KEN WADDELL (m) 608.235.2212 [ ken.w@rbpub.com ]

PARCEL PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2018 © by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com.

P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com

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EDITOR’SNOTE

STAYING ONE STEP AHEAD

By Amanda Armendariz

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ith the continued growth in the small-package arena (attributed, in large part, to the explosive popularity of e-commerce), it can be easy for shippers to feel as if they’re simply treading water. It’s hard enough to manage customer expectations of free, fast delivery when you’re operating on a much smaller budget than the big guys, and when you add in the continual increases in oversized charges, additional handling surcharges, and address correction fees, it can be enough to make your head spin. No wonder many shippers sometimes feel as if they’re simply surviving, rather than thriving. But there are steps you can take to stay one step ahead of your competitors, and we cover a variety of them in this

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issue. The first step is to make sure your parcel audit reveals the true state of your package spend; after all, a common saying is that you can’t manage what you don’t measure, and nowhere else might this be more true than in the small-package space. Once you have the data, it’s important to know how to analyze it in order to effectively control your spend. Data can be manipulated, so it’s important to make sure what you are evaluating is going to translate to increased savings once changes are implemented. And if these changes don’t yield enough savings for your liking, it might be time to re-negotiate your carrier contract… and we cover that too. Once you have your house in order, so to speak, it’s time to really get into the fun stuff, like potentially implementing ship-from-store fulfillment to cut down on shipping costs even further or investing in a new warehouse management solution to reduce your operational costs. All of these topics can be found within the following pages, so it’s no surprise that we feel this is one of our strongest issues yet. We’d love to hear your feedback, so please feel free to contact me at any time at amanda.c@ rbpub.com. After all, we want our readers to see us as a valued partner — there is no more worthy goal than that, and whether we are attaining this goal or falling short, we want to hear from you. As always, thanks for reading PARCEL.

EDITOR’S PICK

Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!

Keeping Up with Amazon: Keys to Evaluating a Fast Shipping Model By Emily Ball

The Latest Facts About Online vs. Offline Commerce

Parcel Rates for 2018 Are Not as Advertised, Study Shows By Stephen Rolf


SPENDPERSPECTIVES

RISING ACCESSORIAL CHARGES – COST TO SERVE OR DRIVING BEHAVIORAL CHANGES? By John Haber

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nnual shipping rate increases are an expected occurrence for shippers and customers alike. However, when it comes to the numerous accessorial fees, the reasoning behind how much they may or may not increase, as well as the introduction of new fees, may be a bit murkier. ADDITIONAL COST TO SERVE FedEx and UPS want everyone to believe that it’s getting more expensive to serve their customers, and they are right. Going the last mile can be costly, particularly as noted during peak season. In 2017, UPS introduced the first peak surcharge to help forecast and manage increased volumes across its network, which is typically strained during this period. Fuel surcharges are another example of additional cost

to serve. Both FedEx and UPS implemented this extra charge years ago when the price of oil began its volatile movements. FedEx has over 60,000 motorized vehicles and 650 airplanes, while UPS has 108,000 package cars, vans, tractors, and motorcycles, including 8,500 alternative-fuel and advanced technology vehicles. In addition, UPS has about 239 jet aircraft. As fuel surcharges are used to offset rising fuel costs for vehicles, FedEx and UPS are introducing more and more alternative-fuel vehicles. Residential deliveries are another area that is costly for FedEx and UPS. Online ordering has tipped the last-mile delivery location to favor home deliveries. For UPS, in particular, the overall percentage of such deliveries hovers around 50%, and for FedEx, it is just slightly below that. These types of deliveries tend to take more time to deliver and can also result in multiple delivery attempts if the customer is not home. FedEx and UPS continue to expand and encourage alternative commercial delivery locations for residential deliveries, which are less expensive for them. DRIVING BEHAVIOR CHANGES A relatively new concept here in the US, alternative delivery locations can be considered a change in consumer and business behavior — a third-party location for pickup or delivery, or perhaps even a locker option versus door step delivery. Residential surcharges can be considered a cost to serve as well as a way to drive behavioral changes.

Another surcharge is an address correction fee for situations in which FedEx and UPS have to find the correct ZIP Code, the correct street number or name, or re-format a shipping address to meet the shipping company and/or international postal standards. Customers can typically correct this themselves by investing in address verification software. Lastly, the Oversize or Large Package surcharge is another means of driving behavioral changes. Once again, thank e-commerce. Online orders of large items such as furniture, mattresses, and exercise equipment are growing; however, they do not fit neatly in FedEx or UPS sorting facilities. Designed for smaller packages, FedEx and UPS have implemented surcharges for these larger, bulkier items. For 2018, FedEx increased its Oversize surcharge 10.3% from $72.50 per package to $80.00 per package. UPS increased its large package surcharge from $70.00 to $80.00 in 2018, a 14.3% increase. Furthermore, effective July 8, the large package surcharge for any US domestic package delivered to a residential address will be $90. Shippers need to understand whether changing behaviors can help lower costs or whether the costs are just a part of doing business. It is important to understand them as well as to make necessary changes to avoid unnecessary charges.

John Haber is the Founder and CEO of Spend Management Experts. Contact John at solutions@ spendmgmt.com.

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OPERATIONALEFFICIENCIES

FINDING ROI FOR NEW ENHANCEMENTS By Susan Rider

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s managers in the supply chain, many have complained that it’s very hard to get the C-level executives to understand the investment needs for distribution facilities. Whether that investment is time, money, or simply shared information, many company executives do not understand the need or the priority of the supply chain. One vice president of distribution told me that it wasn’t until their antiquated equipment broke down and they were not able to ship for three days that the executives realized the neglect his facility experienced. Then he also said, “Thank goodness I kept records of the request year after year, because the next complaint was, ‘Why didn’t you tell us this was a dire necessity?’”

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This issue is a fact of life for many of you, and it’s not always easy to get the attention or capital investments needed to continue to raise the bar in your facilities. DON’T UNDERESTIMATE THE IMPORTANCE OF ROI Many people put together a return on investment (ROI) analysis for the particular software or equipment being desired, but oftentimes, there is not an evaluation on the other side, meaning executives may not fully understand the possible consequences if this investment is not made. There are obvious areas to review from ROI preparation, but there are some that aren’t so obvious (for instance, the impact on the accounting department of automated, electronic information or the reduction of storage space). Below are a few that may be minimal but will add up over a year: } Paper cost } Auditing cost } Overtime cost } Reduction of safety stock } Reduction of shrinkage/loss Don’t forget to emphasize the elimination of maintenance costs for excess or obsolete equipment (one company recently justified a new WMS because although the old system gave them everything they wanted, it was written in Cobalt. To find and pay premium people to support such a system was very expensive.) New equipment can also help you

by providing: } Reduced shelf life losses } Reduced product damage and returns } Reduction of expedited shipments because of increased speed in order picking When putting together your proposal, don’t overlook indirect labor. In other words, always follow the paper trail and the process flow, and you will probably find some areas that you omitted that need to be included. In the receiving area, many operations have office employees in pre-receiving. Sometimes, with an investment, this process can be reduced or eliminated. Also take a look at expenditure avoidance, such as the need to avoid adding more people, more equipment, more space, new buildings, more fringe benefits, more temp service cost, etc. Less people cost is usually used, but what about less equipment needed for those people? There is also the reduction of worker’s compensation, which can add up. QUALITY CONTROL Many companies are doing 100% quality assurance. There’s a reason this is being done, and it usually means that many errors are taking place upstream. If you fix the problem upstream — and certainly if you are investing in new processes, equipment, or software — this will help, and 100% QA becomes unnecessary.


