CHOOSING THE RIGHT CONSULTANT PARTNER PAGE 22
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DO WE REALLY NEED
GUARANTEED DELIVERY SERVICES? PAGE 18
OPTIMIZING THE 3PL OR 4PL SELECTION PROCESS. P. 26 HOW YOUR PACKAGING PROCESS CAN INCREASE CUSTOMER LOYALTY. P. 8 3 WAYS SMBS CAN CONTROL THEIR SHIPPING COSTS IMMEDIATELY. P. 10
CONTENTS /// Volume 27 | Issue 2
14 16 18 26 30 06 EDITOR’S NOTE Preparing for the Unexpected By Amanda Armendariz
07 OPERATIONAL EFFICIENCIES Turnover Is Detrimental By Susan Rider
08 PACKAGING Thoughtful Shipping Packaging Wins Loyalty, Especially with Young Consumers By Cyle Howe
09 TECH SPACE Speeding Up the Last Mile by Optimizing It By Cathy Morrow Roberson
10 INDUSTRY INSIGHTS 3 Ways SMBs Can Control Shipping Costs Immediately By Brandon Staton
12 SPEND PERSPECTIVES A Growing Ecosystem: Serving Amazon’s SMB Sellers By John Haber
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14 THE ART OF NEGOTIATION How to score a winning carrier contract. By Brad McBride
16 CAN THE RIGHT PACKAGING DESIGN PROCESS IMPROVE YOUR BOTTOM LINE? Four steps to make sure your packaging materials and processes are as streamlined and efficient as possible. By Kevin Howard
18 DO WE REALLY NEED GUARANTEED DELIVERY SERVICES? While these services of course have their place, they can also be overused, leading to unnecessary expense for shippers. By Nate Skiver
26 OPTIMIZING THE 3PL OR 4PL SELECTION PROCESS Considering partnering with a 3PL or 4PL? Here’s what to take into account. By C. John Langley Jr.
29 PARCEL COUNSEL Incoterms 2020: Four Things Parcel Shippers Need to Know By Brent Wm. Primus, JD
30 WRAP UP Strategic Partnerships By Michael J. Ryan
SPONSORED CONTENT 13 KNOWLEDGE IS POWER, ESPECIALLY WHEN IT COMES TO NEGOTIATING UPS & FEDEX CONTRACTS 21 HONED FOR THE HOLIDAYS: SECURING A Q4 SHIPPING PARTNER 22 CHOOSING THE RIGHT CONSULTANT PARTNER
PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITOR AMANDA ARMENDARIZ [ email@example.com ]
AUDIENCE DEVELOPMENT MANAGER RACHEL CHAPMAN [ firstname.lastname@example.org ]
CREATIVE DIRECTOR KELLI COOKE ADVERTISING KEN WADDELL (m) 608.235.2212 [ email@example.com ]
PARCEL (ISSN 1081-4035) is published 7 times a year by MadMen3. All material in this magazine is copyrighted 2020 © by MadMen3. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, MadMen3 or its staff becomes the property of MadMen3. The articles in this magazine represent the views of the authors and not those of MadMen3 or PARCEL. MadMen3 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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PREPARING FOR THE UNEXPECTED By Amanda Armendariz
he news right now is inundated with reports of the coronavirus (COVID-19) sweeping through Europe, Asia, and, to a lesser extent, the United States. We are starting to see disruption on a scale that I can’t remember in recent times; as I write this, schools are closing, many employers are requesting their employees work from home when able, the NCAA March Madness tournament has been canceled, and major attractions like Disneyland, Disney World, and Universal Studios just announced they will be shutting their doors throughout the end of March. The stock market has taken a sharp dive downwards, and a distinct sense of uncertainty is permeating the world right now. Naturally, retailers and shippers share in this uncertainty with regards to their supply chain and their customers’ anticipated purchasing behaviors as the pandemic continues to spread. A recent article from Digital Com-
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merce 360 shows that 47% of retailers expect some downside revenue implications, 30% of retailers suspect that the coronavirus will cause their e-commerce business to be somewhat up, and 32% expect their online business to be somewhat down. That last statistic surprised me; if anything, I would expect more retailers to prepare for e-commerce orders to be through the roof as people attempt to minimize their exposure at stores and other areas of business. Regardless of what the future holds for the economy with respect to this virus, now is the time to prepare for a supply chain disruption if you haven’t already. Even if it’s not a dire disruption, there’s still a good chance that product shipments will be delayed, employees will miss work due to self-quarantine, and the purchase of some products will be through the roof, while others are likely to see a sharp decline. While there is no bright spot in a global pandemic like this one, our industry can at least use its occurrence to tighten up their supply chain operations and hopefully minimize the effects of this virus as much as possible. We hope everyone stays healthy and that our world economy returns to some semblance of normal as quickly as possible, and our thoughts are with those who have been directly affected by this pandemic. As always, thanks for reading PARCEL.
Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!
Digital Supply Chains, Sustainability Initiatives, and AI Potential: 2020 expectations By Glenn Jones
5 Ways to Reduce Parcel Shipping Costs By Harry Drajpuch
Watch Out for that Fee: Four Common Carrier Charges Shippers Can (and Should!) Avoid By Brad McBride
TURNOVER IS DETRIMENTAL By Susan Rider
urnover of your staff and associates is one of the most detrimental events in the distribution center. When someone quits, you lose the domain knowledge, procedural knowledge, and the little tweaks that person has developed to do their job efficiently. Productivity can be reduced by more than 50% when you lose a seasoned associate and have to train their replacement. How can you avoid turnover as much as possible? 1. Invest in the people side. Make sure your leaders get to know the associates, their families, and show a caring attitude. When it boils down to it, we all want to be appreciated and feel a part of a team/family. 2. Invest in small, inexpensive tools that will make the associates’ jobs easier. For instance, if the associates are constantly getting paper cuts on corrugate, find a glove that allows dexterity and won’t inhibit their jobs but protects their skin.
3. When your team beats a monthly record, throw them a pizza party or cookout. It’s a little thing that shows appreciation and respect. Plus, it stokes the competitive nature that is so ingrained in many of us. 4. When you are looking at new processes, layouts, or equipment, get the input from the team. People like it when their opinions matter. 5. Every now and then, do a survey of the team. What do they like most and least? Do they have ideas for improvements? It’s amazing the feedback you can receive and how someone may come up with a golden nugget that will save your company big money in the future. 6. When you are looking to promote or fill an upper position, open it up to internal personnel instead of automatically looking outside. Fresh eyes from the outside isn’t necessarily wrong, but if you are constantly filling better positions with outside people, your team will become disillusioned and determine that there are no opportunities in your company. 7. Stay abreast of the market within 50 miles of your distribution center. If a new facility is opening, it may be a good time to beef up the team promotion cycle, including t-shirts, cookouts, doughnuts at the beginning of shifts,
etc. Whenever a new facility opens around you, their aim and the aim of the recruiters is to gain qualified associates from existing businesses. Avoid the temptation for your team to investigate the new player by keeping them happy and showing them that they are appreciated, respected, and valued. 8. If you have promising individuals that are entry level, sit with them and find out their goals/plans. You may want to invest in them and offer to send them to seminars, workshops, or college to train them and give them the tools to get to the next level. 9. If you have leaders that are of the drill sergeant mindset, this may present a problem from a collaboration and satisfaction perspective. Identify these individuals and correct this circumstance as quickly as you can before it spreads animosity among the team. 10. Ask for feedback. If a problem exists, ask the team how they would handle it. Your employees will feel that they are part of the solution and develop ownership in the operation.
Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at firstname.lastname@example.org.
