PARCEL
NOVEMBER-DECEMBER 2014 www.PARCELindustry.com
TOP 10 MISTAKES shippers made in 2014. Don’t make them in the new year! Page 18
4 STEPS TO PREPARE
for the 2015 DIM weight change Page 7
4 FACTORS TO UNDERSTAND
when considering packaging automation. Page 24
SHIP-FROMSTORE: the new reality? Page 28
PARCEL
CONTENTS
NOVEMBER-DECEMBER 2014 | volume 21 | issue 7
Features
Departments 06 Editor’s Note
Ship-from-Store: The New Reality?
By Amanda Armendariz
07 Transportation ABCs 4 Steps to Prepare for the 2015 DIM Weight Change
By Thomas Andersen
08 Spend Perspectives
Posturing for Success in 2015 By John Haber
18 Top 10 Mistakes Parcel Shippers Continue to Make in 2014 What it’s costing you & how to fix it! Part 2 By Rob Martinez
10 Operational Efficiencies Connecting and Learning By Susan Rider
11 Supply Chain Pivot
Containers Are Like Macro Parcels By Rob Shirley
12 Ship Right Sharpening Your Shipping Strategies in 2015 By Christoph Stehmann
22 It’s All About Size
A look at how dimensional pricing and volumes of single packages will affect both small and large shippers in 2015.
By Tom Nightingale
24 Top 4 Business Factors to Think About When Considering Parcel Packaging Automation
14 PARCEL Counsel
The Five Most Important Things to Know About the Laws Governing the Supply Chain: Part 2
By Brent Wm. Primus, JD
By Philip McAndrew
Application Articles 09 Kewill
Business Logic to help you avoid the holiday debacle
26 PARCEL Forum ‘14 Dallas Adds Some Giddy-up! By Amanda Armendariz
28 Ship-From-Store: An
Interesting Wrinkle in the Supply Chain
By Andrea Obston
4
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
PARCEL president chad griepentrog publisher marll thiede editor amanda armendariz
[ amanda.c@rbpub.com ]
Audience Development Manager rachel chapman [ rachel@rbpub.com ]
marketing cierra bauer creative director kelli cooke advertising ken waddell
[608-442-5064 ] [ ken.w@rbpub.com ]
2901 International Lane Madison WI 53704-3128 p: 608-241-8777 f: 608-241-8666 www.PARCELindustry.com
PARCEL (ISSN 1081-4035) is published 6 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2014 Š 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.
EDITOR’S NOTE BY AMANDA ARMENDARIZ
Ship-from-Store: The New Reality? n this issue of PARCEL, we have a great feature on the new ship-from-store trend, where a retailer will ship an item to a consumer directly from a brickand-mortar store location, instead of from a distribution center. There are many advantages to this model; namely, if a package is shipped to me from the store two miles away, it will get to me a lot faster (with less likelihood of damage or loss) than if it is coming to me from a distribution center hundreds of miles away. The article we’ve included provides an in-depth look at this trend, so if this is something your organization has been considering implementing, take a look. I have to say, I also like that the ship-to-store trend is growing in popularity. Many retailers allow you to ship something directly to a local store for free, and it’s something that I have taken advantage of many times. I like saving that seven to ten dollars on shipping each time I order something, and since I’m usually in the neighborhood of those stores anyway, it’s not any hassle to swing by and pick up my purchases. This can also be a great profit-booster for many stores; when I recently went in to a store to pick up some of the furniture and decorations I had bought for our new home, they gave me a coupon for 15% off—good only that day—and said they’d be up with my purchases in about 10 minutes. During the 10 minutes I was waiting, I found quite a few items that were just what I had been looking for, and since I had a coupon, I figured, why not? By not charging me the 7.95 for shipping and having me pick up the items in store instead, the company encouraged me to spend an extra $50. Not a bad strategy! It’s those companies who come up with this outside-the-box thinking (no pun intended) who will succeed in 2015. With the new dimensional weight rules going into effect shortly, not to mention the par-for-the-course annual rate increases, shippers are going to need to constantly be on the lookout for new strategies and ideas to separate them from the rest of the pack. That’s what we at PARCEL are here to help with, so stay tuned next year; we’ll keep you updated on everything you need to make your small shipment process the most effective.
Are you signed up for our e-newsletter? If not, what are you waiting for? As of press time, these were some of our most popular articles from recent e-newsletters:
• Planning for Returned Purchases this Holiday Season • Seven eCommerce Holiday Fulfillment Mistakes and Solutions • The Rewards (and Potential Risks) of Target’s Free Shipping Holiday Promotion To get great articles like these emailed to you on a monthly basis, just scan the QR code above, or go to www.PARCELindustry.com and click on the “Newsletter” tab a the top of the page.
Thursday’s Tip
Have you signed up for our Thursday’s Tip feature yet? If not, you’re missing out on some great information emailed to you every week! Don’t worry, we know you’re busy, so these tips are brief and easy to read — but yet much-needed information for any transportation professional! All you need to do is sign up for our e-newsletter and you’ll get this information emailed to you the third Thursday of the month (plus an occasional extra one when we have some pressing news!).
CONNECT WITH US FOLLOW @ PARCELmedia Join PARCEL Magazine Group
6
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
TRANSPORTATION ABCS BY THOMAS ANDERSEN
4 Steps to Prepare for the 2015 DIM Weight Change ost of us have seen the footage of the UPS or FedEx guy tossing a package over a fence or onto someone’s porch. In fact, if you search “driver throws package” on YouTube, you’ll get approximately 115,000 results, the majority of which feature the UPS or FedEx driver as The Villain. Although the majority of shipments are not treated that poorly, it’s likely that a large percentage takes some level of abuse that’s much greater than we expect. It’s challenging to find comprehensive and reliable statistics about the amount of wear and tear the typical UPS and FedEx shipment endures. A few years ago though, Popular Mechanics decided to “test” a few shipments to determine the external pressures that a shipment endures; specifically measuring acceleration, orientation and temperature. A data logger with vibration sensors was built and placed into a shipping box, and then shipped a dozen times, split between UPS, FedEx, and the USPS. The box was shipped from New York and returned to New York, with stops in Santa Monica, CA and Austin, TX (three legs). The following were the results:
FedEx
UPS
USPS
Flips
7.0
4.0
12.5
Spikes
3.1
2.0
0.5
Temp (High)
77.46
77.98
79.30
Temp (Low)
51.45
51.18
47.44
DEFINITION: Flips = Position changes resulting in the package over or onto the side Spikes = Impact resulting in registering 6 g’s (equivalent to a 2.5 foot drop) Popular Mechanics mixed up the service levels and applied some variations. One interesting factor was that shipments that were marked “Fragile” or “This Side Up” received a greater amount of abuse than those that were not marked. Although four shipments per carrier is a small sample set, this “test” provides an indication of the amount of abuse that parcel shipments often endure. With the changes to dimensional weight practices starting in just a few weeks, it’s causing many shippers to reduce package sizes and minimize dunnage in order to keep costs in check. This is a critical time for shippers to perform a comprehensive analysis and understand the impact of the changes to dimensional weight practices. If proactive action is not taken, it will not only impact costs, but it could lead to increased customer service issues, as a result of the product not being protected during the shipping process. The following are immediate steps that can be taken to prepare for the change: 1. Gain visibility to package dimensions and weights. This should be evaluated at a shipment level, since averages can greatly dilute the results. 2. Measure the impact of the dimensional weight factor for each service level to determine the anticipated dimensional weight (billable weight) versus actual weight that can be expected, effective in 2015. Review
the cost implications that are associated with the variances. 3. Analyze the opportunities for making changes to common box sizes or packaging, in order to comply with new dimensional weight practices. Any changes that can be made internally will improve your position to have productive discussions and negotiations with the carriers. 4. If your products do not support making changes to shipping boxes, request a reasonable dimensional weight factor or an extension of the current 5,184 (3 cubic foot) practices. Some valid reasons include the following: a. Size restrictions b. Increased possibility of damage c. Time constraints to make the necessary changes Don’t depend on the carrier to provide an assessment of the financial impact of any upcoming changes. The carriers typically base their analysis on averages and the results are usually highly inaccurate. The challenge for many shippers remains how to continue to be competitive with shipping rates, while minimizing damages, so that customers have a great experience and return for their next purchase. Proactive action, business intelligence and an open line of communication with your carrier(s) are great starting points.
