Parcel November/December 2010 by MadMen3

PARCEL

DECEMBER 2010

www.PARCELindustry.com

HEADING IN THE

RIGHT DIRECTION? Take a look at our annual survey results and find out! pg 16

Thou Shalt…

11 commandments to consider when exporting. pg 6

Stay up-to-date

on the rules and regs of shipping internationally — don’t be caught unawares! pg 22

Thinking Lean? If not, here’s why you should. pg 26

DECEMBER 2010 | volume 17 | issue 6

PARCEL PUBLISHER Marll Thiede EDITOR Amanda Armendariz amanda.c@rbpub.com

DEPARTMENTS 06

Going Global

11 Commandments for Exporting BY TOM STANTON

Transportation ABCs

Mastering Management No One Makes It Alone BY MARK TAYLOR

Regional Alternatives

You Can’t Improve What You Don’t Measure BY ROB SHIRLEY

CIRCULATION Rachel Spahr | rachel@rbpub.com

Practical IT

Can You Do Your Job too Well? BY OSCAR MURRAY

Additional Thoughts about the Upcoming Dimensional Weight Changes BY THOMAS ANDERSEN

PRODUCTION DIRECTOR Chad Griepentrog

Ship Right

Carrier-Neutral Shipping Solutions: Managing Costs and Improving Deliveries in 2011 BY ELIZABETH LOMBARD

Results Unveiled!

BY ROB MARTINEZ

It’s All about the Connections

International e-commerce strategies for connecting with overseas buyers and shipping success. BY ANDREW MANNING

Give Me an “L”!

If you haven’t considered Lean lately, here’s why you should. BY CHARLIE JACOBS

COLUMNISTS 30

Parcel Counsel

Marking Up the Freight: Lawful Revenue Center, or Illegal Fraud?

BY BRENT WM. PRIMUS, J.D.

Wrap Up

EXTRAS Editor’s Note

2901 International Lane Madison WI 53704-3128 608-241-8777 • Fax 608-241-8666 www.PARCELindustry.com REPRINTS For high-quality reprints, please contact our exclusive reprint provider. Scoop Reprint Source • 800.767.3263 ext. 144 www.scoopreprintsource.com PARCEL (ISSN 1081-4035) is published 9 times a year by RB Publishing Inc. All material in this magazine is copyrighted 2010 © 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.

Fuel vs. Optimization BY MICHAEL J. RYAN

ADVERTISING Ken Waddell | ken.w@rbpub.com Josh Vogt | josh@rbpub.com

Industrial vs. Post-Consumer Recycled Content and Why It Matters BY DENNIS SALAZAR

Your peers provide the answers to this metrics best practices survey.

GRAPHIC DESIGN Greg Middleton, Kelli Cooke

Packaging

FEATURES 16

CONTRIBUTING WRITERS Charlie Jacobs Andrew Manning, Rob Martinez

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.

EDITOR’S NOTE AMANDA ARMENDARIZ

You Know What This Time of Year Means… It’s hard to believe that it’s November already as I write this, the ed note for our December issue. Where on earth does time go? For us at PARCEL, December means, as it has for many years past, that subscribers are able to peruse part 2 of our annual survey results. This year’s results (which look at how many companies perform best practices when it comes to distribution center metrics) are quite eye-opening. You’ve probably all heard that phrase, “You can’t improve what you don’t measure,” and hardly anywhere is that saying more true than in the logistics industry. It may be easy to fall into the trap of thinking that your warehouse is the epitome of organization, or that your returns process is as streamlined as it can be, or that your customer retention numbers are top-notch. But you can’t say that for certainty unless you measure these very important topics. Check out the survey, which starts on page 16, to see where you line up next to your competitors. (There is additional survey analysis on “The Experts” section of our website, www.PARCELindustry.com. Be sure to check it out; just because we couldn’t fit it in the print issue doesn’t mean it’s not some good stuff!) And, if you’re not currently implementing the best practices detailed in the survey, the new year is always a good time to start! Speaking of New Year’s Resolutions, President Obama recently encouraged companies to increase their exports, so if this item is on your list of things to start on January 1 (along with exercising three times a week and getting your five fruits and veggies a day), keep this issue handy, as we have several items of interest to the international shipper. Curious about the “thou shalts” and “thou shalt nots” of exporting? Check out Tom Stanton’s Going Global piece on page six for a comprehensive rundown. Changes like the proposed increase in exported goods are some of the reasons I’m excited for 2011. I’m also excited to see where PARCEL goes; we make it our mission to stay relevant to the logistics industry in this ever-changing age, and I expect that to continue in the new year. Have a topic that you’d like to see more of (or not at all) in PARCEL? Drop me a line and let me know. As always, thanks for reading PARCEL.

