PARCEL
JANUARY-FEBRUARY 2014 www.PARCELindustry.com
What did shippers learn from the
HOLIDAY DELIVERY
DEBACLE? OMNI-CHANNEL fulfillment in the changing retail world. page 16
MAKING THE RFP process for your new WMS a success. page 20
BREAKING DOWN SAP technology. page 22
PARCEL
CONTENTS
JANUARY-FEBRUARY 2014 | volume 21 | issue 1
Features Departments 06 Editor’s Note
Learning from the Holiday Shipping Debacle By Amanda Armendariz
16 Omni-Channel Fulfillment in the Changing Retail World
07 Going Global
Exporting to Mexico, Part 2 By Tom Stanton
Tips to streamlining your warehouse operations By Chris Castaldi
08 Transportation ABCs
Can We Fit 10 Pounds in a Five-Pound Bag? By George Yarusavage
10 Operational Efficiencies Invest in a Coach! By Susan Rider
11 Spend Perspectives 18 How the Glitch Stole Christmas...
Could the Peak Season Debacle Have Been Avoided?
20 RFPs for a WMS
Making your first date a successful one
(and what everyone learned)
By Dawn Jones and Dan Grimm
By Brandon Staton
By John Haber
12 Regional Alternatives
Single Sourcing: Is It Worth the Risk? By Mark Magill
14 Supply Chain Pivot
In 11 Years, It Will Be 2025 By Rob Shirley
30 Wrap Up 22 The Right Stuff:
a Spotlight on SAP’s Shipping Technology
What’s Next?
26 What the USPS Shipping
Services Pricing Changes Mean to Commercial Shippers
Breaking it down to the basics By Joshua Riff
By Michael J. Ryan
Application Articles
By Gordon Glazer
13 28 PARCEL Forum Wrap Up Our 2013 show in October was phenomenal, and now we’re gearing up for a new destination in 2014!
By Amanda Armendariz
4
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
E-Commerce Shipping Study: 3 Findings That May Change Your Shipping Program By Stamps.com
PARCEL president chad griepentrog publisher marll thiede editor amanda armendariz
[ amanda.c@rbpub.com ]
circulation director rachel chapman [ rachel@rbpub.com ]
marketing cierra bauer creative director kelli cooke advertising ken waddell
[608-442-5064 ] [ ken.w@rbpub.com ]
Josh Vogt [ 785-320-7950 ] [ josh@rbpub.com ]
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EDITOR’S NOTE BY AMANDA ARMENDARIZ
Learning from the Holiday Shipping Debacle s you flip through the pages of this issue, you may be thinking, “Wow, they’re really focusing a lot on the UPS and FedEx holiday shipment delays.” And you’d be right. While we’re certainly not trying to beat a dead horse, this was a hugely important (and therefore much-talked about) occurrence in the parcel industry, so it’s no surprise it’s still at the forefront of people’s minds over a month later. As we all know, the holidays are the biggest time of the year for shippers (and consumers!) so any major snag is going to be much more noticed than one in, say, July. Now, I don’t claim to have a crystal ball, but I feel like we were inching closer and closer to something like this happening over the past couple of years. Consumers are ordering later and later (well, not me; I tend to have a mini panic attack if I order any gifts later than December 10, but apparently I’m in the minority!), spurred on by shippers’ guarantees that the beloved gifts will arrive in time. I often buy high-quality meat, cheese and chocolate baskets for those hard-to-buy-for folks, and this year, I received a catalog from my favorite company with the guarantee, “Order by December 23 and receive by Christmas!” I remember raising my eyebrows at the claim, but clearly, consumers took many companies up on such offers, and clearly, these promises weren’t able to be upheld due to everyone else doing the same. So I hope that you enjoy our writers’ various perspectives on this important issue (and I hope the problems are fixed so that we’re not including articles about this in our January/February, 2015 issue!) And if you’re thinking, “Enough with the holiday delays; I’ve already heard enough about that!”, don’t worry. While important, the topic is certainly not the only thing we’re focusing on in this issue. We have some great features on omni-channel fulfillment in the changing retail world, how to successfully purchase a new WMS, and more. We at PARCEL feel like we’ve started 2014 off on a great note with this issue, and hopefully, you’ll feel the same. As always, thanks for reading PARCEL.
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GOING GLOBAL BY TOM STANTON
Exporting to Mexico: Part 2 n the previous issue, we discussed the possibility of “reshoring” manufacturing from China to Mexico. In this article, we will look at the information needed with regard to exports to Mexico, assuming you have dealt with US export requirements referred to previously. Mexican import requirements are not that different from what is required for importation into the US. Here are some documentation guidelines to follow: INVOICE: The invoice document can be either a pro forma invoice or a commercial invoice. A pro forma invoice is issued for goods that are not sold but being described for Customs and transport purposes only. Shipments of samples for a trade show would be documented by a pro forma invoice. The commercial invoice is used for standard export sales transactions. English, Spanish or French are acceptable invoice languages to Mexican Customs. INVOICE PRODUCT INFORMATION: The product information provided on the commercial invoice must be in enough detail to allow the broker and Customs authorities to confirm the classification(s) of the goods is correct. For example, classifications for carrying bags distinguish between materials used in making carrying bags so the invoice citing classification 4202.92.0805 should also state: “ food carrying bags with outer surface of cotton materials”. A picture of the items being shipped is recommended if this is a first-time export.
MARKS AND NUMBERS: The wording/markings on the packing list should clearly match the export invoice. It should be easy for Customs to find the articles listed on the invoice among the boxes of your shipment. Each package or bundle must be marked and numbered with references that are easily identifiable on the invoice and packing list, such as “item 1 handbag red- carton 1 of 20.” If there are unique identifying numbers such as serial numbers, they should also appear on the packing list. COUNTRY OF ORIGIN: The Country of Origin (place of growth or manufacture) must be clearly indicated for each good on the export invoice. For NAFTA qualifying goods, the NAFTA certificate should be attached with all appropriate sections completed. The section that substantiates the reason the goods qualify as US or Mexican or Canadian origin is of critical importance. The country of origin markings on the units shipped must match the origin country that is stated on the invoice.
tiable value for Mexican Customs is the CIF value. The price payable is defined as the purchase price of the goods or the cost of manufacture plus normal profit when goods are consigned or otherwise shipped to Mexico without being sold to the consignee. TRANSACTION PARTIES: All parties and transaction details must be clearly identified such as shipper, importer and ultimate consignee and customs broker and contact person name and phone number at the ultimate consignee or the ultimate receiver of the merchandise. IMPORT AUTHORIZATION/REGISTRATION: For any shipment valued at more than $2500, make sure that the Company or person acting as the Importer has been accepted into the Mexican Registry of Importers and that they have an Active Mexican Federal Taxation account. A lack of proper registration can delay your shipment by 2-3 weeks. SUMMARY: Assuming the goods you are exporting are authorized for export to Mexico according to US export laws, the above article has summarized in further detail key elements that should be thought through for shipments to Mexico. The elements reviewed are really similar to US import requirements and/or import requirements for any country. NAFTA compliance will be reviewed in Part 3.
NAFTA compliance will be reviewed in Part 3. VALUE: The value stated must be accurate according to transaction value law. This means the price listed must be the price paid or payable plus additions for commissions, royalties, assists, packing or any proceeds of resale payable to the shipper plus freight and insurance costs. The currency, terms of payment and applicable INCOTERMS or terms of sale should be clearly indicated. The du-
TOM STANTON, AFMS, LLC, International Analyst can be reached at 503.246.3521 or Tom.stanton@AFMS.com.