THOMAS ANDERSEN is Partner / Vice President of Supply Chain Service for LJM Consultants (www.myLJM.com), a leading small parcel auditing and contract negotiating firm. Thomas has more than 15 years logistics and supply chain experience. To speak with him, please call 631.844.9500 or email tandersen@myLJM.com.
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
7
SPEND PERSPECTIVES BY JOHN HABER
Posturing for Success in 2015 he year began with inclement weather shutting down distribution hubs and transportation lanes. This shut down caused inventory to back up across transportation networks impeding inventory replenishment after the holidays. Shortly thereafter, FedEx announced plans to apply dimensional weight calculations to Ground shipments less than 5,184 cubic inches. As expected, UPS announced a similar policy change for 2015; however, the USPS and most regional carriers are not implementing new DIM measurements. The new rating system goes into effect in January 2015 and forecasts estimate this price increase may impact over 30% of Ground packages that previously avoided dimensional weight pricing. The majority of these have actual weights of less than five pounds. The cost implications for high volume shippers are huge, particularly those within e-commerce channels. Could this spell the end of “free shipping”? In addition to the changes in DIM pricing, the two major parcel carriers are implementing standard tariff rate increases of nearly five percent. With the ILWU & PMA West Coast Port Contract negotiations continuing into mid-November and no agreement in sight, the uncertainty of moving goods inbound to US ports intensifies. Ports across the US as well as across the northern and southern borders are experiencing major delays. These disruptions within the supply chains have forced shippers to turn to more expensive solutions such as air freight. Although the railroads announced they are prepared for first quarter 2015, memories of first quarter 2014 still linger. Despite their 8
announcements, many railroads are still struggling with service delays and increased tonnage. This will likely continue as demand for intermodal services grows thanks to tightening trucking capacity due to driver shortages and regulatory requirements. And finally, lest not we forget the Chinese New Year, a period in which manufacturing activity shuts down for almost a month. In 2015, the holiday takes place on February 19, which means the need for inventory replenishment will be required before the holiday. There are many concerns surrounding the readiness and capability of US supply chain networks to handle this demand. With so much uncertainty going into the New Year, companies need to evaluate their distribution models, review their transportation agreements, and reinforce a culture of strategic planning and forecasting if they want to efficiently move goods through the supply chain, while controlling costs. EVALUATE YOUR DISTRIBUTION MODEL By undergoing a thorough evaluation of their distribution models, companies can find ways to cut costs while increasing efficiencies. Your evaluation should include an analysis of shipping lanes, distribution centers, modes of transportation, service levels and carriers being used to move, store, and replenish inventory. Distribution channels are rapidly changing and if you are doing things because “this is the way we have always done them” then you are operating in a precarious environment. REVIEW YOUR TRANSPORTATION AGREEMENTS Avoid the standard practice of price benchmarking when reviewing your transportation agreements by using a cost based approach. Understanding your unique
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
shipping profile and cost drivers allows you to build a strategy that enables you to negotiate better terms with your carriers. Cost modeling focuses on measuring specific shipment cost drivers, rather than solely evaluating what other companies are paying for shipping. It is a best practice that will enable you to build a strong business case and a strategy for negotiating best in class agreements with your carriers. IMPLEMENT A CULTURE OF STRATEGIC PLANNING AND FORECASTING. To engage in strategic planning and forecasting you need to build a single view of spend data that allows your organization to fully evaluate your transportation environment. This will increase visibility and enable you to forecast with greater accuracy. By carefully evaluating your transportation data both internally and externally you can create transparency and establish a strategic plan that cuts unnecessary costs. Following these guidelines enables you to build a forecasting model that’s dynamic and can be evaluated on a frequent basis. As is the case with nearly every year, the 2014 shipping landscape was filled with challenges, many unforeseen. Recognizing how these challenges impacted your business will help you avoid similar pitfalls in 2015. Purposeful evaluation, review, and implementation of your strategic plans can posture you for great success and cost savings in 2015 and beyond.
JOHN HABER is an expert in shipping, freight and transportation spend management. In his current role he provides the vision, and the execution know-how, that helps companies save 10% to 20% or more in logistics spend. Contact him at jhaber@spendmanagementexperts.com.
COMPANY PROFILE
Kewill Configurable Business Rules: Business Logic to help you avoid the holiday debacle The holiday rush is about to start, and the ubiquitous use of technology to purchase gifts, in addition to consumers’ desire to get what they want, when they want it and how they want it, pushes retail/ecommerce organizations to their limits. Your organization has been working over the last 10 months to get shipping systems tuned up, implement new business rules and work across the organization to align strategies. This might include employing consultants, which puts your organization at the mercy of outside resources to ensure you are ready. Do you know how you will measure up? Organizations are in lock down for 2014, but it’s not too early to begin thinking about future enhancements and technology updates for 2015. Some issues to examine are: 1. Understanding which carriers make the most sense in terms of cost and time in transit 2. Ensuring your crews are trained, knowledgeable of SOPs, packaging requirements, and labeling requirements 3. Considering how a multi-carrier shipping application can help the planning and execution during peak season 4. Considering how ERP and/or Order Management System integration along with upstream rating can improve forecasting and eliminate blind spots. Kewill Flagship is an enterprise class multi-carrier shipping management system that supports complex, high volume, multiple locations, and international and domestic shipping. Flagship can be used to provide rating, export compliance, and multi-carrier carrier compliant labeling and leverages the power of integrated modules including a Configurable Business Rules Module (CBRM) which allows you to easily adapt your shipping processes by setting up and changing business rules without relying on outside consultants. With CBRM you create business rules on the fly, make changes in real-time, incorporate JAVA script to extend the reach and functionality of them and to handle the complex business logic. Using multiple carriers and services, shipping on behalf of customers, and/or handling complex products that require specialized handling, all create complexity that needs to be managed effectively via “decision trees” that ensure the right process is followed in the right circumstances. These simple, easy to access business rules enable you to proactively manage this year’s holiday shipping strategy.