DECEMBER 2010 | www.PARCELindustry.com

GoinG Global with Tom

Stanton

11 Commandments for Exporting Many small package shippers are knowledgeable about domestic and international shipping, but some US companies have never ventured into the international export market. Since President Obama is setting goals to encourage exports, here are some things that a new exporter should be aware of.

Identify Which Jurisdiction You Fall Under The United States government controls exports through the Department of Commerce, the Department of Defense, and the Department of the Treasury, Office of Foreign Asset Controls, just to name a few. Each of these agencies currently has export control rules and enforcement teams. (The Obama administration has proposed a sweeping change that would facilitate the creation of one-face-to-the-public agency and one set of rules. There are hopes of a new/simpler program in 2011.)

Talk to the Right Government Agency about Your Issues

It is also a violation of US law to provide any party with information about or take any action in furtherance of a boycott of the country of Israel. These laws discourage and, in some circumstances, prohibit US companies from furthering or supporting the boycott of Israel sponsored by the Arab League and certain Moslem countries, including complying with certain requests for information designed to verify compliance with the boycott. Compliance with such requests may be prohibited by the Export Administration Regulations (EAR) and may be reportable. Significant penalties or loss of tax benefits may apply. To find out more about these rules, go to the Department of Commerce, Office of Antiboycott at www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm.

Locate, Read and Apply the Rules that Apply to Your Case

Titles 32, 31, 27, 22 and 15 of the Code of Federal Regulations govern various aspects of international trade. Title 15 governs The Bureau of Industry and Security (BIS) (www.bis.doc.gov) is the largest number of exports handled by the US Commerce usually the first point of contact unless your goods are identi- Department. These regulations are available online by going to fied on the US Munitions List (USML), considered weapons or www.access.gpo.gov/bis/ear/ear_data.html. used in weapons systems or satellite (space) programs. These rules apply to military surplus goods, too. These are handled Understand the Rules that Apply by the Department of State (www.pmddtc.state.gov). The Office Some basic steps to go through when preparing to export: of Foreign Asset Controls (OFAC) deals with transactions that What is the export classification of the product per the Cominvolve countries subject to US trade sanctions, such as Iran, 3 merce Control List? http://edocket.access.gpo.gov/cfr_2009/ Syria, Sudan, North Korea and Cuba. These rules generally projanqtr/pdf/15cfr738.2.pdf hibit you from exporting to these destinations without a license. These rulings also apply to situations where you know that the 3 What country is it going to? See the country chart: http://edgoods will be sold or reexported from an intermediate country ocket.access.gpo.gov/cfr_2009/janqtr/pdf/15cfr738Supp1.pdf to a sanctioned destination. When in doubt, ask which agency 3 Are there any restrictions on the shipment, such as those has jurisdiction. Mistakes can be very costly. based on classification, destination or end use defined by Another important agency to know about is the Bureau of the country chart and the classification? Census, Foreign Trade Division. This group is responsible for collecting export information through the Automated Export 3 Check the denied persons list, unverified users list and entiSystem, previously captured on the Shipper’s Export Declaration, ties list for people you are not supposed to do business with: and keeping track of trade statistics. To do this, there are www.bis.doc.gov/complianceandenforcement/liststocheck.htm very specific reporting requirements that exporters must folDo you need to file any export information with the Foreign low. Exporters who don’t report, report late or have errors in 3 Trade Division of the Bureau of Census or place an exemptheir information can be fined up to $10,000 per transaction. tion statement on your export documents? www.census.gov/ You can find out more about these reporting requirements at foreign-trade/aes/index.html www.census.gov/foreign-trade/regulations/index.html. 6

December 2010 | www.PARCELindustry.com

If still in doubt, ask for help. The SNAP-R process provided by the BIS is a way to submit the information you have for a ruling on the classification and controls applicable to your potential export order. The Regulations, Outreach and Education Branch, Foreign Trade Division (ROEB), Census Bureau at 1-800-549-0595, option 3, can also provide export assistance counseling and services as well.