Manifesting is another area that is overlooked. If all you need is increased printer speed or another printer to increase volume and reduce cost, this becomes feasible. A new design or equipment may increase the speed with inline scanning or scan-and-go ship labels with integrated carrier label generation. Seems like a small gain, but if multiplied by the number of packages per day/week/ month/year, it becomes a bigger number. Don’t overlook the intangible areas such as better customer service, customer retainment, reduced packaging cost, reduced shipping time (i.e., better customer service). It is difficult to put a number on some of these items, so why not ask the executive? How much is one customer worth? How much is a 25% increase in customer satisfaction worth? Usually, the marketing department can come up with some numbers that it has used on similar presentations. Pull in these valuable resources to gain support and recognition for your supply chain. Very successful companies understand the value of the supply chain. If you don’t get the product to the

customer, they cannot buy it. Bottom line. But not all do; therefore, it becomes our job to educate the executives on our business. You may want to invite the top executives to your facility for an information share once a year. Call it an Appreciation Day. Ask them to meet and greet your managers while they are given a brief but fun and interesting presentation of what makes warehousing and logistics work. Show how certain decisions in the board room may impact your facility and vice versa. Of course, some might say, be careful what you ask for — do you really want to shine the spotlight on your

operations? I’ve always been a proponent of no risk, no gain, but it is a factor to consider. You may also want to educate them on the continual changes in shipping rates, accessorial charges, technology, and other new ideas. Explain the way that your people stay current is to attend industry conferences and learn the newest and greatest ideas.

Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at susanrider@msn.com.

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SUPPLYCHAINSUCCESS

2018 PARCEL OVERSIZE CHANGES: TIGHTENING OF THE VISE By Mark Taylor

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ith the 2018 general rate increase, FedEx and UPS are further tightening the vise for oversize packages. What has changed? To start, below is a comparison of 2017 vs. 2018 parameters for oversize packages. Overall, not only are fees increasing to $80 list for both carriers, but the definitions are tightening, and the FedEx

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minimum billable weight is changing (FDX). FedEx is shaving 12” off of package length qualification for oversize, and UPS is adding this condition. Additionally, and probably of higher impact, FedEx is changing the minimum billable weight for oversize packages to 90 pounds; this has been the case for UPS for a few years, but it is a new, somewhat hidden, change for FedEx this year. For an example, if a package qualifies for oversize according to FedEx’s definition, it will receive an $80 charge (list rate). In addition to that, the package will be billed automatically at no less than 90 pounds. That means that even at the agreed-upon custom DIM factors, shippers may still see an increase with this clause. WHO IS MOST AFFECTED? Shippers of specialized goods that meet the first and any of the other following conditions: 1. Have long or large packages 2. Have no waiver for the 90-pound minimum term in their agreement (which is nearly EVERYONE who ships FedEx) 3. Have lightweight/low density freight (e.g. couch cushions, cardboard retail displays)

4. Ship to residences (where LTL isn’t generally an option) 5. Need guaranteed delivery time/using Express services Determining the impact of this clause will require looking at your 2017 package dimensions and assessing what packages fit into both of the new definitions of oversize, in addition to examining packages that are less than 90 pounds in billed weight. There is a compounding effect of this change with the dimensional weight factor that was changed to 139 last year. It’s clear that FedEx and UPS continue to increase prices for larger boxes. We’ll eventually see an inflection point of more shippers utilizing LTL for these shipments. However, until there are better, more available home delivery services for LTL shipments, shippers — and, ultimately, the consumer — will pay a premium to delivery these via parcel.

Mark Taylor is a Transportation Project Manager at enVista and a recognized transportation expert. With a background that includes operations, transportation network engineering, new service development, and parcel spend management, he brings a unique perspective to managing parcel programs. UPS


APPLICATION ARTICLE

Engineering Innovation Expands its LightSort™ Technology with Pick-Put Applications. Engineering Innovation Inc. (Eii) initially designed the LightSort™ Sort-to-Light for the consolidator market to increase productivity and reduce errors while sorting lightweight parcels and poly bags for induction to the U.S. Postal Service. In 2017, Eii received the Mailing Innovation and Digital Award from the USPS for this solution. Continuing to improve this low-cost and easy-to-implement technology, Eii is adding functionality to accommodate “picking” and “putting” applications, benefiting the reverse logistics and fulfillment industries.

In order picking applications, bin locations can house up to 45 SKUs that can be quickly retrieved. Pickers scan the order sheet and the closest SKU locations lights up. After the merchandise is pulled, a barcode for the bin location is scanned; the light for that location switches off, and the next location lights up. When the last SKU for the order is picked, a print on demand label at the end of the line can be printed. For operations wanting to use two or three pickers, the racks can be fitted with dual or triple light displays with different colors.

The original LightSort™ Sort-to-Light uses a modular sorting rack with bin locations outfitted for sacks or shelf stacking. When the sorter scans the package barcode with a hands-free wireless ring scanner, the correct bin destination lights up. This eliminates guesswork so sorters can get the package to the right location every time. When a bag is full, the operator can quickly unhook it, push it out the back and lift the next one into place.

In order putting applications, each bin location on the cell represents an order. SKUs are retrieved from inventory and brough to the cell one at a time in hampers or a skid. At the Put cell, SKUs are then scanned individually and order locations light up one at a time until that SKU is depleted.

For returns processing, Eii business development specialist, Clark Cassell, says, “LightSort is a great fit for companies wanting to apply simple and cost effective automation to what can be a messy problem. You scan incoming package barcodes and quickly place them into a rack location for later re-location in the warehouse. The key is taking out the guesswork, reducing error and sorting rapidly.” With the rapid rise of e-commerce, fulfillment operations are being challenged to handle ever-increasing returns volumes. To meet that need Eii has enhanced its LightSort™ Technology for “picking” and “putting” scenarios, debuting LightSort™ PickTo-Light and LightSort™ Put-to-Light, designed for high volume orders comprised of smaller, lightweight products.

