PARCEL & BEYOND: MASTERING PEAK SEASON COSTS ACROSS THE ENTIRE SUPPLY CHAIN
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By Britain Pavlic, Christian Nixel, Tom Stretar, Nate Rosier
oes peak season always seem to arrive before you have time to build a comprehensive plan? Supply chain leaders face a variety of challenges during peak season, including surges in cost, and often fail to adequately prepare. The American Journal of Transportation reports that regarding freight outlook, 42% of surveyed supply chain professionals do not believe peak season 2023 will be better than peak season 2022. While transportation tends to be the highest-cost area for supply chains, minimizing spend during peak season is not just a transportation play — it is a supply chain play. All areas of the supply chain, including transportation, labor, network planning, warehousing, and inventory, need to be optimized for an organization to have its most successful peak season — keeping the cost down while also exceeding customer expectations. Drive Down Your Parcel Costs Transportation is responsible for a large sum of supply chain costs, even outside of peak season with increased volumes and tightened timelines. This is exacerbated during peak season for a variety of reasons. Peak spot rates – Shippers have a tendency to optimize their capacity for the year, not just for peak season. This
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leaves them with higher volumes to ship in a shorter period of time, leading to a higher dependency on peak spot rates, which are notorious for depleting a transportation budget. Online shopping – As consumers lean into online shopping, e-commerce orders continue to surge. With online shopping comes several increases in cost, including shorter delivery windows, higher return rates, higher last-mile delivery costs, and increased handling. Tightened capacity – Tight carrier capacity during peak season is unavoidable, as demand — and therefore shipping volume — skyrockets. Because of this, carriers will often increase their prices, giving another hit to your transportation budget. Some of these cost contributors are unavoidable, but not all. There are several avenues for reducing transportation spend and creating a more profitable peak season. Spot rate negotiation – Lock in optimal contract rates through pre-peak season freight bids. Freight brokers and 3PLs can typically offer the best shipping rates. Higher projected volumes – Obtain higher parcel discounts by providing higher projected volumes to the carrier. Route and mode optimization – Coordinate with customers, suppliers, and freight brokers to consolidate shipments that are going to the same location. This will reduce the number of trips being taken and cut down on costs. Invest in technology – The right transportation management system can track shipments, optimize routes, and reduce manual processes, which all contribute to lower transportation spend. Get Your Warehouse Costs in Check The people, processes, and technology in the warehouse take the brunt of peak season’s force. There are several areas of the warehouse that are particularly impacted and can contribute to increased costs for the overall supply chain. Inventory levels – Nearly every organization will see a rise in order volumes during peak season. Because of this, warehouses will have to increase their inventory levels to meet the higher demand. Inventory is a huge investment for warehouses, and the more you have to store and handle, the more it will impact your budget. Increased labor – With higher order volumes comes an increased workload. To accommodate, warehouse leaders will need to hire additional staff and pay for overtime needs, which will increase labor costs. Shipment frequency – Higher peak season demand leads to more frequent inbound and outbound shipments, which means higher receiving, handling, and storage costs for the warehouse operator. Throughput demand – During peak season, customers often require faster order turnaround times. This will mean expedited processing and shipping for the warehouse, which will drive up costs. There are a few ways to prepare warehouse operations to better handle these changes without seeing a surge in costs. Optimize facility design – Design your facility in a way that increases picking and packing efficiency to cut down on labor costs during peak and low volume situations. Implement technology – Implement the right warehouse