Be Careful about Embargoed Countries

penalties can reach $10,000 per violation. Criminal penalties equal $10,000 per violation and/or five years in jail.

Communicate with Your Client or His Customs Clearance Agent before Shipping Before shipping anything into another country, send a copy of your export invoice to your foreign customer or his customs clearance agent to ensure the item you are shipping is allowed to enter their country and to identify whether any unique documentation is required.

In today’s world, exports to Iran, Syria, Sudan, North Korea and Cuba are embargoed for almost all products that are of US origin or have substantial US origin content, without license You Can Pay Me Now… or You Can Pay Me Later! approval. The restrictions also apply to any US person, regard- Many small package shipments move every day without people less of the origin of the product. This includes repairs and ser- taking these steps. Often they move to their destination with no problems. But when they do have problems, they wish they vicing products, as well. Shipments related to nuclear development, military use and had followed these steps at least once! p high technology are generally restricted from shipping to a number of countries designated by the country table available at: http://edocket.access.gpo.gov/cfr_2009/janqtr/pdf/15cfr738Supp1. THOMAS M. STANTON of AFMS, LLC can be contacted at 503-246-3521 or tom. stanton@afms.com. Visit www.afms.com for more information. pdf and www.access.gpo.gov/bis/ear/pdf/744.pdf

Use the Correct Harmonized Code Exports must also be classified by harmonized number or “schedule B number” www.census.gov/foreign-trade/schedules/b/ for export reporting purposes. Any shipment valued over $2,500 for any particular schedule B number or requiring an export license must be filed electronically via the Automated Exports System (AES).

Use the Right Price for Customs… There Are Rules Now that you have covered all the export control issues, let’s talk about foreign import requirements. All US exports should have an invoice identifying the item to be shipped and the value of the goods. All items have a value. If the items are being shipped free of charge, the cost to purchase the goods or manufacture the goods plus normal profit should be used. Otherwise, the sales price is normally acceptable.

Don’t Violate Export Laws; It Can Be Expensive Export violations can result in civil penalty of up to $250,000 or twice the amount of the transaction, loss of export privileges, criminal penalties and jail time. Voluntary disclosures can mitigate penalty as much as 30% to 40%. In 2009, DHL was fined $9 million for failure to maintain export records related to 98 shipments of used clothing to Iran, Syria and Sudan.

Export Reporting Errors: Just as Serious with Significant Consequences for Errors Failure to file and late filings of AES can result in fines of $1,000 per day per delinquency not to exceed $10,000 per violation. For non-filing violations, i.e., incorrect/false information, civil

DECEMBER 2010 | www.PARCELindustry.com

TRANSPORTATION ABCs with Thomas

Andersen

Additional Thoughts about the Upcoming Dimensional Weight Changes At this time of the year, one of the hottest topics is the parcel carriers’ published General Rate Increase (“GRI”). Although the excessive increases continue to bring disappointment, this year’s announcement brought few surprises; the exception being the significant reduction to the dimensional divisor (dim factor) from 194 to 166 for domestic shipments and 166 to 139 for international shipments. The three cubic foot rule continues to apply for ground shipments, so

ground shipments that are smaller than 5,184 cubic inches will continue to be billed based on actual weight (no change there… yet!). * To calculate dimensional weight, measure length x width x height of the package. To play it safe, round each measurement to the nearest whole inch. The result is the size measured in cubic inches. Divide the cubic inches by 194 to determine the chargeable weight.

The following illustrates how some shipments will be impacted, based on the actual weight being less than the weight stated: Service

Length (inches)

Domestic Air Domestic Air International Air Domestic Air Domestic Air or Ground Domestic Air or Ground

8 12 12 18 18 24

Width (inches)

8 12 12 15 18 16

OS rules applied based on combining the length (longest side) and girth of the package. Shipments were then charged at a 30 lb, 50 lb., 70 lb. or 90 lb. rate, based on the applicable length plus girth. So that leads us to this latest change, as well as anticipated future changes. Most experts had likely anticipated that the three cubic foot rule would have been the next item that the carriers would target, rather than the dimensional divisor, so we can expect this to be something that the carriers go after… with FedEx and UPS basically matching one another each year, with FedEx awaiting UPS’ announcement, what’s to stop them, right? With that in perspective, there are solutions available to help one address this. One needs to be adaptable, educated and prepared in these instances. So what can we do now, and what should we do to prepare for future changes? First, you have to understand how these changes impact your business. This is arrived at by having absolute thorough visibility to your shipping data. Reference fields should also be completed