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THOUGHTFUL SHIPPING PACKAGING WINS LOYALTY, ESPECIALLY WITH YOUNG CONSUMERS By Cyle Howe
n order to attract a more modern audience in today’s saturated retail landscape, it’s become paramount to improve offerings that bolster product quality and competitive pricing. Two factors that heavily influence whether a consumer shops with a brand are 1) a demonstrated commitment to sustainability, and 2) customer reviews. Making smart, thoughtful choices about shipping packaging allows retailers and brands to cater to their customers’ preferences on both fronts, earning more repeat business while potentially expanding brand reach to attract first-time customers. Consumers Demand Eco-Friendly As people become more environmentally conscious, the desire to minimize their negative impact on the planet is growing. When an opportunity to do so dovetails
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with an activity they’re already performing — such as shopping — it’s a no-brainer. This is evidenced by the 77% of consumers who say it’s at least moderately important that brands are sustainable and environmentally responsible, and the 57% who are willing to change their purchasing habits to help reduce negative environmental impact. Additionally, of consumers who agree these traits are important, more than seven in 10 are willing to pay a premium for brands who demonstrate this commitment. One area where businesses can demonstrate this consciousness is with shipping packaging. Utilizing recyclable components to secure products for transit can help companies appeal to these purpose-driven consumers. Dotcom Distribution’s 2019 eCommerce Survey supports this, finding that 62% of all online shoppers — and, more specifically, 72% of consumers 18-29 — are more likely to purchase from brands that use sustainable packaging materials. Further proving this point, 2020 data released by Paper and Packaging Board reveals that consumers think more highly of companies that package their products in paper-based packaging. Shoppers Trust Customer Reviews As the sea of shopping destinations grows, shoppers have developed more refined ways of gathering information in an effort to make more informed choices. In today’s age of sharing and transparency, seeking out the opinions and experiences of past customers through online product reviews
is standard procedure before making a purchase decision. In fact, 79% of 18-to-34-year-old millennials do so, and 94% of online shoppers avoid businesses upon seeing negative reviews. So, it stands to reason that ensuring customers have a positive brand experience — one worth sharing — is extremely valuable. Optimizing shipping packaging by creating a memorable unboxing experience is an effective way to establish a positive connection, particularly with e-commerce orders, where opening a package is often a customer’s first physical interaction with a brand. According to an e-commerce packaging study from Package InSight, in conjunction with Seaman Paper Company, 76% of consumers would be more likely to recommend a brand that wraps its package contents in tissue paper instead of other materials. Two out of three participants were more likely to share pictures of tissue-clad packages on social media. This is particularly true among younger generations, with more than half of both Gen Z and Millennial consumers reportedly looking to social media influencers for product advice. The takeaway is that the more aesthetically pleasing a package is, inside and out, the more encouraged customers are to share it.
Cyle Howe is the Art Director at Seaman Paper, the leading global supplier of lightweight decorative tissue papers for retail packaging, consumer products, and the foodservice industry.
SPEEDING UP THE LAST MILE BY OPTIMIZING IT By Cathy Morrow Roberson
ow fast is fast? In the last-mile delivery world, fast can mean a huge competitive advantage (think Amazon). Alternative delivery locations are beneficial, but various studies suggest that home deliveries are still the most preferred method of receiving packages. Adding people and vehicles to speed up the last mile is certainly helpful, but optimizing routes by implementing technology solutions is the way to go in terms of cost savings, efficiency, and improvement in times. Route optimization uses analytics and computer algorithms to identify the most efficient delivery route possible based on such variables as traffic congestion, distance, weather conditions, number of packages in a given area, and more. A number of companies offer such tech solutions. To get started: 1. Understand what and why you need the solution 2. Clearly state your needs and requirements in an RFP 3. Ask lots of questions and check references 4. Pick a partner, not a vendor
5. Establish and measure KPIs 6. Maintain regular updates and communications 7. Test, tweak, and then implement either all at once or by specific region The results, or return on investment, one can expect by implementing route optimization tech solutions will vary from one company to the next. Perhaps one of the biggest undertakings in this space has been by UPS. On-Road Integrated Optimization and Navigation (ORION) began its rollout in 2012 and fully completed deployment in 2016. According to the company, ORION helps UPS drivers to determine the optimal way to deliver and pick up packages within a set of stops defined by start time, commit time, pick-up windows, and special customer needs. UPS states that the system has saved around 100 million miles per year since its inception, which translates into 10 million gallons of fuel and 100,000 metric tons of carbon dioxide emissions. Moreover, reducing just one mile each day per driver can save the company up to $50 million annually. Like all good adopters of technology, UPS did not stop innovating its route management tool once ORION was implemented. For example, in 2019, UPS added UPSNav functionality to ORION, which provides detailed turn-by-turn directions to guide drivers to specific drop-off locations such as loading docks or entrances that may not be
immediately visible from the street. Most recently, Dynamic Optimization was added. Dynamic Optimization recalculates individual package delivery routes throughout the day as traffic conditions, pickup commitments, and delivery orders change. Taking advantage of route optimization solutions has never been easier. Thanks to software-as-a-service (SaaS) solutions, a number of tech companies have entered the route optimization space, including FleetZoo, Wise Systems, and Urbantz. Within many TMS, route optimization is part of the offering as well. These companies, as well as others, are introducing such capabilities as artificial intelligence and machine learning to further improve optimizing routes. UPS’ Dynamic Optimization takes advantage of artificial intelligence whereby the system is constantly “learning” based on regular data. Redwood Logistics describes it best in a blog post on the topic, “Route optimization is about finding the most efficient, fastest order for stops while minimizing drive time and mileage. Artificial intelligence is always evolving, and with it, route optimization is becoming a streamlined process.”
Cathy Morrow Roberson is President of Logistics Trends & Insights LLC, a logistics market research firm. Cathy can be reached at croberson@LogisticsTI.com.
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INDUSTRYINSIGHTS one hundred-whatever of a gazillion-word service guide will be applied to today’s batch of shipments. Therefore, it’s nice to be reminded that part of this really is easy. Here are three things any business can implement to control their own costs:
3 WAYS SMBS CAN CONTROL SHIPPING COSTS IMMEDIATELY By Brandon Staton
o much attention is paid to understanding the complexities of carrier agreements that companies, especially resource-constrained small and midsized businesses, often overlook simple best practices. If you’ve ever worked in an SMB environment, you know how hard it can be to remember what day it is, much less to understand how the fees defined on page
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1. Pay Carrier Invoices on Time If this sounds obvious, that’s because it is. Still, like so many things about carrier pricing, rules and fees around late payment fees are ambiguous and vague. Outlined within your carrier agreement, however, is a section outlining payment terms. Typically, this is a 15-day term, though a longer payment term can be negotiated. If you have an electronic copy of your carrier agreement(s), hit Ctrl+F and search “payment.” This will highlight the sections that specifically talk about when services are deemed provided by each carrier and the terms under which payment for those services is due to the carrier. Late fees are applied as percentages of the outstanding amount of the invoice, not as set fees many of us are familiar with in other financial transactions, like with banks or credit lenders. While the fees are essentially non-negotiable, the payment terms have a bit more wiggle room. Remember that your carrier does better when you do better. If you are having trouble making payments on
time, call your carrier and ask to discuss the terms. 2. Update Invalid Addresses Each carrier assesses a $17 fee for address corrections. That amount makes a regular audit of your internal contact database a worthwhile endeavor. E-commerce SMBs can leverage USPS API tools to make sure customers input valid information when checking out, or they can batch compare customer information contained in their ERP or CRM. Even legacy B2B companies should periodically update their customer and vendor databases to ensure margins don’t erode to due easily preventable address correction fees. While address corrections discounts aren’t unheard of, they are increasingly rare for SMBs since alternative solutions are available to limit the occurrence of incorrect information. Thirdparty audit providers can be a great resource if they provide the customer with a way to update inaccurate data as opposed to charging a fee to recover credits when they occur. 3. Choose the Correct Services Before you dismiss this tip as too hands-on to be “easy,” remember the role of your carrier representative. And while not all service optimization scenarios are practical, there are several things your business can and should be doing to make sure you aren’t
needlessly spending extra dollars. Foremost, make sure you are putting your packages into the correct network. For example, a FedEx shipper with a heavy residential profile should be moving shipments through FedEx’s Home Delivery network, not FedEx Ground. FedEx charges a Delivery Area Surcharge for packages shipped in both networks, but it’s higher for a residential package in the Ground network, which is designed to process commercial deliveries. Another easy exercise is to ask your carrier to do a time-in-transit study on a sample of your past shipments. This will show you whether packages shipped via expedited services could have arrived just as quickly if shipped using a cheaper ground service. Don’t Overcomplicate Things In many instances, SMBs tend to underutilize resources available to them through their carrier(s). Cost and com-
plexity of carrier agreements can create strain in shipper-carrier relationships — as can service-related issues that result in late deliveries, lost or damaged merchandise, or missed pickups — so it’s helpful to meet with your carrier periodically to make sure your incentives are aligned. A strategy that only attempts to align interests through terse rate negotiations is short-sighted. Make no mistake, paying a fair price is a key tenet of a good strategy, but companies
often overlook easy steps they can take to shore up costs, and forego a lot of value as a result.