With LightSort™ Technology Eii has once again shown that throwing more automation at a problem isn’t always the optimal approach, especially if that automation is prohibitively expensive. This system leverages low cost technology, giving operators the opportunity to do their job more quickly with greatly reduced error and less stress.

www.eii-online.com/products/lightsort 800.350.6450, extension 4110 Sales@eii-online.com


SPONSORED CONTENT

a WHERE IS YOUR WAREHOUSE MANAGEMENT? You are all aware that there are many ways that warehouse management affects your operation, and without question, choosing the right partner can make all the difference. During peak times and overall as your business continues to grow, your warehouse will require a more efficient process to help fulfill orders. No company wants to deal with slow processes, increased costs, and the eventual loss of customers. The right partner will help streamline your warehouse, making it an efficient part of your overall supply chain — and maybe even a profit center. But the selection process to find a partner can be a bit overwhelming; after all, there are a lot of options out there, and over time, you may need to review your choices. In this sponsored content piece, we are putting the spotlight on a select number of the industry’s solution providers that will help your warehouse processes succeed. When you reach out to them, let them know you saw them in PARCEL. 12 PARCELindustry.com  MARCH-APRIL 2018

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ASC SOFTWARE

Founded in 1989, ASC has extensive experience in solving complex supply chain challenges for some of the world’s largest companies. These global companies include food and beverage manufacturers, consumer goods, pharmaceuticals, medical devices, and highly-complex high-volume 3PLs. Designed by supply chain professionals, ASCTrac® is an award-winning solution. It has won “Top 10 WMS of all Solutions for 2018,” “Top 100 Logistics Solution” for over 15 years, and several others. It is an affordable “best-of-breed” supply chain execution solution flexible enough for any size business for manufacturing, distribution, and/or 3PL. Being agile and flexible, ASCTrac® can connect to any system, subsystem, or any finance system for a total collaborative solution — or it can function totally independent. Some of our customers use the ASCTrac® solution for extreme heavy-duty operations. For example, ASCTrac® will easily support shipment volumes over 170,000 orders per day in situations where 100% accuracy is the only acceptable solution. In combination with ASC’s warehouse control system module (WCS), automated picking is seamlessly integrated for high-volume


customer orders. Or, add any one of the 30 optional modules to complement your supply chain system. Throughout planning, execution, and financial, ASCTrac® “Connects the Dots in Your Supply Chain”®. www.ascsoftware.com

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ENGINEERING INNOVATION

Since 2006, Engineering Innovation, Inc. (Eii) has been a market leader in the development of workflow automation solutions for rapid package processing. Eii’s hardware and software systems enable clients to enhance effectiveness while reducing shipping and operational expense. As more consumers expect faster, more affordable shipping, Eii provides warehouse solutions that can scale as you do. With several modular and linear designs, Eii offers your operation a smaller footprint with an easier, more cost-effective installation. Whether you need a custom configuration that adapts to your current system or a whole new setup, Eii can find an automated processing solution that fits your budget. Eii provides warehouse solutions that utilize scan, print, apply and sortation technology to your workflow to facilitate the receiving, storing, shipping, and the delivering of goods. We organize complex business logic into simple operator workflow, making it easy to act on the information you capture so you can respond precisely to your customers and the market. Eii warehouse solutions include: EZ-WorkDesk™ and Chameleon™ Parcel Sortation platforms for high speed processing of parcels for induction into both warehouse and shipping distribution networks. The versatile LightSort™ Sorting Solutions give you the flexibility to choose from a wide array of options to increase accuracy and efficiency with put, pick and sort-to-light capabilities. www.eii-online.com

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INTERLINK TECHNOLOGIES

Interlink Technologies is a leading Warehouse Management Systems (WMS) provider focused on technology that improves warehouse operations to increase profitability and productivity for small, medium, and largesized organizations. Real-time inventory tracking and location/quantity information are just the beginning of the functionality provided by Interlink’s warehouse management.

Following your business rules, Warehouse-LINK® ensures logical and verified putaway and picking for accurate shipping and reduced returns. Automated cycle count painlessly confirms inventory quantities and eliminates costly, time-consuming physical inventory counts. Cross dock allows you to bypass putaway and move the product from receiving directly to shipping, getting the product out the door faster. Managing workers is easier by using the WMS to direct and assign tasks to workers and using the predictor tool to move workers around during busy times. Warehouse-LINK® collects product attributes such as case and item height, width, depth, and cubage to optimize picking, pack out, and shipping. Assign carriers to dock doors and orders to carriers. Print shipping documents before or after the truck is loaded. Integrate with scales, conveyors, and bundling equipment for even more improvements to parcel shipping. Discover the full potential of your warehouse with Interlink. www.thinkinterlink.com

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TRANSPORTATION INSIGHT

Transportation Insight leverages multimodal insight and expertise to engineer technology-driven strategies that optimize the end-to-end supply chain. Specializing in data solutions that accelerate parcel and e-commerce supply chain performance, the Enterprise Logistics Provider’s services are underpinned by networked intelligence and a proprietary parcel platform of audit (invoice, compliance, service), engineering, and advanced analytics. Robust, blended technologies including TMS, WMS, and interactive supply chain analytics power customized solutions to augment efficient carrier network alignment, process improvement, cost reduction, and risk mitigation. Warehouse sourcing, sourcing of secondary packaging, and lean consulting provide added value. As the first 4PL invited to join International Warehouse Logistics Association, Transportation Insight offers multi-modal transportation expertise that empowers shippers to respond quickly and confidently to e-commerce demands, growth, and seasonal variables impacting inventory and distribution. Transportation Insight clients leverage supply chain modeling, network design, order fulfillment strategies, pick path logic, warehouse segmentation tactics, and WMS infrastructure

to facilitate improved e-commerce service that protects and enhances the customer delivery experience. With more than 150 North American warehouse locations — including e-commerce-ready facilities in all major markets — Transportation Insight’s warehouse network meshes seamlessly with its domestic and international platforms to offer total supply chain solutions within one operational ecoscape. www.transportationinsight.com

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VISIBLE SUPPLY CHAIN MANAGEMENT

Since 1992, Visible Supply Chain Management has provided customized solutions for B2B and B2C organizations around the globe. Over time, Visible has evolved into the business to call for e-commerce enterprises that need to ship anything, anywhere, any time. Due to smart growth and strategic acquisitions, we offer proprietary technology systems, shipping and delivery, custom packaging, freight, kitting, fulfillment, distribution, logistics and warehouse management tools. We now serve over 20,000 customers worldwide and move more than 1.6 million packages per week. We also deliver to over 135 countries and utilize four, bi-coastal warehouses to guarantee two-day delivery within the continental United States — all while maintaining 99.98% accuracy and saving clients up to 41.2% on shipping rates. We lead with solutions that are clearly Visible. www.visiblescm.com

WAREHOUSE MANAGEMENT SOLUTION COMPANIES ASC SOFTWARE

www.ascsoftware.com ENGINEERING INNOVATION

www.eii-online.com

INTERLINK TECHNOLOGIES

www.thinkinterlink.com

TRANSPORTATION INSIGHT

www.transportationinsight.com VISIBLE SUPPLY CHAIN MANAGEMENT

www.visiblescm.com

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AVOIDING THE POTENTIAL PITFALLS OF CONTRACT NEGOTIATION

Successful contract negotiation can save shippers a significant amount of money, but if you’re not sure what to negotiate, you could be leaving funds on the table.

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ow many of us negotiated our carrier agreement only to get the first invoice and think, “Where are my savings?” It is crucial to watch for pitfalls that can come with changing a contract. RATE CAP A rate cap does essentially as the name implies — caps the maximum rate increase on the list rates. The maximum increase on the rate only applies to base rates and minimums — not additional charges. Why is that important to

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BY BRITTANY BEECROFT remember? If you sell fishing poles and you negotiated a four percent rate cap, you are still getting hit with the full Additional Handling increase. If you don’t have an agreement with flat minimums, your attention to the cap is not done. You can negotiate down the list rate to ensure it only took that four percent increase, but you’ll likely have minimum reductions on your contract. If those reductions change from the last time you implemented a new agreement, your list rate could cap at a four percent increase, but your minimum charge increases 14% due to the change in the reduction.

