WHAT TO SEE AT PARCEL FORUM PAGES 52-55
SEPTEMBER-OCTOBER 2018 PARCELindustry.com
TOP TIPS TO MANAGING YOUR TRANSPORTATION SPEND. P.44
ARE YOU READY FOR A SECOND DISTRIBUTION CENTER?
WHAT A PAIN IN THE ACCESSORIAL! P.24
IS YOUR OPERATION PREPARED FOR PEAK SEASON?
CONTENTS /// Volume 25 | Issue 6
16 24 28 38 06 EDITOR’S NOTE
By Amanda Armendariz
08 SPEND PERSPECTIVES By John Haber
10 SUPPLY CHAIN SUCCESS By Johnathan Williams
12 OPERATIONAL EFFICIENCIES By Susan Rider
16 PREPARING YOUR OPERATION FOR PEAK SEASON By Brian C. Neuwirth
20 OUR ANNUAL CARRIER PERFORMANCE SURVEY By Amanda Armendariz
24 WHAT A PAIN IN THE ACCESSORIAL! By Matt Weickert
28 VR & AR: A NEW REALITY IN THE SUPPLY CHAIN? By Phillip Avelar
30 DIMENSIONAL WEIGHT: A GROWING ISSUE
56 TECHNOLOGY TO COMPETE WITH THE BIG GUYS
34 TAKE YOUR E-COMMERCE ORDER FULFILLMENT TO THE NEXT LEVEL
60 PARCEL COUNSEL
By Jack Ampuja
By Tim Dunskis
36 AND THE WINNER OF THE CARRIER CONTRACT NEGOTIATION SESSION IS… By Bryan Van Suchtelen
38 ARE YOU READY FOR A SECOND DISTRIBUTION CENTER? By Norm Pollock
By Maia Benson
By Brent Wm. Primus, J.D.
62 WRAP UP
By Michael J. Ryan
SPONSORED CONTENT: 09 3PLS NEED TMS COMMUNITY MANAGEMENT 15 4 WAYS TO AUTOMATE A MANUAL SHIPPING OPERATION
40 AVOIDING RISKY BUSINESS IN DC OPERATIONS
27 SIMPLIFY YOUR SUPPLY CHAIN
44 TOP TIPS TO MANAGING YOUR TRANSPORTATION SPEND
59 REDEFINING CUSTOMIZED SERVICE MANAGEMENT
By Steve Hopper
By Tim Sailor
48 PACK TO SAVE
By Jeff Haushalter
4 PARCELindustry.com SEPTEMBER-OCTOBER 2018
52 WHAT TO SEE AT PARCEL FORUM
PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITOR AMANDA ARMENDARIZ [ firstname.lastname@example.org ]
EDITORIAL DIRECTOR ALLISON LLOYD [ 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 PARCEL (ISSN 1081-4035) is published 7 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2018 © by RB Publishing Inc. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, RB Publishing Inc. or its staff becomes the property of RB Publishing, Inc. The articles in this magazine represent the views of the authors and not those of RB Publishing Inc. or PARCEL. RB Publishing Inc. and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com.
P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com
5 PARCELindustry.com SEPTEMBER-OCTOBER 2018
FINISH YOUR YEAR ON A HIGH NOTE By Amanda Armendariz
he lazy days of summer are about to come to an end, and for those of us with children or teens, it’s time to enter the back-to-school fray (if you haven’t already). Not only does the advent of fall signal different schedules, new bus pick-up times, and the juggling of after-school care arrangements, it also signifies the fast-approaching peak season. For those of us in the parcel industry, we know that this can be a make-or-break time for retailers. After all, if consumers are dissatisfied with their purchases during the all-important holiday season (or
6 PARCELindustry.com SEPTEMBER-OCTOBER 2018
the packages show up after their expected date, thereby adding a tinge of unhappiness to this celebratory time), it’s extremely unlikely that they will purchase from that retailer in the future. Shippers know that the pressure is on, but it can be daunting to know exactly how to alleviate this pressure. Luckily, there are a variety of tools and methods that can be implemented to help shippers perform at their peak. As you flip through our September/October issue, we know that you’ll come away some key takeaways that you can adopt in order to ensure your small-package operation succeeds at the holidays and all year long. And, in the meantime, I’d like to remind you one last time that the 2018 PARCEL Forum is almost here. If you haven’t already, please check out PARCELforum.com for information on attending. We hope to see you in September in Chicago! 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!
When It Comes to Shipping, Size Really Does Matter By Bryan Van Suchtelen
Are Regional Carriers Right for You? Here’s the Data to Take into Account By Elijah Moon
The 4 “Must-Haves” for Successful Carrier Negotiations By Brad McBride
THIRD-PARTY PROVIDERS FEEL THE AMAZON PAIN By John Haber
uch has been written on FedEx and UPS rate increases, but what another large logistics provider, Amazon? Net sales from third-party sellers continue to grow for the e-commerce behemoth, often resulting in bulging fulfillment facilities. Net sales from third-party sellers for the first half of 2018 increased 41.2% over the same period in 2017, to almost $19 billion. Net sales include commissions and related fulfillment costs, shipping fees, and other third-party seller services. But what about Amazon’s own branded items, including private-labeled foods, apparel, and high-tech goods? Third-party sellers are finding themselves both selling and often competing against these items in terms of sales as well as in space within fulfillment facilities. As such, Amazon’s success has also become one of
8 PARCELindustry.com SEPTEMBER-OCTOBER 2018
its biggest problems. Amazon fees are beginning to look a lot like FedEx and UPS rates and surcharges — numerous and costly. } In April, Amazon increased monthly storage fees by an additional $0.05 cents per cubic foot. } On August 15, Amazon introduced a minimum charge of $0.50 per unit per month for items in fulfillment centers for 365 days or more. The greater of the applicable total long-term storage fee or minimum long-term storage fee will be charged. } Starting September 15, long-term storage fees will be adjusted and the assessment dates will be changed from a semi-annual basis to a monthly basis. In addition, effective July 1, days before Amazon’s fourth annual Prime Day, Amazon implemented a system called the Inventory Performance Index (IPI), which measures how well each merchant manages its inventory, removes products that aren’t selling, and fixes its listings. Inventory that stays in Amazon’s warehouses for too long without being shipped to customers or removed will hurt a seller’s IPI score. Sellers above a 350 score won’t have any restrictions on storage space (scores range from 0 to 1,000). However, those with a score below 350 will not be allowed to send more products to Amazon’s warehouses and will incur a monthly “overage fee” on the inventory that exceeds their storage limits. According to Amazon: “If your existing inventory exceeds your storage limits for a
given month, we will also charge an Inventory Storage Overage Fee on the portion of your inventory that exceeds your storage limits, in addition to monthly inventory storage fees and, if applicable, long-term storage fees. The overage fee will be charged monthly at $10.00 per cubic foot, based on the daily average volume of inventory that exceeded your storage limits throughout the month. We will be updating our tools to reflect cubic feet of storage instead of the number of units that we currently show.” Many third-party sellers, large and small, have benefited from selling on Amazon, but there are always other options to Amazon’s FBA (Fulfillment by Amazon) solution if pricing is taking a bigger chunk out of sales. Online platforms such as Magento, Shopify, and BigCommerce may be worth researching. These platforms often have a special relationship with Amazon that allows them to provide similar services while allowing sellers to continue to sell on Amazon. Also, don’t forget the 3PLs and carriers. It is becoming very common for them to offer specialized services for e-commerce shippers such as FedEx Fulfillment, UPS Supply Chain Solutions, DHL e-Commerce, and SEKO Logistics. Much like the need to review invoices regularly for any questionable small parcel charges, one should do the same for fulfillment charges. supply chain network.
John Haber is the Founder and CEO of Spend Management Experts. Contact John at firstname.lastname@example.org.
3PLs Need TMS Community Management Global e-commerce demand has created a parcel tsunami, which in turn has led to a trucking capacity crunch and higher prices with no end in sight. It is now tougher than ever for shippers to control costs and keep their delivery promises to customers. This is excellent news for 3PLs that shippers rely on for expertise when the going gets tough. According to consultancy Armstrong & Associates, Inc., 3PLs saw gross revenues increase last year by 10.5%. To optimize this opportunity, asset-light 3PLs will need a transportation management system (TMS) platform that can adapt to the logistics environment transformed by e-commerce. Below are considerations that asset-light 3PLs should take into account when evaluating a TMS platform. ENTERPRISE VS. COMMUNITY MANAGEMENT An enterprise-class TMS will provide shippers with the ability to manage users, including their preferences, access rights, and permissions. But asset-light 3PLs, especially those offering freight brokerage services, have to not only manage different user groups within a customer’s enterprise, but also different customers within a larger community. It’s much easier for a TMS architected for 3PLs to be adopted by 1PL shippers, than the other way around. 3PLs need to be able to configure and administrate each customer differently within a community. Try as they might to focus on select industry segments to more easily meet similar requirements, one size does not fit all. Moreover, 3PLs need to ensure that data from one customer doesn’t spill over into others using the same platform. MULTI-CARRIER, MULTI-MODAL Parcel volumes are going through the roof and revenue grew by 7 percent, according to CSCMP’s annual State of Logistics report. But LTL is not far behind as many are getting in on the last-mile delivery act. Because e-commerce is a global
phenomenon, cross-border movements need to take ocean and air freight into account. To keep up, 3PLs will need their TMS platform to accommodate multiple modes as well as some of the new transportation services entering the market such as gig-economy couriers, white glove services, and alternative pickup points. For 3PLs that are also brokers, the ability to set up and manage buy and sell rates for each customer is critical. CONNECTIVITY IS KING TMS platforms designed to manage 3PL customer communities are by necessity going to be deployed within a cloud environment where they can be centrally managed. Then the issue becomes how to connect in real time to data sources and devices within each customer’s enterprise. The answer is yet another acronym: Internet of Things (IoT). IoT technology is especially critical in fulfillment operations that require high-speed parcel shipping automation. Batch uploading order data can easily cause synchronization issues. Securely connecting cloud apps and APIs in real time to data, scales, and thermal label printers is a must. MULTI-FUNCTIONAL & FLEXIBLE As noted above, no two customers (even within the same industry) are exactly alike. And most won’t settle for solutions that don’t easily and closely align with their existing workflows. For asset-light 3PLs, it is important that a single platform can span the disparate requirements they are bound to find in their customer communities. To meet those requirements, the TMS platform needs to be agile and offer mobile and desktop apps that are highly configurable (without customization) and address touchpoints throughout the customer’s organization and beyond (suppliers, customer’s customer, etc.). CONCLUSION Asset-light 3PLs need a more federated TMS model: one that offers central control by the community manager, but allows each constituent customer to operate independently.
email@example.com 508.630.1220 www.pierbridge.com
SUPPLYCHAINSUCCESS operating ratio pertaining to your account. If carriers can minimize their variable operating ratio moving your shipments, this allows them to move your freight at a lower cost. Here are a few items you can check off when evaluating yourself as a shipper.
WHAT MAKES AN ATTRACTIVE SHIPPER? By Johnathan Williams
n today’s freight market, savings are hard to come by. Carriers are continually looking to increase their rates; however, there are a few things you can do as a shipper to mitigate increases. Among other things, carriers want to understand what they will be shipping, receive this info in an efficient manner, and have flexibility around being able to execute. Regardless of the size of shipper you are, if you can do a few of these little things right, it will go a long way toward enhancing your carrier relationship. Let’s look at a few ways that you can assist your carriers to plan for each shipment and reduce their variable
10 PARCELindustry.com SEPTEMBER-OCTOBER 2018
Tendering Freight While the daily management of a transportation management system (TMS) can be difficult at times, there is a reason that more and more shippers are investing in the technology. One of the largest benefits you’ll see with a TMS is being able to tender freight in a timely manner, prior to pick-up. Carriers will always want to understand exactly what they are picking up and where it is going prior to arriving, and the sooner they know this information, the better. If you are simply notifying a carrier that the trailer is full, carriers are only able to react to what they pick up when they pick it up, rather than being able to plan for the shipments coming into their terminals. Tendering with origin, destination, weight, class, and piece count allows a carrier to be proactive, not reactive. A TMS is not the only way to relay this information; several enterprise resource planning (ERP) systems (which would have your order details) do contain some transportation functions that, while limited, often go unused. Of course, emails and spreadsheets are the time-consuming fallback,
but this process really needs to be looked at as a necessity as opposed to a courtesy. EDI Utilizing electronic data interchange (EDI) tendering is also a big help for carrier operations. Most carriers can accommodate email tendering and manual uploads into their systems, but these manual processes tend to be cumbersome and time-consuming. Although EDI can sometimes be a painful process to set up, shippers and carriers alike will appreciate the low-touch tendering process in the long run. When a request for proposal (RFP) goes out, one of the first questions a carrier will ask is how tendering, shipment updates, and payments are processed. If a carrier knows they will need multiple resources handling tendering, uploading invoices into a TMS, or giving manual updates, this will not encourage them to be aggressive with their pricing. Since their operating costs on your account will be higher than an EDI-based account, they will need to account for this in their pricing. Drop Trailers Particularly in today’s freight market, the biggest assets for carriers are their drivers and their time. Therefore, anything that can be done by you, the shipper, to reduce time spent waiting by drivers or limiting unknown variables in their day is going to benefit the carrier and your relationship. For this
reason, carriers typically cringe when they hear “live load.” This often means that an appointment will be required, and they will need their driver to hit your dock at a specific time. As a shipper, if you have the space to accommodate drop trailers, this can be a huge advantage when it comes to carrier pricing. If a carrier knows they’re able to drop and hook at your location, they’ll be afforded additional flexibility and be better able to plan for your volume. If it is a constant scramble to pick up your freight, this drives up the operating cost for the carrier, taking away any potential pricing advantages you would see from a consistent drop and hook at your shipping facility. Summary It’s important to constantly evaluate your supply chain, not only to see where you, the shipper, can reduce your own costs, but also to evaluate everything to make sure you’re being a solid business partner for carriers. In a carrier-biased market, it’s hard to find pricing that can reduce your freight spend. However, you can implement processes that carriers will find attractive about you as
a shipper, which could then lead to lower rates. Not all factors discussed in this article are feasible for all shippers, and that’s understandable. It is important to look at your processes through the lenses of a carrier and evaluate potential pain points for carriers. If you’re able to tighten up on your end, it can go a long way in negotiations with carriers. Freight costs will continually rise, but if you as a shipper are able to implement processes on your end to minimize the carrier’s cost to serve, it is easier to exert downward pressure on your buy-side. Tendering freight with detail, utilizing
EDI, and accommodating drop trailers are just a few examples of the many options you can consider in making yourself an attractive shipper — and helping you drive down freight costs.