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
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TRANSPORTATION ABCS BY GEORGE YARUSAVAGE
Can We Fit 10 Pounds in a Five Pound Bag? s this is being written, most of us in the supply chain world are still waiting for explanations of what went wrong this past Christmas season at UPS. Did e-tailers and UPS not share forecasts? Did large shippers fail to give UPS a “heads up” when they first sensed significant increases in overnight and two day activity? Did UPS cut things a little too close by not reserving enough extra capacity? Was weather a factor? And why didn’t we hear any horror stories from the other small package carriers? All we know for sure about this overload is that in the days before Christmas, the UPS system was given far more shipments than could be delivered on time. A number of seasoned, expert professionals were surprised by this, many customers were disappointed, and those surprises and disappointments must be avoided next time. A friend of mine who manages a 3PL once told me: “You don’t build a church to seat everybody who shows up at Easter or Christmas.” Small package carriers face that same challenge at Christmas, and have ways to temporarily increase capacity, which will undoubtedly be expanded for 2014. Additional extra aircraft and over-the-road trucks can be either engaged or held in ready reserve for immediate deployment. Extra daylight turns can be scheduled for some aircraft. The larger carriers might even drive two-day freight overnight to airport operations within 500 miles of their origin, so that the next day’s 8
overnight aircraft can load that freight for a beyond point after dropping off local overnight cargo. And there are options beyond carriers merely adding capacity, which will require joint efforts in coordination with their large shippers. We might see what I’ll call “enforced service discipline” via either: (1) restricted package acceptance (“embargo” is such an ugly word, but perhaps the right one here); (2) lengthening of guaranteed delivery windows (perhaps by not offering guaranteed overnight shipments from December 22 through 25), or; (3) the use of new, temporary holiday pricing “incentives”, such as significant surcharges for all packages tendered within five days of Christmas. This last option would require the e-tailing industry to adjust their consumer pricing accordingly, by increasing their customers’ shipping costs for later orders and/or offering special discounts for ordering at least five days before Christmas. As we have seen, carriers are not the only players here. What else can their Christmas-intensive shippers do to avoid repeating a disastrous holiday season? Those who are able to will use their leverage on carriers to gain a “most favored nation status” and demand priority acceptance and delivery of their shipments over all other shippers. And the carriers might allow this – by also insisting on something like that holiday surcharge mechanism. In addition, some shippers might establish or strengthen relationships with regional package carriers. Diverting packages which can be delivered within one or two days to an alternate ground service would reduce the load on the Big Two. This may not be an option the Big Two want their important shippers to consider, and it will require some additional management effort on the part of some
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
shippers as they reconfigure their processes to utilize more carriers, but this would lessen the risk of system overload. And last, but certainly not least, shippers can move appropriate small package freight via the Post Office or with LTL carriers. Now, what about the rest of the small package shipping world, the companies who make regular business-to-business and business-to-consumer shipments throughout the year? They ship things like repair parts, office supplies, and medical items, which must move no matter what the season may be. That tidy world of regular, guaranteed deliveries, as we just learned, can be completely overwhelmed when larger-than-expected daily tsunamis of Christmas volume appear. These shippers will also need alternate plans for delivering their small packages on time before Christmas — perhaps by pre-positioning inventory in major regional locations to shorten the length of final delivery haul during the peak season, or by encouraging their regular customers to stock up before mid-December with enough inventory to avoid being part of the Christmas overload. As Christmas 2014 approaches, we will hopefully be reading about the true underlying causes of the 2013 UPS system overload, and proposed solutions from UPS, their competitors, plus various shippers. And then, during the final weeks of December, we’ll find out if indeed our carriers can still carry 10 pounds in their five pound bags.
GEORGE YARUSAVAGE, CTL, C.P.M., CICSM, is a principal in Fortress Consulting, LLC, specializing in Transportation, Logistics, and Sourcing issues and training. He can be reached at gyarusavage@yahoo.com or 203. 984.4957.
OPERATIONAL EFFICIENCIES BY SUSAN RIDER
Invest in a Coach! very year when we look at the global trends in warehousing and distribution, it sounds very redundant to say more efficiency and better productivity, but this is exactly what most DC managers are talking about. Why do these topics reappear year after year? One thought is because people dramatically impact the efficiency and productivity of your facility. You can buy the best automation and have the best technology but if you haven’t trained, hired and retained the best people you will still be looking for increased productivity and efficiency. The cost of people in your facility continues to rise with health care and rising minimum wages. Many companies don’t see the forest for the trees, in that they have substandard people that don’t operate well so they hire more people to help the below standard ones and then you have people on top of people, all working very inefficiently. Sounds a little bit like a Dr. Seuss story, but it’s true. Part of the problem is that people in your facility require ongoing attention and investment in time and resources. It’s not something like technology or automation that you purchase, install and voila, problem solved. Even without turnover, people require on-going coaching, mentoring and attention. As an executive/life coach, I run across this situation all the time. The person managing the facility is a good operations person. He knows the stats, knows the operation well and knows the supply chain. The manager is just a horrible coach of people. Instead of teaching and motivating, many managers bark 10
orders without details and degrade the team. A recipe for failure! Managers forget that the workers in the facility are not motivated the same way they are, they don’t have the same agendas, and they don’t think the same way. My son is an enthusiastic high school basketball coach. While coaching young high school boys today, he has learned that they don’t all feel about the sport as he does. They are not competitive and some don’t really care whether they win or lose. My son has had to learn to get to the root of why are they on the team, and what motivates them? Some boys are just simply there for the recognition and some are there for the “feel good” of being on a team. When you are managing the team with an iron fist, it doesn’t feel good, so that person will not respond and play at his best. Once you discover what makes them tick and what is important to them, you can adapt your message and training to incorporate those items. As a manager if you don’t have time to be a coach for your entire team, make someone within each functional area a coach. This takes more than just appointing that person as a coach. It takes training and developing this coach as a leader. The leader will set the pace, attitude and culture. This person needs to be chosen well. As you build confidence and satisfaction among your team, you will gradually see your productivity increase, along with efficiency. If you explain to them the impact of accuracy, losing sales, losing customers, losing product, etc. they will begin to understand how very important accuracy is and will strive for better work. You will find them watching others to make sure they
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
are doing the right steps and processes. This kind of positivity snowballs in your facility and is contagious. But your job doesn’t stop there! Just like on a basketball team, the coach needs to simultaneously start building his farm team and focus on succession plans. If your best order filler gets sick, who can step into that role? Hopefully, they have been pre-trained by the best and the replacement is seamless but unfortunately, most managers are focused on the day to day operation and not on the future. This is the most common area of improvement that needs to be made for DC managers: looking at contingencies and preparing the operation for the future. Ultimately, the DC manager is the coach and he is training the next layer of coaches in each functional area, but usually in about 50% of the cases, this is not how it works. Some outsource this to HR, not that HR shouldn’t be a coach, but most HR departments don’t understand the operation and they are deemed unacceptable for the worker because they don’t really add value on the floor. If you have a good supervisor that has the operation skills, dedicated to the company, knows the WMS well but is a horrible people person, you have an opportunity. Invest in this person and help this person become a better supervisor on your team.
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.
SPEND PERSPECTIVES BY JOHN HABER
Could the Peak Season Debacle Have Been Avoided? ll parcel carriers faced immense challenges with delivering holiday packages, especially UPS. And while weather played a role in crippling delivery networks, the core problem was poor planning and execution by retailers, customers and shippers. UPS has already followed up the peak season debacle with a profit warning announcing it will miss projected earnings for the quarter by more than 15%. The true impact to both retailers and carriers likely will not be realized until after peak season 2014. Will shippers split volumes between carriers? Should retailers change shipping policies and customer expectations? Does this element of the supply chain need better contingency plans? Will carriers force more accurate planning from shippers, while putting in place better peak season operating plans? Will customers start shipping online earlier or will we see a shift back to brick and mortar retail for many holiday shoppers? In my last Spend Perspectives column I introduced the Transportation Optimization Model (TOM). TOM represents a dynamic planning and supply chain management model. It’s built on four core principles that are interwoven on a daily basis to be the foundation for an efficient and nimble supply chain. The principles are as follows:
1. 2. 3. 4.