For example, as the Christmas holiday gets closer, you can implement a rule to ensure products ordered on a certain date make to it to the customer on or before December 24. With CBRM, you can implement a set of rules to change the carrier and service type to 2-day shipping for all orders going out on December 21 and have that rule expire on December 22. You could then implement a new rule to have packages shipped out next day to get to the customer by December 24. The CBRM can easily and quickly be modified; resulting in better customer service, reduced costs and improved delivery times while meeting all necessary regulatory and commercial compliance regulations. As you start to think about your parcel shipping strategy for next year, Kewill Flagship and Configurable Business Rules Module can help: • Reduce costs • Create, manage and maintain all the rules in-house by a business analyst • Reduce reliance on outside consultants • Improve supply chain agility • Make rule changes quickly to respond to market or customer demands • Differentiate between local, domestic and international shipping • Apply rule changes on a temporary basis — holidays or extreme weather • Provide flexibility and control over your shipping processes The opportunities are limitless and most importantly they don’t require any coding and they are easy to set up and deploy. To learn more contact Kewill…
www.kewill.com
OPERATIONAL EFFICIENCIES BY SUSAN RIDER
Connecting and Learning his past PARCEL Forum was an excellent opportunity to connect with peers experiencing the same challenges and to learn the latest trends, information and concepts. With the floor buzzing about “DIM Weights” and the exhibitors offering their solutions, this year’s PARCEL Forum was full of valuable information and tidbits. The tours were some of the best ever and an excellent opportunity to see three first-class operations and how they achieve excellence. The day was action packed with much ground to be covered. The first stop was Alliance Logistics Center and the JCPenney highly automated facility. Kenny Moreno was our gracious host and conducted the organized tours across the facility. After the tour, Moreno touched on how the facility accomplishes the throughput. He said it can be directly attributed to “building a culture of taking pride in what we do.” He also stated, “It is important to know everyone by name, treating your team right and giving them a fair wage.” The facility is like visiting the Disney Land of warehouse and distribution. AGVs (Automated Guided Vehicles) do much of the transport of pallets in and out of functional areas. Like most high volume facilities where you see a lot of forklift traffic, the AGVs allow JCPenney to keep it to a minimum. The facility also has ASRS (Automated Storage and Retrieval Systems) that automatically store and retrieve items to be picked. The facility has posted in common areas their rules to live by (“The Rules of the Road”). It’s no wonder the first rule is, we are one team. 10
The next tour was to Tech Data and our tour guide was Derick Fluker, Logistics Center Director. The Tech Data facility was efficiently run and it was also obvious there is a concentration by the company to distribution success. The motto posted, “The Difference in Distribution.” Tech Data has its own version of the rules of the road in supporting teamwork in their facility, narrowed down to six critical topics: Be the Difference Integrity/Respect Teamwork
Partnership Passion Ownership
The facility had miles and miles of conveyor and also housed Tech Data’s national returns center. The almost 600,000 square foot facility seemed to run smoothly and effortlessly, which is a compliment to the leadership in this high volume facility. The third tour was arranged by Brian Barker and his colleagues at AFS and was a back door tour of the Dallas Cowboys AT&T Stadium. Everything was Texas-sized! It was very interesting how the facilities manager makes sure all the fans get packed into the stadium on game day and the shops have the right product at the right time. A possible logistical nightmare, operations seemed to run very smoothly, as you might guess. Teamwork was a word thrown around once again. The facilities manager said he “doesn’t worry about the pizza and refreshments stands, the souvenir shops or the VIP suites.” His team members know what they need to do and they just get it done. With the world’s largest retractable roof (a process that only takes 12 minutes) the stadium is best known for football games but has also been the chosen site for well-known concerts.
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
The most exciting and famous feature with the group was the world’s largest HDTV. The center-hung video board is composed of four display screens (two facing the sidelines, measuring 160 feet by 72 feet, and two facing the end zones at 53 feet by 30 feet), weighs 600 tons and is suspended 90 feet above the field. The three very different tours all had one common element. It’s not so much the equipment, the design or the latest hardware. It’s the people that get the parcels out the door, the people that make sure everything is in sync with the day to day operation. The people are the most valuable asset in your facilities. It reminds me of several years ago when Wal-Mart was a customer of mine. People would ask, Wow, what does their distribution center look like? My answer was always the same, very much like many others but there was one thing that every Wal-Mart DC manager focused on and that was EXECUTION. Without your best asset, your people, on board with passion it’s hard to execute.
Read more on the PARCEL Forum; check out page 26! That’s why kudos go to every company that invested in their logistics professionals to attend this year’s PARCEL Forum. There was so much to gain and to take home to be applied in each operational facility. If you have some ideas or want to get specific information on any topics, drop a line to the planners of the event and they will make it happen.
SUSAN RIDER, Supply Chain Consultant, Executive/ Life Coach can be reached at susanrider@msn.com.
SUPPLY CHAIN PIVOT BY ROB SHIRLEY
Containers Are Like Macro Parcels he PARCEL Forum in Dallas was excellent, and it is impossible to exaggerate the impact of meeting old and new contacts. I have been thinking about the “origins” of parcels and packages before they arrive in warehouses. If they originate outside of the USA, there is a strong possibility that they travel in a container first on the ocean, then by rail and finally by truck. They are then broken into separate pieces and placed on warehouse shelves. I was particularly impressed by Dr. John MacDonald, Professor at Michigan State University in the department of Supply Chain Management, and his presentation at the PARCEL Forum. He spoke at length on warehousing and global practices and touched on the newest ships that Maersk has built and has in operation. Maersk Triple E class ships are 1,312 feet long and 194 feet wide and Maersk has placed a $3.8 billion dollar order with Daewoo Shipbuilding for 20 vessels. She travels at 22 mph, consumes 37% less fuel and conserves 50% of carbon dioxide. This was good enough to win the Sustainable Ship of the Year award. The ship is so large that it can only dock in Long Beach in the USA and cannot fit through the Panama Canal. The Triple E carries 18,000 TEU (twenty foot equivalent units-containers). The pure steel weight of the Triple E is 55,000 tons and is operated with 22 crew mem-
bers. The Panama Canal currently can take 3,000 TEU and is aggressively expanding to hit 4,000 — a long way from handling a Triple E. Containers were invented in 1956 by Malcolm McLean and totally revolutionized transport and international trade. They have a very long life span, but at the end of their usefulness as shipping containers, the rebirth that happens next is really fascinating.
offices, housing and other buildings for multiple industries. For instance, his own office has five containers on the first floor and three on the second floor, makes up 2,400 square feet and has doors, windows, bathrooms, stair cases and showers. To say these units are hurricane proof is putting it mildly. Stephen says, “We create safe places.” Falcon has re-manufactured 20,000 of these so far and he says laughingly, “we are on are way to the first million.” Falcon Containers ranks eighth in the fastest growing large companies in Central Texas with 275% growth from 2011-2013. Cost of a unit ranges from $10,000 to $150,000 depending on the value additions. Stephen is a serial entrepreneur, having done software and a myriad of other technical programs. I love his slogan: “Think Inside the Box.” If the supply chain industry could figure out how to repurpose everything this efficiently, the benefits would be enormous.