Johnathan Williams is an analyst within enVista’s Transportation Solution Consulting group. He has a breadth of knowledge in the transportation industry, focused primarily on sourcing LTL, truckload, intermodal, and rail carriers. Prior to joining enVista, Johnathan worked directly for a carrier as a pricing analyst.
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 11
FULFILLMENT IS CRITICAL: HOW TO ENSURE SUCCESS By Susan Rider
he parcel shipping world is growing dramatically, and it will only continue to grow as consumers get hooked on the ease of ordering their needs from the living room couch. How do you take advantage of this growth and best position your company to get return business off the internet? Fulfillment! Recently, I attended a function where several mothers and teachers were seated at my table. I listened to them
12 PARCELindustry.com SEPTEMBER-OCTOBER 2018
talk about back-to-school readiness and how they juggle everyday life with a career, being a mom, and running a household. Every single one of them mentioned that they order a lot of products online in order to cut down on the number of errands that need to be run all over town. They were discussing several websites that they like, and the common factor was the service and ease of ordering and receiving. One participant mentioned a website that had good bargains, but she would never order from it again because it took three weeks to get her order. Certainly, a company that is solely e-commerce must get a “click” in order to sell a product online, but that’s only the first hurdle. The rubber hits the road, so to speak, when the order is delivered correctly and efficiently. Are you tracking your ontime deliveries? What about the accuracy rate and cost per order? These three things are very important in determining whether your team could be hindering your success or augmenting it. If your team struggles and your numbers aren’t very good, it’s time to look at other options in order to build your business and grow your company. These other options could only be temporary while you build a team that can deliver on the promised service. The Amazon Opportunity A hot topic in today’s e-com-
merce trends is FBA. If you don’t recognize that acronym, then you probably aren’t listed on Amazon. FBA stands for Fulfillment By Amazon. Your products are listed on the Amazon website, and when someone purchases the product, Amazon fulfills the order. As Amazon’s customer, you determine how much stock should be sent to Amazon, but Amazon determines which facility the stock will be sent to and how much will be sent. Another option from Amazon is Seller Fulfilled Prime (SFP), which puts you in more control of your destiny. Your product is listed on Amazon as prime shipping. When purchased, you must ship it within the promised two days. Shipping labels must be purchased from Amazon. If you don’t perform, your product will get de-listed. Not surprisingly, there is a lot of fine print (not to mention things to consider!) with respect to every option. Just like every other third-party logistics provider (3PL), Amazon will penalize you for extra touches, extra labeling, and rework. The other option is a 3PL or 3PF (third-party fulfillment company). Don’t be misled; there are many 3PLs that also do fulfillment for e-commerce companies. There are numerous important things to consider when selecting a 3PL company because this partner will be a critical piece of your business strategy. One significant factor is their reputation for
execution. Do they have experience in the e-commerce world, and how much? If you are an apparel company, for example, does the potential fulfillment partner have experience in that industry? The second thing that is crucial is location. If 80% of your business is on the east coast, selecting a 3PL in the western part of the country is not optimal. You need to dissect your business and determine from what part of the country you could provide the most customers with two-day shipping. That will be a prime location for the 3PL. If you are smaller and just starting out, you may be able to leverage a 3PL’s parcel shipping rates. A mid-level to large 3PL would be able to negotiate better rates thanks to the sheer volume, and the savings alone on parcel shipping may justify going to a 3PL versus setting up a fulfillment center yourself. This highlights why it’s critical to research the best partner based on your company’s personal criteria and business profile. Once you have found a few that are possible contenders for your
business, it’s time to request a proposal for your business. It will be extremely hard to compare two potential partners because each 3PL has a different way of charging and figuring accessorial charges. Still, try to drill down as much as possible to get them as comparable as possible. Selecting a partner should not just be on price. The culture of your company and the culture of your partner should be a good match. You’ll be able to discern if the cultures match by doing site visits and talking with references.
If you elect to go the build-your-own route, be sure that all executives in your organization view this step as a critical piece of business strategy and not just a warehouse. Companies that succeed in e-commerce either do a great job at fulfillment or were smart enough to find someone that does.
Susan Rider, President of Rider & Associates, Supply Chain Consultant, and Executive Life Coach can be reached at firstname.lastname@example.org.
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 13
4 Ways to Automate a Manual Shipping Operation When you’ve built your business on years of manual practices and processes, replacing them with a more automated system isn’t like flipping a switch. This is especially true for mail centers, where the daily tasks of processing inbound and outbound parcels, notifying recipients, and processing pickups becomes so ingrained in your employees that it can be difficult for anyone, from the CEO on down, to think outside of that box. But, despite those inherent challenges, upgrading your manual shipping and tracking operation into an automated one doesn’t have to be a painful procedure. Here are four essential practices that can make your transition from manual to automated as painless and efficient as possible. 1. GET EVERYONE ON BOARD Step one in implementing any new rule, procedure, or process always has to be to engage with your employees first — if not everyone, then at the very least those who will be particularly affected by the change. That requires a coordinated, unified message from the management team that can clearly articulate the benefits of an automated system. This message should also proactively anticipate and answer any concerns employees may have. Without a plan in place to plainly explain the need for changing from manual to automated, the impact it will have, and the new opportunities it presents, you’ll be constantly playing catch-up in trying to sell your employees on it. 2. BRING IT INTO THE LOOP EARLY Getting IT involved in any major technology decision-making seems like a no-brainer, but you’d be shocked at how often companies roll out new tech-driven initiatives without properly consulting their IT team first. In the case of mail center automation, it’s especially important to get IT onboard from day one so that they can determine whether automated tracking and multi-carrier solutions should be deployed either in the
cloud or in an on-premises environment. You’re going to need their help in implementing and supporting your new solution, after all, and by giving them the heads up, you can ensure that the people who will be providing that support already know its ins and outs from the beginning. Without them, you could be setting yourself up to fail right out the gate. 3. DON’T IGNORE THE SOFT-DOLLAR SAVINGS Any time you introduce a new piece of technology into an operation, it’s always first looked at through the lens of, “How much money will this save?” But, there’s a lot more to a new investment than just looking at the hard-dollar savings. Soft-dollar savings, like improvements in accountability and efficiency across the mail center, may not be as easily quantified but they’re just as important — and organizations that implement automation often see significant gains in dayto-day routines that used to hold back productivity because of their investment. Set reasonable expectations for yourself that take soft-dollar, and not just hard-dollar, savings into account. 4. SHARE DATA ACROSS THE ORGANIZATION The default process for many companies is for individual teams or departments to create and manage their own specific data sets. This might make sense in terms of delegating responsibility, but it inevitably leads to a buildup of information silos, where relevant data on clients, customers, costs, and other information are kept separate from each other. When you’re not sharing that data across departments, you end up spending unnecessary amounts of time and effort on producing redundant data sets — all of which limits how efficient both your teams and new technology investments can truly be. To get around this, make sure you’re integrating client data and accounting systems from across the organization into your new shipping and receiving solutions. This eliminates duplicate data and the inefficiencies of maintaining those redundancies. The more you share sender and recipient names, addresses, and other vital data across the organization, the less you have to deal with tedious and time-consuming data entry. Visit www.pb.com/us/shipping and search “cmdsm.” Then select our research paper.
PREPARING YOUR OPERATION FOR PEAK SEASON As another hectic holiday shopping season approaches, it’s time for warehouse, fulfillment, and logistics providers to ready their operations.
By Brian C. Neuwirth
16 PARCELindustry.com SEPTEMBER-OCTOBER 2018
wo years ago, during the Black Friday weekend, US online sales reached over $5.27 billion, which was a 17.7% increase yearover-year. More and more consumers went online and set a new record for purchasing their holiday gifts. However, when it came time for gift giving, many recipients were left empty-handed due to chronic out-of-stock issues at many retail companies. Because of this, retailers have been adding technology and streamlining processes to make sure this fiasco doesn’t happen again. During the holiday season, more merchandise runs through your warehouse. From an increase in products at the shipping docks to the massive amount of orders out the door, you need to keep things flowing. Bottlenecks in your warehouse operations must be avoided. Ever-increasing stock keeping unit
Improvements should focus on product workflow, efficiencies, storage capacity, and space utilization.
(SKU) numbers and “piece” picking requirements combined with rush orders and an influx of temporary employees can spell disaster for retailers trying to keep customers happy during the all-important holiday season. With so much at stake, operations managers are looking for new tools to gain a competitive edge and to be better prepared for the upsurge in orders. As another hectic holiday shopping season approaches, it’s time for warehouse, fulfillment, and logistics providers to ready their operations. With the holidays being the busiest time of the year for retailers, it is imperative that you update your operations with state-of-the-art processes so you can keep up with orders and ensure your customers get what they want. Whether you’re replenishing stores or shipping directly to the consumer, your distribution operations must be in high performance mode and ready to handle peak volumes.
OPTIMIZING PRODUCT WORKFLOW Retailers need to optimize their warehouse layout for maximum efficiency and incorporate best practices learned from previous holiday seasons, such as placing fast-selling items closer to pickers. Understanding the inbound and outbound operations of the warehouse is key to success, along with maximizing space utilization while saving time and reducing errors as products are moved in and out of the warehouse. Workflow can be optimized if you reduce product handling, unnecessary worker movements, and travel time when retrieving parts and products. Put faster-selling items closer to the ends of the aisles to reduce walking distances. A SKU analysis tool can be used to evaluate inventory and throughput to identify seasonal items and determine where they should be stored. By identifying these throughputs, it can help you determine the correct storage for each product. Your slowest movers can be stored in static storage like shelving. Your medium movers can be stored in carton flow, while your fastest movers are often best left palletized to avoid double handling. Choosing the proper type of storage system is essential to warehouse workflow efficiencies. Look at what is being stored, how much is stored and how often it will be accessed determines the right storage system to use. Product expiration dates, temperature requirements, and product demand must be factored into selecting the right storage system. Before choosing a system, all product sizes, shapes, and weights should be noted and compared to the weight and size capacity of the storage unit. The width of the rollers or use of wheels will affect contact, efficiency, and cost. MAXIMIZING EFFICIENCIES IN ORDER PICKING Most warehouses use a variety of
order picking solutions within their operation, including carton flow, static storage, and pallet flow. As order picking is one of the most costly activities for a warehouse, supply chain managers today are focusing on improving these processes and lowering costs, while improving customer service levels. Choosing the best order picking solutions for you depends on any number of requirements such as cost, complexity, the number of customer orders, size and number of items, etc. Every business has its own unique requirements, and a mixture of order picking solutions may be the best way to fulfill orders. As 60% of a picker’s activity is attributed to travel time, reducing this time can speed fulfillment. Re-slot pick positions to reduce travel times. Do this often — don’t just do it once and leave it that way. As new products enter the warehouse, you’ll want to re-slot to keep items in the optimal location. Using a first in, first out (FIFO) system, DCs can improve their bottom line by cutting down on lost product due to spoilage or missed expiration dates. The FIFO system means newer products are stocked behind older merchandise, which improves storage and picking because both operations can take place at the same time, with loading occurring in the back and picking from the front. Carton flow racks have a high order picking rate of up to 150 picks an hour, but combined with a pick-to-light system that uses lights to show workers what items and how many to pick, you can increase pick rates by three-fold. Flow racks allow warehouses to store a mix of fast-moving and slow-moving items in the same rack — allowing pickers to quickly pick a variety of items from the same area. Tilted shelves help speed order picking too. With tilted trays or knuckled tracks that present products to pickers, allowing them to see what they are picking, you can improve order fulfillment times and eliminate errors. IMPROVING STORAGE CAPACITY When trying to look for ways to improve the efficiency of your warehouse, a good plan is to understand the way that shelves and space are being utilized. The placeSEPTEMBER-OCTOBER 2018 PARCELindustry.com 17
ment of shelves and containers, along with the traffic patterns and total design of the building, ultimately affects the ability for you to utilize any space available. Keeping boxes, cartons, totes, etc. off the floor not only looks better, but it allows workers and equipment to move without obstructions in their path. Make sure you put away every received delivery the same day to avoid cluttering aisles. Use a dynamic storage solution that allows you to utilize the entire rack depth of the pallet. Many companies just use the front part of their shelves to store products because they are easier to reach. With a storage system that flows products forward, pickers can quickly and easily reach products as they move forward when ones in front are picked. Most importantly, be flexible, but be ready for anything to happen. And you can be ready by being organized — have products at your fingertips to fulfill orders to keep your customers happy. To accommodate additional orders during the holiday season, companies
must first accommodate that additional volume, along with loading and unloading of trucks, staging and sorting, and accumulation. One way to ease the stress and accommodate that extra volume is to use a flexible gravity conveyor system, which can be set up as a temporary ship line by placing it between the back of a truck and the storage area. Choose one that is portable and easy to set up, tear down, or move around as necessary. Because it uses gravity to move packages, there are no moving parts or power restrictions. Parcels can come immediately off the truck and be moved to shipping operations or placed onto shelves for storage.
you could try to optimize your existing warehouse space. You can eliminate dead zones in the warehouse — empty pallet rack space — by maximizing space utilization within existing pallet racks. Instead of lining a shelf with one SKU, you can load all those SKUs behind each other and let them flow forward to your order pickers, allowing more SKUs in less space. This will help maximize space utilization while reducing travel time and distance between picks. The holidays are busy, but adequate preparation and foresight can help warehouses run efficiently to get orders out the door to satisfy customer expectations.