A good takeaway for all shippers — especially lightweight shippers — is to watch the minimum net charges. You can effectively cap rates by negotiating a competitive minimum reduction. But if the carrier is more willing to offer the rate cap versus the minimum reduction, be sure the rate cap applies to, and is implemented on, minimum charges as well. RATED WEIGHTS When considering dimensional weight charges (“the DIM,”) and, more importantly, how to reduce them, we need to first know how to calculate these charges. Instead of immediately targeting the surcharge (yes, the DIM is an accessorial), let’s understand what drives it — and how we can reduce it outside of the contract.


If the dimensional weight is greater than the actual weight, you’re likely getting charged DIM weight, which becomes your billed weight. Simply put, this means that your list rate will increase. Your package may weigh eight pounds, but given the box size, it dims to 30 pounds, and it is now seen as a 30-pound package, so it is charged at the 30-pound list rate, almost quadrupling your actual base rate. You need to negotiate at the 30-pound rate regardless what the actual weight is. The challenge for many shippers is knowing what dimensions exist in their warehouses and what the actual weights of those packages are. We receive manifests of tracking numbers and associated dimensions, but without knowing actual weight, we can’t quantify the potential cost increase. And many warehouses do not own — or lack the manpower — to employ software to capture and store the data. How do shippers solve the unknown? They are looking to cubing and weighing systems.

Automated dimensioning systems optimize freight handling by quickly and accurately obtaining package dimensions, storing the shipment data, and allowing shippers to rapidly sort and target problem packages. We see static systems — collecting data on stationary items and sending the metrics to the warehouse for freight manifesting. But packages move, so we need a way to review data when the boxes travel on conveyor belts. By using in-motion scanning systems shippers, we can review length, width, and height. MINIMUM BILLABLE WEIGHT If you ship with FedEx and use its packaging, you are subject to the minimum billable weight (MBW) surcharge. MBW applies to the following (per the 2018 FedEx Service Guide): A minimum billable weight of two pounds applies to the FedEx small box, FedEx medium box, FedEx large box, and FedEx extra large box for

US, US export, and US import-rated shipments A minimum billable weight of nine pounds applies to the FedEx tube for US shipments A minimum billable weight of nine pounds applies to the FedEx tube for US export and US import-rated shipments What does this mean? Let’s say you ship a one-pound box, Standard Overnight, to Zone 6. The 2018 list rate for this box is $57.23. When you bump it up to two pounds, the rate is now $64.63. That’s over a 12% increase on the list rate per package before you apply any applicable fees. The tube can be equally expensive. We’re sending some promotional material Standard Overnight to Zone 6. The actual weight of the tube is one pound at a $57.23 list rate. Applying MBW the billed weight is nine pounds at now a $109.79 list rate — almost doubling

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the base rate. And if we didn’t realize the impact of MBW, we probably didn’t negotiate discounts at the nine-pound weight break, so we’re not reducing costs as efficiently as we could. However, this pitfall can be avoided. Billed weight reflects package density. MBW is a negotiable surcharge, like Dimensional Weight. Be familiar with your discounts at the minimum billable weights. FEDEX RESIDENTIAL FEES As shippers, we may see our Ground Commercial rates lower than Home Delivery’s and choose to put everything in the Ground Commercial network, allowing FedEx to then determine commercial versus residential charges. Or we know UPS has one residential fee for Ground, not realizing that with two separate networks at FedEx come two separate fees. The Ground Residential fee at FedEx is not a hidden cost, but it can easily be a costly oversight during negotiation. Residential versus commercial delivery locations play a role in the fee designation. FedEx offers a delivery classification matrix to determine if a delivery is residential or commercial. A church is considered a commercial location and, therefore, assesses commercial fees. A nursing home is residential, but any package over the 70-pound limit will now move as a commercial shipment and assess the higher fees. Can we negotiate this Ground Residential fee? Yes, we can (assuming we are using the networks correctly). Since the package is now moving in the Commercial network, it will not be delivered free of charge on Saturday, as it would have been with Home Delivery. Can we avoid this Ground Residential fee? If you ship anything Home Delivery over 70 pounds, a good rule of thumb is no, you cannot avoid this fee. But you can monitor it. FedEx offers an address validation API called FedEx Address Checker. DEFERRED INCENTIVE AND THE MINIMUM The deferred incentive, more commonly 16 PARCELindustry.com  MARCH-APRIL 2018

known as a rebate, is a quarterly incentive program that offers shippers payment as a percentage of net transportation spend. The incentive is generally structured as a percent back at a certain tier level. Rebates reflect incentive off net transportation spend, less fuel surcharges paid. The spend excludes surcharges and any applicable accessorials. The incentives are calculated quarterly, and within 30 days after the end of period, UPS sends a check to the customer — if incentive has been earned.

can be the most immediate way to offset the impact, calculating your impacted spend is not always the easiest method for mitigation. We can negotiate the verbiage in the addendum — removing the clause about the minimum. We can negotiate the spend that contributes to the tier calculation so accessorials and surcharges are included. Multiple tiers can be considered, so we have flexibility in spend should shipping profiles or commodity metrics shift.

Billed weight reflects package density. MBW is a negotiable surcharge, like Dimensional Weight. Be familiar with your discounts at the minimum billable weights. How would we get “got” with this? With the rebate, the culprit can be the minimum. Packages that hit the minimum net package charge will contribute to the deferred rebate revenue tier calculations. However, the minimum language stipulates the rebate amount will not be paid on these packages. The rebate incentive is subject to all applicable minimums in all active agreements. What does that mean? Let’s say we receive a deferred agreement offering a 4.8% rebate off the net spend. Our net spend, with all transportation spend included, is $667,106. Removing the net spend impacted by the minimum yields a total $536,205 counting towards the rebate. We expected a rebate check for $32,021. Instead, we receive $25,737. Certainly not a small sum, but if we are earmarking our rebate checks for salaries or technology growth, we may miss our targets and KPIs. Can we negotiate around this impact? Yes, we can. We can proactively remove the impacted spend during our negotiation so we are better prepared to discuss the rebate threshold. While this

Addressing the minimum itself can be the best way to mitigate impact. The less volume hitting the minimum equals more spend contributing to your tiers. If you are a lightweight shipper, the rebate is not the only potential issue with your agreement. Actual versus effective discounts should be reviewed. Looking at the 2018 Zone 2, one-pound minimum for Ground, we see $7.57. If we ship a four-pound package to Zone 4 and see a 40% discount on our agreement, our net rate is $6.52. This is a good rate, except your minimum kicks in, and your shipment is now $7.57. One dollar might not be much — unless 14,000 shipments hit that minimum. The structure of the agreement may not have been intended to getcha, but it gotcha. And at $14,000, plus any risk to the rebate, it gotcha good.

Brittany Beecroft is Director of Parcel at Target Freight Management. She can be reached at 412.532.0161 or bbeecroft@targetfmi.com.