If the supply chain industry could figure out how to repurpose everything this efficiently, the benefits would be enormous. Stephen Shang is CEO of Falcon Containers here in Austin. He originally started renting containers to customers and found more customers interested in owning them as assets. His first mega customer was the Department of Defense, who commissioned Falcon to build cities for soldiers to live in. This project lasted for four or five years until Stephen ascertained that having only one huge client is often times not optimum for building a business. Falcon now manufactures containers that are fully depreciated as shipping containers. The 20-foot containers weigh 5,000 pounds with walls and ceilings of 16-gauge steel and floors of 1 1/8” plywood. These are custom modified into
ROB SHIRLEY is CEO of ExpresShip, a strategic consultancy in the global supply chain. Contact him at rob@xpship.com or visit www.xpship.com
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
11
SHIP RIGHT BY CHRISTOPH STEHMANN
Sharpening Your Shipping Strategies in 2015 ccording to eMarketer, ecommerce is continuing to grow at a rapid pace with more than a billion digital buyers spending about $1.5 trillion dollars online. This represents a huge growth opportunity for US retailers to tap into in 2015. However, to be successful, retailers need to make sure they have the right shipping strategies and solutions in place to meet customer expectations and reduce the complexities associated with shipping. As a matter of fact, recent research we conducted with 100 US merchants showed that when it comes to the weakest link in the fulfillment chain, almost half (47%) of retailers said that their company’s management of parcel shipping needs the most improvement. This is even more important when you take into account that 70% of Americans consider shipping options to be an important factor in the shopping experience compared to 66% in 2013, according to our recent research. Also, one-third (33% ) of consumers said they plan to pay more attention to shipping this year compared to last year, and half plan to shop online earlier this year. So how can retailers sharpen their shipping strategies in 2015 to help meet customer expectations and position their businesses for success? Below are three opportunities. 1. FLEXIBLE DELIVERY – A retailer’s ability to provide a variety of shipping options can make a difference in attracting 12
new shoppers. After all, consumers like choices and evaluating options to meet their needs based on whether cost or delivery time is more important. Our research shows that when it comes to free shipping versus fast shipping, 82% of Americans find free shipping where the product arrives in five to seven days more attractive, while 17% prefer fast shipping where the product arrives in one to two business days for a fee. Americans who find fast shipping more attractive than free shipping would be willing to pay $8.50 for the package to arrive within two business days. Relatively few (19%) would be willing to pay more than $10 for fast shipping. Therefore, flexibility for adjusting parcel shipping by carrier and rates is invaluable. One way retailers can do this is by using a single, automated multi-carrier system that can offer a variety of carrier options including the USPS, which has become more competitive with the Intelligent Mail Package barcode. These powerful, yet scalable web-based solutions can enable retailers of all sizes to compare and select the most cost-effective shipment method that meets delivery requirements for every parcel shipment. 2. EXPANDING BEYOND THE US – Cross-border ecommerce transactions drive a lot of complexity, but they are also a significant market opportunity for US retailers to grow their businesses. Also, a recent global online research we conducted also showed that the US was the number one e-destination where international shoppers would
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
purchase goods online from retailers outside their own country. To tap into this opportunity, US retailers should consider what countries hold the greatest opportunity for their business. One way to do this is by looking at the purchasing power of consumers in each country and what products are the most likely to sell there. For instance, our study showed that 69% of consumers in China selected the US as the top country where they would buy online products from. Also, China has approximately 621 million Internet users. If you multiply these two numbers, you come out with a target of 428 million potential buyers in China. The most popular items that consumers in China are more likely to buy online from a retailer outside their own country are consumer electronics (53%), apparel (44%) and footwear including athletic shoes (38%). Outside of China, India, Brazil and Japan are additional countries that US retailers might want to consider adding to their global ecommerce mix, depending on what you sell in your product catalogue. However, adding new markets oneby-one can be a slow, resource-intensive process when relying solely on in-house capabilities. Also, countries take their import/export laws seriously, and if you don’t ship the right goods, to the right people, in the right ways, you could be subject to penalties or even denied entry to markets. As a result, many US retailers who are ready to expand globally turn to third-party experts to simplify the complexities associated with global
PRODUCT SPOTLIGHTS ecommerce, and provide the capabilities and the country-by-country know-how to satisfy both international buyers and local-market regulators. With minimal set-ups, rapid integration and limited up-front investments, global ecommerce solutions providers can offer US retailers the support they need for rapid and successful entry into one or many new markets. 3. EFFECTIVE RETURNS – Returns have a long history of being a pain point for many customers and retailers. However, retailers can use returns as an opportunity to make a positive statement to customers regardless of the reason for the return. In addition, retailers must be proactive in providing the mechanism for clients to return problem purchases. A retailer’s ability to provide effective solutions for returns is fundamental to building customer satisfaction and loyalty. To help drive down return rates, retailers should make sure customers understand exactly what they are buying. Having clear, easy-to-understand and accurate product descriptions on your website can help make a big difference. For instance, a major retailer in the fashion goods industry recently told me that he cut his return rate in half by providing better product descriptions on his website. By offering free returns, retailers can also encourage consumers to buy from their sites more often. By incorporating some or all of these strategies to your shipping plans in 2015, retailers can not only help deliver a satisfying experience to their customers, they can position their business for growth and savings opportunities in 2015.
Free Airsaver Air Pillow Machine! AirSaver provides a convenient, low cost alternative to traditional packaging supplies. Our business model allows us to provide you with a FREE machine with lower monthly spending requirements compared to other providers. By using AirSaver, you can expect to save up to 50% on your void-fill and wrapping supplies. ACM Technologies 800-782-9008 info@airsaverpack.com www.airsaverpack.com
Package Audits Reduce Your Costs Decrease your 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 and graphical reports with minimal fees. Reduce your shipping, administrative and accounting costs. No cost Proof of Concept work! CT Logistics 216.267.2000, ext. 2190 sales@ctlogistics.com www.ctlogistics.com
GrayHair Global Address Challenge How do your international addresses match up?
GrayHair, the leader in domestic and international address coding and correction, is offering a Global Challenge to all parcel shippers. This is a limited time offer to test your addresses via our database of over 200 plus countries. We know we will provide you a more accurate and cost effective addressing solution. GrayHair 866.507.9999 GrayHairSoftware.com/Challenge
CHRISTOPH STEHMANN is President, Ecommerce & Shipping Solutions, Pitney Bowes NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
13
PARCEL COUNSEL BY BRENT WM. PRIMUS, J.D
The Five Most Important Things to Know About the Laws Governing the Supply Chain: Part II The Legal Significance of a Bill of Lading The term bill of lading means “a list of the cargo.” While often thought of as a shipping document, it is also very much a legal document. One of the two primary functions of a bill of lading is to serve as a receipt for the goods physically tendered to a carrier for transportation. While a bill of lading (or airbill or similar document) is generally prepared by the consignor, it is always issued by the carrier — typically when the driver picking up the goods signs the bill of lading. As with any other receipt, its purpose is to provide evidence as to what goods were given to the carrier and comes into play when all or a portion of the goods fail to arrive at destination. The other function of a bill of lading is to serve as the contract for carriage, that is, the business terms and conditions that will govern the shipment… unless superseded by an individually negotiated contract entered into between a carrier and its customer. Although a bill of lading contains very few words with legal import, these words incorporate by reference all of the carriers’ terms and conditions, which can be hundreds of pages in length. Moreover, the carriers’ publications may themselves refer to additional publications such as the National Motor Freight Classification (NMFC). As an example, a current FedEx “Airbill” states “By using this Airbill you agree to the service conditions on the back of this Airbill and in the current FedEx Service Guide, including terms that limit our liability.” Similarly, a UPS “Shipping Document” 14
states “All shipment are subject to the terms contained in the UPS Tariff/Terms and Conditions of Service, which are available at ups.com and local UPS offices.”
The Distinction Between A Carrier’s Liability For Damage to Cargo, Cargo Liability Insurance, and Cargo Insurance. As discussed in Part I, carriers are responsible for loss and damage to the goods they are transporting. However, regardless of the transportation mode, there are almost always limits and exceptions to the carriers’ liability. Some exceptions, such as damage caused by an act of God, arise from laws or legal rulings. Other limits are set by the carrier, for instance, a maximum of $100 per package. While most carriers will have cargo liability insurance, it is critical for a shipper to know that liability insurance will only pay out if the carrier is liable. Thus, if the carrier is not liable due to a defense such as an act of God or valid limit of liability in a carrier’s tariff, there is no coverage under a cargo liability policy because, simply put, the carrier is not liable. In contrast to this is what is known as a shipper’s interest cargo policy. Although there will be exclusions or exceptions, the coverages of these policies are not fault based. Accordingly, many shippers will purchase their own cargo insurance (not cargo liability insurance) as a way of protecting themselves in the event that they are unable to recover from the carrier.