IMPROVING SPACE UTILIZATION Warehouse space is becoming a premium in today’s fast-paced e-commerce world. Building a new facility is expensive. Expanding an existing one is time-consuming and costly. A warehouse that is too crammed with products is inefficient. The answer is that instead of worrying about finding a new warehouse location,
Brian C. Neuwirth is VP of Sales and Marketing at UNEX Manufacturing, the trusted industry leader in order picking solutions that maximize space usage, increase pick rates, and improve ergonomics. Visit www.unex. com for more information.
18 PARCELindustry.com SEPTEMBER-OCTOBER 2018
PARCEL’S 2018 CARRIER PERFORMANCE
We’ve all got opinions, and our readers weren’t shy about sharing what they thought of the players and happenings in our industry. By Amanda Armendariz I love that we at PARCEL conduct the same surveys year after year because it gives us a great tool to see how carrier and service usage changes on a regular basis (and what that may mean for the parcel industry as a whole). One item that stood out to me this year is that while the number of shippers using FedEx and UPS in the last 12 months is almost identical to last year’s number, the number using the United States Postal Service has dropped dramatically, from almost 84% to just a little over 72%. I’d be interested to know what contributed to the rather significant drop; for the most part, USPS’s scores remained very close to last year’s scores — the only big difference is that their score in respect to pricing (fairness, willingness to negotiate,
FedEx Did you use FedEx in the last 12 months for domestic parcel shipping? No Yes
etc.) dropped over a point. Perhaps that was the contributing factor. Of course, a lot of shippers change up their carrier mix on a fairly regular basis in order to achieve better pricing and discounts, which could have also influenced this drop. However, I’m glad to see that scores have, for the most part, remained very similar to last year’s and, in some cases, have even gone up slightly. It’s always gratifying to see that things are working well for both the carriers and the shippers, since, as we all know, one wouldn’t survive in this industry without the other. Take a look at the results and let me know what you think, either by emailing me at email@example.com or stopping by our booth at the upcoming PARCEL Forum.
Did you use UPS in the last 12 months for domestic parcel shipping? No Yes
20 PARCELindustry.com SEPTEMBER-OCTOBER 2018
Did you use USPS in the last 12 months for domestic parcel shipping? No Yes
Rating the Carriers On a scale of 1-10, with 10 being the highest rating.
FedEx | 6.80
FedEx | 6.46
UPS | 6.82
UPS | 5.77
USPS | 5.26
USPS | 4.82
On-time Service Performance
FedEx | 6.37
UPS | 7.64
UPS | 6.11
USPS | 6.36
USPS | 4.20
Delivery Performance FedEx | 7.75
FedEx | 6.02
UPS | 7.48
UPS | 5.58
USPS | 6.51
USPS | 5.48
Pricing (published rates for service levels, willingness/fairness of negotiations)
(driver courtesy, package handling)
Refunds for Late Delivery
FedEx | 7.75
Other Insights into Our Industry Do you think that there is enough competition in the parcel delivery market to keep pricing reasonable and service good? Yes
Do you think that the cost of transportation will be a greater percentage of gross company revenue in five years than it currently is? Yes
SEPTEMBER-OCTOBER 2018 ď&#x20AC;´ PARCELindustry.com 21
The Importance of Regional Carriers
The Percentage of Parcels Shipped with Regional Carriers
Not important at all
More than 50%
Good news for regional carriers: The number of shippers rating them as “very important” held strong compared to last year, and the number rating them “important” went up by over three percentage points.
The Primary Reason for Regional Carriers
The number of shippers utilizing regional carriers for more than 50% of their packages went up over two-and-a-half percentage points from last year’s score of 5.13%.
There has been a lot of talk about Amazon potentially competing with FedEx and UPS by entering the delivery sector. Do you think this is a valid concern?
Not surprisingly, cost is the number-one reason that shippers who answered our survey choose to partner with regional carriers.
Predictably, almost two-thirds of our respondents think this is a valid concern.
A Look at Our Respondents Primary Business
Annual Volume of Outbound Parcels
Manufacturing | 18.97% <100,000 | 46.55%
Wholesale/Distribution | 22.41% Retail (online or brick & mortar)| 31.03%
100,000-499,999 | 18.97%
3PL Provider | 12.07%
500,000-1 million | 8.62%
Financial (insurance, banks, etc.) | 0.00%
1-4 million | 20.69%
Service Industry (hotels, legal firms, entertainment, etc.) | 5.17% Government | 1.72%
>4million | 5.17%
Other | 8.62%
22 PARCELindustry.com SEPTEMBER-OCTOBER 2018
Carriers and levels of service used so far in 2018: FedEx Next Day | 81.36% FedEx 2-Day | 81.36% FedEx Ground | 91.53% UPS Next Day | 67.80% UPS 2-Day | 64.41% UPS Ground | 76.27% USPS Next Day 37.29% |
USPS 2-Day | 50.85% USPS Ground | 64.41% LTL | 72.88% Parcel Regional Next Day | 22.03% Parcel Regional 2-Day | 16.95% Parcel Regional Ground | 32.20% Local Next Day | 18.64% Local 2-Day | 6.78% Local Ground | 33.90% Consolidator Next Day | 8.47% Consolidator 2-Day | 6.78% Consolidator Ground | 11.86% Same Day Service (i.e. airlines) | 13.56%
Not surprisingly, the biggest complaint regarding shippersâ&#x20AC;&#x2122; primary carrier is regarding accessorial charges.
For those shippers who have modified their primary carrier in 2018, the need to achieve better pricing ranked as the top reason for exploring other options. 6.90%
Accessorial Charges | 34.48% Claims Processing | 6.90%
Customer Service Response | 1.72% Driver Behavior | 1.72%
Fuel Surcharges | 3.45% Fuel Surcharge Reversals | 1.72%
Invoices | 1.72%
Negotiating Contracts | 10.34%
On-time Performance | 5.17% Pricing | 18.97% Refunds for Non-performance | 3.45% Relationships with Carrier Reps | 1.72% Residential Deliveries | 1.72% Service Failures | 5.17%
Diversified to use more carriers
Dissatisfied with service
Reduced the number of carriers used
Changed our level of service (i.e., air to ground)
Tracking | 1.72%
Needed to achieve better pricing
Rebid transportation and a different carrier(s) won
SEPTEMBER-OCTOBER 2018 ď&#x20AC;´ PARCELindustry.com 23
By Matt Weickert
WHAT A PAIN IN THE ACCESSORIAL!
Here's how to best evaluate and anticipate the upcoming expected surcharge increases.
ccessorial charges can account for anywhere from five to 30% of our clients’ total parcel spend, and this proportion is rising. On top of trying to accurately forecast resource needs due to volume growth and system changes within an organization, accessorial increases add a huge layer of complexity and unpredictability that can lead to multiplied costs overnight. As anyone in the parcel industry knows, not all contracts are created equal. Some increases will have minimal impact if they are heavily discounted in your agreement, while the full brunt of other increases will need to be analyzed and understood. CONTEXT IS EVERYTHING Carriers don’t simply make up charges to spite their customers. Market conditions are dynamic, and carriers are adapting
24 PARCELindustry.com SEPTEMBER-OCTOBER 2018
Crude Oil Prices and FDX Ground Fuel Surcharge Index Changes $110 $100 $90 $80 Feb. 2015 surcharge increased
$70 $60 $50 $40
Nov. 2015 surcharge increased
With fuel prices decreasing in 2015, the carriers adjusted their fuel indices to prevent the fuel surcharge from dropping to 0%
and developing, just like any other business. Understanding past behavior and surrounding circumstances is crucial to assessing and anticipating changes in parcel billing. The chart on the previous page is an example of the correlation between oil prices and FedEx fuel surcharge index changes. Unsurprisingly, both major carriers are focused on improving profitability and feel pressure to show ROI on the costly capital expenditures that come with updating massive infrastructure. Three primary issues being addressed by carriers are delivery density, oversized parcels, and peak season volume. If a package is contributing to one of those issues, expect surcharges to be leveraged to price more effectively and influence customer behavior. DELIVERY DENSITY Packages per stop is a major metric for carriers, with the final mile often accounting for over 50% of delivery costs. Residential deliveries have far less density than commercial, which is why the Residential Surcharge exists. From 2017 to 2018, FedEx increased this surcharge by eight percent, and UPS increased it by about six percent. The same story applies to Delivery Area Surcharges (DAS). ZIP Codes that are designated an “extended distance” from hubs are assessed DAS for the lack of density. FedEx increased this charge by about four percent YOY and UPS by about seven percent. Predictions: Expect the trend to continue, with UPS likely increasing Residential Surcharges more than FedEx and vice versa for DAS. Both sets of surcharges will increase by at least four percent. UNFAVORABLE PARCELS This category of shipments is one of the most drastically confronted of late. UPS recently announced an additional $150 to Over Max packages that had already increased by over 200%, bringing the surcharge to a whopping $650 per occurrence. FedEx severely increased its Unauthorized Package Charge as well, pushing the price from $115 to $300 per occurrence. Original Prediction: We wouldn’t be surprised to see FedEx occurrences go up to $500+ and UPS raise Over Max to $700. Pre-Publication Update: On August 3, FedEx announced an increase of the Ground Unauthorized Package Charge from $300 per package to $675 per package. The next tier of charges for cumbersome parcels is Large Package Surcharge. UPS increased this by almost one-third last year to $90, leapfrogging FedEx’s increase of Oversize to $80 per package. This more common surcharge will impact more shipments than the extreme case of over max/unauthorized packages. Prediction: Both carriers will increase this price to over $100 next year, and UPS will have the higher surcharge. In terms of percentage, Additional Handling received the second-largest UPS price bump. This year, Big Brown raised the charge by 75% to $19, while FedEx stayed closer to a standard increase of nine percent to $12. Original Prediction: FedEx will increase this surcharge to just under $20. UPS will increase by about 10%. Pre-Publication Update: On August 3, FedEx announced an increase for Additional Handling for packages over 70 pounds from $12 to $20. SEPTEMBER-OCTOBER 2018 PARCELindustry.com 25
Entering a Whole New Dimension
2007 FedEx Ground Oversize OS1/OS2/OS3 changes to Dimensional Weight
2011 DIM Divisor change from 194 to 166
Additional Handling calculations length change 60" to 48"
Removal of Ground 3 cubic ft. threshold
No longer are dimensional divisors the new surcharge on the block. This is a particularly influential aspect of the service guide to keep an eye on. With the potential to increase the billed weight of an otherwise pedestrian package (sometimes to the point of incurring additional handling or worse), the regular reduction of dimensional divisors has a costly impact to shippers. FedEx now applies the 139 divisor across the board with the inclusion of SmartPost packages this year, which matches UPS. Additionally, there is no longer a threshold where the divisor is different or does not exist. Prediction: Dimensional divisors will hold steady for the next year. Any discussion of surcharges would be remiss without mentioning the latest creation by UPS, the Shipping Correction Charge (SCC). For shippers who manifest packages with incorrect dimensions or weight, this has the potential to spur change in that process. For invoices that average above five dollars per package in corrections, the new SCC will be applied as either one dollar per adjusted package or six percent of the total adjustments on the invoice. Resources on this topic have discussed SCC at length, but the gist is that shippers have a more vested interest in manifesting package weight and dimensions accurately. Prediction: This charge will go up by about 10% next year, and it will likely be included with UPS peak increases in 2019. PEAK SEASON Peak season surcharges are dependent on the time of shipment rather than physical characteristics and have a fun way of multiplying other hard-hitting surcharges. FedEx has adopted a “narrow-but-deep” strategy, while UPS is going with a more “wide-but-shallow” approach in their peak season surcharges. During the holiday shipping period of November 20, 2017–December 24, 2017, FedEx announced an increase for additional handling by three dollars per package, for oversize goods by $25 per package, and for unauthorized shipments by $300 per package. 26 PARCELindustry.com SEPTEMBER-OCTOBER 2018
DIM Divisor change from 166 to 139
2018 FedEx SmartPost adds Dimensional Weight (139) Oversize calculation length change 108" to 96"
UPS ruffled feathers with its peak season surcharges applying to all residential shipments, with additional fees for non-contiguous 48 state destinations. The large package, over maximum, and additional handling packages get special holiday treatment as well. Big Brown gave the courtesy of announcing the 2018 charges last year, so we won’t take credit for predicting those. Original Prediction: Similar to the advent of fuel surcharges, these peak season charges are here to stay. Expect FedEx to announce 2018 peak season surcharges soon, and be prepared for peak charges to increase into the foreseeable future. Pre-Publication Update: On August 3, FedEx also released its peak season surcharges. These do not include a residential peak charge, but do include increases in Additional Handling, Ground Unauthorized, and Oversize. THE BOTTOM LINE Developing an intuition for accessorial increases starts with understanding the surcharges you are currently assessing. Have the ability to know your shipment profile in terms of volume and package characteristics so that impacts can be seen before the budget gets busted. While predicting the future is a fool’s errand, knowing the conditions that carriers are currently dealing with and how they’ve done so in the past is massively helpful in getting a feel for what might be changing in the future. Accessorial charges are used to price effectively as much as they are used to influence customer behavior. If you’re interested in learning more about this topic, attend Matt’s PARCEL Forum session, “How to Predict & Analyze the Impact of Carrier Accessorial Increases” on September 26 at 9 AM.
Matt Weickert is a Strategic Solutions Engineer at Green Mountain Technology, a Parcel Spend Management service provider for shippers with over 10 million parcels per year. In this role, Matt partners with customers to provide strategic Parcel Spend Management solutions – Network Optimization, Spend Analytics, and Contract Management.