December 2010 | www.PARCELindustry.com

Height (inches)

TOTAL Cubic (inches)

Current Dimensional Weight (2010)

8 12 12 12 18 16

512 1,728 1,728 3,240 5,832 6,144

3 lbs 9 lbs 11 lbs 17 lbs 31 lbs 32 lbs

Proposed Dimensional Weight (2011)

4 lbs 11 13 20 36 38

lbs lbs lbs lbs lbs

with dimensions, to validate the carrier’s measurements. In addition, if there is an opportunity to reduce package dimensions, consider working with your package distributors to adjust the package dimensions accordingly. Finally, if a custom dimensional divisor is not in effect, negotiate it, as needed. Again, understand the impact and request a factor that’s impactful and appropriate based on your shipment profile and volume. Although impactful, you can control how dimensional weight affects your bottom-line. p

thomAs Anderson, MBA, is the Director of Pricing for Logica (www.logicacorp. com). Logica is ranked number 1,866 on the Inc. 500 list in 2010 and is one of the world’s leading logistics consulting firms, specializing in reporting and analytics, audit and recovery, and transportation consulting services for all modes, including Small Parcel, LTL, TL, Air & Ocean Freight. Thomas Andersen can be reached at 800-930-8543 x 726 or at tandersen@logicacorp.com.

DECEMBER 2010 | www.PARCELindustry.com

MASTERING MANAGEMENT with Mark

Taylor

No One Makes It Alone “No one makes it alone.” (Malcom Gladwell) Last month at the PARCEL Forum, about a dozen executives sat around a conference room all day helping each other tackle the most challenging issues they faced in running and growing their operations. It was a candid give-and-take, where trusted peers asked each other tough, in-depth questions that got to the heart of any shipping and operational problems they were facing. Participants received direct and honest feedback and derived actionable ideas that they could take home and implement.

So I’M HAvING THIS problEM… Some of the issues were the following:

3 3

How do I reduce shipping charges?

3 3 3

How do I break down silos in my company?

What can I do to gather the right metrics to measure for my department?

How do I hire the right employee? What can I do to get my team to work together?

A beautiful thing that happens in a group like this: people help one another. I am constantly amazed at the power of a group to make a difference. Vistage developed a process for discussing issues over 50 years ago. I know from my own experience that this process works. I have been a part of it no less than a couple of hundred times. The steps are listed in the side bar. The important part of this process is that after the issue has been presented, the group does not jump to providing solutions. On average, the team should spend at least 30 minutes asking questions for greater clarity. Sometimes, we discover that the original issue is only on the surface and the real issue is something different. After the time, the questions will begin to die down. Then it is appropriate to have each group member 10

December 2010 | www.PARCELindustry.com

provide their perspective, solution or recommendation. Finally, we ask the presenter what they heard and what actions they are committed to taking. This is important because it creates accountability and results. The process works best when one person takes the role of facilitator. The next time you need some help, try brainstorming ideas with a group of your peers. p

STEp-by-STEp Here is the process for discussing issues and opportunities: What is the issue or opportunity that you would like help with? Be concise; state it in one or two sentences that get to the heart of the matter. Is it a concern, challenge, opportunity or problem? Next, tell us why it is significant. What is the effect on dollars, time, people, products, services, customers, family, timing, the future, etc.? What is your ideal outcome? What do you really want to happen? Give some relevant background information. Short bullet points on: How, When, What, Why; Various options you could take, have taken or plan to take. What specific assistance do you want from the group? For example: higher confidence on the right decision; possible solutions; alternatives; identification of consequences; where to find more information; critique of current plan.

MArk TAylor is the Chairman of a New York City think tank composed of CEOs focused on “outperforming” their competition. He is with Vistage International, the world’s leading chief executive organization. He applies his 30 years of experience as an accomplished CEO and corporate manager towards increasing the effectiveness and enhancing the lives of CEOs. Mark holds an MBA from the University of Phoenix and is a graduate of the Coaching and Organizational Learning Program through George Mason University. He can be reached at 212867-5849 or mark.taylor@vistage.com.