Brandon Staton is President and CEO of Shipmint, Inc. and has spent the last decade helping corporate shippers plan and execute sustainable cost-control and cost-containment strategies. Brandon earned an MBA in Entrepreneurship, Leadership and Strategy from UNC Kenan-Flagler Business School.
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A GROWING ECOSYSTEM: SERVING AMAZON’S SMB SELLERS By John Haber
n its second annual “Small Business Impact Report,” Amazon noted that it has helped more than 1.9 million US-based small- and medium-sized businesses generate more than $160 billion in 2018. This includes selling in and on Amazon’s stores and platforms, publishing via the company’s e-books unit, and utilizing the online retailer’s various web services. It is estimated that Amazon has over three million sellers worldwide; these account for more than 50% of Amazon’s net sales, with US small business owners selling 4,000 items a minute, on average, in and on Amazon’s stores and platforms. In addition, the e-commerce website lent more than $1 billion to help owners build inventory. Amazon’s unique requirements have created an ecosystem that has not been seen in the logistics market before, one that includes special labeling and fulfillment requirements, packaging, shipping, and more. The unique requirements are necessary to ensure speedy delivery to end-customers, which is a competitive advantage for such platforms. Failure to comply with various requirements could result in lost sales
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or even a ban from the platform for third-party sellers. However, many Amazon sellers represent small businesses, usually one to five employees, with little, if any, logistics knowledge. The necessity for such knowledge is paramount as more of these small businesses need to form strategic relationships with overseas suppliers of various goods as well as ensure compliance with all the additional various requirements that Amazon imposes on its sellers. Growing Partnerships Amazon’s online marketplace can certainly serve many of the small businesses’ logistics needs, but the costs can add up quickly, and it’s complicated. In fact, serving third-party sellers’ logistics needs is a growing business in and of itself. For fourth quarter 2019 alone, Amazon reported that net sales of its third-party seller services increased 30.4% from the same period in 2018 to over $17 billion. Recent articles suggest that Roundup, Montana is a center point for prep-work for third-party sellers on Amazon. But it is just part of this logistics story. The ecosystem is much wider, encompassing forwarders, 3PLs, and more. Traditional logistics providers were slow to pick up on this growing trend. Thanks to the wider adoption of cloud computing, a proliferation of online startups has entered the supply chain environment in recent years. Many of these businesses offer such services as rate comparisons and booking and
tracking of shipments. Because of the promoted ease of use and the lower per transaction charge versus annual license and contract fees, these startups captured the attention of SMBs. One such example is Freightos, an online marketplace that provides users with freight comparisons, booking, and management, and also offers a number of resources to assist small businesses and third-party sellers with such topics as how to import, how to do business in Europe, and an Amazon Fulfillment by Amazon (FBA) shipment strategy, all available for free on their website. Other logistics providers that have entered this ecosystem include Shapiro, which has been in existence for over 100 years but has recently added a specific e-commerce shipping service offering, which is a part of the company’s consulting service and includes assessment and implementation of shipping needs of specific sellers. These are just two examples in the growing ecosystem that continues to expand as online marketplaces gain market share from retailers and other businesses. The result of this growth is redefining supply chain requirements and presenting new opportunities for logistics and transportation providers.
John Haber is the Founder and CEO of Spend Management Experts and can be reached at email@example.com.
Knowledge Is Power
Especially When It Comes to Negotiating UPS & FedEx Contracts By Mike Erickson, AFMS CEO
Today’s UPS and FedEx contracts are more complicated and difficult to negotiate than ever before. Before we address the major issues affecting your carrier contracts and how you can successfully negotiate the best rates possible for your company, I would like to give you a brief background on AFMS and why our advice is worth reading. Founded in 1992, AFMS is a transportation contract advisory and auditing firm, comprised of former VPs and directors from UPS, FedEx, DHL, and USPS. We specialize in showing companies of all sizes how to save money, improve service levels, and obtain better discounts. Our inside knowledge of the carriers’ pricing programs is unparalleled. With all the changes that are happening today with UPS and FedEx and the levels of complexity surrounding today’s contracts, we have compiled the following information to help you better manage your ongoing transportation pricing contracts and carrier negotiation strategies. Knowing what the carriers consider profitable freight and unprofitable freight as it relates to package characteristics, will help you determine what discounts the carriers can offer you. The metrics surrounding these pricing variables are complex and need to be reviewed prior to sitting down with your carriers and negotiating a new agreement. 1. The carriers have dramatically improved their cost-to-serve pricing models, generating billions in new revenue annually, through new accessorial fees. 2. What has created these pricing changes? Technology improvements and better data capture capabilities by the carriers. The data capture technology the carriers use has allowed them to bill for services and new accessorial fees they physically couldn’t charge for a few years ago. 3. For shippers in 2020, this translates into hidden cost increases and higher accessorial charges. 4. What can a shipper do to offset these new charges? Start by gaining a better understanding of the impact these changes are going to have on your company. How much of your transportation spend is in accessorial charges, base rate charges, what is
the real impact of the annual general rate increase? It varies by shipper, but it is not the 4.9% you’re told by the carriers. 5. Prior to negotiating, learn everything you can about your packages, shipping characteristics, box sizes, zip codes you ship to — DAS or Extended DAS. 6. Perhaps the most important thing to understand in the freight negotiation process is getting the carriers to see how valuable your shipments really are, based on package characteristic. Leverage your positive box characteristics to your advantage. Carriers thoroughly analyze your company’s shipping profile to determine profit margins and what discounts to offer. It’s critical to know in your freight carrier’s own terms how profitable your shipments are to them. Whether you’re a seasoned transportation manager or a director of purchasing, understanding the impact these new carrier accessorials have on your transportation costs is important. Knowledge is power; understanding the terms and details around your contracts and how they impact your business can make a big difference in the carriers you choose and how those carriers price your shipments. Negotiate with your package characteristics strengths. The lack of benchmarking data and analytical detail could cost you 10-20% in service discounts. Make sure you ask for competitive discounts on all the services you frequently use; even small volumes should be discounted. More than 50% of all U.S. companies have outsourced some part of their distribution procurement process; many shippers use a consultant to help with the carrier selection, benchmarking, and negotiation strategies. As carrier shipping contracts change, so must a shipper’s knowledge.
www.afms.com firstname.lastname@example.org 800.246.3521
all of the bid participants to assign rates and fees based on information such as volume, distribution (domestic and international), packaging characteristics, seasonality, and more. If you don’t know your exact volumes, where it’s all going, when it’s going out, and in what containers, that knowledge gap can be used against you. You must understand that your rates will go up any time a carrier has to “guess” about your volumes or shipment characteristics. Many shippers now utilize supply chain technology platforms that can give them real-time access to all of their shipping characteristics across all modes, packaged as easy-to-understand, actionable data. With access and visibility to your company’s unique shipping profile, the playing field becomes a lot more level.