Simplify Your Supply Chain In the shipping world, it is no longer just about getting a product from point A to point B the fastest. Carriers are becoming a resource for shippers, offering more services in different modes to optimize service and cost. Working with a carrier who understands your business needs and is flexible enough to think outside of the box makes all of this possible. PITT OHIO takes a strategic approach to understanding our shipperâ&#x20AC;&#x2122;s environment and develops solutions that simplify their supply chain. This approach starts with an in-depth conversation designed to produce valuable, clear, and meaningful dialog through an interactive process geared towards a shared understanding of the problem. The result? A creative one-to-one solution tailored around our best-in-class technology, partners, and service.
Ideally, these conversations are not a linear discussion with a beginning, middle, and end, but are instead an interactive process that enables us to pinpoint the opportune moments of real impact. Our free analysis of your parcel spend will uncover characteristics and cost drivers in your company and results in a unique, complete parcel solution driven by your data. Great strategic conversations generate breakthrough insights by combining the best ideas of the people involved. These shared insights will result in a spark of creativity that formulates a solution not previously identified on your own. We use our leading-edge technology to enhance your parcel shipping with a non-intrusive, performance-based approach. The best conversation you have this week could be with PITT OHIO. Share with us your pain points and explain what challenges you face every day. We use these essential conversations to uncover the challenges youâ&#x20AC;&#x2122;re facing, and we excel at turning these opportunities into customized small package solutions. Together we will discover a unique, opportune moment to make a real impact on your business and simplify your supply chain.
VR AND AR: A NEW REALITY IN THE SUPPLY CHAIN?
wo emerging technologies, virtual reality (VR) and augmented reality (AR), offer exciting possibilities for many industries, including the supply chain. VR is an immersive technology: The end user becomes part of the virtual environment and the user is typically isolated from the outside world. AR, on the other hand, enhances your actual environment, superimposing a computer-generated environment on top of what you see. You can experience AR by wearing glasses or goggles, although consumer devices like iPhones are exploding with new ways to use AR. But what’s truly exciting is the wide range of industry-specific solutions being developed that utilize these technologies.
BY PHILLIP AVELAR
Not surprisingly, the applications for VR and AR are quite different. Here’s where we see each finding its way into the supply chain industry. VIRTUAL REALITY APPLICATIONS Because of the immersive nature of VR, this technology is best suited for research and training applications. Equipment Training – The industrial application of VR technology to train workers on the effective use of expensive machinery is already highly developed in the aerospace industry, with Airbus and BAE Systems investing heavily in this and showcasing their work. This is not research; these are applications in use today. Work Simulations – We are seeing innovative uses for VR in the building of
28 PARCELindustry.com SEPTEMBER-OCTOBER 2018
new distribution centers. Specifically, applications like Emulate3D allow you to view and, more importantly, test your material handling environment before signing off on construction. Performing virtual walk-throughs on manufacturing work center layouts, for example, can help you identify greater efficiencies, like product flow, that typically aren’t possible until operations have begun. Drone Piloting – Though you may have seen drones flying using AR, because of the invasiveness of drones, this is a technology that was immediately legislated in the US. It will take some time to nurture before we see VR drone armies making deliveries around our cities. AUGMENTED REALITY APPLICATIONS AR is best suited for productivity applications because it offers easy, real-time, and interactive access to information, which can help employees work more efficiently.
For example, a typical distribution center or manufacturing plant may require the use of what is still called an RF unit to retrieve and confirm work assignments. Devices are typically used with a strap or holster and require users to have a free hand to hold it and regularly access it to look at work assignments. There are solutions to try and make these devices hands-free, like Bluetooth finger scanners and voice control, but they are still combined with a separate unit for lookups. AR opens new ergonomic and efficient possibilities by eliminating the need to constantly hold a device. Inbound – In a typical receiving operation, warehouse workers unload trucks and subsequently perform computer receipts at workstations or with mobile units. Whether this is done with a handheld unit or a nearby desktop, time is wasted accessing the device. Using AR, the receipt of material can be performed hands-free at the truck. If there are damaged materials, users can snap a picture to include with their receipt record. Users can also quickly summon support with a tap, and the built-in GPS signals their location. Picking/Put-away – Warehouse employees are driven by work assignments. This requires the repetitive task of looking at mobile device screens to review assignment data such as source location, destination location, or quantity. In a typical application, users review onscreen assignments, remember the details and destination bins, and then again utilize a device, either at a work station, storage bin, or dock, to confirm completion of tasks.
Utilizing AR equipment, users can be directed to the location of the next assignment, all without looking at a screen. Since work assignments typically show up on a heads-up display, after reaching the task location, users scan a barcode to confirm arrival, initiation, or completion of tasks. When the cycle is complete, a new work assignment immediately is displayed on their screen. This could be enhanced with additional recognition technology. For example, AR can display an image of the unit size, ensuring that users pick the correct size. This is an area that already has commercial applications, and new innovative solutions continue to be launched. In the manufacturing area, there are numerous applications for AR: Data collection – In work center environments driven by production orders, operators typically start a work assignment by confirming the start of work against a specific order. In existing environments, this could be as simple as scanning or entering a work order number into a computer or mobile device and possibly confirming raw materials to be issued. Using AR, operators can quickly identify their work center and work order, and confirm work start without moving from the work center or reaching for a device. This is not very different from distribution center functions. The real innovations are the potential ability for operators to display work instructions at any time or access tutorials that are specific to the work order presently being executed, without the need to step away to retrieve documentation.
Working with manufacturing customers, we know that access to updated work instructions is critical to support changeovers and avoid errors in manufacturing. Manufacturers typically make these updates available for operators in paper form at work stations. AR offers the possibility to quickly access the most recent version (maybe updated minutes ago) via an AR display. There are already solutions for field maintenance where repair personnel can access current information on the item they are repairing by simply viewing the model information from their AR display. Caterpillar regularly showcases some of its innovative applications of AR technology in field service operations, from simple ordering of parts to applications that superimpose images of the step-by-step instructions for repairs while technicians look at the part. Over the 25 years that we have worked in the supply chain, there have been many changes and innovations. Still, we have yet to work with technologies that have these types of transformational possibilities. AR will continue to offer innovative and practical solutions to distribution centers and manufacturing plants, as well as more applications for everyday use. VR will continue to lend itself to improvements in training applications, research and, of course, gaming.
Phillip Avelar is Managing Director, Advanced Solutions, Inc. Join him at PARCEL Forum, where he will speak about “Blockchain, AR & VR: Beneﬁts (& Drawbacks) to Modern Supply Chains.”
Because of the immersive nature of VR, this technology is best suited for research and training applications. AR is best suited for productivity applications because it offers easy, real-time, and interactive access to information.
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 29
DIMENSIONAL WEIGHT: A GROWING ISSUE The application of dimensional weight has served to shift the responsibility and cost of inefficient packaging from the carrier to the shipper. Are you adjusting your processes accordingly?
imensional weight (also referred to as DIM weight, volumetric weight, or cubed weight) is the relationship of shipping box size to actual weight of the unit. As many parcel shippers know, pricing based on dimensional weight has been applied in air freight for many years because the amount of space utilized by a shipment was a bigger cost factor to airlines than the actual weight of the shipment. Think about something like ping pong balls, which weigh virtually nothing no matter how many are shipped. Essentially, dimensional weight establishes a density factor, which defines the ratio of shipping box size to its minimum weight. Both parcel carrier giants, UPS and FedEx, use a density factor of 12 pounds per cubic foot. If the actual box weight is under the established threshold, the box will be billed at the
minimum; if actual weight exceeds the minimum, actual weight will drive the freight cost. In all instances, the parcel carrier will apply the higher cost. Application of dimensional weight migrated to ground parcel in 2013, at which time domestic parcel carriers set the target density at nine pounds per cubic foot. In 2015, target density was increased to 10 pounds per cubic foot, and in 2016, it was raised again to 12, where it sits right now. Every time the density factor was increased, light density shipments endured a price hike. Many parcel shippers have complained that the application of dimensional weight is merely a money grab by the parcel carriers. On the other hand, carriers say they are just trying to apply true cost to their operations, so that more efficient shippers will pay less. It doesnâ&#x20AC;&#x2122;t take much math to compute the fact that DIM weight impact has increased by 33% in the past five
30 PARCELindustry.com ď&#x20AC;ł SEPTEMBER-OCTOBER 2018
years. With this kind of aggressive cost escalation, it is no wonder that some perceive the pricing change as unfair. There is no doubt that the explosion of e-commerce sales changed the cost factors for carriers handling ground parcel shipments. Because dimensional weight was already being applied to air shipments, carriers were protected from those inefficient shipments. Major carriers had traditionally used weight as a cost base on ground parcel operations. When e-commerce brought in lots of light density packages, using weight as a cost base no longer made sense, hence the introduction of dimensional weight into the ground parcel segment. THE VALUE OF EFFICIENCY While inefficient shippers are not fans of dimensional weight pricing, companies that are able to achieve density factors above the established threshold have not been impacted by DIM weight pricing.
By Jack Ampuja
There are actually two factors that drive dimensional weight pricing: 1. The basic nature of the products being shipped: Items composed of dense material such as glass, metal, stone, or rubber should easily exceed the density threshold of 12 pounds per cubic foot. 2. The efficiency of packaging: How much filler and air is contained in the shipping case also has an impact. While an item such as a hardcover book is inherently dense and should not be impacted by dimensional weight pricing, if it is shipped in a box triple the size of the book, the density factor may be so low that dimensional weight pricing will apply. Thus, the basic message being sent by parcel carriers to their shippers is that packaging efficiency has direct correlation to transportation cost. Feedback from small package carriers and industry analysts indicates
that many shippers have done little to change their shipping practices. Rather, they have elected to just absorb the higher freight cost associated with DIM weight pricing or to pass the cost on to their customers whenever they can. With both parcel and LTL carriers reporting seven percent increases in 2017 revenues in an economy growing less than three percent, the impact is clear. Perhaps the lack of progress is due to shippers not knowing what to do; they recognize the problem but are lacking solutions. When DIM weight pricing first hit ground parcel, many executives thought they could just negotiate their way out. Others tried simplistic but ineffective changes such as adding one or two additional outbound box sizes, asking box suppliers for advice [note: DIM weight is a freight cost issue, not a box construction problem], or using internal staff to run mathematical analysis. One
young packaging engineer called me for advice while she was manually weighing and measuring products that were being placed into a shipping case. While the latter approach is on the right path, the optimal process entails millions of calculations that require computer support to make any headway. A manual solution cannot deliver comparable results. NMFC FREIGHT CLASSES Very recently, application of dimensional weight pricing has also leaked into the less-than-truckload sector. The freight classes defined by National Motor Freight Classification hearken back to the 1930s when Franklin D. Roosevelt was in office. The factors considered in assigning an NMFC freight class to a specific product are: Product density Product value and susceptibility to damage Product handling characteristics;
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 31
hard-to-handle items such as a mattress will get a higher rate [can be as high as class 250] ď&#x20AC;´Product stowability characteristics: how easily the item can be loaded into a truck and how well it fits with other products (a stepladder, being lengthy with open gaps, will get a higher rate [can be as high as class 400]) The logic gap that always existed in the NMFC system is that it is based on the product itself rather than how the product is packaged, so when a high-density product such as a hardcover book was shipped in an excessively large box, the shipper still got benefit of the lower freight class while the carrier endured the brunt of inefficient packaging. When viewed in this light, one has to conclude that this is inherently unfair; the shipper who caused the problem suffers no adverse consequence, while the carrier who has no control over the packaging bears the negative impact. While the NMFC had a
stated density for each freight class, it was impractical for carriers to measure it and confronting customers about the issue was bad for business, so everyone just ignored the problem. Veteran transportation executives recall how trainees were sent to the shipping dock with measuring tapes to measure boxes and estimate freight class. Weighing shipments was equally imprecise. CARRIER TOOLS E-commerce has caused a radical change, leading all parcel and LTL carriers to recognize the impact of density on shipping efficiency. What many have not realized is that the application of dimensional weight has served to shift responsibility and the cost of inefficient packaging from the carrier to the shipper because transportation cost is now based and invoiced on the freight class of the entire box and not just the product itself. While no announcement was made about this change in responsibil-
32 PARCELindustry.com ď&#x20AC;ł SEPTEMBER-OCTOBER 2018
Many parcel shippers have complained that the application of dimensional weight is merely a money grab by the parcel carriers. On the other hand, carriers say they are just trying to apply true cost to their operations.
ity, this is one of the biggest changes that has ever impacted NMFC freight classes, and many shippers have been caught completely off guard. Do you suppose many shippers added packaging engineers to their internal staff to deal with the added responsibility of simultaneously weighing and measuring an entire pallet load of freight? I visit lots of companies in my travels and have yet to encounter any which has beefed up its internal packaging capability in response to this responsibility shift. On the contrary, at one time, many large corporations had significant staffing to work on packaging, but in recent years, most of them have cut back on packaging engineers in cost reduction efforts. One of the major drivers of DIM weight pricing was the development of dimensioners — easy-to-use measuring equipment that can simultaneously weigh, measure size, and calculate density of a shipping case or even an
entire pallet of freight. Like parcel carriers, LTL truckers are quickly moving to DIM weight application. One 3PL told our consulting firm that all of their LTL shipments are now getting DIM weight pricing. Most LTL carriers have invested in pallet dimensioners; even if the carrier is not yet applying DIM weight pricing, the equipment is being used to evaluate pricing accuracy and identify inefficient shippers. Either path will result in higher rates for companies shipping excess void. Carriers can now weigh pallet loads quickly and accurately with scales attached to forklifts; one major carrier has a 500-pound block of concrete in all terminals. At the beginning of every work shift and halfway through the shift, each forklift picks up the block to calibrate the scale on the forklift. So, carriers are doing their part to ensure accuracy in billing. LTL shippers actually get a double whammy on DIM weight because pricing is based on both their ability to
get good cube utilization on individual shipping cases but also on their ability to stack those boxes efficiently on a pallet: Loading voids, pallet overhang or underhang, and uneven stack sides or heights all now work to the carrier’s advantage in pricing. So how do shippers contend with DIM weight pricing? While ability to increase density of a specific product is limited (if not impossible), efficient packaging and pallet stacking should be in the scope of every shipper. Those companies that can package products and stack pallets better will see their efforts rewarded with lower freight costs.