VALIDATION AND VERIFICATION: MAKING THE MOST OF YOUR PARCEL AUDIT

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short time ago in an introductory lecture, a professor gave his students a simple lesson. He said, “Everyone, get out your calculators and enter the following: ‘One plus one multiplied by three.’ What do you get?” Some students responded with “Six!” while others said, “Four!” He explained that any system, whether a calculator, a machine, or a piece of code, will generally always return a value given some inputs. The code has no concept of whether the output is “right” or “wrong.” This process of validation and verification is left to the error-prone humans. The same concept holds true in the world of parcel. Here, validation looks at, “Did I get what I paid for?”, whereas verification looks at, “Did I request the right thing?” A common factor seen in the attempt to answer these questions is the utilization of a parcel audit. A traditional parcel audit can help to shed light on two issues regularly seen with high-volume shipping: Everything done internally is correct,

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but the carrier has made a mistake. (Validation) The carrier has shipped the package exactly as specified, but the specifications given were wrong. (Verification) The first issue is what most people envision when they think of a parcel audit. By giving a package to a carrier, one has agreed to pay a set amount in exchange for a particular service. The issue arises when the charged amount does not match what the audit claims it should be. A credit can then be requested for the difference between these expected and billed amounts. This is akin to simply checking your bills each month before paying. In a recently published case study, one company saved $11 million when an error in the carrier’s billing service mistakenly dropped all discounts, billing the company’s packages at list rates. While this is a fantastic example of the cost-saving capabilities of a parcel audit, it is the exception rather than the rule. In that same study, it’s said that a company will typically see a savings of less than one percent of their annual parcel spend

through an audit. This reinforces the idea that a traditional parcel audit is essentially an insurance policy for minimizing the downside of billing errors. Where the audit really shows its value is when inefficiencies exist outside the carrier’s involvement. By using the data obtained through a parcel audit, one essentially has an unlimited number of test cases that can be used to verify all decisions made throughout a shipment’s processing. Most companies today are investing a significant amount of time and money into optimizing their shipping networks with the hope of discovering where costly inefficiencies exist. A quick and popular solution is to include a rate-shopping software in the order fulfillment process. This software calculates the most cost-effective carrier and service combination available using the supplied rates and values. However, it would be unwise to blindly trust the results of these calculations, since they are subject to the same types of error as the calculator story shared earlier. A rate-shopping software’s utility directly relies on its parameters. Criteria


By William Cordell

like a DIM factor, a base rate, accessorial charge amounts, various threshold values, zones, etc. must be properly coded for business rules to be executed effectively. Most of these values are calculated and put into the system by hand, leaving an assortment of potential errors for which the software itself has no capability to identify. The audit as described in the first instance will validate the carrier’s billing. A business rule error in this part of the process will go unnoticed. By further analyzing the audit data after making these changes to the rate-shop system, one can verify whether the package was properly categorized. Recreating this process can identify those packages where the result does not match the intention, helping to identify the error. Another example of how an audit may be used in verification is its ability to actively monitor the compliance of third-party vendors. Vendors are often responsible for sourcing products that have an established set of shipping rules. These rules are used in determining a package’s service based on desired commit times, which can change seasonally, stipulating the amounts of insurance to provide

based on the product being shipped, or determining whether a shipment should be parcel or LTL based on its dimensions. Since any potential mistake would be due to incorrect specifications, a deviation from these internally supplied rules will go unnoticed because any audit seeking to validate these values will simply match what the carrier has billed. By recreating the process with those internal rules applied correctly, deviations can be identified quickly and the problems fixed in order to avoid these additional costs in the future. In most cases, the cost difference can be charged back to the vendor, allowing the parent company to recoup the value of the mistake. The data obtained from an audit can also be used to manage the various lanes of spend within a network to the level of granularity required. For example, say a company with two distribution centers (DCs) currently sources a specific line of product completely out of its East Coast DC. Because of various constraining factors, the company decides to source this product out of its West Coast DC as well, but only under a specific set of circumstances, such as certain recipient

ZIP Codes. With an audit and spend management system in place, this data can be analyzed to reveal how closely the actual shipping lanes matched the projected sources. These analytics also assign a concrete value to the amount of savings or additional costs incurred from this decision. This process can then be repeatedly refined to achieve the most optimized network possible. In the examples above, the audit transformed itself from a simple insurance policy focused only on validating a carrier’s billing into a valuable analytical tool, which can verify business rule implementations and seek out the internal causes of inefficiencies, allowing continuous optimization of the network.

William Cordell is Solutions Engineer, Green Mountain Technology. His focus is on connecting with clients and developing unique solutions to address their needs by performing analyses on their parcel shipping data, modeling cost reduction scenarios, and developing process improvement opportunities. MARCH-APRIL 2018  PARCELindustry.com 19


By Ryan Germann

TOP TIPS FOR SUCCESSFUL SHIP-FROM-STORE FULFILLMENT If you’re considering implementing this trend, don’t be caught unaware; the impact on the customer experience is far-reaching.

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ith online sales continuing to grow at double-digit rates, retailers are looking for innovative solutions to improve the customer experience as well as minimize costs. A trending strategy is the implementation of ship-from-store (SFS) fulfillment. This fulfillment model benefits brick and mortar retailers by improving speed-to-customer, capitalizing on existing retail store inventory, and reducing costs associated with fulfillment, such as shipping. Cost reduction is at the core of this fulfillment strategy, and it is imperative for retailers as price wars are waged through online marketplaces. Let’s take a look at one opportunity to reduce cost by analyzing

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the economic impact to deliver a 30-pound package being shipped by FedEx. A Zone 5 shipment for that package, sent from a centralized fulfillment center, would cost $21.84, while a Zone 2 shipment, sent from a local store, would only be $14.28 — a 35% difference! Multiply that out over thousands of packages, and it’s easy to see how the financial impact to the retailers becomes significant. TIME TO EMBRACE THE CROSS-CHANNEL EXPERIENCE As consumer behavior is changing, retailers can no longer expect potential customers to walk in their stores for certain items. Products that are difficult to get home (large and/or heavy), as well as consumable products that need

replenishment, are likely candidates to be ordered online and fulfilled directly to the consumer’s home. The good news for brick and mortar retailers is that a positive online experience strengthens customer loyalty and drives them back into stores for items that consumers prefer to see and touch prior to purchasing. By focusing on cross-channel customer experience, brick and mortar retailers also leverage their distinct advantage over pure-play e-commerce retailers — their stores! This advantage is not only in the physical store experience, but also in the opportunity to use the locations as mini-fulfillment centers. CHALLENGES IMPLEMENTING SFS If this implementation feels daunting


cashier, customer service, shelf stocker, and others. Unlike fulfillment center employees, they are not trained or focused on “pick-to-ship” activities. Without proper repeatable, standard packing procedures, the inevitable mistakes can result in higher damage rates, expensive repeat fulfillment, and negative impact to reorders and lifetime customer value/retention. Potentially higher shipping costs also come into play when the retail store employee packaging selection negatively impacts dimensional shipping weight costs. Packaging decisions also can be negatively impacted due to extremely tight space constraints. The store may be forced to limit the number of box sizes available, as well as reduce the number of cushioning and void-fill options.