REGIONAL ALTERNATIVES with Rob

Shirley

You Can’t Improve What You Don’t Measure Managing information should be part of your overall strategy and tactics in this competitive global environment. Companies are not solely in the service or product business any longer; we are all offering integrated solutions. Thousands of firms make more profit on their former “exhaust” or peripheral by-products than they do on their core product or service.

Performance Indicators Are Key Key Performance Indicators (KPI) should be utilized to:

Improve customer satisfaction by measuring the worst failures from the customer’s perspective

Measure your vendors, hold them to their agreement, warranty and guarantee

Set Management by Objectives (MBOs) with incentives that are paid if goals are met

Publish goals and results to everyone in the company, use every medium and tell your customers

3 3 3

Set benchmarks that are a stretch but achievable Increase your quality and competitive advantage Celebrate success

I had a unique opportunity to network with lots of supply chain experts at the PARCEL Forum ‘10 in Chicago, and here is how some of the best view the opportunity of using data to improve service and profitability: “Normalizing the data across Parcel, LTL and TL carriers is critical to creating a single system of record that can deliver actionable business intelligence. Collaborate with your carriers to leverage their strengths and complement their weaker lanes with other providers. Inbound freight is often managed less effectively than outbound freight using assumptions and averages; however, when shippers take control of their inbound routing with the right tools, they typically capture north of 30% cost reductions. Those savings go directly to bottom line profitability.” —Lance Healy, President, Banyan Technology Mark Magill, Director of Business Development at OnTrac, during his seminar on Regional Carriers made the point that 50% of all parcel shipments are within 300 miles. This creates an opportunity to use a regional carrier that offers flexibility

and savings with great technology, uniformed drivers and vehicles that have carrier logos. This option should be considered at every distribution center. “Data will always tell you something. You may not like what it says, but you should pay attention and make the appropriate adjustments to your business. Ignore the data, and you are ignoring your business.” —Michael Everson, President/CEO Data Trak Technologies Transportation waybills have an enormous amount of information (32+ elements) providing the opportunity to dramatically excel goals year over year. Lane segments and speed required to specific markets can help identify the need for a new distribution center. With your data, you can see around the proverbial corner to know when to buy from vendors, when it will arrive, what your inventory obsolescence and turn rates are and should be and how to effectively select carriers. If you are using paper routing guides, go electronic for speed, flexibility and cost savings and get “green” as a bonus. Bill Greene, Executive Director of Morgan Stanley, said in his carrier presentation that accessorial surcharges were showing significant revenue growth at both FedEx and UPS. Keeping track of their accuracy is a difficult metric to follow because these are often billed separately from the transportation charge. In his session, Closing the Loop on Managing Transportation Costs, Craig Cameron, VP Business Development at Green Mountain Consulting, made the point that if your transportation data is completely accurate and you have the whole picture of domestic and international, they can use the actual past history to determine if a carrier’s claim of X% increase or decrease is accurate. They always find that averages are used and the actual change is significantly different. This levels the playing field in a negotiation. I am particularly interested in hearing from shippers about what they think of the new dimensional weight changes and rate increases coming this January. Send me an email and you may be part of that article. p

Rob ShIRLEy is CEO of ExpresShip, Inc. a strategic business developer in the Supply Chain. Contact him at rob@xpship.com.