Attaining Visibility Achieving Transparency Nailing Strategy Executing Precisely
We can use TOM to highlight breakdowns in the peak season retail environment across all contingencies (shippers, carriers and customers). The reality is that peak season problems started in November, not the week leading up to Christmas. Black Friday and Cyber Monday online sales were higher than forecasted by both shippers and carriers. Peak season carrier staffing was extremely lean as carriers focused on hitting profit numbers for the quarter via cost management. It was clear that staffing levels were too low, even with an influx of higher than planned volumes. And the lack of contingency plans in the event of bad weather was also exposed. One carrier cited a shorter than normal period between Thanksgiving and Christmas as the core problem; frankly, my experience tells me their planning and budgeting groups were well aware of the shorter holiday season when developing 2013 peak plans. People that were impacted want to hear the truth and thus far we have not heard many carriers (UPS did issue a formal apology on the day after Christmas) or shippers accepting blame — rather most everyone is pointing fingers. Many companies failed to gain visibility into the seriousness of the problem until too late into peak season. Based on our sample results, carrier service performance levels between Thanksgiving and Christmas were the worst in a decade. Shippers should have been monitoring service levels on a daily basis and pushing volume to different carriers or to different distribution locations. Customers should have noticed that guaranteed shipments were arriving late and non-guaranteed shipments were taking longer than usual. Late shipments gener-
ally don’t have as detrimental an impact to customers at the beginning of December as they do for packages that aren’t delivered by Christmas. However, many unhappy customers were procrastinators that waited to the last minute to either ship or purchase their gifts. Shippers should have had a better understanding of the service issues and recalibrated their shipping promises and guarantees. They should have made options and issues more transparent to the customer through pro-active communication of the shipping challenges. This would have positively impacted the shippers’ credibility. Shippers certainly did not nail the strategy by making promises that they, in many cases, knew were not going to be delivered. Carriers failed to provide visibility and transparency for long gaps of time as shipment updates were running far behind normal schedules. Carriers are the last cog in the delivery of packages and while there are many factors, they failed to execute on delivering far too many of those packages. Unfortunately all three groups failed to execute precisely; carriers failed to deliver packages before Christmas, shippers failed to live up to their promises to customers and customers failed to live up to promises to families and friends. One thing is for sure — there were a lot of important lessons to be learned during peak season 2013!
JOHN HABER is an expert in shipping, freight and transportation spend management. In his current role he provides the vision, and the execution knowhow, that helps companies save 10% to 20% or more in logistics spend. Contact him at jhaber@ spendmanagementexperts.com.
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
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REGIONAL ALTERNATIVES BY MARK MAGILL
Single Sourcing: Is It Worth the Risk? y now everyone has heard of (or were affected by) the millions of Christmas presents delivered late because UPS and FedEx’s delivery networks were overwhelmed by the flood of last minute ecommerce shipments. SC Digest’s editorial staff went so far as to call it “a possible candidate for our list of worst supply chain disasters of all time.” That is most definitely an exaggeration, but the news media and bloggers had a field day covering the irate customers who were negatively impacted by it. In response, some retailers were even offering gift cards to appease them. The reasons for this public relations disaster were three fold. The first factor was the winter storms that created a backlog of packages earlier in the month. That backlog was not completely cleared until December 27. The second reason was the Internet retailers offering delivery before Christmas for last minute orders, some as late as 11:00 pm on December 23. Thirdly, a large majority of those shipments had to pass through the national carriers’ major air hubs in Louisville and Memphis. Instead of facilitating delivery, those hubs actually became chokepoints. They simply could not handle that massive spike in volume through a single location. And to be fair to the national carriers, that spike was as high as 63% on December 23. In the aftermath, there were reports that huge shippers, including Amazon, were looking into other options than UPS and
FedEx. There were even some articles written about them creating their own delivery networks. However, only a company the size of Amazon could even dream of putting together a delivery system of any size. So what can shippers realistically do to mitigate the risk of this happening again in 2014? The heart of the problem is that too many shippers are willing to risk service in exchange for the convenience of single sourcing their small package deliveries. But is that convenience worth the damage to their reputation? Or seeing the thousands of complaints on Yelp that will remain in cyberspace long after this Christmas season has passed? One way to avoid the pitfalls mentioned above is to augment the amount of parcel
That bonus is guaranteed next day delivery at Ground rates to Zone 4 destinations that are 500-600 miles from your DC. This means that next peak season, when Christmas is on a Thursday, a regional parcel carrier can pick your shipments up on Tuesday December 23 and deliver them on Christmas Eve just as they do the other 249 shipping days of the year. This will happen even if the pick-up point is in Boston and your customer is located in Washington, DC. In fact, to enhance their service offering (and your customer experience), some large regional parcel carriers are even providing Sunday (Ground) pickups with Monday delivery! This is especially helpful in years when there are fewer shipping days between Thanksgiving and Christmas. (In 2013, there were 17 shipping days in that time period and in 2014, there will still only be 18). One additional advantage of those next day Ground deliveries is that they stay on the GROUND. This is in stark contrast to last minute air shipments that have to pass through those huge air hub choke points (choke points that can negatively impact your deliveries nationwide). If you have a distribution center in sunny California or Florida, the deliveries with regional parcel carriers in those areas will not be delayed by blizzards in the Midwest. So now that the dust (or snow) has cleared from peak season 2013, it may be a very good time to look into multi-sourcing your small package deliveries in the coming year.
One additional advantage of those next day Ground deliveries is that they stay on the GROUND.
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carriers your company utilizes, especially during peak season. This can be easily done by adding regional parcel carriers to your delivery mix. All your eggs would not be in one basket and they can be effectively used to take the pressure off the heavy volumes that are given to the national carriers. All the large regional parcel carriers are modeled on the national carriers and in order to compete they must have the same track and trace capabilities as well as excellent service levels. For those shippers with multiple distribution centers there is an added bonus for those last minute peak season shipments.
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
MARK MAGILL, Director of Business Development, OnTrac can be reached at mmagill@ontrac.com or 818.482.0844.
APPLICATION ARTICLE
E-Commerce Shipping Study: 3 Findings That May Change Your Shipping Program You want to get your packages to customers as quickly as possible for the least amount of money. To help e-commerce businesses accomplish this, Stamps.com commissioned a research study to evaluate the three largest U.S. shipping carriers: FedEx, the U.S. Postal Service (USPS) and UPS. The study focused on three factors that are most important to e-commerce businesses: reliability, days to deliver and cost. What Stamps.com found may surprise you. Are You Watching Your Package Scans Per Day? (Your Customers Are) Today’s e-commerce customer has more access to package tracking and updates than ever before. All three shipping carriers give customers insight into when a package was shipped, where it is in the process and when they can expect delivery. The Stamps.com study measured “scans per day” as a way of examining shipper reliability. Stamps.com found that the USPS averaged more scans per day — 3.36 — than the UPS (2.47) and FedEx (3.21).
The Carrier That Delivers 100% of Packages in Two Days The e-commerce businesses that are growing are the ones getting packages to customers fast. The data from the Stamps. com study showed that USPS Priority Mail significantly outperformed both UPS Ground and FedEx Home Delivery in the number of days to deliver a package. The study tracked Monday shipments to collect data when the carrier had five business days for delivery. For Monday shipments, the USPS delivered 100% of packages within two days, while UPS and FedEx had only half the packages reach the same destinations within two days (50% and 58%, respectively).
How to Reduce Costs by $4.25 Per Package Shopping cart abandonment is an important concern for e-commerce businesses. Often, buyers are looking for little or no cost for shipping, and will always attempt to find other retailers that offer lower shipping rates. You need to stay competitive. The data from the Stamps.com e-commerce study showed the USPS had lower overall costs through all shipping zones. Assuming a 15% earned discount for UPS and FedEx rates in the 1 to 10 lbs. range across all zones, the USPS Priority Mail savings per package was greater than $3 on average. Interestingly, zones 1-4 had an increased savings of over $4.25 per USPS package compared to UPS and FedEx.
For certain packages, such as packages over 10 lbs, UPS and FedEx continues to offer the most competitive rates.