THE ART OF NEGOTIATION: HOW TO SCORE A WINNING CARRIER CONTRACT
BY BRAD MCBRIDE
he shipping industry is in the midst of a digital revolution, and while that has certainly changed many aspects of the field, contract negotiations are still as straightforward as ever, at least in theory. When sitting down with a carrier to negotiate a contract, a shipper’s primary concern is generally to look out for their bottom line and make sure they are getting a good deal. Simple, right? Not so much. There are thousands of business owners out there scratching their heads at their rates, wondering where they went wrong. Worse still, there are thousands more going through their day blissfully unaware that they are bleeding profits due to excessive fees. Negotiating shipping contracts is what the carriers do daily, and they are very good at it. They know exactly what they are looking to
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get out of a contract, and they know the best ways to manipulate the numbers to achieve those goals. So, what can shippers do? Actually, quite a lot. Carrier contracts are not as mysterious as they may seem, and there are ways to level the playing field. Negotiating a new contract that can help your business, instead of just putting money in the carriers’ pockets, is a process that can be broken down into four steps: Preparation The first step when negotiating a new carrier contract is to be prepared going in. Keep in mind that while you should include multiple bid participants in the process (more on that in step two), the incumbent carriers have access to all of your shipping data when they sit down at the negotiation table, and so should you. Be prepared to share the details (minus the rates, of course!) with all participants so that everyone is on the same playing field. This will allow
Communication Step two in negotiating is communicating properly. All the knowledge in the world won’t do you any good unless you know who to talk to and, more importantly, how. FedEx and UPS are currently vying against each other to generate the illusion of a duopoly in the parcel space, but they’re not the only game in town. There are regional carriers worldwide looking to win business, and these smaller carriers can often provide competitive, if not better, rates and services. You must create leverage by playing the carriers against one another, putting them into business acquisition mode to create an advantage for your company. Establishing leverage in a negotiation stems from one side’s willingness and ability to walk away from the table. Understanding and presenting your specific volumes and characteristics while including multiple participants is crucial for establishing the leverage needed to foster successful bid results.
Understanding You have pored over your shipping data and you now know exactly what revenue band you are in, the service levels and most frequently used accessorial charges, along with the zones you ship to most frequently. You’ve reached out to multiple carriers and the proposals are starting to come in. Now what? Step
three in a negotiation is to make sure you understand what you are looking at before you sign on the dotted line. Carrier contracts can be dozens of pages long, packed with eye-crossing numbers and loaded with fine print. Understanding the impact of that oversize fee buried on page 17 or identifying that one line stating “client agrees to waive their right to money back guarantee on late shipments” can make a massive difference to your company’s bottom line and the transit times that you receive. Again, this is where technology can help. Modern digital shipping platforms are capable of inputting multiple contracts from diverse carriers and directly comparing those total landed costs against each other. Understanding the difference in accepting a higher discount for the additional handling surcharge versus a better dimensional weight divisor becomes much easier when you can simply look at rerated historical data to understand the bottom line impact. There are robust platforms
in the marketplace that can model these nuances to clearly show what’s best for your specific bottom line. Patience The final step in negotiating a carrier contract is the hardest. In today’s business world, where everything moves at a thousand miles a minute, your customers are certainly not going to slow down while you engage in a contract negotiation. It can sometimes seem like the carriers are masters in creating delays, and negotiating with them may take multiple proposals from each carrier before you achieve the best results. However, having the patience to wait out multiple offers and properly perform the analyses will end up paying off big time in the end. Landing better rates and lower fees could be the catalyst that propels your business to the next level. As they say, patience is a virtue. There is an art to negotiating, and it’s one that the carriers practice regularly. You owe it to your company and your
bottom line to match that time and effort. Being prepared with access and visibility to actionable data that includes multiple carriers, understanding what they are giving you, and having the patience to make an informed decision are all crucial steps in scoring a carrier contract that can help your profits soar. So, when it comes time for your next negotiation, make sure you come to the table ready to play.
Brad A. McBride has been in the transportation industry for 30 years. He founded Zero Down Supply Chain Solutions in 2003 after many years in high-level sales and operations roles in the logistics industry. Determined to make an impact on traditional industry practices and provide considerable savings for businesses, Brad also launched FreightOptics, the cutting-edge technology that provides one-login access to view and optimize all modes of transportation. Brad can be reached at email@example.com.
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CAN THE RIGHT PACKAGING DESIGN PROCESS IMPROVE YOUR BOTTOM LINE? Four steps to make sure your packaging materials and processes are as streamlined and efficient as possible.
By Kevin Howard
lmost every company has done it: sent a package that was larger than it needed to be and ended up paying the price in the form of extra fees or surcharges. Luckily, many shippers
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are able to mitigate much of this cost — and protect their products more effectively in the process — through careful planning, especially when it comes to the packaging design process. Many schools of packaging teach something called the “6 Step Method
for Protective Packaging Design,” which entails the following: 1. Define the environment 2. Assess the product fragility 3. Provide product improvement feedback 4. Evaluate cushion material performance 5. Design the package system 6. Test the product/package system I personally attempted to use this approach early in my career, but didn’t care for the fact that packaging design and testing are at the end of the methodology. Furthermore, while profit is the number one goal of all businesses, there is no indication of how this method would lead to maximum profit. If maximizing profit is indeed the goal of the organization utilizing it, then the order of this method should be changed. This new order informs management of the costs associated with product design choices that influence the final size of the package. Here’s how to flip the order and minimize the steps in order to achieve maximum profits:
Packaging engineering provides cost analysis for shipping a proposed new product, based on size and geometry of product. For instance, I showed management that decreasing a product’s width by just three mm increased pallet density by 25%, thus saving $2 million in shipping costs for that portion of the supply chain where products are unitized. This proposed product hadn’t yet been tooled, so management had engineers shrink the product as a result of this analysis. More sophisticated companies welcome packaging engineering input on product design, but many companies miss this opportunity. If the R&D product manager was responsible for the landed cost of new products, and not just the component and manufacturing costs, then packaging engineering can contribute in ways beyond packaging design.
Design the packaging to be the absolute smallest possible to hold the product and its accessories, yet fit squarely (i.e., no overhang and minimal under-hang) on standard pallets for the portion of the supply chain where it’s palletized. Taking this approach leaves a certain amount of space between the product and the inside of the box. This approach, starting with the most cost effective size and materials possible, would be termed “design from the outside-in,” where the design is guided and propelled by supply chain costs and the fixed sizes of pallets, planes, trains, and trucks used in that specific supply chain. Let’s say there is ¾” (19 mm) space left between the product the box. The concept would be to force the product robustness to accept only this much cushioning to survive drop tests. If the product breaks, then a choice is made: Do you improve product robustness or increase the size of the box? Let’s say this box fits in layers of eight on a pallet. If the product manager says they don’t want to improve the product to survive in the smallest
box possible, then there’s a logical next size up to fit pallets squarely, causing not only a specific decrease in pallet density/storage/material handling, but also an easily calculable cost for single parcel shipment. If volumes are significant, then it would rarely make financial sense to increase the box size vs. improve product design. Very few companies have taken the time to compare the cost tradeoffs between product and packaging as they relate to supply chain costs, but this method has proven itself to be very effective. The original method shows product fragility testing to be the driver for how much packaging should then be added. I term this “inside-out” designing, meaning the product fragility is the driver to the final package size. Fragility testing of bare products is a great way to define product robustness, but there are several problems in defining the amount of packaging protection actually required. If anything, damage boundary testing is better at comparing products and component design to one another. The testing I propose at this stage uses a dummy product, made of wood or resin and weighted exactly as the new product will be, and not use an expensive prototype product, which in reality may not represent the actual fragility of the final product. Using the dummy product in a proposed cushion design allows one to fine tune the cushion, to ensure that each face, edge, and corner will provide the minimum input possible to the product during a specific impact/drop. We don’t need a product to break at this point, but we do need to accurately record the shock through the cushion. Once this is established, then product designers will know exactly what the new product must survive and, from the previous step, the cost consequences if they don’t make it survive. Conducting drops with accelerometers in the dummy and using a shock table with high-speed video to record the actual deflection of the cushion (through viewing holes
in the box), ensures the cushioning is truly working at its maximum. Cushioning iterations can all take place prior to testing a real product, and if all goes well, this should be close to the final design, months before the real product is to be released for manufacturing. Now that protective packaging has been designed and tested in step 3, the packaging department can show product designers that protection has been completely optimized for the smallest box possible, so the only question now is whether the product design can pass the tests in the proposed package. Certainly, if the product would require extensive and particularly expensive redesign, then perhaps it would be best to add more packaging, but the reality is that in complex spring-mass system products with many components, usually only one or a few show fragility problems. Oftentimes, the component itself doesn’t break, but the mounting system of that component is the problem. Sometimes, case parts crack along edges due to drops, but simply filleting them (adding more radii to the inside edges) eliminates this issue. Assuming the drop testing is more thorough than the standardized international tests, it will be seen that only some orientations are problematic, and that only a very few aspects of the product design need to be reassessed. Testing until failure, where input levels are increased by steps, allows one to know the weakest links of the product and packaging design and/or how much margin there is between expected inputs and the robustness of the design. So, inside-out or outside-in? To limit shipping costs, one way is better than the other.