Time Limits, Time Limits, Time Limits There are various time limits that are unique to the transportation industry. It is very important for a transportation professional to familiarize themselves with the time limits that could apply to their
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
shipments and the carriers they use. Failure to know an applicable time limit, and thus miss the time limit, will result in the loss of a substantial financial right. With respect to freight charges, there are time limits relating to claims for both the recovery of charges by a carrier and the recovery of overpayments made by a shipper to a carrier. With respect to claims for loss and damage to cargo, there is generally a two step approach. First, notice must be given by a shipper to a carrier of a claim within a certain period of time, and then, if not resolved, another time limit for the shipper to start a lawsuit. Time limits for loss and damage claims vary by the mode of transportation. In some instances, such as for regulated motor carriers, the minimum time limits are prescribed by federal statute. For international air and ocean carriers, the time limits are set by international treaty. In addition, there are a host of unregulated service providers that set their own time limits and then publish them in a tariff. 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 in the “Content Library” on the PARCEL website (www.parcelindustry.com). Your questions are welcome at brent@primuslawoffice.com.
S R E P P I H S L E 4 C 1 R 0 A 2 P N S I E E K K A A T MIS NUE TO Mow to Fix It! I &H T u N o Y O g C I t ’s C o s t i n PART TWO What
I
n the September/October issue, we started a Top Ten list that’s not at all funny! Having met with thousands of parcel shippers over the past 25 years, I’ve compiled a list of recurring mistakes shippers continue to make. And it’s costing shippers big time — into the hundreds of millions annually! The good news is that most of fixes are relatively easy, do not require significant capital outlay, are not overly time consuming, and can produce significant operational improvements and cost savings. Sound good? Here we go... after covering mistakes 10-6 in the last issue, here are mistakes five through one!
18
By Rob Martinez
5
NOT USING THE RIGHT BOX SIZE
Have you ever ordered a small item online and were surprised to see it delivered in a large, mostly empty box? Inefficient packaging leads to higher transportation and material costs, and contributes to the mitigation of carrier discounts due to oversize charges and dimensional weight adjustments. Many shippers are overpaying for packaging and fill materials in several significant ways. I’ve described the carriers’ “cost to serve” pricing model. Simply put, inefficient packaging raises your cost profile.
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
Moreover, shippers are wise to configure parcels with the smallest box dimensions possible in light of UPS and FedEx’s adoption of dimensional weight pricing for all Ground shipments in 2015 (see #1 below). The Retail Industry Leaders Association (RILA) recommends an evaluation of current materials and packaging designs, analysis of alternatives, and education and engagement with product suppliers, transportation vendors, retail buyers, customers and other stakeholders.
4
FAILURE TO MINE & ANALYZE SHIPMENT DATA One of the biggest mistakes
I see repeatedly is a shipper coming to the negotiation table unprepared. Very often, carriers know more about a shipper’s distribution than the shipper. Moreover, shippers often don’t understand the impact of terms and structure of their carrier agreements. Before sitting down at the negotiating table, shippers should analyze parcel invoice data to better understand service usage, expenditures, accessorial charges and other variables. The objective of this analysis is to develop a list of opportunities and priorities to be negotiated to generate the greatest cost savings impact. Identify “accessorial” charges — like Delivery Area Surcharges, Fuel Surcharges, Weekly Service Fees, Large Package Surcharges, Additional Handling Service charges and the like — which can now account for as much as 30% of a shipper’s overall costs. Quantify which surcharges have the greatest cost impact on your business and target those for waivers or reduc-
tions. In addition to pursuing lower accessorial charges, of course, try for better overall discounts and contract terms.
3
MISTAKES IN CONTRACT NEGOTIATIONS
Ignoring the fine print Many shippers err in focusing contract negotiations on discounts at the expense of ignoring terms and conditions. Terms are equally as important as discounts in driving cost savings. Moreover, many incentives are mitigated due to minimum shipment charges, general rate increases, accessorial charges, late payment fees and other such contract “gotchas.” A single word within a carrier agreement can result in significant rate hikes. As an example, UPS recently created a new set of list rates called “Standard” rates. However, these new “standard” rates are anything but standard. The new tariff is as much as 30% higher for air services than their “Daily” rates! Many pricing agreements include lan-
guage in which you waive your right to file service claims. And that’s not all! Today’s contracts include constraining and even punitive language designed by the carriers to minimize defection to alternative providers. These include diversion and minimum net charges penalties as well as early termination agreements, in which shippers agree to pay financial penalties to divert business to another provider, failing to achieve minimum revenue objectives, or terminating the carrier agreement prior to term expiration. Remind the carriers that you are the customer, and that you will only sign a fair and equitable contract free of undue burdens and penalties. When pushed, we find both FedEx and UPS to be very reasonable. No Formal Tool for Procurement Many parcel contracts are negotiated outside any formal process, and often, leave money on the table as a result. Formalizing requirements and pricing requests in a Request-for-Proposal (RFP) or other bid process can lead to significant savings.
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
19
R E B E O N T O C O T R R E A E P N B I Z D REA E SEPTEM EL MAGA H C T R A N I P F O E U S S I eral firms will also benchmark and score each component of your pricing agreement. Allowing Carrier to Dictate Process The fact is that most parcel agreements are negotiated with the carrier reps controlling the process, timing and eventual pricing programs offered. Many shippers have expressed their frustration as they wait for carrier reps to get back to them with a pricing proposal, knowing that they are sacrificing potential savings every day they continue shipping under their current program. Shippers are wise to establish clear deadlines and expectations upfront. Involve the carrier’s senior management when appropriate, and gain early buy in on the timetables and expectations of your negotiation and/or bid process. Accepting Revenue Based Incentives and Rebates Instead of Deeper Upfront DisThe fact is that most parcel counts agreements are negotiated with Most FedEx and UPS agreements include revenue-based the carrier reps controlling the incentives. FedEx calls them process, timing and eventual “Earned Discounts” and UPS refers to them as “Portfolio pricing programs offered. Tier Incentives” — essentially the greater the threshold of Most notably, these shippers — com- spend, the higher the discount. Revenue-based incentives are the carmanding a collective $1B in annual parcel shipping expenditures — report that rier’s tool for retention. Many shippers parcel consultants reduced shipping costs have told me they’d like to but are unable as much as 49% lower than the company to route packages by least-cost mode with multiple carriers for fear of losing had been able to negotiate on its own. Most third party market experts are discounts with their primary carrier. Therefore, we advocate getting most willing to conduct a no obligation, complimentary assessment of your current rates or all discounts as base incentives. This and terms to assess potential savings. Sev- allows shippers to realize maximum disBy its very nature, RFP’s enhance leverage by creating a competitive bid environment in which both the incumbent and non-incumbent carriers see the same set of facts. The RFP process allows shippers to control the negotiation, request target pricing of both transportation incentives as well as accessorial concessions, and establish requirements including terms and conditions. Going at Contract Negotiations Alone If you feel you’ve gotten as far as you can with your carriers, perhaps it’s time to seek outside help. According to Morgan Stanley’s Annual Best Practices Survey, 11% of the top 400 parcel shippers in the US have hired consultants to negotiate their FedEx, UPS, DHL and other transportation contracts.
20
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
counts on the front end without worrying about discount qualification, especially for seasonal shippers. In addition, UPS often provides additional discounts as a “deferred tier threshold agreement” — or rebates — in which UPS will write your company a quarterly check as a percentage of your overall net transportation expenditures. Again, shippers are better served getting these discounts upfront, rather than have UPS earn interest as they hold your money for months at a time.