The Software That Brings it All Together So how do you easily access these lower USPS shipping rates, faster delivery speeds and detailed package tracking? That’s where Stamps.com comes in. Stamps.com provides the technology to seamlessly integrate USPS services into your shipping environment allowing you to access the lowest USPS rates with unprecedented speed, reliability and ease. Add to that the support you’ll receive from the award-winning Stamps.com customer service team and you have an easy, reliable way to add the USPS to your shipping mix.
To download the full report, visit www.stamps.com/whitepaper_parcel Rodney Small is National Sales Manager at Stamps.com, a leading provider of online postage, shipping software, services and developer solutions for Postal Service customers. He can be reached at 310.429.4069 or solutions@stamps.com.
SUPPLY CHAIN PIVOT BY ROB SHIRLEY
In 11 Years, It Will Be 2025 hange is accelerating as the web proliferates as a marketing, buying and measurement tool. Technology that is currently in the pipeline could make the rapid change we have seen so far pale in comparison: a. Enhanced use of robotics will save time and money in factories, warehouses and residences b. Driverless vehicles will reduce labor, reduce accidents and operate 24 x 7 x 365 c. Headway on reduction of petrol based fuels will decrease exhaust d. Longer battery life — will use less expensive power further increasing mobility e. Internet speeds at 100x faster than average broadband will be available in Austin this summer, with Google and AT&T competing head to head
f.
Growth of advertising on the web means less revenue for tv and print
While there is no doubt that innovation is happening, most of the supply chain will be only modified in increments. What is required for an order of magnitude type revolution in the supply chain is a frictionless energy like we saw on Star Trek. That is not on the near or midterm horizon. I do not believe Amazon’s claim of “Octocoper Drones” delivering in residential neighborhoods will ever occur on a real scale basis. Further, AMZN’s staggering P/E ratio of over 1400 is enough to keep me from buying its stock (look at FDX or GE as a comparative). Amazon is growing rapidly and investing heavily in R&D and advertising. It is also igniting discussion on how to compete in the retail and logistics marketplace. Our last article, What on Earth Is Going on in Retail?, created a tremendous
PARCEL media produces a variety of educational webinars. If you’ve missed these (or just need to view them again!) simply visit www.PARCELindustry.com and click on the webinar tab at the top of the page. Some recent webinars you’ll be able to view include: • How to take advantage of USPS rate cuts in 2014
level of conversation, emails, letters and comments. Volumes right before Christmas Day accelerated rapidly and weather got rougher. By far the most complaints were aimed at UPS, who admitted that its network was overwhelmed. I suspect that carriers are considering a peak season pricing algorithm that charges more for high demand periods. We certainly have seen this done by airlines, hotels and sporting events. There is a genuine need for retailers to utilize the inventory they have in stores for shipments vs. only selling to people who walk in the store and shipping only from central distribution centers. The costs are less, speed is faster and demand is high. One retailer has said it has $10 billion in inventory in stores, but all online orders go through distribution centers. Same day package delivery has its cool aspects and appears to be growing in demand, but it makes up a very small (less than one percent) piece of the whole delivery matrix of multiple overnight choices, second day and ground. Giving more expensive same day away cannot last for a significant period of time and the density, costs and fuel usage levels for residential are excessive. Listening to customer demand, offering value for the long term, superior customer service, smart use of technology, faster speed and strong human relations, in addition to managing by measurement of tactical results, will all be as critical to success in 2025 as they are right now.
• Return to sender: Minimizing the cost and effort of package returns • Reduce your shipping expenses by 15-30% right now!
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JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
ROB SHIRLEY is CEO of ExpresShip, a strategic consultancy in the global supply chain. Contact him at rsxpship@gmail.com or www.xpship.com.
Omni-Channel Fulfillment in the Changing Retail World Tips to streamlining your warehouse operations | By Chris Castaldi
C
ustomers demand an omni-channel shopping experience that allows them to order from anywhere at anytime. Retailers who want to compete must therefore be able to fulfill orders from anywhere to anywhere, whether it’s the consumer’s home or the retail store. Plus customers want their orders by the next day, or they will order products from someone who can meet their delivery schedule requests. This creates significant new demands on the retail supply chain. In the past, retailers built two types of distribution centers, one (or two) on the east and west coasts of the US to handle store fulfillment, and another to handle strictly e-commerce orders. These distribution centers were built to handle their own specific type of fulfillment and none other. The retail stores on the east coast were fulfilled from the closest DC, while the outlets on the west coast were fulfilled from a DC located in the western US. Fulfillment typically took one to two days, but stores in the Central US had to live with 3-5 day delivery schedule. If the retailer received an e-commerce order, regardless of the location of the buyer, that order was fulfilled out of the e-commerce-only warehouse. The consumer could be located next door to the west coast distribution center, but since he ordered his item online, it would only be shipped from the e-commerce DC, and
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he’d have to wait to receive it. This scenario was a more customer “no satisfaction” situation, than a customer satisfaction one. Today’s consumers are browsing and buying in brick-and-mortar stores, via mobile devices, on e-Commerce web sites, and sharing their favorite items across social networks. As a result, these savvy shoppers are expecting the same prices, products, shipping times, and offers regardless of the channel being used. Retailers need to get a handle on omni-channel fulfillment immediately as e-commerce orders grow. Brick-and-mortar retailers are embracing e-commerce as a valuable, and profitable, channel for growth. In the second quarter of 2012, the U.S. Department of Commerce reported that U.S. e-commerce sales reached $51 billion, and for the first time accounted for more than five percent of seasonally adjusted retail sales. This is a year-overyear growth of 15.1% and shows no signs of slowing. Retail Systems Research recently did a study on what retailers deem to be very important in regards to consumers and omni-channel fulfillment: } Empowering consumers to purchase, take delivery or return a product through the channels of their choice (79%); } Allowing inventory allocated for one channel to be used for fulfillment within another channel (67%); and } Leveraging product knowledge/information assets across channels (66%).
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
Omni-channel retailers need to change their distribution facilities to handle the new order of customer orders. Distribution centers (DCs) must now supply a mix of products to retail stores along with filling e-commerce customer orders. Omni-channel-enabled DCs allow retailers to take advantage of pooled inventory, which will reduce safety stock and inventory carrying costs. Stores can help to satisfy customer needs by improving inventory levels in response to forecasted demand to reduce the likelihood of out of stocks. Shipping direct from stores can help save on transportation costs, which is especially important as fuel costs remain high and show no sign of coming down. To enable ship from store and a myriad of other omni-channel fulfillment paths, retailers need to increase inventory visibility across all channels to ensure that each order is being fulfilled from the smartest location. Distributed order management is one potential solution to help use inventory availability to route orders based on business goals and customer preferences. The Men’s Wearhouse estimates that they save over 1,000 orders per day by leveraging inventory from other stores to fulfill demand when a local store is out of stock. Assuming a conservative average ticket of $50, this adds $18 million of top-line revenue. Omni-channel distribution facilities of today are designed to handle it all — store replenishment, e-commerce ful-
fillment, returns processing, specialty labeling, in-store pick-up, ship-to-store, ship-to-consumer, and product customization. As a result, retailers must turn to material handling equipment automation to meet these challenging demands to increase fulfillment rates, improve worker productivity, decrease out-of-stock inventory, and lower operating costs. Automating processes for replenishment, fulfillment, cross-docking, order management, enterprise inventory visibility, picking and packing, etc. are all keys to success for the omni-channel distribution environment. Many retailers may be best able to meet omni-channel fulfillment challenges by retrofitting existing operations or adding new processes and technology. However, very few existing distribution centers of more than a few years old are set up to accommodate the needs of an omni-channel distribution strategy.
}
} }
} } }
} }
Typical equipment used in omni-channel fulfillment: } Inventory management system that spans
the entire supply chain for achieving real-time visibility Distributed order management system to decide cost-effectively whether to drop orders into a DC, e-commerce fulfillment center, combination DC, or store to meet customer service levels Warehouse Management System Warehouse Control System to direct the flow of materials within the warehouse and communicate with all the material handling equipment Conveyors for moving products around the warehouse to appropriate locations Sortation units that deliver items to shipping locations Picking/Packing Systems for directing workers what to pick, how many, where to pick or pack, etc. Some DCs are starting to use robotic picking technology, too. Automatic Storage and Retrieval Systems (AS/RS) Miscellaneous: Robotics, goods-to-person, transportation management systems, RFID, equipment to apply labels to cartons, etc.