December 2010 | www.PARCELindustry.com

PRACTICAL IT with Oscar

Murray

Can You Do Your Job too Well? When there is a lot of blame, people always seem to know The VP knew that my colleague had developed 10 to 15 projects who is deserving of that recognition. But when you succeed a year, but most people did not know that. He recommended as Project Manager, there is no recognition. When you suc- that doing a good job is great, but letting people know what you ceed, you have done what you said you would do. You cannot are up to is even better. If people see that you are creating value boast about coming in under budget in terms of time or money for the company, then they are more willing to fund you. because that would mean your original estimates were wrong. I have never been one for self promotion; I have always let my As companies try to cut budgets, they seem to put more money work do that. But hearing a story like this, and having had siminto failing systems or people. The thinking is that this is where ilar experiences in the past, I decided I would have to change. the money is needed because this is the most talked about. I started emailing updates to key personnel. At first this made I am not saying that you need to have some issues to keep my direct support uncomfortable because it made him feel like your name and your projects in the forefront. Not at all, but I was jumping over his head. But these emails were just FYI rather, I think you need to be more creative in giving yourself (for your information), never a request or a complaint. After a few weeks of this, I started to get questions from these emails. Some of them were, how did you come up with your numbers? IT your thing? We’re looking for a new columnist to I explained the numbers and then normally received no further author the Practical IT department for PARCEL. If this emails on the subject. After a few months of this, people really is something that interests you, email editor Amanda started to notice the consistency with which my team was producing new projects and how much the projects were saving Armendariz at amanda.c@rbpub.com. the company. I recently have been approved for a large project to start early next year and I will continue to let people know what I am working on, when it is done and what benefits the and your team(s) credit. You can do this a number of ways. Most recently, a colleague found himself in this very same company has gained. I want to continue to do my job well so situation early in 2010. His team members kept getting real- that my actions help the company and appear seamless to the located to other teams, and every request that he made was average user but with thunderous ripples to the powers that be. The most important tool a manager has is communication. getting rejected if it involved spending any money. He did not understand what was going on. He had an annual budget that Their teams need to clearly understand the direction that was approved, and he wondered why he was not allowed to they are going. But one must realize that communication is spend it. He had great Return on Investment numbers, the a two- way path. As communication flows from you to your justification was well-founded and multiple senior people had team, you must also interpret the communication from the requested this functionality, and yet he was still getting denied. team and pass that upward to the heads of your team, i.e. My colleague has always been one to have the ear of C team your boss, your boss’s boss or the stakeholders. Whether you due to his impeccable track record. So he asked them what are the low man on the totem pole or the owner of the comwas going on; why had he been resisted at every step to do his pany, you need to communicate. Remember, the best comjob? The answer was shocking to him; he had done his job too municators find success. p well. He tried to plead his case saying that he should be given more projects, not fewer. Later he talked to a VP that was implementing huge projects Oscar Murray, PMP, is the IT Manager at Cinram. Contact him at every week. He asked him how he was getting approved. The VP oscar.murray@cinram.com. expressed that his success was because his visibility was higher.

December 2010 | www.PARCELindustry.com

SHIP RIGHT with Elizabeth

Lombard

Carrier-Neutral Shipping Solutions: Managing Costs and Improving Deliveries in 2011 Over the last few years, carrier accessorial fees have increased at a much faster rate than the published base rates. Accessorial charges alone account for over 30% of a parcel carrier’s revenue. Fuel surcharges are calculated on the net package rate plus applicable transportation-related accessorial charges. In addition to these extra fees, shippers’ freight costs may be even higher in 2011 due to a recently announced change in the Dimensional Weight rating factor. As a result, many organizations are looking for additional ways to mitigate expenses and improve processes as they finalize their 2011 budgets. While some may view the investment in a carrier-neutral shipping solution as simply a line-item expense, these systems make good business sense, as carriers want to maximize revenue while shippers want to minimize costs. Carrier-neutral shipping solutions can help organizations of all sizes better manage costs, enhance customer communication and improve processes. When evaluating shipping solutions, make sure you consider the following. Shippers will benefit most by seeing all services that can be delivered within a certain timeframe and associated costs rather than taking multiple steps or key strokes. This visibility maximizes a shipper’s opportunity of meeting delivery deadlines while better managing costs. So you want to look for a solution that maximizes service level selection among carriers. In doing so, a shipper can select a service based on a delivery requirement. All carriers and service levels within those carriers that meet that delivery objective are displayed. The system can reflect if the service is guaranteed or not, enabling the shipper to select one carrier versus another if the delivery need is critical. Also inquire if the system provides an indicator tool to reflect residential addresses. Shippers will have an indication when a Residential Delivery Surcharge (RDI) is likely and be able to consider the additional fee when selecting a carrier and service level. RDI data can also be used to evaluate and manage overall shipping spend. Another key component is address validation functionality. Shippers should consider to what degree the system provides address corrections. Look for a solution that goes beyond the city, state, ZIP Code level. Instead, look for a solution that provides address information to the street level and indicates when a suite or apartment number may be missing. This functionality

will help maximize timely deliveries while significantly reducing the number of address error fees a carrier may charge. Options may also be important to some shippers that do not wish to put all of their “eggs in one basket.” Ask if the system includes courier services and regional carriers. Using these carriers could help reduce shipping costs and in some cases improve delivery service. Information is powerful in managing expenditures and enhancing cash flow. The accounting and carrier performance capabilities of carrier-neutral systems enable shippers to gather