to you, you’re not alone! One significant challenge is dealing with space constraints. Retail stores typically have fewer than 1,000 square feet of back-of-store space, and that space is most likely already allocated to another activity. A dedicated space is needed to process and stage orders, store packing materials, and house a packing station and a holding area (between 50 and 500 packed boxes) for parcel carrier pickup. The latter can be particularly challenging over busy weekends, when boxes accumulate prior to Monday pickup. The next challenge is the picking process. In a store environment, picking is done from shelves or hanging racks. This is typically less efficient than the pick-and-pack from bins that takes place in fulfillment centers. Both picking — and the packaging process that follows — is further complicated by retail store employee tenure and skillset. With retail tenure frequently less than two years, coupled with the influx of seasonal workers during peak holiday periods, labor force skills and training play a significant role in the success or failure of SFS programs. Store associates have duties that are diverse. They can range from manager,

SIX TIPS TO BE STELLAR Currently fulfilling from store or thinking of implementing? These process and packaging tips will help you avoid mistakes others have made in the past! 1. Simplify the Process. Seems obvious, but there is often a disconnect between stores and corporate over what is supposed to happen and what actually happens. The process for picking and packing needs to be intuitive and supported by standard operating procedures. It should also be easily scalable to meet peak requirements. Choose the smallest number of packaging mediums to limit store employees’ opportunity to make mistakes. 2. Maximize Space. First, determine how much space is available for packing at each retail store. Minimize space requirements to leave room for revenue-generating activities. Choose packaging that requires minimal storage space. Even better, choose one that can be on-demand and almost eliminate storage requirements. 3. Deliver Trust and Excitement. The consumer experience begins with unboxing. Your store employees are brand ambassadors when packing — ensuring your customers’ brand experience is positive when they open the box. Make employees aware of their important role. Aesthetically pleasing packaging increases perceived product

value and connects customers to your brand. All of these factors contribute to increasing customer lifetime value (and your marketing team will love you!). 4. Save Some Dough. Parcel shipping charges used to be solely driven by weight. Now, it is a combination of box size and weight. Oversize, non-conforming packages are also subject to additional handling surcharges. It is critical that retailers understand the impact of the physical characteristics of their packages when it comes to shipping costs. Choosing the right packaging oftentimes reduces parcel charges. 5. Free Up the Phone Lines. Your customers dread spending time requesting a replacement product because the original arrived damaged. You hate paying not only for extra customer service, but also the replacement cost, including: shipping, packaging, warehouse labor, and product. It is expensive to repeat fulfillment, and the effect is even worse if that customer is lost due to the negative experience. Selecting the right packaging (cushioning, block/ brace, surface protection, wrapping, void-fill, etc.), will help you reduce or eliminate these occurrences. 6. Total Cost over Price. Stop using price per foot to compare packaging costs. What you’re seeking is the lowest cost to adequately protect your products during transit — and your process for evaluating packaging cost should reflect this. First, figure out the required material usage for each packaging medium per pack, and consider things like processing labor and likelihood of damage. MIND BLOWN; NOW WHAT? Hopefully you received a couple of pointers from this article to consider as options for improving your SFS fulfillment strategy. Remember, SFS fulfillment is constantly evolving, and your process should as well.

Ryan Germann is eCommerce Segment Manager at Pregis, a leading provider of innovative protective packaging materials, equipment systems, and surface protection. For more information, visit www.pregis.com. MARCH-APRIL 2018  PARCELindustry.com 21


SELECTING A PARCEL FULFILLMENT PROVIDER: THE CRITERIA THAT CANNOT BE OVERLOOKED Your e-commerce business is booming, and you’re on the lookout for a fulfillment partner. What questions do you need to ask to ensure this partnership is a success?

By Krish Iyer

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here comes a point in nearly every growing e-commerce merchant’s journey when the topic of scalability must be explored. Scalability might take many forms for this growing business, but managing parcel shipping becomes a critical component in managing customer expectations and experience, as well as maintaining profitability. Many merchants elect to utilize a parcel fulfillment partner, allowing them to concentrate on business growth and customer service as core competencies. With that said, there are several considerations e-commerce merchants must take into account when selecting the right parcel fulfillment partner. HOW DO THEY INTEGRATE WITH ORDER SOURCES AND/OR TECHNOLOGY CURRENTLY IN PLACE? Merchants generally start to receive their e-commerce orders from a variety of platforms, such as Big, Commerce, Shopify, Magento, Volusion, Woo Com-


stock keeping units (SKUs), packaging, temperature control, and storage needs. Finding a partner that specializes in the fulfillment of your particular product type then generally becomes more preferable to ones who tout being “everything to everyone.” Asking the potential parcel fulfillment partner for references of similar customer types is important; if the potential partner has not fulfilled your type of product before, then asking for how they fulfill similar industry types can help manage any potential concerns or prevent future problems. For example, the fulfillment of cosmetics can oftentimes be similar in size, scope, packaging, temperature controls, and other factors to food or nutraceuticals/vitamins.

merce, and many others, with outputs to various e-commerce marketplaces such as Amazon, eBay, Etsy, etc. — in addition to their own branded website store. According to BigCommerce, 45% of all e-commerce sales are now done via e-commerce marketplaces, with an average spend of $488 on marketplaces in a year by customer. Consequently, it becomes important that the fulfillment partner be familiar with these order sources and marketplaces. Asking the question of the level of familiarity the partner has with fulfilling orders from these platforms and outputs becomes critical in managing long-term growth and customer experience expectations. ARE THEY FAMILIAR WITH THE NUANCES OF FULFILLING MY PARTICULAR PRODUCT TYPE? Every product type has its own challenges; fulfilling apparel orders can be very different than fulfilling cosmetics when it comes to managing multiple

WHAT LEVEL OF VISIBILITY AND TRACKING WILL THEY BE PASSING BACK TO YOU? “Where is my order (WISMO)?” is a concept that has vexed end consumers and e-commerce merchants since the dawn of e-commerce. With that in mind, it is critical that the merchant understand the exact flow of order and shipment tracking data that will be available to them for the inevitable “where is my order?” questions that will arise. Equally important is understanding the resolution procedures by carrier and service type that will be used to deliver the shipments to your customer. Who is the “throat to choke” if something goes wrong with a shipment delivery? Understanding these procedures is critically important to avoid your customer feeling like a hot potato (and subsequently buying their product from someone else in the future). IS THEIR PRICING SCALED FOR YOUR GROWTH…. AND DO YOU UNDERSTAND THE CHARGES? Fulfillment providers often have numerous charges for fulfillment, including: order minimum charge, order fulfillment, inventory deconsolidation, storage, kitting, shipping, and returns. Although many parcel fulfillment providers have varied pricing models, it is important to understand every line item, as shipping costs can often be the difference in being profitable or not.