The process of setting up a strong omni-channel supply chain is a major undertaking for retailers, but those that fail to pursue omni-channel retailing and fulfillment have little chance of success in the new world of consumer expectations. Despite the challenges, retailers can’t afford not to work toward an omni-channel organization. As consumer expectations around cross-channel experience, assortment and fulfillment continue to grow, the only retailers able to meet these needs will be those supported by an organization designed with an omni-channel world in mind. Done right, the result is a win-win for distribution and supply-chain providers, retailers and consumers.
CHRIS CASTALDI is Director of Business Development, W&H Systems. Visit www.whsystems.com for more information.
By Brandon Staton
HOW THE GLITCH STOLE
CHRISTMAS (AND WHAT EVERYONE LEARNED)
I
t’s a question that has plagued humanity for generations: What would Santa Claus want for Christmas? And after a landmark surge in online commerce resulted in one of the most significant and widespread service failures to affect Christmas since the Grinch, we may be well on our way to finding an answer. While it’s still too early to know whether he might want more reindeer or just a bigger, faster sleigh, it’s safe to say that a shiny red drone seemed a lot more logical on December 25 than it ever had before. And given the meteoric rise in demand felt far and wide during the most recent holiday season, one can safely assume
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that carriers everywhere — especially those heavily entrenched in the retail sector — are all ears to even the most farfetched possibilities. 2013 was a banner year for the parcel shipping industry. While continuing to increase prices for services to all-time highs was nothing new, the Wall Street performance of the world’s two largest parcel shippers, UPS and FedEx, respectively, made for some very happy investors, some of whom are now likely millionaires. FedEx stock closed the calendar year 57% higher than when it started; its biggest single-year jump since 1989, back when its share price was a whopping $11.43.
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
UPS turned in its highest single-year jump since its stock went public in 1999. At close of market on December 31, UPS’ all-time cumulative growth was just shy of 50% — with 46% of that total coming in 2013 alone. But for all its successes relative to investors, the year, from its customers’ standpoint, was ultimately one to remember for all the wrong reasons. Just months after again taking their rates to new heights, a tectonic shift in online shopping orders (UPS said it had more than the 132 million it initially projected during the week before Christmas alone; more than it could fit onto its planes) resulted in an unspecified number of pack-
ages that failed to make service in time for Christmas, leaving retailers and carriers pointing fingers at each other and some of their customers empty handed. What 2013 made abundantly clear is that the future of parcel shipping is hazy. Both retailers and carriers say that they will make adjustments to ensure that similar problems are avoided next year. And while next Christmas seems a ways off, in terms of solving a problem of this magnitude, it might as well be tomorrow. This means changes — potentially large-scale ones — are on the way, and soon. Whether it’s as simple as retailers backing off those last-minute turnaround times, or as complex as carriers strengthening infrastructure enough to weather the next holiday storm, the implications are as uncertain as they are unprecedented. Made more difficult by the fact that the two so heavily rely on each other in order to make their own businesses thrive, an amicable solution thus will likely be a give and take between the carriers and consumers. With so much focus on cutting costs (through employee buyouts, fleet retirements, etc.) perhaps the carriers will put more focus on ensuring that they are in fact ready and capable of keeping up with the emerging trend of online shopping. According to an April 2013 study conducted by eMarketer, U.S. e-commerce sales are expected to rise by an average of 13.8% each year between now and 2017. Compounded, that’s about a 40% increase from where we are today. If you apply that percentage to the approximately 5.3 billion packages that FedEx and UPS ship each year, then it’s easy to see how difficult effectively handling such a shift will be (The good news is they have one extra day to figure it out in 2014, since Thanksgiving falls a day sooner (November 27) than it did last year). The bottom line, however, is pretty clear. As a shipper contracted with either major carrier, there are terms and conditions set forth and clearly defined within your agreement that contain guarantees based on the level of service in which you decided to ship your package. If your package is sent out Priority Overnight via FedEx or Next Day Air with UPS then (ab-
sent of a winter vortex in transit) it is to arrive no later than 10:30 a.m., so long as that package was tendered to the carrier within the terms and conditions set forth in your agreement. That leaves the burden of reliability on the carrier, a burden which is generally met with staggering efficiency. Make no mistake, what evidence we have suggests the service failures that occurred during the Christmas holiday were about as predictable as the apocalypse. And the one benefit to any problem is that it provides the foundation for improvement. Both UPS and FedEx have made their money and developed trust in large part by providing a service that’s so reliable that it’s often taken for granted. Therefore, the biggest lesson that a shipper can learn from the episode is as explicit as it is undeniably cliché: Expect the unexpected.
gible, soft-dollar benefit they can provide that will put your company in a position to compete in an increasingly challenging and unpredictable economic landscape. Studying your own information can provide insight into whether certain areas were more adversely impacted than others during the 2013 holiday season. Once you identify potential problem areas, the solution could be as simple as implementing language within the terms and conditions of your website checkout that notify customers that they reside in a potential problem area and thus limit expectations. Or you may take it as far as to utilize your web hosting platform to create parameters that set different ordering deadlines based on location to keep you customers in those areas from feeling singled out. In any event, the number of solutions that could become apparent from an internal investigation
What 2013 made abundantly clear is that the future of parcel shipping is hazy. In order to prevent service failures to your customers next year, it’s now more important than ever for companies to dive into their data to determine the behavioral trends of their customers during the holiday season. If your company has the resources, purge your shipping data (which you can obtain from your carrier) and perform an internal audit of your customers’ online characteristics and implement changes on the front end that will protect you in the event that you run into the otherwise pleasant problem of overwhelming demand. If such an initiative is too much for your own infrastructure, it might be time to give serious consideration to partnering with a third party that specializes in parcel auditing and carrier contract negotiation. Aside from the savings you will generate (which could be reinvested into solidifying your infrastructure or creating an actionable plan for more competitive peak-season promotions), enhanced visibility into your own data is another tan-
into your customers’ online behavior will put your business ahead of the curve and keep you protected from the potential of adverse conditions that are beyond your company’s control. Who knows if that’s what Santa wants next year, but I’ve heard assembly is easy (much easier than a drone) and the only returns should be pretty positive.
BRANDON STATON is the Marketing and Communications Manager for Transportation Impact, LLC, and First Flight Solutions, LLC, industry-leading parcel spend management firms and No. 547 on the 2013 Inc. 5000 and No. 183 on the 2013 Inc. 500, respectively. Brandon and the Transportation Impact team have helped negotiate small package contracts for some of the most well-known companies in the world, reducing their respective parcel shipping costs by an average of 22%. Brandon can be reached directly at 252.764.2885 or via email at bstaton@transportationimpact.com.
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
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RFPs for a
WMS T
o understand where RFPs for WMS solutions often go wrong, imagine for a moment you are on a first date set up by a friend. The friend has told you a little bit about your date for the evening — enough to get you to the meeting place — and you’re thinking this could be the start of something good. You meet up, sit down and try to strike up a casual conversation that demonstrates your warmth, charm and cleverness. But instead of engaging in a friendly dialog, your date pulls out a list of 100 generic questions off a dating advice website and starts interrogating you like
you’re a suspect on The Glades. Worse, most of the questions really seem to have nothing to do with getting to know you as a person — they feel more like they’re being asked so your date can simply check off the box to say he/she did it. Sounds ludicrous, doesn’t it? Or at least like an episode of Seinfeld. Yet that’s the approach many companies seem to take in preparing RFPs when purchasing a WMS. They feel like the more questions they ask — whether the questions are relevant or not — the better job they’ve done with vetting the candidates. The truth is more is not more. In fact often times more is too much. You can get so caught up in asking a lot of questions
By Dawn Jones and Dan Grimm
Making your first date a successful one
that you forget to dig deep on the priorities. Which means at the end of the RFP process you still don’t really have a good understanding of which WMS products are the best fit for your business. Just as peppering your date with a list of generic questions that generate non-committal answers doesn’t really give you insight into his/her character. As individuals who have been on both sides of the RFP equation, we’ve learned a lot about what gives an RFP real value. Here are a few suggestions on how to construct an RFP for a WMS solution that will give you information on which you can take action.
with a few words, really doesn’t tell you anything, and gives the responding companies the ability to give you the answers you want to hear. How does that help you narrow down your choices? Instead of developing generic questions (or pulling them from a general RFP template), take the time to think through what your business actually needs and then ask questions around those topics. Go for depth of answers, not quantity. The deeper the responding companies have to go into a topic, the more they’ll differentiate themselves — and the better you’ll be able to see how they think and how their solutions fit your organization.