Kevin Howard is a consultant with and owner of Packnomics LLC. His focus is on distribution packaging design and testing. He can be reached at firstname.lastname@example.org. Visit www.packnomics.com for more information. MARCH-APRIL 2020 PARCELindustry.com 17
By Nate Skiver
DO WE REALLY NEED GUARANTEED DELIVERY SERVICES? While these services of course have their place, they can also be overused, leading to unnecessary expense for shippers.
hile the answer to the question posed in the title is technically “yes,” it is not as definitive as you may think. Guaranteed services are overvalued, overused, and result in unnecessary expense. Don’t believe me? Let’s find out why this is indeed the case and what shippers can do to change it. First, let’s qualify this concept a bit. Guaranteed delivery services are very much needed for time-critical items such as medical supplies, high-value
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goods, mechanical parts, etc. But are they required to ensure a pair of jeans is delivered on time? I don’t think so, at least not as often as e-commerce shippers use these services, which is our focus for this article. Guaranteed and Non-Guaranteed Service Definition Guaranteed parcel delivery services offer a money-back guarantee (MBG) if a package shipped via such a service does not deliver by the carrier-stated guaranteed date and time, which
means the shipper is eligible for a refund of transportation charges (or credit if the charges are not yet paid). We will focus on the most commonly used services by e-commerce shippers, such as FedEx and UPS Air and Ground services (other carriers do offer guaranteed services, but they are less prominent and/or may be by contract only). For example, FedEx Standard Overnight is guaranteed the next business day by 8PM to residences… unless one of dozens of exceptions occurs (more on this later).
Non-guaranteed services are exactly as they sound in that they offer no MBG nor opportunity for a guaranteed service refund (GSR). Common non-guaranteed services include postal workshare services (UPS SurePost and Mail Innovations, FedEx SmartPost, DHL eCommerce, Pitney Bowes), USPS First Class Package and Priority Mail, and some regional carrier services. Psychology Behind the Delivery Guarantee There are plenty of valid reasons to use a guaranteed service, such as shipping a customer order from New York to California for next-day delivery; however, there is plenty of psychology at work here, as well. To a certain extent, I blame FedEx. Over the years, slogans such as “The World on Time” and the ever popular, “When it absolutely, positively has to be there overnight” have conditioned our thinking that we must use guaranteed
services if we care at all when a package is delivered. A guarantee makes us feel confident and secure; after all, we will get our money back if something goes wrong… right? A perception still exists by e-commerce shippers and consumers (although it is declining) that only a guaranteed service, especially Air, can provide a fast, predictable delivery experience. Many customers continue to think that by selecting 2-Day delivery in checkout, they are paying for a guaranteed 2-Day shipping service, when in fact they are paying for prioritized order processing. Although it is not as prevalent with shippers, there can still be a sense of remorse or guilt by not using a guaranteed service to ship customer-paid expedited orders. Again, customers are paying for prioritized order processing; the delivery service should not matter if the delivery performance of the selected service meets the customer’s expectations.
The Diminishing Value of Guaranteed Services The value of the MBG has been on a downward trend for quite some time, which is unlikely to change any time soon. FedEx and UPS go to great lengths to ensure shippers do not receive a refund and/or make it incredibly difficult to do so. Does this excerpt from FedEx’s service guide instill confidence in the value of their MBG? “This guarantee can be suspended, modified or revoked at our sole discretion without prior notice to you.” I don’t think so. The decline began with a list of exceptions that render a package ineligible for an MBG, such as incorrect address, inclement weather, and customer not available. Over time, this list has grown exponentially, and FedEx and UPS have become incredibly adept at identifying and recording these exceptions, and consequently denying GSR requests. As shippers began to enlist third-party services to assist with GSR filing, the
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carriers responded with contract language that attempts to waive the right for a shipper to file for GSRs. Their rationale for this is that GSRs are time-consuming for all parties and, in lieu of GSRs, value is provided elsewhere in the contract through discounts and incentives. Good luck holding them accountable for that.
Finally, blackout periods in which the MBG is suspended have become more impactful in recent years, often occurring during the highest volume and most critical times of the year for e-commerce shippers. For example, FedEx Ground and Home Delivery MBG was suspended for 23 days in December 2019 (12/2-12/24). The above table illustrates how the MBG opportunity can be whittled down to practically nothing. Using annual FedEx Home Delivery volume and spend of 100,000 packages and $800,000, respectively, and a raw on-time percentage of 94% (irrespective of delivery exceptions), the initial MBG opportunity is $48,000 on 6,000 late packages. Much of the opportunity is then removed as 5,000 of the packages contained a delivery exception scan from FedEx, reducing the MBG eligible amount to $8,000. Take out an additional 15% of volume shipped during the December suspension period and we are left with 850 packages and $6,800 eligible for MBG. The Rising Value of Non-Guaranteed Services Upon their inception in the early 2000s, and for several years thereafter, postal workshare services (e.g. FedEx SmartPost, UPS Basic/SurePost) were vastly different than guaranteed Ground services. Transit was slow, delivery was unpredictable, and package scanning and tracking produced a painful customer experience. But these 20 PARCELindustry.com MARCH-APRIL 2020
services were economical (relatively speaking) and were a perfect fit for the early days of free shipping, when delivery times of five to seven business days were sufficient. Fast forward to today, and it is a very different story. Due to compounding annual volume growth and subsequent carrier network efficiencies, transit times have improved dramatically, as has delivery predictability. In some cases, UPS and FedEx now deliver postal-workshare packages through their own networks, offering Ground transit times at a postal workshare rate. DHL eCommerce offers a day-definite postal workshare service, Expedited Max, which provides national three-day delivery. And let’s not forget about the USPS, which offers the best value for packages under one pound via its First-Class Package service. As an example, would you rather pay $10 for an eight-ounce, guaranteed 3-Day Air package, or $4.00 for the same package via DHL Expedited Max, perhaps conceding one to two percent in raw on-time delivery? While these services do not offer an MBG, if used correctly, they can offer superior value to guaranteed services. Shippers also now have more tools and resources to leverage the value of these services. Access to TMS and multi-carrier shipping solutions enables more precise carrier service selection. Massive amounts of delivery performance data allow shippers to measure results at a granular level (e.g. 5-digit ZIP Code) and incorporate results as a feedback loop to TMS routing logic. Post-purchase tracking solutions normalize the customer experience across delivery services. All of these enhancements, combined with the aforementioned improved service levels, have dramatically increased the value of non-guaranteed services in e-commerce delivery. Guaranteed delivery services can be a necessary component of an e-commerce parcel program; however, if you want to extract maximum value from your program and impact the bottom line, look beyond the “perception” of the guarantee and
Steps to Optimize Guaranteed and Non-Guaranteed Services 1. GSR filing: For the volume that must ship via guaranteed services, retain the right to file GSRs through contract language, as well as explore third-party GSR filing services. 2. Rely on data to guide decisions: Don’t allow misconceptions and myths that surround delivery guarantees to influence your decision-making process. Instead, rely on service value calculations and delivery performance data to incorporate the proper service selection logic to minimize cost. 3. Measure the true value of guaranteed services: Measure the financial benefit of the MBG in your parcel program. Is the cost per package worth the “security” of having an MBG, or is the cost per package delta to non-guaranteed services large enough to explore other options? 4. Intensely evaluate non-guaranteed services: Require carriers to provide ZIP Code level delivery performance data, test non-guaranteed services and measure results, expand those services appropriately and impact the bottom line (without materially impacting customer delivery experience).
find value in alternative services. It’s there; you simply have to look for it.
Nate Skiver is the founder of Level Playing Field Spend Management, a parcel consulting company that provides value for its clients through creating parcel shipping programs which reduce expense, while delivering a positive customer experience. Prior to founding Level Playing Field, he spent more than 15 years focused on building, executing, and managing parcel transportation programs for leading global apparel companies. He can be reached at email@example.com.