2
NOT USING USPS
Through careful evaluation, shippers that add the US Postal Service (USPS) to their carrier mix can significantly drive down costs and improve service. The USPS enjoys many unique advantages over the private carriers. They already go to every door, every day. Other carriers often need to make an additional stop, especially to residences. The USPS simply drops off parcels with the rest of the mail. The Postal Service is the only carrier that can put items in mailboxes, PO Boxes, or residential mail slots. It’s the only choice for the 20 million APO, FPO, PO Boxes that the private carriers can’t deliver to. They offer free package pickup six days a week. With tens of thousands of Postal Service-managed retail offices in nearly every community in the US, the USPS offers the most package drop-off points in the country. The USPS has significantly fewer accessorial charges. It delivers to every address for the same price whereas its com-
SCAN HERE TO READ PART ONE
There are also many flat, unlimited weight and Regional Rate options. These convenient products feature predetermined rates regardless of weight or destination and are available in multiple sizes and shapes. Most importantly, many USPS products are competitively priced, especially when compared against fully landed costs — with accessorial charges included — with UPS and FedEx. A pricing analysis reveals that the USPS is particularly competitive for lightweight, resShippers, make no mistake idential packages especially about it — this is a huge rate to close-in zones. It’s a low cost choice for offshore shipincrease. My good friend Jerry ments to AK/HI as well US Hempstead calls it “the mother Territories Many of Shipware’s cusof all rate increases.” tomers are realizing savings of 10-70% through USPS Other advantages include the fact that modal optimization. Finally, there’s no the USPS offers free packaging and pack- complex contract with the USPS. Even age pickup, and is the only carrier that custom rates, NSAs, are less complicatoffers First Class pricing for parcels that ed than most FedEx and UPS revenue weigh under a pound with delivery service based contracts. standards within one to three business days. (Note, parcel consolidators like UPS IGNORING THE PENDING Mail Innovations, UPS SurePost, FedEx 2015 CHANGES TO FEDEX SmartPost and others do offer ounceAND UPS GROUND based pricing with induction back to the DIMENSIONAL RATING USPS for final mile delivery). Both FedEx and UPS have Transit comparisons are quite favorable. announced major pricing changes for Priority Mail is a one to three day prod- Ground products in 2015. Each will apply uct. Compare that with UPS and FedEx dimensional weight pricing to all Ground Ground, which are typically one to five day shipments with no dimensional exception. deliveries. The Postal Service has made Currently, dimensional weight only applies significant improvements to Priority Mail. to packages measuring three cubic feet They’ve improved tracking with more (5,184 cubic inches) or greater. frequent scanning events, including a Shippers, make no mistake about it — real-time final delivery scan. And track- this is a huge rate increase. My good friend ing is now free. The service now includes Jerry Hempstead calls it “the mother of all one- to- three-day specific delivery, rate increases.” The majority of Ground comes with $50 ($100 for CPP) in in- packages are less than three cubic feet. surance, and is offered at several pricing Some shippers are estimating the change options: Retail, Commercial Base, Com- could almost double current charges. mercial Plus, and custom Negotiated Don’t make the mistake of thinkServices Agreements or NSAs. ing you are not adversely impacted by petitors impose extended area charges, residential delivery fees, fuel and many other surcharges. Moreover, it does not charge for Saturday delivery. Free Saturday delivery amounts to 52 additional delivery days a year. Plus, it’s the day residential customers are most likely to be home, eliminating the need for more than one delivery attempt, increasing customer satisfaction and reducing customer service calls.
1
this change because you’ve negotiated non-standard dimensional divisor greater than 166. Many volume shippers have contract dimensional divisors (greater than the standard 166), but non-specific cubic thresholds. So unless your contract specifies the three cubic foot exception, this change will affect you! Shippers first need to analyze the financial impact of these changes, and then meet with carrier representatives to amend contracts with a customized cubic inch threshold and/or dimensional factor.
SUMMARY In summary, parcel shippers continue to make mistakes and revert to bad habits. The good news is that it’s never too late to make changes! Hopefully, this Top Ten list provides guidance on low-hanging opportunities to improve your parcel distribution and pricing programs. I anticipate some debate over other common mistakes that didn’t make this Top Ten list, as there are many. Of course, there are dozens of other strategies, services and technologies that can help you contain or reduce costs. However, the strategies discussed should point you in the right direction and make you more competitive in your market. Good luck!
ROB MARTINEZ, DLP is President & CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Rob offers 25 years’ experience negotiating parcel contracts – on both sides of the negotiating table – for some of the most recognizable brands in the world, and is a sought after speaker and industry thought leader. He welcomes questions and comments, and can be reached at 858.879.2020 Ext 114 or rob@shipware.com. Shipware has also established a review and action plan for shippers concerned about the upcoming dimensional weight rate change. Interested shippers should email corporate@ShipwareLLC.com to get details.
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
21
By Tom Nightingale
It’s All About Size
A look at how dimensional pricing and volumes of single packages will affect both small and large shippers in 2015.
Parcel carriers, through early adaptation of barcodes, have been conducting micro-analysis of data collected on package, shipper, and network operations for more than 20 years, and are experts on cost efficiencies. Advances in data warehousing by parcel carriers and the use of overhead scanners to collect dimensions and weight were implemented in the late nineties for load planning optimization.
22
The data and subsequent analysis of the impact on costs resulted in assessorial charges for packages that incurred greater costs in processing, such as non-conveyable packages that required manual handling outside the high speed automated conveyor systems. Before now, parcel carriers rated packages on three factors — weight, distance, and service type. The fourth factor, dimensions, is critical
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
to efficiencies in space utilization at the trailer and delivery van level. It is no surprise that now seemed to be the perfect time to extend the dimensional weight system to all packages. As the e-commerce industry continues its double-digit growth, its shipping characteristics will continue to play a major role in the parcel carrier’s strategy. According to Internet Retailer, mass merchants rep-
resent 38% of online sales, dominated by Amazon, Walmart, Sears, Costco, and Target. Dimensional rates are likely to have a large impact on these retailers due to the fact they ship a wide range of products. Direct-to-consumer t-shirts are not likely to see a rate increase, but a bulky office chair may incur higher shipping costs. Apparel is the second largest web sales category at 15%; however, dimensional rates are the least of their worries as most items are less than 10 lbs. and ship in polybags. Housewares, home furnishings, hardware, and home improvement, collectively over $13 billion in online sales, will be the hardest hit due to undesirable weight to dimension ratios. Dimensional pricing is an antidote for greater accuracy in cost calculation and an opportunity to elevate sustainability in parcel processing. Less waste in packaging materials and damage rates will help the shipper recoup the increase in shipping costs. Shippers will become more cognizant of using right-sized cartons, grouping multiple item orders into a single carton, and incorporating best practices in regards to shipment weight to cube characteristics. For the carrier, improved trailer cube utilization, reduced handling costs, and an increase in packages per stop perpetuates efficiencies in fuel use and carbon emissions.
THE ALTERNATIVES What are the alternatives to the traditional integrators? Is there a multi-carrier strategy that fits each individual shipper? In response to the growth of shopping online, several viable alternatives have emerged. For high volume shippers, UPS SurePost and FedEx SmartPost offer economical ground residential service by using the United States Postal Service (USPS) to make final delivery. The USPS’s density of daily stops (153 million addresses) is most cost-effective. The packages are not rated using the dimensional rate structure, nor do they have a residential surcharge. Service times are longer and not guaranteed and would only be substitutable for shipping commitments of 7-10 days.
The USPS has found its niche, providing e-commerce shippers residential coverage and density, and a pricing structure independent of UPS and FedEx. Over the past few years, USPS has eliminated the gap of not having tracking capabilities and automated distribution centers to provide shipment visibility and consistent transit times. To build on its burgeoning Priority Mail growth from online retailers, USPS took an unprecedented step in 2014 and lowered rates on Commercial Priority Mail services an average of 0.9% and 2.3% for the Commercial Plus, a service available to shippers of 50,000 packages or more annually. USPS has been the lowest cost option for packages less than five pounds, but was higher priced above five pounds. To correct the inequity, the rate decrease concentrated on the 7-16 pound range with reductions in rates equivalent to 58%, significantly below published UPS and FedEx rates. With USPS pricing announcements and service enhancements they are positioned to attract more e-commerce shippers. While fragmented, metro and regional parcel carriers are emerging as an option for a segment of shippers whose customer base is concentrated. Services are typically in high density lanes and delivery areas where competitive pricing and service times are achievable. Some are final mile agents, providing same-day delivery from local DCs and stores. By forging relationships with multiple carriers, an integrated solution can be developed to best fit the shipper’s characteristics.