The goals of a first date and an RFP are very similar — learn enough about the other party to decide if moving ahead is warranted. Be willing to meet with potential WMS suppliers first — We’re not sure why, but often companies believe the RFP development process requires utter detachment from the potential suppliers. That’s like trying to decide who to ask out on a dating site that doesn’t require personal profiles. Giving the suppliers an opportunity to come in and learn a little bit about your business and how it operates (if they ask) before responding to your RFP will help them develop more meaningful answers to your questions and actually speed the process. You never know — a couple might even self-select out if there isn’t a good fit, saving you the time and effort of going through their answers only to come to the same conclusion. Sure, it may add a couple of weeks to the process. But when you consider you’ll be living with your WMS for the next five to 10 years, a couple more weeks on the front end is worth the investment. Ask questions that require deeper answers — At the RFP stage, every contender’s main goal is not to be eliminated from consideration. Providing a list of questions that can be answered yes/no, or
Minimize the number of high-level or functional questions — The more high-level your RFP is, the more platitudes or marketing messages you’re going to get back for answers. Those don’t tell you anything; at the high levels, everything sounds the same. This is also true of asking a lot of functional questions. WMS systems have been around for a while, and although there are some differences between them, there are a great many similarities as well. It isn’t until you get past the core functionality that you can really start to differentiate. Two areas to focus on instead are implementation and support. Even at its most basic, WMS solutions are very complex beasts with a lot of moving parts. They can be difficult to implement, especially if you’re not deeply familiar with the technology, so you want to be sure the supplier you’re choosing has the knowledge and available resources to help you get it in place quickly and efficiently. And once it’s installed the complexities don’t stop, so you want to know there is a support organization with a proven track record of helping customers derive the full value from their investments. In the long term,
both of those areas will become more significant than any individual feature or feature set. You want a solution provider who will take the complexity out of the process and allow you to focus on improving your business. Ensure you have organizational and executive buy-in — By definition, a WMS will touch many functional areas within the organization. Because of this fact you want to be sure those areas have input into how the RFP is constructed as well as into the decision-making process. Among the areas to include are Warehouse Management (who has to live with it every day), IT (who has to implement and maintain it unless you go with a fully managed solution), Operations (who is responsible for how the WMS fits into the rest of the business) and business process decision-makers (who determine the workflows that the WMS is supposed to improve). You want to include Finance to ensure there is a budget before going through the process. And most of all you want to ensure there is executive buy-in at the C-level so you’re not just going through the motions before the project gets spiked. Building that team and getting the proper support ahead of time will help you avoid false starts and wrong turns, and ensure the WMS solution you’re aiming for is the one that does the best job of supporting the business at all levels. The goals of a first date and an RFP are very similar — learn enough about the other party to decide if moving ahead is warranted. On a date you’re looking for quality versus quantity in terms of answers to questions. The same should be true of your RFP. Take the time to put the RFP for your WMS together with the goal of gaining a deeper understanding of potential suppliers rather than simply checking a box in the process and you’ll be far more likely to find the best fit. It’s your best shot at living happily ever after.
DAWN JONES AND DAN GRIMM are with International Business Systems. Contact dawn.jones@ibs.net, 414. 308.3258 or www.ibs.net for more information.
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
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THE RIGHT STUFF: a Spotlight on SAP’s Shipping Technology By Joshua Riff
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id you know that your SAP ECC system comes loaded with a set of tools that connects you directly to parcel carriers such as UPS, FedEx, USPS, and DHL? Here we explore the SAP components that will have you shipping parcel and LTL straight from SAP in a matter of weeks, not months. In addition to the technology aspects of shipping, we’ll discuss business drivers and trends that are attracting companies to adopt SAP’s shipping solution. This information is useful for companies interested in using the Software as a Service (SaaS) shipping solutions offered by parcel carriers.
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The software delivery model used to create shipping labels and perform parcel tracking is changing rapidly. Over the last few years, all of the major small parcel carriers have made it possible to access their shipping services directly within SAP. The carriers publish standard XML templates which are used to facilitate simple, robust communication between their customers’ systems and their SaaS-based shipping application. Implementing a shipping solution in SAP means that you are essentially building an interface between your SAP system and the parcel carrier’s Web-based solution. Web-based solutions offered by carriers such as FedEx and UPS are
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easily accessed with tools found natively in SAP ERP Central Component (ECC). There are three primary building blocks in SAP which are used to leverage the carriers’ shipping services:
1.
Web services: Web services calls are a type of Remote Function Call (RFC) that allows your SAP system to interface with different software components over the Internet using XML & HTTP. This capability permits secure direct peer-to-peer communication between SAP and the carrier’s shipping application.
2.
Express ship interface (XSI): XSI provides a flexible platform to gather
the shipping data required by a carrier to produce a shipping label. XSI can be employed to generate shipping labels, bills of lading, air waybills and commercial invoices, as well as perform parcel tracking and proof of delivery in complex, high-volume shipping environments.
3.
Packing station: The packing station transaction in SAP is used to pack items from deliveries and shipments into shipping cartons, coolers, pallets and the like. All the hardware required to support shipping (laser printers, barcode printers, scanning devices, scales, etc.) is connected to SAP and made available in the SAP’s packing station. The packing stations are carrier independent; shipping labels for all of your carriers can be generated at one packing station.
Current Business Drivers & Trends Supported by SAP’s Technology Companies are showing increased interest in parcel and LTL shipping. This stems from a variety of motivations:
ously expanding their businesses into new geographies and channels.
} Extending beyond B2B into B2C: Many of the companies we speak to are traditionally B2B focused and are seeking to develop a stronger relationship with the end customer. There is a trend for companies to ship direct to the end customer and bypass distribution channels. Plugging SAP into the carriers’ SaaS shipping engine provides quick access to a fully integrated parcel and LTL solution at a low price. This helps to address the need for delivering today’s B2C experience, where consumers demand user-centric, anytime/anywhere information, and expect their experience on a mobile device or online.
} Increased emphasis on Reverse Logistics: A number of different customer return scenarios are supported with the SAP shipping solution. This includes: printing return labels alongside the standard outbound shipping label, scheduling a carrier to pick up returns at the customer’s facility, and requesting the carrier to email shipping labels to the customer, which can then be printed.
} B2C Experiences Set Expectations for B2B Customers: New customer expectations are inspiring innovation and driving competitive pressure in B2B industries like distribution and manufacturing. B2B business leaders are seeking to roll more B2C-like capabilities into the B2B user experience while simultane-
} Compliance and governance requirements to reduce waste and preserve the environment: When the waste electrical and electronic equipment directive (WEEE) was introduced to UK law in January 2007, focus turned to the reverse supply chain. With the intention of reducing waste and improving
Customer returns are increasingly prevalent for various reasons:
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
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environmental performance, WEEE attributed responsibility for the safe recovery and disposal of products to the business that places it on the market. } Pharmaceutical returns: Drugs need to be properly destroyed at a certified facility when they are recalled or become expired. These tend to be small quantities that lend themselves to parcel or LTL shipping by a carrier. } Introduction of extended returns policies due to competitive pressures. } Guarantees and the growth of online retailing, a sector in which returns typically range from approximately 5-35% for white goods and fashion items.
