Are you on top of your shipping costs? Big Data and Predictive Analytics: both terms sound great in concept when you’re standing in the boardroom clicking through your PowerPoint presentation, but most B2C shippers struggle to cope with the cost of free shipping. eCommerce growth continues unabated, and with it, the demand for parcel delivery. Consumer demand for fast and free delivery comes at a high cost to retailers, many resigned to the fact that meeting delivery expectations may mean eating shipping costs. How a business manages shipping costs at a time of diminished carrier capacity can mean the difference between turning a profit or realizing a loss. But it doesn’t have to be that way. Data, when mined strategically, can truly take a shipping operation to a whole new level of profitability. A parcel TMS platform will provide you with all the data and tools you need to manage your bottom line effectively. There are a few things to consider about how to use these tools to your advantage. THE MARGIN CHALLENGE Measuring what it costs to deliver products is one of the key components to understanding margins. Most B2C parcel shippers have a hard time calculating total cost of goods sold because costs are highly variable, depending on the details of the individual shipment. Distance to the customer, weight, cube, service level, and any number of surcharges and fees make it difficult to allocate the total cost of goods sold at a SKU level. Shipments with multiple products and orders only add to the complexity. But analytics can help. A parcel TMS system can collect order line item detail during the shipping process, along with related carrier costs. Analytic tools will allocate average transportation costs based on the relative weight of SKUs within shipments and determine the average cost of delivery over time for each of your products. This will help you rationally adjust your product pricing, factoring in transportation costs. Free shipping isn’t free, and guessing at what your margins are isn’t a good business strategy. Understanding how shipping costs impact margins will also help you understand how to profitably offer premium services, such as same-day delivery, to customers. Customers want choices and may be willing to pay for them.
SMART DECISIONS FOR PROPER SERVICE LEVELS Using analytics to pinpoint your transportation cost of goods sold by product is the first step. Reducing shipping costs is the next toward improving margins. There are three areas you can look at: 1. Cost Recovery: A parcel TMS solution can capture point of shipping data for all carriers across your enterprise and then match it against carrier invoices. You can measure expected costs vs. actual cost and determine how much can be recovered from carriers in the form of late delivery refunds, lost shipments, damaged shipments, residential/ commercial status disputes, and manifested but not shipped transactions. Auditors can help with cost recovery efforts, possibly reducing spend by as much as 2-3%. 2. Cost Reduction: Use analytics to discover cost savings in the form of recurring address correction fees, unexpected DIM fees, air to ground downgrades, and order consolidation opportunities. Modeling tools can perform “what if” analyses to measure the impact of alternative carrier services. Another 5% in savings can be realized. 3. Industry Benchmarking: How do you know if your rates are cost-competitive in your industry? The answer lies in the data and is key to leveling the playing field during contract negotiation time. Analytics will clarify costs by lane, by region, by mode, and the impact new rates will have compared to your competitors. Freight negotiators estimate that shippers can save an average of 18% with the right tools. TURN ANALYTICS INTO EXECUTION Best advice? Start with the end in mind by understanding what your actual shipping cost of sale needs to be for your business to remain competitive and profitable. Collecting and mining shipping data will help you reduce costs and achieve your objectives without sacrificing your customers’ delivery experience.
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PARCEL May/June 2018