2015 EXPECTATIONS When the ball drops and ushers in 2015, the hope is that parcel shippers will be knowledgeable of, prepared for, and mitigating the impact of dimensional pricing. It can be anticipated the environment will be aggressive and competitive to keep shipping costs in line with the ability of shippers to meet consumer demand for free shipping when shopping online. Some shippers will be able to navigate the waters, and some that can’t could suffer, paying much higher rates than
they should. The rate increases could mean the difference between turning a profit and being uncompetitive. Bold changes to parcel market pricing will impact 2015 with shifts in parcel carrier market share, service level volumes, and average yield per package. Serious evaluation of options and rate negotiations will result in shippers switching among UPS, FedEx, and USPS. Parcel strategies will include multiple carriers and service levels based on package and delivery characteristics. Size comes into play again, as large shippers will have the leverage and acumen to make the changes effectively and smaller shippers will suffer the consequences if not prepared. Larger shippers and those aligned with 3PLs will have the advantage as they have become very astute in collecting and analyzing data. The visibility to that data, their knowledge of parcel rate composition, a superior ability to control and forecast product mix, will enable them to ensure that processes are in place to minimize the impact of dimensional pricing. Or at the very least, they will be able to pass increased shipping costs of specific items on to their customers. For shippers who lack volume leverage, data, and acumen to react effectively to the change, January may come all too soon. There are thousands of businesses with $1 million to $2 million in annual parcel spend, not enough to leverage rate discounts from the parcel carriers. Yet, small shippers can be as efficient as large shippers with the knowledge of expert logisticians. When the industry is all about the size of your packages, the volume of your shipping and the leverage you have in negotiating, knowledge and data can level the playing field. The winners in parcel will be those who prepare and have strategies in place to adjust to the rapidly changing market. It is all about size and there are ways to right-size shippers’ selection of parcel alternatives.
TOM NIGHTINGALE is President, Transportation Logistics, GENCO.
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
23
By Philip McAndrew
Top 4 Business Factors
to Think About When Considering Parcel Packaging Automation
A
utomation is about more than just replacing a human workforce with a mechanical one. There are many factors that must be given adequate consideration when assessing the value an automated system stands to offer. This article serves as a starting point to help in your analysis of your operation’s parcel packaging system. 1. Understand Your Peaks, Valleys and Projected Growth Many businesses cycle through peaks and valleys each year and throughout their lifetime. When considering automation, make sure that your required
24
throughput rate is not only based on your average daily throughput volume, but that you will also have the capacity to handle expected spikes in demand and future growth. You must look at your capacity requirements at yearly, monthly, weekly and daily intervals. For some businesses, having the ability to ramp up order processing for six weeks in November and December can justify an investment in automation that is under-utilized for the remainder of the year. One must also carefully consider the projected growth of the business. Are you currently in rapid growth and expansion mode? Do you need a scalable solution
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
that can grow with your company? Is your business stable? Do you need a system that can meet steady and continuous demand? Have you seen any new competitors enter your field that could potentially eat into your market share? These are all important questions that should be in your assessment equation. 2. Evaluate the Cost of Your Customer Promises Today’s ecommerce environment is increasingly competitive, and customer demands are at an all time high from online retailers. The expectation is free shipping with expected delivery within a couple days. As seen on 60 Minutes,
Amazon.com is exploring methods to get orders fulfilled and delivered within 30 minutes. If one of your service level requirements is a specific delivery time, or same day shipping, this alone may justify automation. Processing orders placed late in the day can easily create a backlog as second shift employees scramble to get them fulfilled before the last pickup. If shipment times are missed, you may be spending more on upgraded shipping in order to keep your customer promises. If you often have a backlog of orders, then packaging automation should relieve some of that burden. 3. Know the Actual Cost of Your Current Packaging Process The actual cost of your current system may be more complex than you think. Each element listed below ought to be carefully considered and compared to the proposed automated solution.
} Package Design — With so many different carton styles available, it is worth looking past the traditional RSC to see if there are options for your operation beyond a carton erector and taper. } Void Fill — Air pillows, craft paper and packing peanuts can make up a considerable portion of parcel packaging costs. Make sure associates are using it appropriately. } Touch Points — How many times do products and packages need to be touched before they are out the door? Map this and calculate how much you are spending on labor for each of those interactions. } Task Breakdown — Outline each action required to get an order packaged, time it, and use the information to calculate the amount of labor time that goes into each package. Also, estimate lost time or use an efficiency factor because you pay an employee whether he is on task or not. } Warehouse Space — How much space do your current packing lines take up in your warehouse? Get an idea of the cost per square foot. } Branding — How does your current package reflect your brand? Make sure automation will meet or exceed your branding requirements and support your brand image. } Order Verification — What is the real total cost of an incorrectly delivered package? Make sure you know what this is costing you and how frequently it occurs. An automated system should verify order accuracy! } Inventory Control — How much time is spent monitoring and purchasing packing materials and supplies for your current line? How many dollars of inventory are in the warehouse? How often does that inventory turn or become obsolete? Make sure you have a clear idea of how these factors will change when moving to an automated system. } Shipping/Transportation Costs — Does your packaging system currently rate shop? Do your employees select the ideal box size? Can you negotiate a better contract based on your volumes? It is important that you identify the root cause for any extra money going to the shipping companies.
4. Payback Expectations Developing an idea of your return on investment requirements and methods of measurement is incredibly important. There are many complex methods to calculate ROI, but for most operations a thorough payback study will suffice. A payback study should begin with the analysis of all points outlined in item 3. This should then be compared with the expected costs of the new automated system. By using the most accurate unit costs, and multiplying them by the expected annualized unit shipping volume, you can determine the approximate savings per year that you will incur from the switch. Don’t forget to factor in the more difficult to quantify values like brand enhancements and the ability to ramp up capacity to meet peak requirements. The payback period analysis should also include an examination of the life of the machine and the anticipated maintenance costs. If the payback period is six months, but the machine has wear parts that will require annual maintenance or other significant investment, your ROI is greatly reduced. Be sure to ask the manufacturer of your automated system these questions. The final factor is to consider the reputation of the manufacturer. Have they been in business for a long time, and will they be around in 10 years when your machine needs major maintenance? Do they offer service during peak times, or are they available when you need them? On a large capital expenditure, this can be extremely valuable.
SUMMARY Entering the world of automation is a game changer for many online retailers and fulfillment companies. We see many of our customers wondering how they dealt with the challenges of managing a manual packing line for so long. Although it is the job of the automation provider to help guide you through the decision making process, having a clear idea of the factors listed above will better equip you for this decision.