Evaluate and Select a Shipping Solution Take time to investigate the myriad of shipping applications on the market and select the one that is best suited to your company. Many alternatives to the shipping solution provided by SAP are available from third-party vendors. For most companies SAP’s solution has compelling advantages and benefits that sway companies to adopt it: } The key shipping components (XSI, Web services and packing station) are already bundled into SAP. These are mature, robust tools that have been available for many years and are commonly used by many companies. Furthermore, they require no additional licenses and are supported by SAP for bug fixes and upgrades. } It is fully integrated with sales, delivery, and shipment documents and logistics processes. Access to tracking numbers and other shipping details, including real-time parcel tracking, is available directly within the logistics documents. } It’s cost effective. By using functionality already provided by SAP, you can better leverage the investment that was already made in your SAP system. In addition, there are no subscription or maintenance fees charged by SAP or the carriers for this service. Parcel 24
carriers do not charge to use their Web-based shipping applications.
the carrier to an appropriate printer in the distribution center.
} The direct peer-to-peer architecture is fast and reliable; no middleware or additional hardware is required.
} Change leadership produces training documentation and delivered the training to end users.
For the most part, all shipping services offered by the carriers are available through SaaS. There are a few exceptions, however, so it is a good idea to ensure all of your requirements are met before undertaking to implement SAP’s solution. For example, FedEx IDD Surface (Transborder) and IPD, UPS Trade Direct, and real-time GPS tracking are not currently available through Web services.
} Primary activities for the Basis resource include activating ICM service HTTPS, applying SSL certificates for FedEx and UPS, creating RFC destinations for our scales, and adding the laser and bar code printers to the system.
Confirm That Your SAP Environment Meets Solution Requirements
} The network resource opened a port for HTTPS communication and added printers to the network landscape.
Check that your SAP system already has the tools required to support this solution. These tools are: } The Express Ship Interface has been available since SAP R/3 4.6.
} The SAP security person adds new transactions codes necessary to support this solution to existing roles.
} The network security resource verified that the HTTPS traffic with FedEx and UPS flowed correctly through the Web proxy server.
} SAP Enterprise Services provides your system with the capability to communicate directly with the outside world. This component was introduced with SAP R/3 5.0. If support for Web services is not included in your SAP release, then you need middleware, such as Business Connector or SAP NetWeaver Process Integration (PI) to translate data between IDOC and XML formats.
Augmenting SAP’s functionality by leveraging services provided by SaaS offerings are common and are by no means limited to shipping services. Faster deployment of functionality, increasing flexibility to react to changing market conditions, savings on capital expenditures, enabling business continuity and replacing on-premise legacy technology are all suitable reasons to choose web services to connect to SaaS offerings.
Implementation Resources
JOSH RIFF co-founded Blue Harbors Consulting in 2001 and currently acts as chief executive officer and president. In addition to providing clients with executive consultancy regarding SAP planning, implementation, and services, he leads Blue Harbors’ business planning and development initiatives. Prior to founding Blue Harbors, Josh held consultant, team lead, and SAP project management positions. With more than a decade’s worth of SAP consulting experience, he has completed a variety of high-visibility SAP projects for companies such as PerkinElmer, McKesson, Barr Pharmaceutical, and Seminis. Josh has a bachelor of arts in English literature from the University of New Hampshire and earned a certificate in materials management and procurement from the University of California, Berkeley. You may contact Josh via email at Josh@BlueHarbors.com.
Implementing SAP’s shipping solution is a team effort requiring a group of people with a broad spectrum of technical skills. Here are the high-level responsibilities of each core team member: } The logistics functional analyst’s primary job is to identify the data required by each carrier, set up XSI and fit the solution into existing logistics processes. } The developer is responsible for setting up Web services, pulling together the data needed to create a shipping label, and building out the printing framework to direct images received from
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
What the USPS Shipping Services Pricing Changes Mean to Commercial Shippers By: Gordon Glazer
E
very time the USPS announces rate changes, all the stakeholders come out of the woodwork, with many of them bemoaning the increases and how it will impact their operations. Relax! Take a deep breath. All told, this rate change will have minimal impact to most; favorable impact to some; and not so favorable, but tolerable, changes for others. The positive outcome is that it motivates shippers to evaluate their processes and take action on the many strategies available to lower their costs on small parcel logistics.
HERE ARE FIVE TIPS YOU CAN USE TO REDUCE YOUR PARCEL EXPENSES: 1. Modal Optimization: Restructuring business rules to route packages by cost of transit and service times. 2. Reduce air space when possible to take advantage of Flat Rate, Regional Flat Rate and Cubic Priority Mail offerings. “If it fits, it ships.” 3. Work with a parcel consolidator pro26
gram that has special NSA pricing that: } allows you to participate in Cubic pricing tiers. } provides an extra $50 in free insurance. “CPP” and “NSA” customers receive $100 per package while “Base” customers get $50. } has no annual commitment — avoids the worry of paying the difference, a very real concern! } allows you to ship 14-, 15- and 16-ounce packages at the “Plus” tier for First Class Package Services. Without “Plus” pricing, packages over 13 ounces must go at the more expensive Priority Mail rate. 4. Enable the customer to make a shipping cost decision based upon time of transit, not specific Carrier Service mode. Use a carrier management system to determine the lowest cost based upon dimensions and weight/zone that includes your negotiated rates with (FedEx and UPS) ancillary costs considered. 5. Consider working with a third-party organization to help you both modally optimize and negotiate best in class
JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
carrier contracts, while right sizing the “Earned Discount (Portfolio) Incentive Tiers” to reflect the modally moved volume to lower cost carriers.
PRICING CHANGES SUMMARY } Modest increase to Priority Mail Express, 3% } Priority Mail — No increase on the weighted average of weights, zones and options. } Parcel Return Service +3% } First Class Package Service +5% } Parcel Select (only non-contract volume impacted) +9.2% } New Zone 9 for “Freely Associated States” (Micronesia, Marshall Islands and Palau) } $.20 Surcharge for not having an Intelligent Mail Parcel Barcode (IMpb)
PRIORITY MAIL EXPRESS (FORMERLY EXPRESS MAIL) } Average Changes: Retail + 3%, Base + 2.9 % and CPP/(”Plus”) +.6% } CPP Weight and Zone decreased — 1% } CPP Flat Rate pricing increased + 15% } 10:30 am delivery option (add $5.00)
} It is notable that there is a significantly higher increase for deeper entry. } Destination entry for: • DDU + 8%, • DSCF + 5.6% • DNDC + 5.1% } Non Destination Entry + 5.9% } May make sense to comparison shop between carriers as this segment is very competitive between carriers and real net pricing is based upon negotiation skills.
PARCEL SELECT LIGHTWEIGHT } Most commonly used by private consolidators like FedEx SmartPost <1Lb , UPS SurePost <1Lb, UPS Mail Innovations, Newgistics, OSM to name a few. } These changes primarily impact residual volume as the major private consolidators are under contracts unaffected by this change. Doesn’t mean they didn’t raise their prices! For 2014, FedEx SmartPost and UPS SurePost raised their pricing 7.1%. } It is notable that there is a significantly higher increase for deeper entry. } May make sense to comparison shop between carriers as this segment is very competitive between carriers and real net pricing is based upon negotiation skills.
PRIORITY MAIL
PACKAGE RETURN SERVICES
} Reduced the combination threshold to participate in the CPP (Plus) pricing to 50,000 units per year (was 150K for Cubic and 75K for weight/zone). } Many of the rates were reduced for Cubic and weight/zone products and only slightly increased for Flat Rate options. } This should make this popular segment even more competitive, considering the anticipated announced 4.9% Ground increases from the private carriers (UPS, FedEx). In the 1-10 weights, their increases are over 7%!
} Average increase 3% } It is notable that there is a significantly higher increase for retrieving packages deeper into the package stream. • RNDC, RSCF and Full Network + 0% • RDU +5.7% } There are several programs available directly from the USPS, and now you can also leverage Scan, Trigger Pay from a third-party discounted program that can leverage NSA discounted outbound rates for the return trip. Savings up to $2.00 per package is common.