Jack Ampuja is President/CEO, Supply Chain Optimizers, and Executive Director of Center for Supply Chain Excellence. He will be speaking on this topic on Wednesday, September 26, at this year’s PARCEL Forum.
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 33
By Tim Dunskis
TAKE YOUR E-COMMERCE ORDER FULFILLMENT TO THE NEXT LEVEL Evaluate your challenges with current manual pack-and-ship prep workflows to build an automation workflow strategy.
ith consumers migrating away from traditional brick and mortar retail options, companies continue to increase their online presence and e-commerce offerings in order to stay relevant and profitable. Average annual e-commerce order growth is in the double digits, and distribution centers (DCs) struggle to meet consumer demand. Competitive drivers increase consumer expectations, which only adds to the challenges of the traditional DC/fulfillment center. Each e-commerce order typically contains different and varying sized product(s). This creates a significant bottleneck in the fulfillment process, specifically the physical packing and shipping preparation.
In many cases, the choice becomes expansion vs. automation. The common response seems simple, right? Automation is what most people would choose. Before that decision can be made, however, each company must analyze their key challenges that they hope to solve. Six of the most common reasons automation is considered are: 1. Labor: The challenges associated with acquiring, retaining, and managing a large fulfillment labor pool can be daunting. With unemployment rates in the four percent range, available labor is limited, causing labor costs to increase. 2. Facility Space Constraints: Year after year of continual growth causes fulfillment DCs to find themselves at maximum capacity. Without automating certain processes, adding the additional necessary footprint to accommodate
34 PARCELindustry.com ď&#x20AC;ł SEPTEMBER-OCTOBER 2018
manual fulfillment facility expansion may be the only option available. 3. Shipping Volume and Rising Costs: When dealing with manual fulfillment workflow, the product is too often packed in an oversized box or package and requires dunnage, generating greater than necessary shipping volume. Exaggerated shipping volume presents a multifaceted challenge. First, greater volume creates greater DIM shipping charges. The USPS noted that 63% of all packages are billed by DIM weight vs. actual weight. Secondly, from a logistical standpoint, larger volume boxes limit order shipping capacity per truck/plane. 4. Order Volume: Most companies are working to manage todayâ&#x20AC;&#x2122;s peak and non-peak order volume while concurrently anticipating and planning for continued unprecedented growth.
5. Order Processing Time: Consumer expectation of same- or next-day shipping adds increased stress on existing fulfillment processes, workflow, and resources. 6. Free Shipping: Competitive positioning has placed a consumer expectation of free shipping. Studies have shown that 44% of consumers will abandon an online order if shipping costs are too high. Fulfillment can represent over 20% of the cost of sales, solidifying the saying that, “There is no such thing as free.” So now that we understand our challenges, what does an automated packing and shipping fulfillment process look like for us? TOP CONSIDERATIONS The first thing to do is perform an analysis of your packing and shipping preparation fulfillment operation that includes: current processes and workflows; shipment packaging types/ sizes/volumes; order processing/ shipping times and requirements; order volumes/anticipated growth; and
current labor requirements/anticipated future labor needs. Now it’s time to consider the automated workflow. It’s important to understand that even in a highly automated workflow, a portion of your orders will likely continue to be processed manually. In an automated workflow, the order is transported from picking to the appropriate packing and shipping prep area. In most cases, the order would continue into full automation. Here, the product(s) would be scanned and the package would be dynamically created, perfectly sized to the dimensions of the product(s). The package is then automatically formed around the product(s), where it is sealed, weighted, and labeled. Shipping invoices would be dynamically printed and included inside the package with your marketing messages, or the logo would be printed on the outside. Perfectly sized boxes eliminate the need for void filler and dunnage. In addition to the physical automation, interfacing directly with existing WMS/ERP/shipping software is a critical component of the
automation workflow. Shipping destination sorting or transporting the ship-ready order completes the workflow. Justification is obviously the go/no-go for any business change. Some things to consider are the financial, operational, business roadmap, customer demand, and competitive positioning impacts. With fully automated fulfillment on the rise, knowing when it is right for your business to automate can take you to the next level, promoting consumer loyalty and retention. If fulfillment automation has been a topic for internal discussion, and you would like to talk about it or learn more, I look forward to talking at the PARCEL Forum session. If you won’t be at PARCEL Forum, I can be found on LinkedIn and would be happy to talk.
Tim Dunskis is Executive Director, National Parcel Solutions, Bell and Howell. He can be reached at Tim.Dunskis@bhemail.com.
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 35
AND THE WINNER IS…
When it comes to your carrier contract negotiation, there are certain steps you can take to make sure you both walk away knowing you’ve come out ahead.
hink about your last negotiation. No, I’m not talking about the later curfew your teenager tried to negotiate with you this past weekend. Those negotiations usually involve someone (let’s call them the parent) exerting — with good reason — absolute authority. And, let’s be honest, you most likely ended up conceding on that extra half hour that was asked for anyway. I’m also not talking about your most recent car purchase where it ended with one of the parties — and probably not
BY BRYAN VAN SUCHTELEN you — feeling like the winner in what’s usually a “win-lose” or competitive negotiation. These types of negotiations generally involve two parties who don’t really know each other and don’t expect to have an ongoing or long-term relationship after the negotiation. These competitive negotiations typically include one party making somewhat unreasonable demands or threats (such as leaving the negotiating table) to get what they consider the best deal possible and, at some point, feel like they’ve won. In reality, there’s never a real winner when those tactics are used.
36 PARCELindustry.com SEPTEMBER-OCTOBER 2018
In today’s world of building stronger relationships, I’m confident everyone agrees that competitive negotiations don’t make for trusting or long-lasting relationships, especially in business. But why, then, are tactics like that still being used? It goes back to that relationship or, in this case, the lack thereof. When negotiating a car, for example, the buyer isn’t really expecting to enter a long-term relationship with the salesperson. In these negotiations, the buyer is willing to take advantage of the salesperson since that relationship hasn’t yet been established and there’s no fear or concern about a breakdown. Before they’ve even stepped foot on the dealer showroom floor, most buyers go into a car negotiation mistrusting the
salesperson and ready themselves for the proverbial battle. Is that truly the best negotiating approach? For cars, perhaps. For business, not so much. I think we can all agree that in most business negotiations, the interactions tend to be more “win-win” or collaborative where, to an extent, both parties have a vested interest in the other’s needs. Both parties are open about what they need and try to sustain a relationship while getting the best perceived value in return. These negotiations include two important parts — the analytical and emotional. The analytical includes the tangible information (the things you can usually measure and analyze). The emotional includes the more intangible areas (the things that make you feel or respond a certain way). Understanding both is extremely important during a negotiation, which is why the two big carriers, UPS and FedEx, continue to spend millions of dollars each year to train their salespeople in a multitude of advanced sales and negotiation techniques. If you’ve been in the industry for at least 15 years, you’ll remember when small parcel account managers were just that: account managers. They managed things like your pick-ups, your claims, your account number adds/deletes, billing issues, and other general areas of your account. These account managers scheduled their days and meetings around the messages that came in from the phone centers. They were reactive and didn’t really need to negotiate pricing. As a matter of fact, UPS didn’t start offering discounts until a few years after FedEx purchased Roadway Package System (RPS). In order to compete with FedEx’s discounting strategies to capture volume, UPS started offering price breaks to larger volume customers. It was a flat discounting structure where you were either had discounts or you didn’t. There wasn’t really any type of negotiation taking place. But that was then. Now, most of the small parcel account managers, or at least those that are most successful, consider every interaction as slice of a larger and continual
negotiation. They’re trained to master skills like SPIN, SSN, Challenger, ROPE, ASMS, FOCUS, and several others. With these, account managers learn to gather as much information as needed (analytical) in order to gain key bits of information to help influence (emotional) your decision. However, these techniques aren’t taught so the account managers can take advantage of you during a negotiation. They’re designed to help the account managers sell with a more consultative approach. As an example, with SPIN, an account manager learns advanced questioning techniques to lead conversations so customers recognize there’s a pain point that the account manager can help alleviate. Everyone knows that a good salesperson lets their customers do 80% of the talking, but how are account managers supposed to talk less when they have all those great solutions to talk about? Again, it’s through questioning. Using open-ended SPIN (Situation, Problem, Implication, and Need-Payoff) questions, the customer will ultimately do the majority of the talking. In case you’re wondering, open-ended questions are those that can’t be answered with a simple yes or no response. They’re intended to make the responder talk more. Rather than asking something like, “Wouldn’t that be a great fit in your operation?” they instead would ask, “How would that fit into your operation?” The change in wording is subtle but plays a huge role in the way a customer responds. A question as simple as, “Wouldn’t a later pick-up time help?” has much more impact when asked as, “How would a later pick-up time help?” The quote, “People will tolerate your conclusions but act on their own” is a perfect example of why strong questioning skills are so important in a negotiation. When asked strategically, SPIN questions can get customers to sell themselves on a solution. They help customers understand the difference between a need and a want, which is extremely important. While there’s no doubt that strategic questioning is a vital part of
an account manager’s tool kit, it’s only a small portion of what your account managers are trained on. Other techniques like ASMS, SSN, Challenger, and FOCUS put an emphasis on the buying cycle and financial impacts of the different solutions offered by the carriers. These techniques give account managers the skills to understand where a customer is in the buying cycle and the tools to help move a sale from pending to closed. A good example is how they’re trained to prepare for sales calls. Most account managers complete very detailed call plans that include tactics to support their overall strategy to either win, keep, or gain additional business. In addition to background information on their respective customers and contacts, these call plans include long-term and short-term goals, concession plans, and elegant and alternate negotiable trades (such as a later pick-up time for a certain amount of additional volume) that the carrier is willing to make. Depending on the account, the account manager will sometimes internally role play different scenarios to ensure they’re ready and comfortable to meet with the customer at any given time. As with anything, the more the account managers practice these techniques, the more they become a natural part of their personality, which in turn makes them extremely skilled negotiators. Now, ask yourself, “Am I as prepared as my account manager?”
BRYAN VAN SUCHTELEN is Corporate Director, Parcel Rate Services, Lojistic. Prior to joining Lojistic, Bryan was with UPS for over 26 years. With his varied roles at UPS – which included pricing, sales, and director-level sales management – Bryan is equipped with a host of experience and pricing expertise that help drive value for parcel shippers nationwide. He will be presenting a session entitled, “Get a 1-up on Negotiating Contracts” at this year’s PARCEL Forum on September 25. SEPTEMBER-OCTOBER 2018 PARCELindustry.com 37
ARE YOU READY FOR A SECOND DISTRIBUTION CENTER? Since shipping costs and delivery time are largely determined by the distance a company is from its customers, it may be time to consider additional DCs.
By Norm Pollock veryone understands the effect Amazon has had on delivery expectations in the B2C world, but many of those same expectations have spilled over to the B2B world today, too. Customers don’t want to wait, and they expect shipping to be free or close to it. The challenges for businesses to remain competitive and meet these expectations is self-evident. It’s also well understood that shipping costs and delivery times are largely determined by the distance a company is from its customers. This leads many companies to the obvious conclusion that adding a second (or more) distribution center
(DC) to their delivery network should be a straightforward way to decrease transit times and shipping costs and, as a result, improve their overall service to customers. And for many, it may well be, but the decision can bring complications. Operating from multiple distribution points creates a lot of challenges and costs that need to be clearly understood and considered. In an ideal world, every company would have enough inventory in all the right places to deliver anything their customers want exactly when they want it — whether that means delivery in an hour or a week. There are a lot of obvious — and not so obvious — reasons this is
38 PARCELindustry.com SEPTEMBER-OCTOBER 2018
not practical. Somewhere, however, is a balance that optimizes the expectations your customers have for delivery with the lowest possible cost to do so. THE BENEFITS Improving time in transit and lower shipping costs, especially to distant customers, are the primary benefits to adding a distribution center — but there are many more. An important one can be as simple, yet valuable, as allowing for later shipping cut-offs, which can extend the time that orders can be shipped each day. Adding new warehouses, distribution, or fulfillment centers to a network — whether as company-operated locations or through a third-party relationship — creates other operational and business advantages, too. These can include things like relieving capacity issues at existing facilities, whether these issues are space or labor related. It can also create the opportunity to add specific capabilities, like temperature-controlled storage, the ability to handle certain hazardous materials, or equipment that can perform wrapping, labelling, or other specialized packaging. The point is, with the right strategy, adding locations can alleviate stress within a network. CONSIDERATIONS Although the common goal is to optimize
the location of products relative to customers, along with the ability to provide the fastest and cheapest delivery, the real opportunities to benefit from adding locations to a network are company-specific — as are the potential costs and risk. This is a nuanced and complex equation, unique to every business. The only way to solve this equation is by modelling the costs for running additional facilities. This includes not just shipping, but the additional labor, infrastructure, and inventory management costs that come with it. Over-simplification of the decision is a mistake, too. One basic, but wrong, assumption many companies make is thinking they should locate their distribution centers to serve the population distribution of the US. Yet, few companies’ own customer distribution patterns mirror the country’s. The point is that poor assumptions and generalizations will lead to bad decision making. Making the right determination for a company can start by considering the right questions and considering the right things.