RulEs aRE ValuablE Also consider the value of shipping solutions that provide conditional logic or business-rules functionalities. For example, if a package is going to “x” location, use “x” carrier. Another example is when a certain user group or a particular service is selected, such as early morning delivery, the system can prompt for an authorizing signature.

information based on criteria including: shipping location and destination; the service levels selected; weight of packages; and promptness of delivery. Interfaced shipping solutions can capture as much information as needed based on fields that are identified from multiple areas of the organization such as CRM platforms, customer service and sales. When shipping solutions are interfaced to an order management system, product can get out the door more efficiently and invoices generated more quickly. Shippers and customers can receive e-mail notifications that a shipment is on the way or was delivered. Interfaced solutions can maximize customer communications and positively impact cash flow while reducing days with sales outstanding.p

ElIzabETH lombaRd CMDSM, CMDSS, MDP, MDC, EMCM, National Postal-Carrier Manager, Mailing Solutions Management Learning & Performance, Pitney Bowes Inc. December 2010 | www.PARCELindustry.com

PACKAGING with Dennis

Salazar

Industrial vs. Post-Consumer Recycled Content and Why It Matters Today, there is a great deal of emphasis on where pulp comes from and luckily, we can now trace the origin of wood pulp back to a specific forest or tree. FSC (Forest Stewardship Council) certification is great, but at a time when we annually plant more trees than we cut down, I am personally more concerned with where the pulp winds up. Utilizing pulp that has already been harvested and processed not only saves trees, it also minimizes electricity/energy, transportation costs and water. In the near future, water conservation will be critical and utilizing recycled corrugated board may no longer be optional, based alone on water usage and savings. In every corrugated manufacturing facility or sheet plant that prints or converts board into boxes, trays or even smaller sheets, there is waste. It may be a result of set up, bad print, trim or simply overruns and mistakes. This waste has value, so every facility I know of recycles it so it can be re-pulped to create new board. Usually, it becomes the medium, which is the inner liner with wavy flutes. This type of waste is also called “pre-consumer” waste because it has not seen the light of day or ever reached a consumer as finished product. Unlike industrial recycled content, post-consumer recycled content is board manufactured from waste that has met the consumer. It is usually referred to as PCW (post-consumer waste) or PCR (post-consumer recycled) waste. Much of it is made from what the industry refers to as OCC, or old corrugated containers. In other words, they are old shipping boxes that you see baled in the back of every big box retail store, for recycling purposes. Corrugated with post-consumer waste could also include old newspapers, paperboard cartons, magazines or virtually any form of discarded and recycled paper product. It’s encouraging to think that the box used to ship your order from your favorite e-commerce site could contain the cereal box you discarded last week and the newspaper you read while enjoying that breakfast.

and recycled has value. So it stands to reason that if there was more demand for paper waste, the value would rise and more people and companies would collect and recycle it. “Recycling” is the most popular of the three Rs of sustainability and probably the easiest one to accomplish. We all encourage our children, co-workers and neighbors to recycle as much as possible, but doesn’t this also mean we have to create use for the waste we are encouraging and, in some cases, mandating everyone to recycle? It would be great if the largest packagers and shippers of products were required to use a predetermined minimum amount of recycled waste in the packaging they utilize. After all, if they help to create the waste and encourage people to recycle it, isn’t there also an obligation to utilize it? In the next issue, we are going to take closer look at the hottest trend in sustainable packaging, which is reusable shipping containers. You may have more options than you think. p

Dennis sAlAzAr is president and co-founder of Salazar Packaging, Inc. and one of the most prolific writers in the area of sustainable packaging, his work appearing in numerous blogs and magazines including his own blog, Inside Sustainable Packaging. Contact him at dennis@salazarpackaging.com.

GuiDelines for PurChAsinG AnD use of PAPer-BAseD shiPPinG ProDuCts There are very few hard and fast rules in the area of sustainable packaging, but the following will hold true the vast majority of the time.

Make sure any paper-based product you buy contains at least some percentage of recycled content, ideally as close to 100% as possible.

If possible, insist on at least 50% of that content to be PCW or PCR waste. Again, 100% is the goal.