Honed for the Holidays: Securing a Q4 Shipping Partner If you’re like most retailers, you’ll do close to 40% of your business in Q4. And that number will probably grow: e-commerce sales during the 2019 holiday season rose 18.8% from 2018. Analysts expect a similar jump this holiday season, and why wouldn’t they? Online, you can fill every request on your list and never have to set foot in a (gasp) shopping mall. If you’re serious about sticking around throughout the ’20s, you’ll need an airtight supply chain, trustworthy people to protect your customers’ gifts and your brand, and a way to offset the speed-of-delivery difference between you and Amazon. These are the common challenges you should expect to face. Customer error: You ordered this, but you really wanted that. Companies like Zappos say, “Yeah, no problem, we’ll send you a free ‘that’ tomorrow.” It’s a high bar to match. Warehouse space (or lack thereof): Less space means more trouble meeting demand… but the words “no longer available” should never appear on your website over the holidays. Personnel shortfalls: When you’re not equipped to handle a ramp-up, you run the risk of missing deadlines, losing business, and sullying your reputation at the worst time. Outdated software (WMS, TMS): Old software is probably the worst out-of-date asset because it’ll slow you and everyone else along the chain down, especially if it can’t seamlessly share data with other platforms or make real-time improvements. One hiccup along the way can turn a customer into a former customer. Transparency: Customers want to know everything about their package, and they expect answers. They want you tracking
everything — including environmental impact — and if you’re not prepared to do that, someone else is. Branding: The way your customers react to your box should match the reaction they’d have if they came to your store. But getting it right here is more than having a great concept for the packaging — it also has to be affordably shippable. Solutions The smoother your operation, the more able you’ll be to manage the influx with timely delivery and memorable opening experiences. An easier website interface would reduce customer error, as would an extra cart-review step in the purchasing procedure. Combined, they’ll cost less than the effect of lost revenue due to shoddy service. To maximize the effort to, from, and in your warehouse, a strong pick-and-pack playbook should be a priority. Scaling into a multiple warehouse operation will necessitate a mixture of piece, batch, zone and wave pickers. To manage this short-term personnel need, we bring in seasoned seasonal staff who won’t slow down operations regardless of their degree of familiarity with the warehouse. Having integrated WMS and TMS systems is another smart solution to ensure a hiccup-free holiday season. If something’s off-schedule, you’ll know early enough to correct it without compromising delivery times. If a customer wants to know the status of their package, you’ll have up-to-date answers. And you’ll want to partner with a shipping provider that understands that, when it comes to customer experience, the packaging itself is as important as what’s in the package. If you take the time to do something special for customers over the holidays, they’ll return the favor with repeat business. Let’s talk The 2020 holiday season will be here before you know it, as will 5x–10x the orders. We have the tools, approach, and infrastructure to help you handle it.
VisibleSCM.com firstname.lastname@example.org 887.506.2614
CHOOSING THE RIGHT CONSULTANT PARTNER The small-parcel market just continues to grow, and this growth can present new challenges and opportunities for shippers. Navigating the ever-increasing number of surcharges and fees while simultaneously trying to cut down on delivery times in order to maintain customer loyalty is enough to make your head spin. And we’ve only touched on the tip of the iceberg; there are so many more issues faced by parcel shippers on a daily basis. Luckily, partnering with a good consultant can help you streamline your parcel shipping operation and maximize its effectiveness. Check out the solution providers below, and when you reach out, be sure to tell them you saw them in PARCEL.
For over 28 years, AFMS has been the leading transportation price benchmarking firm in North America and Europe with intelligent analytics focused on cutting transportation costs through carrier contract negotiations and automated freight audit and recovery. AFMS specializes in benchmarking your freight rates to tell you exactly what market discounts and concessions you deserve with your current carrier. The pedigree of the AFMS senior management team is unparalleled in our consulting space, over 500 years of combined sales and senior pricing experience from carriers like UPS, FedEx, and DHL. Our inside pricing knowledge is why the largest shippers in the US and Europe use AFMS to benchmark their rates and save big. GE, Sony, Disney, Under Armour, StockX, Dell, Honda, Toyota, Bose, Trek Bikes, and many more large shippers have all negotiated best-in-class
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rates with AFMS help. Our fact-based negotiation strategies, advice, and management solutions are why AFMS clients have the best shipping rates. Our senior managers are actively involved in every aspect of our clients' negotiation strategies and discussions, successfully averaging 15-25% better rates than those companies that don’t use AFMS. AFMS electronic invoice auditing and reporting tools are the most sophisticated in the industry, with over 750 reports that provide valuable insight into a company’s day to day logistic and operational needs. Call AFMS for a FREE contract/pricing evaluation and 30-day test audit. www.afms.com email@example.com 800.246.3521
Parcel Spend Management Alexandretta specializes in consistently driving cost savings for clients spending between $1mm-$500mm+ on parcel annually. Our expertise in the industry allows us to review every aspect of parcel data and optimize savings via detailed analytics, negotiations support, contract optimization, strategy, audit, and business intelligence. Typical savings average 10%-20%, leading to increased profits and competitive leverage for our clients. Our dedicated team of parcel, LTL, and airfreight experts bring over 200 years of combined carrier pricing and sales expertise to our clients. Regardless of client size or spend, we find savings 95% of the time, therefore providing the biggest area of opportunity for shippers to impact their parcel spend. In addition to providing late shipment and manifest error recovery, we also provide sophisticated solutions that incorporate trend analysis, GL-coding, rate audit, and business intelligence tools through our cloud-based systems. While we are headquartered in Southern California and have a powerhouse team of domestic parcel experts on staff, we also bring a passionate team of global experts, based in the Netherlands, that optimize savings in Canada, Europe, the Middle East, and Asia. www.alexandrettaconsulting.com firstname.lastname@example.org 714.777.3377
CT Logistics is celebrating 97 years of supply chain management services in 2020. Since 1923, companies have leveraged CT for freight audit, payment, TMS solutions worldwide. CT customizes all solutions for our clients to support all modes, including parcel. CT's services will reduce your costs and save your company money. CT audits every shipment to recover money from your total parcel, package, and freight expenditures. All rates and cost items are calculated, including bundled pricing, hundred weight, and dimensional pricing. All shipments are reviewed for address, account number, COD, dangerous or restricted goods, declared value, and oversize. All shipments. including third-party, are reviewed for inside, residential, dimensional, Saturday pickup or
delivery, as well as GSRs (Guaranteed Service Recoveries). CT's services also include supply chain management, TMS solutions, LTL and Full Truckload shipment execution, bid management, shipment planning and execution software, as well as professional services for consulting and advising. CT's business intelligent platform provides global supply chain visibility for benchmarking and trending, with graphical dashboards for management information. CT is SOCII and ISO 9001:2015 certified.
ParcelLogix is the leader in flat fee small parcel price benchmarking and carrier contract negotiation services. They bring visibility to appropriate small parcel rates by providing granular target pricing saving their clients millions on shipping costs. The process is straightforward: ParcelLogix offers a free assessment of clients’ pricing to identify opportunities for saving, which is typically completed in 3-5 business days. Clients then have the option of choosing from two options: Price Benchmarking or Carrier Contract Negotiations. Price Benchmarking Following a comprehensive analysis utilizing ParcelLogix’s proprietary data and analytics tools, a detailed list of custom price benchmarks and corresponding savings are presented to the client. These targets become the roadmap for the client to follow during negotiations with the carriers (UPS, FedEx, & DHL). Carrier Contract Negotiations Using the aforementioned price
targets, ParcelLogix assists clients throughout the carrier negotiation process to maximize the savings attained by clients. This negotiation assistance includes financial impact analysis of proposals received by the carriers, guidance on strategy plus access to ParcelLogix’s Business Intelligence Dashboards. Return on Investment ParcelLogix prides itself on being an affordable yet highly capable service provider. It is their goal on each engagement to return more savings to their clients than any other provider in the industry. In fact, many of their clients retain more than 90% of the savings achieved. Find out how much your organization is overpaying for small parcel shipping and visit ParcelLogix today.