DO YOU HAVE THE TECHNOLOGY? Storing and shipping products from multiple locations requires very different processes and technology than doing it from just one. The details required to effectively manage basic functions like inventory management and the operation of fulfilling orders become much more complex. When considering adding locations, it’s important to start with simple questions to find the right solution, such as: Which SKUs should be stocked at which facility? How do you determine safety stock? Do you have inventory visibility across your different sales channels? How do you calculate and allocate the cost of split shipments? What if an order must be shipped from multiple locations due to inventory; are the orders consolidated or shipped separate as two deliveries? Can you combine multiple orders going to the same location to optimize shipping costs or enable dropshipping? Other important considerations that
need to be part of the decision include finding the optimal location for any additional facilities (again, based on your actual customer distribution and not averages). The effect of (for better or worse) different inbound transportation costs, taxes, and labor availability are all considerations. BE CERTAIN Expanding a company’s network of distribution centers can improve customer satisfaction but is not a decision to be made without a lot of consideration and analysis. The risks can be as great, or greater, than any potential upside to a company’s distribution operation.
Norm Pollock, VP of IT for Transportation Impact, will be presenting on the topic of how to know if your company can benefit from adding to its DC network at the PARCEL Forum in Chicago in September. He can also be contacted at firstname.lastname@example.org.
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 39
AVOIDING RISKY BUSINESS IN DC OPERATIONS
Your business is exposed to operational risks on a daily basis. Here’s how to make those risks a little less likely to impact your organization.
n an attempt to mitigate the risk to their operations, businesses not only buy relevant insurance policies, but most establish guidelines that address health and safety risks. They comply with safety regulations such as building codes, electrical codes, fire codes, and the standards set in the US by the Occupational Safety and Health Administration (OSHA). Beyond these more obvious health and safety risks, management teams are often so focused on running their businesses that they don’t pay much attention to the operational risks their businesses are exposed to. UNCOVERING OPERATIONAL RISKS Operational risks can seriously hinder the day-to-day operations of a business — and even prevent it from doing business at all. These operational risks are not so obvious, and they are commonly unforeseen — out of sight and out of mind. Yet the value of consistently and proactively identifying and mitigating them flows straight to the bottom line. A typical distribution center (DC) is filled with operational risks, and these risks can have serious implications. After
all, the primary mission of the modern DC is to serve as the backbone of the supply chain. Profits come from customers, so distribution-intensive businesses rely implicitly on their DCs to fulfill their customers’ orders promptly, accurately, and inexpensively. If a DC is unable to perform its vital mission, the business will lose sales, customers, and profits. AN INTRODUCTION TO FMEA A business can identify and eliminate operational risks in the DC by applying the principles of Failure Mode and Effects Analysis (FMEA). FMEA is an objective, systematic, iterative approach to mitigating risk in a design, process, product, or service to identify and prioritize potential failures, so that users can reduce or eliminate them. As a practice, FMEA was developed by the US military in 1949. After that, FMEA was adopted commercially by the aerospace, chemical, nuclear, petroleum, and automotive industries. It was used extensively by the aerospace industry and NASA during the Apollo program. In 1988, FMEA was adopted as an ISO 9000 standard. In the 1990s, the Automotive Industry Action Group (AIAG) and the
40 PARCELindustry.com SEPTEMBER-OCTOBER 2018
American Society for Quality Control (ASQC) embraced FMEA. In response to FDA requirements, FMEA was also adopted by the medical device industry. More recently, the supply chain industry has begun to understand the value of FMEA. FMEA differs somewhat from its cousin, FMECA (Failure Mode, Effects, and Criticality Analysis). FMEA and FMECA are both quantitative and use similar approaches and methodologies. But FMEA scores potential risks based on likelihood and impact using ratings, while FMECA scores potential risks based on more extensive probability and statistics. Put simply, the goal of FMEA is to identify, evaluate, and prioritize possible failures, and then reduce or eliminate them. It’s not as complicated as it sounds. And properly applied, FMEA is highly effective for mitigating risks that can bring a DC to its knees. APPLYING FMEA TO A DC OPERATION The practice of FMEA in a DC involves asking and answering these important questions about each major operation in the DC: What are the steps in each operational process?
By Stephen (Steve) T. Hopper
What could fail at each step (the failure mode)? What could cause this failure? What is the likelihood that it will fail? What would be the impact (the failure effects) on the business if it fails? Which potential failures present the greatest risks? What controls could reduce or prevent the likelihood of each potential failure? What controls could reduce or prevent the impact of each potential failure? FMEA can be applied to an operation using either a “bottom up” or “top down” approach. The “bottom up” approach begins with an item, task, part, software code, person, or other detail and methodically rolls up to the subsystem to identify systemic results of failures. The “top down” approach begins with the subsystem and methodically drills down to the item, task, part, software code, person, or other detail to identify the discrete causes of failures. Which approach is better for a DC? Either approach can be effective, but the “bottom up” approach is typically recommended for evaluating risks associated with individual entities, such
as the design of a product. The “top down” approach is typically recommended for holistically evaluating risks associated with complex, interconnected operations, such as those in a DC. EVALUATING AND CONTROLLING POTENTIAL OPERATIONAL RISKS IN A DC Fundamentally, management can evaluate two unique attributes of any potential failure in a DC. The first measure is the failure’s likelihood, which is based on the realistic possibility that the failure can occur. The likelihood measure is influenced by the likelihood of the occurrence of such a failure, the likelihood that the failure would cause harm, and the likelihood that the failure would not be detected if it occurred. The second measure of a failure is its potential impact, which is based on the realistic consequences of the failure if it does occur. The impact measure is influenced by the failure’s impact on time (such as downtime), the impact on other DC operations, and, most importantly, the impact on customers served by the DC. Two risk controls go hand-in-hand with these two attributes: Preventive controls and preparedness controls. Preventive
controls are designed to reduce a failure’s likelihood, while preparedness controls are designed to reduce a failure’s potential impact. As an example, consider the risk of a house fire in any home. Preventive controls for house fires would include cleaning the chimney, following safe practices when cooking, and limiting the number of electrical items plugged into each receptacle. Preparedness controls would include installing good smoke detectors, changing their batteries, and placing fire extinguishers in strategic locations around the home. A risk profile number (RPN) should be assigned to each potential failure. The RPN is an objective, composite score of the potential failure, calculated based upon its likelihood and impact. It is used for ranking and prioritizing possible failures. The RPN helps DC management avoid wasting time, money, and resources on less significant risks. AN EFFECTIVE OPERATIONAL RISK-MITIGATION PROGRAM When management is committed to evaluating and mitigating DC risks, they should establish an effective risk assessment and management program SEPTEMBER-OCTOBER 2018 PARCELindustry.com 41
that follows these eight steps: 1. Identify critical subsystems (processes, equipment, technologies, inventory, and people) within each DC operation. 2. Apply FMEA comprehensively and objectively, following a “top down” approach. 3. Identify potential failures within each subsystem — especially potential single points of failure. 4. Assign an RPN score to each potential failure. 5. Evaluate and prioritize all potential failures based on their relative RPN scores. 6. Develop improved preventive and preparedness controls for the high-priority potential failures. 7. Implement the improved controls in the DC operation. 8. Repeat steps 1 through 7 periodically, as the operation evolves. If the likelihood of a failure is high, then DC management should take the following steps: Evaluate and eliminate causes of the failure.
Improve other DC processes that contribute to the causes of failure. Install preventive controls that reduce or prevent failures. Add redundancy to DC operations. Develop and maintain standard operating procedures (SOPs) for preventing possible failures within the DC. On the other hand, if the potential impact of a failure is high, then DC management should take the following steps: Identify correlated, leading events that can serve as “warning flags.” Add a step to an earlier event’s process to prevent the failure. Use event management tools such as alarms and notifications to proactively alert users when conditions in the DC indicate a possible or imminent failure. Train DC staff to recognize the “warning flags” and monitor event management tools, so they can intervene proactively.
Install preparedness controls that reduce or prevent the consequences of failures. Design workarounds to DC operations. Develop and maintain SOPs for dealing with possible failures within the DC, in the event they do occur. TYPICAL RESULTS By using a standardized approach to mitigating risk based on FMEA and by developing comprehensive SOPs, the DC staff will develop a culture of proactive problem prevention rather than reactive problem solving. They will also maintain a living record of potential failures and associated controls, resulting in improved reliability, reduced operating costs, and reduced losses in the DC, as well as greater customer satisfaction.
Steve Hopper is founder and Principal, Inviscid Consulting. He will be speaking on this topic on Wednesday, September 26, at the 2018 PARCEL Forum.
TOP TIPS TO MANAGING YOUR TRANSPORTATION SPEND It can seem daunting to thoroughly analyze the data as it relates to your parcel spend, but the benefits you will reap are well worth it in the end.
any small and midsized shippers feel that they don’t have the time or resources to effectively negotiate carrier contracts or manage their transportation spend. In many cases, they feel intimidated by the carriers and don’t think they have many options or flexibility. What can shippers do? In one word: prepare. One of the best preparation techniques is to utilize resources commonly employed by the largest shippers in the country: robust data analytics, opportunity assessments, modal optimization, strategic sourcing, and RFPs with customized requirements.
UNDERSTANDING YOUR DATA The first step is to create your own shipping database using shipment-level detail. While most of this data is available from the carriers, it is a mistake to only rely on their reporting and projections. Most, if not all, shippers are now on weekly electronic invoicing, and you can use these weekly files to create your database. Unfortunately, with up to 250 fields in their invoicing, the carriers don’t make it easy to mine data to create meaningful reports. Another option is to pull down shipment-level detail from online carrier reporting utilizing FedEx Reporting Online or UPS Billing Center.
44 PARCELindustry.com SEPTEMBER-OCTOBER 2018
To get the right shipment-level detail, all you need are several key fields. Keep the ship date, the service level, the billed and actual weight, the zone, and the current shipment cost and incentives. On a separate tab, break out the accessorial/miscellaneous charges along with any charge descriptions. This will help capture your accessorial spend like residential surcharge, delivery area surcharge, additional handling, fuel, etc. The first and most important analysis we recommend running is a breakout of shipments and revenue by service level (see Figure 1). This helps you identify specifically where your shipping dollars are going. As part of this report, we also
By Tim Sailor
look at the difference between realized discounts on the invoice and contract discounts. While most shippers feel that they have negotiated good discounts in their carrier agreement, they are surprised when these contract discounts don’t match their invoices. The result of this analysis usually shows that the main reason that shippers do not receive their full ground contract discount is the Zone 2, one-pound minimum contract exclusion. This exclusion means that you receive fewer incentives if the net charge is below the zone 2 minimum ($7.57). Minimum reductions can also impact your express costs. If you see discrepancies between your contract incentives and your invoice incentives, look at the minimum reductions for each express service. Over the years, our analysis shows that minimum shipment charges can impact 50-90% of all ground shipments. For many shippers, it is more important to negotiate reductions in the minimum shipment charge than it is to negotiate higher discounts.
DON’T OVERLOOK THE WEIGHT AND ZONE Another important analysis is to look at the weight of your shipments. Lower weight shipments tend to hit the minimum shipment charge. Additionally, break out all shipments by weight categories that match your contract discount groupings. Many times, you will find that your higher discounts may be in weight categories that don’t match your actual distribution. As an example, if your contract incentives break out by one to five pounds and then six to 10 pounds, ask your carriers to extend the discounts to one to 10 pounds if that will increase your discounts in the lower weights. Next, look for the percentage of your ground residential shipments that are between one and nine pounds. If this is a significant portion of your shipments, there may be an opportunity to modally optimize and shift these lower weight shipments to a less expensive service like UPS SurePost or FedEx SmartPost. Sorting your shipments by zone can also be useful and further assist
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 45
with modal optimization. If you have significant Zone 2-5 shipments, look carefully at your service usage. For example, if you are utilizing an express service to Zone 2, you can get next-day delivery with a less expensive ground service that is guaranteed. Also, many shippers discover that they use threeday express services when they can get better or similar ground transit times to the shorter zones. Zone information also helps with any decision to convert some of your lower weight ground shipments to a hybrid service. Typically, the shorter the zone, the less transit time difference there is between a ground shipment and a SurePost/SmartPost hybrid service. This will make the implementation more successful. See Figure 2 for an example. Zone information can also help identify whether a regional carrier might be a good fit for your company. Many regional carriers have expanded their service areas and can now handle a larger proportion of your overall shipping. Regional carriers can offer many important advantages like lower rates, less accessorial charges, and even better transit times. UNDERSTANDING SHIPMENT-LEVEL DETAIL AND ACCESSORIALS Shipment-level detail can help shippers determine the impact of the carriers’ new dimensional rules. Focus on two columns: “Actual/Original Weight” and “Billed/Rated Weight.” If the invoiced weight of the shipment is higher than the actual weight, you are getting hit with additional dimensional charges. The next step is to request that your carriers provide you with an electronic billing format that gives you the length, width, and height for each package. When multiplied together, you will see the total cubic inches of each package. Apply the carrier dimensional factor, and you will see the true invoiced weight and cost of each oversize shipments. Compare this to your packaging, and you can then identify which boxes incur the highest dimensional weight. With this data, you can establish your incremental costs and may be able to negotiate a non-standard dimensional
factor that benefits your company’s unique packaging and shipment mix. We have seen many shippers lower their costs by hundreds of thousands of dollars utilizing this approach. The last, but not least, important step is to conduct analysis on your accessorial spend. These add-on charges can account for up to 30% of your overall transportation spend. Common charges are: Residential Add-on, Delivery Area Surcharges, Fuel Surcharge, Oversize, and Additional Handling. Accessorial costs can be accessed either through your invoicing or from the carriers’ online reporting. Identify which charges impact you the most by both shipment volume and cost. Then, work with your carrier to customize discounts in your highest spend category. Looking at accessorial concessions is also very important when you are looking at the impact of the carriers’ annual
46 PARCELindustry.com SEPTEMBER-OCTOBER 2018
general rate increase. Typically, accessorial charges are not covered by a rate cap, and they can be significantly higher than the announced tariff increases. This is also a good time to ask your carriers to increase their discounts to offset the higher tariff costs. There are many values to conducting all these analyses. Not only will you identify savings opportunities, but you will also establish a lot of credibility with your carriers.