PARCEL SELECT
FIRST CLASS PACKAGE SERVICES — PARCELS
} Most commonly used by private consolidators like: FedEx SmartPost, UPS SurePost, Newgistics or OSM } These changes primarily impact residual volume as the major private consolidators are under contracts unaffected by this change. Doesn’t mean they didn’t raise their prices! For 2014, FedEx SmartPost and UPS SurePost increased 1-9 lbs 7.3%.
} Remains the best value for under 1 LB } No change for CPP pricing, primarily used for 14-, 15- and 16-ounce parcels } Base pricing increase on average 4.7% but only 1.5% for the more common weights.
INTERNATIONAL
} PMEI (Priority Mail Express) + 1.3% } PMI (Priority Mail International) + 1% • Both PMEI and PMI offering new Flat Rate options } IPA (International Parcel Airmail) — 2.5% } ISAL (International Surface Air-Lift) — 2.9% } IPA and ISAL notables: • Direct Country min reduced to 2 Lbs • Flats min weight reduced to 17.6 oz • Package min weight increased to 4.4 Lbs • 14 or 20 rate groups — now include Shape Based Pricing • Permanently suspend service to Cuba, Iran, North Korea, Sudan, Syria } Airmail M-Bags + 2.9% } FCPIS (First Class Package International Service) • Retail + .8% • No Change for Base (up to 14% lower than Retail) or Plus (up to 20% lower than Retail) Commercial shippers who are smart enough to use the USPS should feel good with their decision as their savings will increase this year compared with the alternatives. Savvy transportation directors will continue to explore the many options to reduce their parcel spend while improving the customer experience.
GORDON GLAZER, CMDSM, CMDSS, MDP, MDC is Director of Strategic Partnerships at Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Gordon is a postal industry veteran with 27 years’ experience and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.724.0457 or gordon@shipware.com.
Want the complete summary of these changes along with the charts? Just scan the QR code below or check out the article online, which can be found in the January/ February 2014 issue in the content library on www.PARCELindustry.com.
} GXG Average + 3% JANUARY-FEBRUARY 2014 | www.PARCELindustry.com
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2013 PARCEL FORUM RECAP 2013’s PARCEL Forum was a complete success. I know, I know, I say that every year in our post-show wrapup, but hey, I can’t help that we just keep getting better and better. This year’s show broke records for both attendance and exhibit space — quite the feat! 28
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First off, people seemed to love our new location. For over the past decade, we’ve been putting on the forum at the Hyatt Regency O’Hare. That was a great space for our show, very convenient to the airport, but people’s one (and often only) complaint was that there wasn’t
enough to do in the area after hours. Ok, ok, fair enough — telling a co-worker you’re going to a show in Rosemont, Illinois doesn’t have quite the same jealousy-triggering factor as telling them you’re going to Chicago for the week. So this year, we were excited that our forum was right in the heart of downtown. What a city! Add in the beautiful, not-a-cloudin-the-sky fall weather, and all attendees and staff were in for a treat. So you might be thinking, “Great! I can’t wait to attend next year; I love Chicago!” Well, hold your horses just a bit. The biggest news that everyone was talking about this year was announced by yours truly during our opening day keynote lunch, and that news is — are you
PARCEL FORUM ’13 FACTS & FIGURES 83 Exhibitors (a record 22 first-time exhibitors) 502 Verified Attendees
“We found the quality of educational sessions and attendees to provide a fantastic means of talking to real decision-makers who came to the Forum with live funded Ed Romaine, CMO VP Marketing, projects and needs.” — Integrated Systems Design tend. On the odd-numbered years, the forum will continue to be held at the Hyatt in downtown Chicago. In the even-numbered years, the forum will be held in different locations around the country. We at PARCEL and PARCEL Forum are excited about this new development!
We’d like to say a huge thank you to our corporate sponsors: USPS, Pitney Bowes, Endicia and PITT OHIO. Without them, such a show would not be possible. ready? — the 2014 PARCEL Forum is not going to be in Chicago. Heck, it’s not even going to be in the Midwest; it’s going to be at the Gaylord Texan in Dallas, Texas! We hope to see you there, September 29-October 1, 2014. EventEvolution, the producer of the PARCEL Forum, wanted to expand the reach of the forum in order to make it easier for many of our subscribers to at-
But back to this year’s show. We had a variety of new sights on the exhibit floor. PARCEL Forum partnered with Susan Rider of Rider & Associates to launch a new Warehousing Operations Pavilion, where attendees were able to meet with select companies that focused on WMS, pick-tolight, material handling, conveyors/sorters, voice-directed fulfillment and overall distribution center/warehouse design. This new
addition to the show was very popular and will be a staple at our future forums. During their time in the exhibit hall, attendees were also able to visit the very popular Regional Carrier Pavilion. The RCP showcased 14 regional carriers and continues to be one of the highlights of the show. The sessions were a big hit as well. The conference featured four pre-conference tutorials that covered the gamut of topics including Carrier Negotiations, Transportation Legalities, Distribution Center Efficiencies and Operating in an eCommerce Environment. Additionally, the general conference program included 45 sessions, in six tracks, over two days, focusing on Transportation, Technology and Operations. So you can see why we are proud of the results of this year’s forum, and why we’re already counting down the days to September 29. Hope to see you all there!
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WRAP UP BY MICHAEL J. RYAN
What’s Next? he clatter of the “peak” season noise is starting to simmer down. This past holiday season can be blamed on everyone. The major carriers (FedEx and UPS) have developed highly efficient networks with millions of dollars of advertising behind them. This has created the perfect storm… I can order my Christmas gifts at the last second, and they will get to me on time. This was unfair to the carriers. They put extensive research and analytics behind each peak season, but no one can handle a spike like they were handed. However, I’m sure they will do some different planning for this year in order to handle it. I do believe that the consumer needs to play more fairly in this equation. First of all, if you are waiting until the last days of the season, you might get some last second bargains but your selection will not be as good. I would recommend that all e-commerce shoppers try to plan their purchases a little earlier this year… you won’t disappoint your loved ones that way. By the way, Santa asked me to share this message with you. He takes a bad rap in this deal too. Let’s talk about something more important: What’s next in the parcel world?
It is truly building a world class e-commerce network and is shaping the future of e-commerce. It will be very difficult for anyone to match this network. Amazon has been working on this for over 10 years. It really doesn’t need drones to be successful. However, it may change the classical way of just using FedEx and UPS. I believe the local courier companies and regional carriers will become the norm for Amazon.
looked at the USPS as an option to your parcel program, I would highly encourage you to do so. The US economy will continue to grow in 2014. This will be a good thing for all parcel shippers. This is the right time when things are going well to start looking at different options in the marketplace. You may want to put some pilot programs on your business plan this year. I’m not sure about those package
Shipping software enables the carrier decision process to happen in nanoseconds. This will make shippers more efficient in their carrier and service selection.
DRONES: I must say that Amazon’s drone promotion was ingenious! It had everyone talking about the company at the busiest e-commerce time of the year.
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TECHNOLOGY: There will be an increase in the use of third party shipping software by many shippers. This technology will allow companies to optimize their shipping options and cost. Shipping software enables the carrier decision process to happen in nanoseconds. This will make shippers more efficient in their carrier and service selection. USPS: The USPS Priority Mail service is on fire. This is becoming the new challenger brand for FedEx and UPS. The shipping and packages segment of the USPS grew to $12.5B in 2013 and had an eight percent increase in revenue. It is truly a potential carrier choice for all size shippers. The small- and medium-sized shippers can set up accounts with Stamps. com or Endicia or through other strategic partners with the USPS. If you haven’t
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carrying drones but I am sure there are other options in the market to enhance your parcel shipping program.
MICHAEL J. RYAN is the Executive Vice President –Parcel Solutions at ProStar Logistics and has over 25 years experience in the parcel industry. He can be reached at 708.224.1498 or Michael. ryan@prostar.com.