www.ctlogistics.com email@example.com 216.267.2000, ext. 2190
Sit back and imagine for a minute that overnight your entire small parcel management, across every business segment and carrier, could be taken care of for you... No more worries about getting the best rates, if you are being billed correctly, if you have the wherewithal or funds to create your next reporting package to management, the board, or your shareholders. A contingency-based asset that can be at your side within minutes at your command. Are you building a new facility? Re-rate packages from any zip in the country, nail down your budgeting, GL Coding and cost allocations; make important decisions within a few hours, not days, weeks, months, or years. These are examples of thousands of metrics that PMAC can perform for you. Nine full-time programmers with a combined 200 years of parcel industry experience at your side. It is unbeatable, and you will be unstoppable, with more time to focus on business growth than you ever thought you would have. Speak with our hundreds of customers that get personalized assistance every day... Now slowly open your eyes and quickly dial the number below, then sit back and rest easy… we got you… www.pmacinc.com firstname.lastname@example.org 631.847.0596
www.parcellogix.com email@example.com 800.471.2310
MARCH-APRIL 2020 PARCELindustry.com 23
With costs rising due to an increasingly fast-paced business environment, even the most sophisticated supply chain operations are overpaying in an effort to gain a competitive edge. Providers are raising the stakes with consistent rate increases, policy changes, and complex billing systems that lack transparency. Spend Management Experts is the leading transportation, distribution, and fulfillment spend management consultancy that helps companies optimize supply chain spend, reducing costs by 20% or more. We are a team of experts who know where to look, armed with modern supply chain technology which makes us all the more efficient. Our approach won’t disrupt daily operations. We employ unparalleled market intelligence and proprietary cost modeling, targeting hidden costs and identifying savings opportunities. We build strong business cases based on your data to negotiate better terms, pricing and service for our clients. Our services help clients effectively manage spend across all modes:
Strategic Sourcing: We provide a complete evaluation of existing carrier contracts, terms and pricing, as well as alternative sourcing solutions. From there, we are able to develop a savings strategy. Supply Chain Strategy: We provide companies with a complete view of their spending environment, enabling them to maximize efficiency and minimize waste. Business Intelligence: We ensure carriers comply with contract terms and agreements. We’ll help recover hard-dollar savings by identifying and claiming 100 percent of entitled funds. The benefits are undeniable; reduced costs, increased efficiencies, dynamic reporting, accurate forecasting, and optimized planning. Spend Management Experts delivers your competitive edge.
No one wraps up parcels quite as reliably as Visible. Founded as a fulfillment company with a single warehouse in 1992, we have grown to become one of the country’s leading providers of shipping, packaging, fulfillment and logistics. Shipping over 149 million packages a year, our bulk buying power, together with Visible’s New Blue rates, consistently provide our customers with significant savings on their shipping costs. Custom packaging services help reduce those costs even more, by rightsizing package dimensions and weights, based on carrier rate brackets. And five bi-coastal warehouses allow our customers to lower rates yet further, by optimizing based on shipping zones. As a result, Visible now works with over 25,000 customers, shipping to over 220 countries and territories. Our seasoned experts fulfill using proprietary technology that gives
customers around-the clock shipment tracking, and helps us maintain a 99.84% accuracy rate, with a 99.90% on-time shipping record. With this kind of parcel prowess and dependability, no wonder Visible is able to help eCommerce retailers better compete with the biggest brand names out there today. "As you might gather from our name, visibility is central to everything we do, because transparency is what we believe the supply chain management industry needs to focus on, if it is to thrive. From live-package tracking to crystal clear invoicing, we're proud to be helping drive the long-needed shift to reliable, stress-free shipping." - Casey Adams, President
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www.spendmgmt.com firstname.lastname@example.org 404.902.5390
VisibleSCM.com email@example.com 877.506.2614
Featured Consulting Companies and Their Contact Information AFMS www.afms.com firstname.lastname@example.org 800.246.3521
Alexandretta www.alexandrettaconsulting.com email@example.com 714.777.3377
CT Logistics www.ctlogistics.com firstname.lastname@example.org 216.267.2000, ext. 2190
ParcelLogix www.parcellogix.com email@example.com 800.471.2310
Parcel Management Auditing and Consulting (PMAC) www.pmacinc.com firstname.lastname@example.org 631.847.0596
Spend Management Experts www.spendmgmt.com email@example.com 404.902.5390
Visible Supply Chain Management VisibleSCM.com firstname.lastname@example.org 877.506.2614
By C. John Langley Jr.
OPTIMIZING THE 3PL OR 4PL SELECTION PROCESSES Considering partnering with a 3PL or 4PL? Here's what to take into account
he supply chain and logistics sectors have relied significantly on logistics service providers (LSPs) to create and deliver value to end-user customers and consumers. As markets for these services become more competitive, users and providers have been on a relentless search for innovation and expansion of available logistics capabilities. 3PLs and, more recently, 4PLs have become recognized as important providers and managers of a broad range of logistics and supply chain services. 3PLs have become recognized as important providers and managers of a broad range of logistics and supply chain services that are available to clients and customers. While 3PLs may either utilize their own assets, or those of other LSPs, their services are typically more customized than those of an individual provider of an asset-based service such as an LTL or TL transportation provider. In 1996, Accenture invented and trademarked the term fourth-party logistics (4PL) provider to describe “a supply
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chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” Although the 4PL designation is no longer registered, there has been significant expansion of 4PL organizations, and they play a valuable role in the pursuit of supply chain success. Examples of 4PL services may include LLP (lead logistics provider), consulting/advisory, advanced IT services, risk management, and “control tower” services, etc. To be successful, optimizing the selection of 3PLs and 4PLs will require guidance from a comprehensive strategic sourcing process. Among other elements, significant attention should be directed to: 3PL/4PL screening; key selection factors; and effective management of selected providers. 3PL/4PL Screening Process Once a customer organization has validated the need for 3PL or 4PL services, adherence to a logical and structured supplier portfolio screening process will be essential. Consider the following: Initial Supplier Research and Screening. Equipped with an understanding of its range of logistics and supply chain needs, this establishes a base of information to facilitate the overall selection process. The outcome of this effort should identify specific 3PL/4PL providers that evidence the capabilities needed by the customer. Request for Information (RFI). The purpose of the RFI is to determine which potential suppliers have the interest in and capabilities to meet the customer’s business requirements. Examples of information that may be requested in an RFI include company background, financial stability, markets covered, manufacturing and distribution facilities, research and development, and quality systems. RFIs generally focus attention on the capabilities of suppliers being considered, and so cost and price information is not a primary focus of this element of the screening process. Request for Proposal (RFP). The RFP provides specific information as to what the buying company would like to source and asks potential suppliers for details as to how they would respond to the request. Included in this response would be substantive information as to the specific products and services to be provided, as well as preliminary pricing information. The RFP should be sent to a sub-set of organizations that responded to the RFI and that are considered to have the capabilities needed for further consideration. The quality of responses from potential suppliers will be related to the accuracy and completeness of information included in the RFP’s prepared by customers. Supplier Site Visits. A key element of the screening process is to allow potential suppliers the opportunity to conduct on-site visits at one or more of your facilities. This will prove to be a valuable step, as it will increase the ability of potential suppliers to more fully understand your logistics, supply chain, and organizational needs. In a broader sense, this also will greatly enhance the likely effectiveness of the overall selection process. Supplier Selection. Using a pre-determined list of selection
factors and the “weights” to be assigned to each, this step includes determining which supplier or suppliers to bring on-board to serve the customer. This step may include an in-depth negotiation process with “short-list” suppliers to facilitate making the best decision possible. Key Selection Factors Realistically, there are many selection factors that may be relevant to the selection of a 3PL or 4PL. Capability. Clearly, prospective 3PLs or 4PLs should have the capabilities outlined by the customer in the RFI and RFP, as well in individual discussions, communications, and negotiations between the involved parties. While it is not unusual for customers to assess the potential for providers to further develop or create new capabilities, the primary focus should be on capabilities that are related to fulfilling current logistics and supply chain needs. Risk and Reliability. The selection process should include a risk assessment for each of the 3PLs or 4PLs under consideration. This will be very useful, considering that each potential supplier will evidence a range of strengths and weaknesses. A major element of risk will be related to the reliability that customers may expect from suppliers under consideration. Technology. This factor will be important to customers, as one finding of the 2020 24th Annual 3PL Study was that