PHILIP MCANDREW, Marketing Administrator, Systems Technology, Inc., can be reached at 909.799.9950 ext. 223
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
25
PARCEL FORUM ‘14
DALLAS ADDS SOME GIDDY-UP They say everything is bigger in Texas, and that was certainly true for this year’s PARCEL Forum, which was held in Dallas for the first time. Our previous shows had been consistent hits in Chicago (both at the Regency O’Hare and subsequently downtown) but we felt the time was ripe for a change. We — as well as our attendees, speakers, and exhibitors — were not disappointed! 26
The attendance was the best we had ever seen (634 verified attendees — at 27% jump from last year!), and the venue was top-notch. You can’t go wrong with staying at any Gaylord, and the Gaylord Texan was one of the nicest I’d ever been to. It provided a variety of great restaurants and bars right within the convention center, which means that the attendees stayed on site and
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
were able to network; no more leaving the show at night in search of great places to eat! But it doesn’t matter how great the venue is if the content provided isn’t up to par. Luckily, we scored big in this area, too. Our sessions were consistently ranked excellent, and shippers appreciated the chance to discuss current events, like the upcoming Dimensional Weight change, with knowledgeable experts. And don’t get me started on the tours — I don’t think I have enough room to discuss how enjoyable they were! It was a jam-packed day on Monday, when we toured JCPenney, Tech Data, and finally the AT&T Stadium, the home turf of the Dallas Cowboys. It was so interesting to see how such a large venue maintains order and keeps the inventory process running smoothly, and while they might not be shipping pack-
“You can find enough savings from the ideas presented at the forum to pay for the conference x10. The historical knowledge and market insights & trends are invaluable in today’s fast changing environment.” Packed conference sessions
— Bob Hammond, Senior Manager Freight/Logistics, ABB Optical Group
Joe Theismann signing autographs on the show floor
“Parcel Forum ‘14 was a great event. The crowds were good, the venue was amazing and there were plenty of chances to network. We can’t wait for Chicago in 2015.” — Tim Hooper, Business Development & Marketing Manager, ConnectShip|iShip ages like our attendees do, it still gave us some great insight into how such a process can be managed. I think our attendees took quite a few ideas back home to implement! As always, the exhibit hall floor was a veritable cornucopia of experts willing to help our attendees find solutions for their most pressing parcel problems. With 106 exhibitors on a sold-out floor and three pavilions (Regional Carrier Pa-
Opening Day Keynote Luncheon featuring William Greene, Freight Transportation Analyst, Morgan Stanley Three days of in-depth conference content
Great Exhibit Hall Crowds
vilion, Warehousing Operations Pavilion and the new Customized Logistics & Delivery Association (CLDA) Pavilion), the exhibit floor was abuzz during the dedicated non-compete hours. 2015’s PARCEL Forum will once again be held in Chicago October 19-21, but Dallas was such a hit that we may be back in 2016. You’ll have to stay tuned... See you in Chicago!
THANK YOU TO OUR SPONSORS!
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
27
Ship-From-Store: An Interesting Wrinkle in the Supply Chain By Andrea Obston
What do Macy’s, Toys“R”Us, Walmart and Gap have in common? All of them have begun expanding into the world of ship-from-store. Now brick-and-mortar businesses are using their stores to fulfill online orders to meet the ever increasing expectations of their customers. One of the early adopters was Best Buy. In an attempt to fight back against what’s called “showrooming” (people checking out products in their stores and then buying online) the electronics superstore
28
introduced its ship-from-store strategy in late 2013. “What Best Buy and other brick-andmortar retailers are doing is turning their stores into mini-warehouses, fulfilling web orders from some of them directly. It’s a way to leverage the inventory in those stores. This is especially important as larger players move inventory closer to consumers by building more and more distribution centers spread across the United States. When Best Buy uses their
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
brick-and-mortar stores as mini-warehouses, it brings more inventory even closer to their consumers,” say Kirk Godby, president of the Customized Logistics and Delivery Association. The idea is that retailers don’t want to frustrate online shoppers by making them wait for out-of-stock merchandise to be replenished from a warehouse, especially if the ordered product is sitting on a store shelf somewhere and a local provider can deliver it quickly.
It’s a trend that could be good news for many involved in the supply chain, especially those in the customized logistics and delivery sector. With its emphasis on delivering online orders to the customer faster by making use of the stock in its stores, Best Buy and others may just have found a way to beat the larger players at their own game. Best Buy’s Ship-from-Store strategy began paying off during the 2013 holiday shopping season. Starting in the second quarter of 2013, Best Buy began fulfilling web orders from 50 of its more than 1,500 U.S. stores. Initially, Best Buy was much slower at delivering orders, but that changed over the holidays when some customers received their Best Buy orders in less than three days. Wal-Mart has a similar program. It started out by fulfilling web orders from 35 of its stores, and plans on adding more. Others joining the ship-from-store movement are Urban Outfitters Inc., The Finish Line Inc. and The Jones Group Inc. (which
operates the Nine West brand of stores). These retailers use a variety of carriers to deliver items to the consumer from their stores. Some use national couriers. Others use a network of regional providers. Godby sees this as a positive development, pointing out that retailers, shippers and manufacturers are all trying to get their products to their customers faster and cheaper. “The ship-from-store idea shows this idea is taking root, opening up a huge opportunity for local delivery companies. Members of our industry can be the resource that will help these retailers as they look for ways to get their goods to the consumers faster and faster,” he says. In the end, Godby forecasts that other retailers will join the Best Buys, Walmarts and Gaps of the world in using shipfrom-store to get a jump on their online competitors. “Retailers know they are being measured against each other by how quickly they can get their items to the customer. Everyone’s looking for ways to expedite the delivery time.”
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
29
that all e-retailers could use to submit orders and delivery companies could use to receive the jobs and get them updated. Right now a number of tech companies are working on this. } Retailer-specific portals — These would be through individual retailers that would have their own portals for approved delivery providers to receive, update and confirm delivery of jobs.
QUESTION: What about customer response? How likely are customers to want to pay more for quicker delivery? GODBY: I know customers like the option to choose same-day. When customers buy online right now, they certainly have that choice. But, will they be willing to pay for same-day? I think some will. Amazon gets it. It’s one of the options they present to their customers, and several CLDA members already provide that service for them. What’s encouraging about retailers looking at the Ship-from-Store option coupled with a same-day delivery option is that they are recognizing that shortened delivery time is their advantage. Our members can make the most of that advantage. QUESTION: Why are customized logistics and delivery companies so important to making this work? GODBY: It’s what we do. It’s what we’ve always done. Our members are nimble and used to providing same-day service. It’s no different than any other job where we get the request for a two-hour delivery. It’s the perfect marriage — we live in the same-day world and these retailers want to deliver faster and faster. They want to get to the same-day service level and we’re the people to do it.
30
QUESTION: What are our members going to have to do to respond to this challenge? GODBY: From an operations standpoint, they don’t have to do anything. They already do it. The challenge is with the technology. I’m not implying our members don’t know how to leverage technology. They do. You can’t succeed in this business without harnessing technology. But, they all do it in their own way. There are several industry platforms and many proprietary platforms out there that our members use to allow customers to place, track and verify delivery. But that’s the issue. There is such a fragmented use of different platforms. There isn’t one platform that would allow a retailer to roll out a program across the country to mobilize CLDA members with ease. In a perfect world, Best Buy would dump a 1,000-piece order in Texas and the orders would go directly into the correct local delivery company’s software systems. There’s going to have to be a national platform where delivery providers can receive the orders, update them and issue PODs if we want to be a part of this development in the supply chain. THERE ARE THREE WAYS I CAN SEE THIS HAPPENING: } National Supply Chain Network — This would be a national web portal platform
NOVEMBER-DECEMBER 2014 | www.PARCELindustry.com
} Direct integration — This would be a technology platform that would provide a direct link between the specific retailers and their network of the same-day delivery providers they use. Integrating with several of the major technology providers who serve our industry would be a great first step. QUESTION: Clearly, Ship-from-Store represents a new approach to fulfilling online orders. What do you expect it to mean for CLDA members? GODBY: Our industry is in a great position to take advantage of this trend. There are tremendous growth opportunities for same-day logistics and delivery companies to become a part of this new supply chain strategy. Companies like Best Buy and Wal-Mart have stores all over the country and there are CLDA members in all of their locations. The members of our industry can help fulfill these orders same-day. Why? Because they are local and this is what they’ve always done. We have the same-day and on-demand experience. Now, we need to find a way to harness technology that will help us play a key role in this escalating trend.