HOW MUCH SAY DO YOU HAVE IN THE PROCESS? Depending on what a merchant is selling, the placement in a warehouse can be important due to temperature concerns, exposure to sunlight, proximity to other products causing an adverse reaction, and a host of other factors. Additionally, even for shipments that do not have sensitivity to environmental factors, placement in a fulfillment warehouse can be important. For example, subscription boxes often will require product SKUs to be close together to avoid the wrong item being placed in the wrong shipment. Asking for a say in how your shipments are handled is perfectly acceptable. HOW ATTUNED ARE THEY TO ISSUES IN THE PARCEL SHIPPING INDUSTRY, SUCH AS DIMENSIONAL WEIGHT? PARCEL has dedicated a great deal of time to issues in the industry, especially dimensional weight and packaging for parcel shipments. It is important that your fulfillment provider also be knowledgeable about these issues to ensure that they are maximizing cost efficiency on your behalf. Asking the basic questions of how they have handled annual rate increases, dimensional weight, and other hot industry topics ensures that you find a provider that will always be on the lookout to make your parcel fulfillment operations better. CONCLUSION In today’s competitive e-commerce landscape, parcel shipping can make or break a merchant’s chance to achieve profitability and customer satisfaction. Consequently, finding the right parcel fulfillment partner involves due diligence and collaboration. Finding common ground with potential partners on technology, visibility, cost, and consistent communication then becomes the key to a successful e-commerce merchant and parcel fulfillment provider relationship.

Krish Iyer is Director, Strategic Alliances, ShipStation. An expert in cross-border e-commerce, international fulfillment, and supply chain technology, he has more than 16 years of industry experience with FedEx, Pitney Bowes, Neopost, and ShipStation. MARCH-APRIL 2018  PARCELindustry.com 23


USING EFFECTIVE ANALYTICS FOR CONTROLLING YOUR PARCEL SPEND Measurement is the key to effective management, so make sure you’re measuring the correct data.

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t is common knowledge that measurement is the key to effective management. This is especially true for shippers attempting to manage their parcel programs and better control their costs. In fact, a recent survey conducted by Veraction to assess the challenges facing shippers today as they work toward turning their raw parcel data into meaningful and actionable insights highlighted just how important (and difficult) effective measurement and analysis of parcel spending can be. Consider the following findings:

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BY STEVE BEDA Metrics and key performance indicators (KPIs) are critical to controlling costs – Nearly two-thirds of all respondents reported that they review cost metrics on either a daily or weekly basis. Producing metrics and KPIs are resource-intensive – Thirty-three percent of respondents reported that they utilize two or more resources to produce metrics. Nearly two-thirds of respondents reported dedicating at least one resource to this task. Producing metrics and KPIs are time-intensive – Nearly half of all

respondents reported that they spend more than 10 hours per week generating and analyzing metrics. Identifying variances in spending is difficult – Almost 70% of respondents require five or more hours per week identifying and understanding variances in their spending against either planned or historical performance. Over 10% of respondents require more than 12 hours per week. Data analysis requires multiple sources – Over 75% of respondents are dependent on more than two data sources for their parcel cost analysis. The findings reinforce much of the conventional wisdom that exists today


surrounding transportation spend analysis — it is difficult and resource-intensive. Perhaps more importantly, the survey highlights just how inefficient the process of converting data into actionable information is and how the analysis shippers leverage in their daily decision making is most likely “stale” and not current. In summary, many shippers spend considerable time, money, and resources to produce insights that may be too “old” to make any real difference in their performance. To get better at managing parcel costs, shippers need to improve their analysis capabilities. The entire process of capturing, cleansing, producing, reviewing, and analyzing metrics must become more timely and more efficient to create the positive impacts required in a competitive market. Today, for many shippers, the process is burdensome and produces inferior results. Spend analysis is, at its essence, a continuous improvement process. It’s all about leveraging data to identify the

current state of performance, comparing it to an improved or target state, and developing an action plan to drive improvement. Data and the metrics they produce are critical to this process. Selecting the right measurements and producing them regularly is critical. EVALUATING YOUR APPROACH Every shipper should continually evaluate their approach when it comes to leveraging analytics and performing analysis of their parcel spending. Two key areas to focus on during any review include the set of tools and methods you utilize as well as the actual metrics you leverage in your analysis. In terms of tools and methods, is your process based entirely on the use of simple descriptive analytics, which are retrospective in nature (what happened?), or are you combining descriptive data with predictive or even prescriptive analytics to look forward and improve your ability to execute? And just as importantly, how quickly are you able to

transform data into insights and then into action? Best-in-class organizations can determine what happened and what they can do about it rapidly — and frequently. There are three types of analytic capabilities in the market today. Descriptive analytics help shippers quickly assess what happened in the past in terms of their parcel spending — cost, carriers, type of service, etc. These represent critical but basic analytic capabilities that any shipper should possess. Shippers possessing more mature capabilities will use predictive and prescriptive analytics as well. Predictive capabilities assess what could happen in the future and identify conditions that either prevent or enable improvement. Prescriptive analytics can leverage all available information and highlight specific strategies or actions which can then be pursued. When evaluating your capabilities, assess them in regard to being able to produce descriptive, predictive, and prescriptive analysis regularly.

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MARCH-APRIL 2018  PARCELindustry.com 25


While these analytic capabilities are important, a consistent set of metrics is equally important. Best-in-class shippers are extremely effective at leveraging KPIs to manage their spending. KPIs are typically comprised of a number of discrete metrics and provide a “gaugelike” assessment of your spending, similar to the feedback you receive from your automobile’s dashboard. They highlight both opportunities and problems that require immediate attention. They provide a way of measuring performance without getting caught up in the abundance of detailed data that is associated with parcel spending. Two common KPIs used for measuring parcel performance are cost per shipment and cost per unit weight. As a shipper, delivering more product is great, but increasing volumes at a higher cost per shipment or unit weight is undesirable. While there are other important KPIs that should be considered, cost per shipment and/or unit weight are perhaps the most meaningful measurements for managing costs, and every shipper should thoroughly understand what drives them on an ongoing basis. KPIs are often derived by aggregating a number of other detailed measurements. In the case of cost per unit weight, these detailed data elements could be related to the type of parcel (air, ground, or express) as well as more granular elements such as parcel carrier, contracted net rate, service level, package type, zone, fuel surcharge, or a myriad of non-fuel accessorial charges that are classified as additional charges. All of these data elements represent influencing factors that can increase the KPI (typically a bad thing) or decrease it (typically a good thing) in value. Understanding the exact data elements that drive these KPIs and the weight of their influence is the key to being able to make specific rapid improvements. Determining the values of your KPIs and understanding which factors are contributing is essential, but being able

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to perform this analysis quickly and on an ongoing basis in order to take action against any negative variance that impacts your costs is absolutely critical. Moreover, it is important to understand the impact of continual changes in your parcel network as you negotiate contracts, adjust your service levels to meet customer demand, modify your design to reduce distance, or optimize your packaging to reduce dimension. The frequency of this analysis is key as well to ensure that modifications can be made in a timely manner. Adjustments can be made to mitigate negative impacts early if proper monitoring of actual to planned KPI levels is done regularly and in a disciplined manner. FINAL CHALLENGE — DATA A final challenge facing shippers today — and perhaps the single biggest hurdle to performing best-in-class analysis — is data quality. Data is voluminous and factors such as global coverage, modes, shipping locations, number of suppliers, and even sub-KPI influencers such as product level cost (SKU level metrics) all contribute to the difficulty of capturing quality data. Consolidating this data is sometimes easier than ensuring that the data is normalized in order to eliminate the “noise” that is often inherent in the transportation data. For instance, the transformation of something seemingly simple like a supplier’s name, a store location, or customer information is often a big contributor to dirty data and can be difficult to manage. Additionally, data from external sources, such as carrier services, charges, and delivery conditions that are captured from invoices and status events, can be equally hard to control. While ERP platforms and TMS capabilities promote more disciplined execution processes, they often don’t help with data normalization across multiple platforms within an enterprise. Implementing a sound strategy to complete this step is fundamental to a successful deployment of business analytics.