Tim Sailor is the founder of Navigo Consulting Group, which specializes in contract optimization, distribution analytics, and strategic sourcing. As an 11-year speaker at PARCEL Forum, Tim will be presenting “Effective Transportation Spend Management” on Wednesday, September 26. You can reach Tim at 562.621.0830 or Tim@NavigoInc.com.
PACK TO SAVE
To survive in todayâ&#x20AC;&#x2122;s competitive environment, companies need to make the case that investments in packaging and shipping are solid, quantifiable must-do initiatives. Hereâ&#x20AC;&#x2122;s how to do so.
ackaging is the first thing a customer sees, so naturally, this is something that should generate visceral excitement. Good packaging sends a strong message around what your brand represents and its commitment to sustainability. Poor packaging contributes to damage, raises costs, and dilutes any other positives. Prior packaging recommendations have focused on minimizing the number of cartons shipped per order to avoid the fixed costs associated with each carton and optimize the picking and packing labor. While still valid, this needs to be reexamined in light of increasingly
BY JEFF HAUSHALTER punitive dimensional surcharges and accessorials. Now, more than ever, it may make sense to split an order into multiple cartons. Other recommendations have encouraged companies to segment their products by size, weight, sales, and margin contribution. Non-strategic items that cost more to ship than their margin contribution should be purged, or freight adders should be charged to make these items profitable. PROCESS Our experience has found that 30-40% of overall order cost can be attributed to the methods that guide the picking, packing,
48 PARCELindustry.com ď&#x20AC;ł SEPTEMBER-OCTOBER 2018
and shipping processes. These processes need to be repeatable, consistent across locations, and efficient. Process improvements should be viewed as a quick win. Embedded in the shipping process is the concept of cartonization. Defined simply, cartonization is the mechanism that determines what cartons should be used, how many cartons should be used, and what items should be put in each carton. Cartonization can be manual or automated, done pre- or post-pick, and should consider specific goals such as decreasing the number of cartons or minimizing total order cost. Companies can quickly assess their cartonization processes by ordering the same items from a single location, across locations, or over time. Things to look for are consistency in the selection,
whether items are packaged in a similar fashion, what the billable weight is, and what accessorials are incurred. While consistency doesn’t mean optimality, it does show your company is disciplined and in control. Likewise, outbound packages should be spot-checked for efficiency. Questions should be routinely asked around what costs that order incurred and how could those costs have been reduced. Process steps should absolutely include “boot camp” training pickers, packers, and shipping department employees. These employees are a vital first defense against preventable charges. Topics should include how parcels are rated, how dimensional surcharges are incurred, ways to identify unusual orders, and how to spot recurring dimensional opportunities. Many leading companies are also inserting a process gate step where new products are first vetted by a packaging and shipping team to assess how they will integrate with legacy products. As a result of this input, large oversized items
may have their primary packaging beefed up to “shipalone” without an overbox. Other flagged items may be reworked to improve SKU density or bundled with other complimentary items at the factory. Finally, there should be a process step to periodically review the cartons used and their effectiveness. Cartons and shippers that have low usage or impact should be phased out. Newer, more efficient cartons and shippers should be phased in. This process step prevents cartons from multiplying out of hand and leverages your purchasing volumes with your corrugators and shipping supply providers. PACKAGING Packaging and packaging decisions are
the easiest, most correctable inputs a shipper can deal with. We’ve said it time and time again, but simple, up-front packaging decisions ripple through your warehouse and influence throughput, warehouse labor, warehouse storage, and freight costs. Shippers should develop a “regime” of cartons, bags, and other containers that would be used to contain an order. This should be specific to the location and include material, dimensions, construction method, and grade. Depending on the industry, the regime might include returnable containers. There are several options that a company has to select a regime. Here is the continuum (see Figure 1):
SEPTEMBER-OCTOBER 2018 PARCELindustry.com 49
There are several steps towards evaluating a regime. The most robust involves modeling and rating an order pattern (orders, items, quantities, modes, destinations) against various carton regimes. Total costs of each regime would be captured and used to determine the best solution. Efforts should be made to include the sustainability of each item in the regime, incorporating material used, recyclability, carbon footprint, etc. Reports should be made periodically to aggregate this information and present a scorecard to management.
PRIORITIZATION One of the biggest new opportunities out there is having shippers “turn the dial” on dimensional charges. Warehouse labor resources can be directed to rework packages up to the point where their time investment equals the dimensional improvement. To make this decision, several pieces of data (parcel discounts, mode, surcharges, as-packed dimensions, contents, and weight) need to be integrated and analyzed. Here is a simplified matrix (Figure 2) to explain how this prioritization could be applied.
The most benefits would come from the areas in red. On busier days, only those packages that have the highest dimensional impact would be reworked or optimized. Packages with low dimensional impact would receive little to no effort. On slower days, more packages would be reworked. This maintains a facility’s throughput while correcting the worst offenders. Please note that this table is highly dependent on a shipper’s actual data. Efficient packaging requires making the right tradeoffs in terms of throughput, cost, and brand image. While many companies struggle to make the right choices, simple adjustments do exist that will help bring your small package spend back in line with your budget.
Jeff Haushalter is Partner, Chicago Consulting, where he focuses on decreasing costs and improving service via warehouse operations, parcel spend management, and optimal packaging practices, among others.
50 PARCELindustry.com SEPTEMBER-OCTOBER 2018
WHAT TO SEE AT THE PARCEL FORUM ‘18 The Future-Proof Parcel Solution
12 OOTH 0
Automate processes, lower cost, and improve speed and reliability with the agile solution trusted by thousands of companies. BluJay’s Parcel is a single instance, scalable platform that handles domestic and global parcel needs for any node/any mode. With flexible deployment options, BluJay’s Parcel provides global visibility and access to shipping services. BluJay 866.584.7280 Info@blujaysolutions.com www.blujaysolutions.com
PARCEL AUDITS with BI REPORTS
42 OOTH 0
WHAT’S THE ANSWER?
11 OOTH 1
How do you spend up to 41.2% less on shipping? How do you fulfill like a big national eCommerce brand? How do you rightsize parcels to downsize shipping costs? How can you guarantee your customers two-day shipping? Great questions — come find Visible’s answers at Booth 111. Visible Supply Chain Management 877.506.9498 sales@VisibleSCM.com VisibleSCM.com/parcelforum
Parcel Spend Solutions
43 OTH 6
Reduce parcel costs and save money with the most advanced and comprehensive parcel audit software in the industry. CTrak handles dimensional audits both domestically and internationally. We deliver maximized savings, BI and KPI data for impactful analytics. Reduce your shipping, administrative, and accounting costs. No-cost Proof of Concept work!
Cass’ comprehensive parcel spend management solutions help to reduce and manage your parcel shipping expenses. Reduce processing expenses, stop overcharges, accurately allocate costs, and receive critical parcel data. Contact Cass today to see how we help create a competitive advantage through reduced costs, increased efficiency, and better decision-making capability.
CT Logistics 216.267.2000, ext. 2190 email@example.com www.ctlogistics.com
Cass Information Systems, Inc. 314.506.5500 www.cassinfo.com
Worldwide Leader in Dimensioning
33 OOTH 4
Fast, accurate, and robust dimensioning systems, coupled with exceptional service and support, has made Cubiscan the world’s most trusted dimensioning provider. As a result, we’ve been driving ROI for the world’s biggest brands for the past 30 years. At Cubiscan, experience is our guide. Cubiscan 801.451.7000 firstname.lastname@example.org www.cubiscan.com
More Than an Integrator
24 OOTH 2
With more than a half-century of experience, DMW&H has refined a unique approach to automated solutions. We design, integrate, install, and support complex material handling programs that deliver complete, collaborative automation solutions. DMW&H’s history of providing innovative solutions to the Post and Parcel industry is at the heart of this division. DMW&H 201.933.7840 email@example.com www.DMWandH.com
WHAT TO SEE AT THE PARCEL FORUM ‘18 Effortless Automation – Can You See the Light?
30 OOTH 4
Upgrade your USPS® Shipping
20 OOTH 4
Engineering Innovation’s LightSortTM Technology economically improves accuracy and productivity while minimizing operator training time. The innovative light technology can be applied to sorting, picking, and packing solutions. Whether you need to retrofit your current system, or set up a new operation, Eii can provide an automated LightSortTM Solution for you.
As the #1 provider of USPS technology, Endicia helps eCommerce sellers and warehouse shippers maximize the efficiency of their shipping processes and reduce costs. We’ve developed the easiest and most efficient way to integrate USPS into any shipping workflow, while providing features and services you just can’t get anywhere else.
Engineering Innovation 800.350.6450 firstname.lastname@example.org www.eii-online.com
Endicia 800.576.3279 email@example.com www.endicia.com/Parcel
Going the Distance for Your Shipments
At GSO — a GLS Company — your shipment is always our priority. That’s why we offer 1-2 day parcel and freight delivery across the West while providing unmatched customer service for your Ground, Freight, and Priority Overnight shipments. When you work with a delivery provider who will go the distance to make you their priority, you’re able to make your customers your priority.
40 OOTH 6
NPI’s Xstream makes parcel and flat automation faster and more efficient. With a throughput up to 30,000 parcels and flats per hour, the Xstream only takes up a small footprint in your operation; however, it is OCR and BCR capable and offers you weigh on the fly, incoming and outgoing mail processing and sorts just about everything including most non-machinable pieces. NPI 214.634.2288 www.npisorters.com
LSO is the leading parcel provider in Texas, Oklahoma, Louisiana, Arkansas, Tennessee, Mississippi, and Alabama. Same day on-demand, last mile, next day morning and afternoon, 2-day. Same/better service than the global providers, 40% lower priced, money-backed guarantee. LSO 800.800.8984 LSO.com
GSO | a GLS company 800.322.5555 firstname.lastname@example.org www.gso.com
Perfect for Any Processing Environment
Better Service. 40% Less. Guaranteed On-Time.
31 OOTH 6
see even more parcel forum ‘18 spotlights on the next page
WHAT TO SEE AT THE PARCEL FORUM ‘18 Follow the Leader
23 OOTH 3
Pack Better, Save Money
12 OOTH 7
QubeVu® is the Leader in Dimensioning. Our patented 3D technology offers the world’s fastest dimensioning, certified accuracy on any shape, and class-leading ease of use. From our quick-setup DimStation model to our ultra-sophisticated Cloud network, QubeVu solutions are a generation ahead of the “dim-osaurs” offered by others.
Some of the largest shippers in the world trust Transtream to control costs and manage parcel and LTL shipping across their entire enterprise. Come visit us in Booth 127 and let us show you our latest money-saving innovations including cartonization, palletization, cross-border consolidation, Internet of Things (IOT), and analytics.
QubeVu 855.688.3671 email@example.com qubevu.com
Pierbridge 508.630.1220 firstname.lastname@example.org www.pierbridge.com
Simply Print, Apply & Ship — It’s That Easy!
40 OOTH 8
Our MultiPlex shipping label, concealed packing list and return label — All-in-One! Print & apply in 3 fast and easy steps with a standard thermal printer. Eliminate matching errors, save labor, and ship faster. Visit us at booth #408 if you’re interested in speeding up your shipping & labeling process. Chicago Tag & Label 847.362.5100 email@example.com www.ChicagoTag.com
PEOPLE ~ TECHNOLOGY ~ SERVICE
31 OOTH 9
United Delivery Service is a regional parcel carrier providing last-mile delivery solutions throughout IL, IN, WI. Since 1972 UDS has been providing Same Day and Next Day delivery for some of the largest eCommerce, retail, pharmaceutical and product supply companies in the industry. We are committed to helping your business reduce shipping costs, improve transit times, and enhance the overall delivery experience for your customers. United Delivery Service 630.930.5201 Info@uniteddeliveryservice.com www.uniteddeliveryservice.com
Lower Shipping Rates — Guaranteed
41 OTH 6
A free analysis from Transportation Impact will show what your small parcel rates SHOULD be to within 1/10 of 1%. If we can’t DELIVER those results, you don’t pay anything. Stop by booth #416 and visit transportationimpact.com to start shipping smarter (and spending less). Transportation Impact 252.764.2885 transportationimpact.com
Efficiency, Even in the Last Mile.
In the race to get goods to a customer’s doorstep, the reactive approach to last-mile delivery could negatively impact your bottom line. Shift to proactive planning and reduce costs and gain efficiencies with small parcel intelligence from U.S. Bank Freight Payment. U.S. Bank Freight Payment 866.274.5898 firstname.lastname@example.org freight.usbank.com/smallparcel
24 OOTH 4
WHAT TO SEE AT THE PARCEL FORUM ‘18 Package Sortation Reinvented
40 OTH 4
The eSort System handles the most difficult eCommerce polybag and carton packages from .5 oz. to 50lbs. Off the shelf plug and play modules provide the fastest custom configuration, delivery, installation, and return on investment. The smallest footprint with the highest density of sort locations. Combine with existing conveying equipment.
Shorr Packaging is an industry-leading, award-winning distributor of packaging products, equipment, and services. We represent the best-known packaging product manufacturers and brands in the industry and are one of the largest independent packaging distributors in the nation. Partner with us to identify opportunities for improvement with your packaging and processes.
33 OOTH 9
Reliable, innovative strapping systems for carton closure, unitizing and increased security can positively impact your bottom line. EAM-Mosca offers several different types of systems from entry level walk-up banders for hand-pick and off-line applications to inline, automated belt or roller conveyor top models for high-speed operations. EAM-Mosca Corporation 800.456.3420 email@example.com www.eammosca.com
BÖWE SYSTEC’s OptiSorter is a highly versatile packet and parcel sorter that also features the flexibility to process brochures, catalogues, and poly bags. The OptiSorter can incorporate inline features consisting of BCR and OCR reading, weighing, dimensioning, and a variety of output options including bags, carts, boxes, and more.