94% of shippers surveyed agreed that IT capabilities were a necessary element of 3PL expertise. This contrasts with the finding in the same study that 56% of shippers indicated satisfaction with 3PL IT capabilities. Financial. In addition to price, buying firms are wise to consider the financial positions of potential suppliers. Financially unstable suppliers pose possible disruptions in the services needed by the customers. Desirable Qualities. The types of concerns here may be extensive, but some of those likely to be relevant include: cultural compatibility and supplier attitude; shared decision-making; and desirability for a collaborative relationship. Sustainability. This factor is becoming increasingly prevalent in many supplier selection processes. Given the priority that businesses and society in general have placed on initiatives relating to sustainability, supply chains are well-positioned to make significant contributions to progress in this area. In addition, many organizations that can demonstrate a commitment to sustainability also have successful commitments to effectiveness and efficiency of their overall businesses. Vision and Adaptability. Considering the pace of change in today’s business environments, a critical assessment will be whether prospective suppliers have a meaningful strategic vision and the ability and interest in adapting to market and
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business conditions as they may change. This is in stark contrast to an organization that may be less receptive to change, and that may lack this capability when needed by its customers. Effective Management of Selected 3PL/4PL Suppliers Once newly selected suppliers have commenced with their responsibilities, it will be helpful to focus on how best to work with and manage these key resources. Importance of Relationship. Take the time to consider the supplier’s view of the buyer and how they manage relationships with their key customers. This should include meaningful and insightful interactions with suppliers to solicit meaningful feedback and perspective, and also learning as much as possible about how important your business is to individual suppliers and why. Communications. The ways in which suppliers and customers communicate should be agreed upon in advance by both parties. Whether the alternatives include email, text, etc., they should be responsive to the business needs at hand. As a result, the methods of communication may vary by factors such as importance, urgency, timing, and others. Also, new and innovative cloud-based technologies have been developed that facilitate operational and planning processes between suppliers and customers. Use of Business Reviews. Although they most commonly take the form of QBRs (quarterly business reviews), these are great opportunities for customers and suppliers to provide feedback to each other and to share mutually relevant information. Closeness of Relationships. The best advice here is that close relationships between buyers and suppliers will help to generate improved results. This is true in a general sense, but both parties should always make sure that close relationships do not become responsible for a loss of objectivity or the presence of “groupthink” that may discourage creativity or individual responsibility. Strategic Plan. Concerns such as those indicated in this section may be avoided by seeing that the relationship between these parties is governed by a meaningful and understandable strategic plan. This should provide a structure that is comfortable to both suppliers and customers, and that will lead to superior results for both organizations. According to 3PLs, 4PLs, and customers, the likelihood of successful relationships starts with use of a structured and meaningful selection process. From a customer perspective, this will help to optimize the objective of selecting the best providers from the perspectives of service and cost. Principal benefits for 3PLs and 4PLs include the opportunity to leverage their core capabilities to serve their customers, and to achieve an acceptable level of financial return. The best relationships will be those that are a “win-win” for both providers and customers.
C. John Langley Jr. is Professor of Supply Chain Management, Penn State University. 28 PARCELindustry.com MARCH-APRIL 2020
INCOTERMS 2020: FOUR THINGS PARCEL SHIPPERS NEED TO KNOW By Brent Wm. Primus, J.D.
n this column, we will take a look at the latest version of the most commonly used terms of sale for international transactions: Incoterms 2020. By way of background, Incoterms is an acronym for “International commercial terms.” They were first promulgated by the International Chamber of Commerce in 1936. Since then, there have been eight versions leading up to the most recent, Incoterms 2020, which went into effect January 1, 2020. The first thing that parcel shippers need to know is that although they are intended to be easy-to-use shortcuts, they are actually quite complicated. With Incoterms 2020, there are now 11 separate Incoterms with a three-letter designator: Rules for any mode or modes of carriage EXW (“Ex Works”) FCA (“Free Carrier”)
CPT (“Carriage Paid To”) CIP (“Carriage and Insurance Paid To”) DAP (“Delivered at Place”) DPU (“Delivered at Place Unloaded”) DDP (“Delivered Duty Paid”) Rules for sea and inland waterway transport FAS (Free Alongside Ship) FOB (Free On Board) CFR (Cost and Freight) CIF (Cost Insurance and Freight) The domestic F.O.B. terms cover passage of title, payment of freight charges, and risk of loss and damage in transit. However, Incoterms cover freight charges, risk of loss, AND responsibility for cargo insurance, payment of import duties, and a few related obligations. Accordingly, before the reader begins incorporating one or more Incoterms into their purchase or sales contracts, it is strongly recommended that one take the time necessary to thoroughly educate themselves regarding the exact meanings of these terms and the pros and cons in selecting a particular term for a particular transaction or set of transactions. A good starting point is the International Chamber of Commerce website at https://iccwbo.org. The second thing to know is that there are some critical differences between the domestic F.O.B. terms and Incoterms 2020. The first of these is that although an Incoterm will cover where delivery is to be made and
when risk of loss for damage in transit passes from seller to buyer, no Incoterm specifies when title to the goods will pass. Accordingly, this must be addressed in a separate sales or purchase contract. The third thing to be aware of is that the domestic terms apply to any mode of transportation, e.g., ground, air, or ocean; however, four of the Incoterms only apply to transportation by a water carrier. One of these four is the F.O.B. Incoterm, which is not to be confused with the domestic F.O.B. term. The fourth thing to know is that there is no legal requirement whatsoever that anyone use Incoterms nor is there any legal or other requirement that the terms be used exactly as published by the ICC. In other words, the parties to a transaction may modify the Incoterm they choose to use as they see fit; just as one can do with the domestic F.O.B. Origin/Destination terms… or not use an Incoterm at all. Given the complexity of the Incoterms, it might be just as easy to say in a contract what the parties intend, e.g., seller will pay freight; buyer will pay import duties; seller will pay for cargo insurance; and so on, as well as when title will pass. All for now!
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.
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STRATEGIC PARTNERSHIPS Michael J. Ryan
he coronavirus has caused major disruptions in the global economy and significant chaos for people in China, Japan, and Italy (and, to a lesser extent, people all around the world). It has been encouraging to see how people everywhere have responded in their attempt to help each other, minimize the impact of this virus, and find a solution. This is a perfect, real-life example of the strategic partnerships that are so prevalent in our industry and essential for the success of organizations that engage in them. Here are some key elements of a successful strategic partnership:
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1. Intimate Knowledge: This is one of the most critical parts to strive for in a successful strategic partnership, and it doesn’t matter if you are on the buyer or seller side. This in-depth knowledge of each other can only be achieved through in-person and phone contact. As the old saying goes, “People do business with people they know, trust, and like.” Many people often question the purpose of meetings, lunches, dinners, and special events, but this is how we get to that pinnacle point of a relationship. 2. Trust: This is core element in developing a long-term strategic partnership. This is only achieved by having each other’s back and delivering success on a regular basis. This can take years to develop, but once it is achieved, great things happen. Unfortunately, we live in a transactional world, which is not conducive to building trust. How hard are you working to move from a transactional relationship to a strategic partnership? Do your relationships extend to multiple levels in both organizations? 3. Creative Solutions: During times of disruption, it is critical to “think outside of the box” for solutions. In a highly collaborative relationship, this practice
of going through the “what if” scenarios will create mutual, beneficial opportunities for the buyer and seller. This is often a difficult thing to do because most people don’t like to get out of their comfort zones. As we are going through these disruptive times, it is critical to review your current strategic partnerships and ascertain where you are and where you need to be. If you are not where you want to be, then you need to take these relationships to a higher level. Simultaneously, you may want to look at developing new strategic partnerships. Which organizations are in the market that can help your company achieve its goals? Remember, these strategic partnerships do not happen overnight; you need to invest time and money into them. This is a great year to strengthen your strategic partnerships and turn chaos into success!
Michael J. Ryan is the Executive Vice President at Preferred Shipping (www.preferredship. com) and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@ preferredship.com.