While managing a large parcel spend can be daunting in a rapidly changing and competitive market, having the proper tools and information can make the management of this key cost category much more effective and efficient. It is well worth the effort to continually evaluate your KPI and analytic approach in an effort to drive continued improvement. In our work with many shippers, we have found that the best programs typically execute the following actions on a continual basis: Ensuring all data sources are consolidated into a central repository Cleansing, normalizing, and enriching data to ensure accuracy Utilizing effective tools for KPI management, variance, and overall business intelligence Setting targets and objectives and measuring progress frequently Utilizing KPIs, sub-KPIs, and influencers to quickly perform root cause analysis of variance to plan Review KPIs frequently to mitigate the impact of non-compliant variance Align stakeholders to common objectives Prioritize spend optimization strategies to align with priorities These actions often produce the best results and provide a strong summary of the success that shippers can find with a solid KPI and analytic strategy. Good luck on your KPI and analytic journey — it certainly is a worthy endeavor.

Steve Beda is Executive Vice President of Client Solutions at Veraction, the leader in Transportation Spend Management solutions. Veraction combines industry leading cloudbased applications with best-in-class services to help companies realize savings, visibility, and control of their transportation spend across all transportation modes. Steve can be reached at steve.beda@veraction.com.


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PARCELCOUNSEL

DE-REGULATION OF THE AIRLINE INDUSTRY: FEDEX AND LAST-MILE DELIVERY By Brent Wm. Primus, J.D.

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n the last installment of PARCEL Counsel — “Back to the Future: UPS and Last-Mile Delivery” — we saw how UPS began life as a motor carrier focusing on local deliveries from downtown department stores to their customers in the area. UPS then developed its current nationwide system providing intercity door-to-door service through the use of intermodal rail service. On the other hand, FedEx began life approximately 63 years later than UPS as an intercity air carrier and then expanded to provide last-mile service through the use of intermodal truck service. In the mid-1960s, Fred Smith, the founder of FedEx Express, saw a need for fast transportation arising from the rapidly developing market for consumer and electronic devices. As related in the Wikipedia article for FedEx,

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“Smith felt that the necessary delivery speed could only be achieved by using air transport. But he believed that the US air cargo system was so inflexible and bound by regulations at that time that it was completely incapable of making sufficiently fast deliveries. Plus, the US air cargo industry was highly unsuited to the role. Its system depended on cooperation between companies, as interlining was often necessary to get a consignment from point A to point B, and the industry relied heavily on cargo forwarders to fill hold space and perform doorstep deliveries.” The regulations to which Smith was referring were not any and all regulations, but rather the economic, as opposed to safety, regulation of air carriers. These regulations governed air carriers’ rates, routes, and services and, at that point in time, were administered by the Civil Aeronautics Board (CAB). The regulatory scheme extended to who could operate an airline, which routes an airline could travel over, the rates charged, liability for loss and damage claims, and similar matters. Nevertheless, Smith started Federal Express Corporation in 1971 and began operations within this highly regulated environment in 1973. But then, the deregulation of the airline industry began in 1977 with the passage of the Air Transportation Regulatory Reform Act of 1977. This meant that

an air carrier’s routes, rates, and services were not subject to regulatory oversight. Next, the Motor Carrier Act of 1980 substantially deregulated motor carriers. In particular, motor carriers transporting property to and from an airport prior or subsequent to the property being transported by an airline were exempted from Interstate Commerce Commission (ICC) oversight. This meant that air carriers such as FedEx were allowed to utilize either their own trucks, or those of a separate trucking company, without either the airline or the trucking company having to register with the ICC (or now with the Federal Motor Carrier Safety Administration (FMCSA)). This meant that the use of FedEx trucks to pick up parcels at the point of origin and deliver them through to the point of destination could also be done without regulatory oversight of the services offered or the rates or charges. The rest, as they say, is history. FedEx Express is now the world’s largest airline in terms of freight tons flown with the fourth largest fleet. All for now!

Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found on PARCELindustry.com. Your questions are welcome at brent@primuslawoffice.com.


WRAPUP

GLOBAL DELIVERY IN TWO DAYS… OH MY! Michael J. Ryan

T

he international e-commerce market is growing at 25% per year and is just beginning to capture the attention of merchants all over the world. However, the “domestic halo effect” is establishing consumer expectations that are very challenging to shippers. In the US, Amazon has established a free, two-day delivery expectation in the B2C and B2B arenas. This expectation has permeated customer expectations in most countries in the world, especially in the top e-commerce countries of: Japan, UK, Germany, Canada, China, Australia, and South Korea. The top three express carriers of DHL Express, FedEx, and UPS control almost 90% of the time-definite deliveries. DHL is the world leader, with 38% global market share in the time-definite deliveries. Merchants are looking for ways to get their products

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delivered globally within two to three days. Let’s take a look at some of the options available in the market. Freight Forwarder: Most freight forwarders are entering the e-commerce world because of their expertise in handling international freight and the ability to be flexible in getting products quickly to countries. The challenge that freight forwarders have is that they need to use a domestic express carrier in the destination country to complete the final delivery, which may not be cost-effective or service competitive. Postal Solution: Many postal authorities around the world are trying to get into the global e-commerce business. They offer a very cost-effective solution but are usually five- to seven-day deliveries, which is too slow for most consumers (although for some low-value products, this may be an acceptable service). The one big advantage of a postal solution is that these shipments are often not charged for duties and taxes. Parcel Consolidators: This is a hybrid service between express carriers and postal solutions that are trying to create a service that is cost-competitive and slightly slower than the express carriers. Their reliance on destination country postal services is preventing them from being truly competitive. However, there is a new entrant called Zenda, which is developing a country-to-country network by partnering with global airlines, which will make them competitive.

International Express: The major express carriers are well-positioned to capture a larger part of the global e-commerce business. They have been very successful in the B2B market but are now embracing the B2C market and making changes to their delivery practices to attend to the residential delivery. Many of them are promoting alternative delivery options through technology and a closer connection to the consumer. They have built extensive global delivery networks and a very streamlined customs clearance practice, which is making them highly competitive in the global e-commerce world. In a global survey that DHL conducted with retailers and manufacturers, it identified that offering a premium service will help these organizations to grow 1.6 times more than those who don’t offer a premium service. In summary, global consumers (B2B and B2C) are looking for a fast and reliable international delivery service at a competitive cost. The value of the product will drive the viability of this expectation. We can all thank Amazon for setting this expectation, but really, we should thank the express carriers for having the option available to meet this expectation.

Michael J. Ryan is the Executive Vice President at Preferred Parcel Solutions and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@ preferredship.com.


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