Simplify Your Supply Chain
32 OOTH 1
The best conversation you have this week could be with PITT OHIO. We excel at listening to your challenges and turning these opportunities into customized solutions. Together, we will engage in a strategic conversation to pinpoint an opportune moment to make a real impact on your business and simplify your supply chain. PITT OHIO 412.232.3015 ext. 6593 firstname.lastname@example.org www.pittohio.com
Shorr Packaging 888.885.0055 email@example.com www.shorr.com
Secure Parcels with High Performance Banders
Pushing the Limits in Sorting Technology
BÖWE SYSTEC North America Inc. 919.714.7277 Generalinquiries@bowesystecinc.com www.bowesystecinc.com
Tension Packaging & Automation 855.763.7275 x 4103 firstname.lastname@example.org tensionautomation.com
Get More From Your Packaging
12 OOTH 5
OO High-Performance Encoding, 309 TH
Labeling, and Sorting Systems
At Fluence Automation, we take pride in solving imaging, encoding, labeling, and sorting challenges with our product platforms developed over several decades. Whether it’s specialized optical character recognition on inbound or shipping labels, or high-performance labeling and sorting, we have a range of technologies to address your unique challenges. Fluence Automation 888.832.4902 email@example.com www.fluenceautomation.com
By Maia Benson
TECHNOLOGY TO COMPETE WITH THE BIG GUYS Smaller businesses often feel like they are at a loss when it comes to the world of fast and free (or almost free) delivery. Thanks to innovative solutions, that is no longer the case.
e all buy stuff. We buy it online, we buy it in stores. We buy it on marketplaces, we buy it from big and little retail stores, and we can now even buy it on Instagram. We use our laptops and our mobile phones to complete these transactions, buying from US-based small business owners as well as from sellers all over the world — in Australia, Canada, France, and beyond. We buy from all around the globe at all times of the day and night from any device we have in hand — and when we make a purchase online, we expect it to be on our doorsteps within two days.
56 PARCELindustry.com SEPTEMBER-OCTOBER 2018
This is the world small businesses selling online and offline live in today. Consumers expect to be able to use any device, around the globe, with instant gratification via fast delivery. Let’s look at some technology trends in these areas that can give small businesses superpowers to compete with the big guys — and win. SELLING EVERYWHERE A typical shopper today is online-savvy and buying products from a number of different sales channels — 86% of shoppers today are using at least two sales channels when shopping.
In order to capture these shoppers’ business within these two sales channels, a typical retailer today sells across four to five channels on average. For a small business owner, this means having to maintain multiple product catalogs and keep them current, drive traffic to multiple stores, and ship orders to customers domestically and internationally from multiple inventory sources — both their owned inventory and their virtual inventory housed by a manufacturer or dropshipper. More and more small businesses are selling where their customers are online. Given that most customers spend an average of 45 minutes on social media (according to the Nielsen report) — especially on their smartphones — reaching potential customers via Instagram and Facebook is becoming an important shopping arena that needs to be seriously considered. Selling directly from within a social media platform is different than a typical online store. Social networks are used to connect and trade stories, and there is no better way for people to share their stories than through posting images and videos. With tools made available to small businesses, social media platforms like Instagram are now easily accessible for business owners to tag products to sell directly within the post. Marketplaces have their own parameters for how to sell successfully. For small businesses, ensuring top rankings in these channels is dependent on customer ratings, which takes into account the quality and uniqueness of their products. SEPTEMBER-OCTOBER 2018 PARCELindustry.com 57
Offering fast and free shipping and then meeting expected and stated delivery times helps merchants place highly in the marketplace rankings. ANY DEVICE, AT ANY TIME A majority (76%) of all online purchases on Shopify were completed on a mobile device just in the second quarter of this year; that’s a lot of people shopping on their mobile phones. For a thriving online business to reach their customers, it is important to consider launching a store that functions and looks good on any device — whether on a mobile device or tablet. This can be tricky for a small business, especially when it comes to product presentation, mobile payments, and checkout. Accelerated checkout options like Apple Pay or Google Pay are increasingly popular to complete those checkouts as well, thanks to the ease-of-use on mobile devices. After all, mobile phones are often the beginning, end, and entirety of the shopping experience.
sophistication and expertise that even many large multinationals haven’t yet mastered. With the right platform and the right tools, however, even SMBs and individual entrepreneurs can provide this kind of visibility and pre-payment at checkout for their international customers. ORDERS DELIVERED FAST More than 80% of consumers today want a same-day shipping option, and only 56% of retailers offer one, according to CB Insights. Thanks to the gold standard set by Amazon, consumers today want stuff today, tomorrow, or, at the absolute most, two days. Not only do they want fast shipping, but most consumers also expect to pay next to nothing to have their products in their hands as soon as they hit the checkout button. A lot of retailers believe that without Amazon’s size and backing, offering fast and free shipping can be extremely costly — this is not true. With the right technology partners enabling the right distribution of products to be close to customers, a smart network of warehouses, and the right transportation partners, fast and free can be achieved. Some retailers can do this by engaging in third-party logistics (3PL) providers that will handle demand forecasting, warehousing, inventory balancing, transportation, and shipping. Experienced technology providers will also be able to help identify the right stock keeping units (SKUs) and ensure that those are distributed across fulfillment networks to meet your customers’ fast and free expectations. Another way to achieve speed is to engage with platform technologies that provide pre-negotiated rates with major carriers like USPS, DHL, UPS, and Canada Post so that a small business owner can ship all over the world and use a combination of carriers to get the job done. More tools than ever are now available to small businesses to allow smaller retailers to thrive in the land of Amazon and other large enterprise players. Multi-channel selling platforms provide options for small businesses to choose the right tools that work best for their business, letting them sell on mobile devices, find their ideal customers everywhere around the globe, and select the right shipping partner to satisfy the delivery expectations of those customers. From first contact to fulfillment, SMBs today are better equipped than ever to provide the ideal experience to build loyal, satisfied customers.
More than 80% of consumers today want a same-day shipping option, and only 56% of retailers offer one, according to CB Insights. With the right software platform that is optimized for a variety of devices, a small business owner can deliver the perfect customer experience no matter what device their shoppers are using. Mobile-optimized sites used to be a nice-to-have option, but now they’re the default. THE WORLD IS A LOT SMALLER THAN WE THINK Shopping happens all over the world now; we are no longer confined by geographical limitations. Nearly half of online shoppers in Canada say they’ve made a purchase from an overseas business in the last six months. What this means is that consumers are not buying only from their home country; rather, they are looking at products from around the world. Similarly, for small business retailers, tapping into the world of shoppers can be a great way to grow their topline. However, this is no easy feat. Things like retail tax, currencies, payment methods, shipping methods, cultural nuances, and language need to be taken into consideration when taking a business global. As daunting as this might sound, technology has made the world a lot smaller. With the right technology solution, a lot of this work can be easily solved. Increasingly, customers expect to see duties and taxes represented in their total cost up front. That requires a level of 58 PARCELindustry.com SEPTEMBER-OCTOBER 2018
Maia Benson is the Global Commercial Head of Shipping & Fulfillment at Shopify. In her role, she leads the commercial team focused on simplifying shipping and fulfillment for Shopify.
Redefining Customized Service A customized solution is only valuable when coupled with reliable service you can count on and an answer that doesn’t break the budget. U.S. Cargo is built on the idea of creating flexible logistics solutions for specific shipping needs. We didn’t create the concept; we’re just perfecting it by redefining what it means to benefit from complete, customized service. At U.S. Cargo, we pride ourselves on our commitment to develop transportation services and logistical systems to meet the needs of our customers and our personalized delivery services and solutions create sustainable, long-term value for our customers, business partners, and employees. U.S. Cargo respects that every business has different needs, and our pricing methods reflect that. We don’t let schedules or
systems get in the way of servicing you with the highest priority. No business need is too small. Whether the requirements are standard or unique, our personalized commitment to meeting our customers’ transportation and logistical needs exceeds that of the competition. While our core business is standard parcel and lightweight LTL, we also leverage our assets in various ways to create solutions based on customer specific needs. U.S. Cargo is a diversified ground services provider that offers high-value, lowcost premium services, tailored to unique market demands. The customized solution must work for you and your business; otherwise we didn’t do our job. A successful collaboration is possible by teaming up with the right carrier. Team up with U.S. Cargo and benefit from a much needed redefined approach to customized service. You deserve customized solutions, consistent service, and cost-effective answers for you and your customer.
CARB: YET ANOTHER RISK FOR PARCEL SHIPPERS By Brent Wm. Primus, J.D.
ARB is the acronym for the California Air Resources Board. Several years ago, the board promulgated three related sets of regulations intended to improve air quality in California. One of these is colloquially known as the “Truck and Bus Regulations.” The focus of this set of regulations is to reduce particulate matter (PM) and oxides of nitrogen (NOx) emissions from existing diesel-powered vehicles operating in California. The gist of the Truck and Bus Regulations is to require phased-in retrofitting of exhaust filters to capture pollutants before they would be emitted into the atmosphere. In addition to the requirements directly related to motor carriers and other operators of certain types of vehicles, the requirements also place an affirmative duty upon persons
60 PARCELindustry.com SEPTEMBER-OCTOBER 2018
hiring motor carriers to verify that they are in compliance with the regulations. The regulations impose substantial fines for failure to do so — at least $1,000 per incident and more than $10,000 for multiple incidents. Significantly, these fines can pass through to the person hiring the trucker, the consignors, and the consignees. Until recently, it was believed by persons other than the CARB that the requirements only applied to shippers and brokers with facilities and offices located within California. However, two brokers recently reached settlements in the amount of $100,000 and $52,250 with CARB regarding proposed fines for alleged violations of these regulations — even though neither broker maintained a physical office in California. Regardless of whether one agrees or disagrees with CARB’s interpretation of its own rules, the message for shippers is that they must now set up internal procedures to comply with the requirements of the Truck and Bus Regulations. A full analysis of what is needed is beyond the scope of this article; however, the gist is that a shipper hiring a motor carrier who will be traveling in the state of California needs to verify that each hired company is either in compliance with the CARB regulations or has reported compliance to CARB. It should also be noted that although there was no evidence of non-compliance in the cases involving the two brokers, the
two brokers had not maintained records sufficient to demonstrate compliance. In addition to the Truck and Bus Regulations, there are also a set of rules relating to diesel-fueled transport refrigeration units (TRU). Unlike the Truck and Bus Regulations, it was understood within the industry from the time that these rules went into effect that they applied to brokers and shippers both outside and within California. There is yet a third set of regulations colloquially known as the Greenhouse Gas Rules. These rules relate to the physical design of tractors and trailers to make them more efficient. An example would be requirements for streamlining to reduce air resistance. Until now, it was believed that these rules, just as the Truck and Bus Regulations, only apply to California-based shippers and brokers. But given the recent imposition of fines relating to the Truck and Bus Regulations, shippers are cautioned that this is no longer a safe assumption. All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found on the PARCEL website at http://parcelindustry. com/by-author-1130-1.html. Your questions are welcome at brent@ primuslawoffice.com.
GLOBAL CONSUMERS WANT YOUR PRODUCT Michael J. Ryan
s most of you know, 95% of the global population lives outside the US. If you have had success in the US, great! But don’t get too complacent — you are just beginning the journey to a highly successful e-commerce business. Global consumers are very similar to domestic consumers but present some additional challenges, such as distance, customs, language, cultural differences, product quality, and the lack of personal touch. Global consumers are looking for products from other parts of the world based on quality, lack of availability in their own country, and price. Most notably, global consumers are looking for: 1. High-quality products that are unique 2. Ease of use of website
62 PARCELindustry.com SEPTEMBER-OCTOBER 2018
3. Fast, reliable, consistent delivery… and did we mention it needs to be cheap? In regards to the delivery aspect of global e-commerce, let’s face it: Two-day delivery at a low cost is a very difficult task. It is essential to develop a delivery strategy based on your customers’ expectations. It is critical to understand what your customer is willing to pay for delivery. However, if you are selling a higher-value item that will net a bigger profit, you may be able to offer free shipping or a flat rate. This formula can only be determined based on the price elasticity of your product, and it may vary by country. The closer you can get to offering a low-cost (or free!) shipping option, the more likely that is to drive future sales. Your customers are coming to your site because your product is unique and competitively priced. For lower-valued products, you may want to look at package consolidators such as DHL eCommerce, UPS Mail Innovations, Globegistics, IMEX, IBC, Aprisa Express, Zenda, etc. The package consolidators offer a competitively priced service but at a slower delivery time compared to the express providers (DHL Express, FedEx, and UPS). In addition to the cost and speed of delivery, the global consumer wants to have complete visibility of the tracking of the shipment. This is an area that the lower-cost service options struggle with in
providing. Customers are also looking for consistency in delivery. If your global consumer makes multiple orders on your website, they will establish a delivery expectation from just the first couple of orders. They know that if they order from XYZ.com, they will get their package in seven (or however many) days, which becomes an established expectation. Most research indicates that global consumers want it fast but don’t want to pay a lot for that service; this is where merchants need to figure out what works best for their customers in each country. As you grow your global business, you may want to look at partnering with a local/regional 3PL. This will get you closer to your customers and will allow you to be more competitive in service and cost. Recently, there have been a lot of developments regarding trade barriers in the news, but this does not seem to be impacting the global e-commerce business. Stay the course and seek that massive opportunity outside the US! Global consumers are just like domestic consumers… they want their shipments fast and cheap!
Michael J. Ryan is the Executive Vice President at Preferred Parcel Solutions and has over 25 years of experience in the parcel industry. He can be reached at 708.224.1498 or michael.ryan@ preferredship.com.