Ask specifics about the product you are buying. Some manufacturers and sellers of paper products try to avoid providing details but it is your right, if not your responsibility, to ask the questions.

Creating a Market for Paper Waste Aside from the obvious benefits of using post-consumer waste wherever possible, there is also a tremendous and broader benefit in creating a viable and profitable market for paper waste. When you see people scavenging for empty aluminum cans or, in some states, glass bottles, it is usually not driven by eco concerns. It is happening because the waste being collected

December 2010 | www.PARCELindustry.com

Metrics Best Practices Results of our annual survey unveiled — By Rob Martinez —

december 2010 | www.PARCELindustry.com

Chart 1

48%

What is your annual volume of outbound parcels? Best Practices

<100K

100K - 500K

500K - 1M

14% 9%

12%

20%

21%

24%

32%

General

12%

Shipware Systems Corp, in conjunction with PARCEL, recently conducted a best practices survey on “Distribution Center Metrics.” Three hundred and sixty-eight PARCEL readers completed the survey representing a balanced mix of business sizes and industries. The results offer insights and strategies for improvement throughout the supply chain. Metrics and key performance indicators (KPIs) have long been utilized by logistics professionals for inventory and warehouse management. The use of metrics is critical in any improvement process. If a process is not measured, it can’t be managed or improved. Metrics are widely used in conjunction with benchmarking as a means to compare results with peer organizations. Shortcomings present opportunities for improvement, while leading the peer group validates your current operation as best-in-class. There are many additional benefits of adopting metrics within logistics. Metrics establish creditable operational standards to drive performance expectations. Benchmarks become an opportunity to challenge the team to achieve new benchmarks.

1M - 4M

> 4M

The foundation of metrics is not only operations-based, but also finance-based. Metrics can be used either as justification for continued investment or to quantify savings (or lower operating costs, higher throughput, etc.) already achieved. Each of the survey questions and response choices was developed with specific industry standards in mind. Multiple choice responses fell along qualitative lines, which, when compared to standards, allowed responses to be classified as either laggard or leading. As a result, a “best practices” group emerged around several common characteristics:

   

Understanding of advanced supply chain concepts Greater collaboration between internal departments Enhanced financial performance as a main objective More likely to promote external benchmarking studies

42%

16% 8%

12% Yes

I don’t know

Chart 4

Does your company track “Customer Retention”?

47%

(i.e., current customers vs. customers in prior period)

37%

Best Practices

16%

21%

General

I don’t know

Best Practices

Chart 5

Does your company track “Product Location”?

92%

Chart 2

100%

Best Practices

Best Practices General

Yes

Does your company track “The Perfect Order”?

Chart 3

80%

Does your company track and measure “Fill Rates”? (i.e., lines shipped versus lines ordered)

75%

The survey demonstrates a correlation between the use of metrics and the size of the operation. Sixty-four percent of the best practices group ships at least half a million packages annually, which is twice as many as the general group (Chart 1). By as much as a three to one margin, the best practices group employs Perfect Order and Fill Rate measurements (Charts 2 & 3). The Perfect Order Measure calculates the error-free rate of each stage of a Purchase Order from the time an order is placed until the time the order is received, and 100% of the best practices group indicated a perfect order rate of 96% or higher. Fill Rate calculates the service level between two parties and is usually a measure of shipping performance expressed as a percentage of the total order. Eighty percent of the best practices group enjoys fill rates of 98% or higher. Several survey questions were selected to identify how well distinct parts of the organization collaborate to address interrelated supply chain issues. As an example, we asked logistics professionals about customer retention, traditionally a sales/ marketing function. Fully 75% of the best practices group measure customer retention, versus only 47% of all survey respondents (Chart 4). Of course, customer retention and logistics are highly related, but fewer than half of all survey respondents measure it (at least from the operations perspective). There were enormous differences between the two groups on inventory management. Almost the entire best practices group (92%) knew exactly where all products were in the warehouse, versus less than half of the general population (Chart 5). One hundred percent of the best practices group measures availability and replenishment for all products, versus about half (52%) of all survey respondents (Chart 6).

General

(i.e., understanding of where products are located in the warehouse)

Yes

14%

11%

16%

21%

36%

49%

53%

General

I don’t know

Limited or No Products

Some Products

All Products

I don’t know

december 2010 | www.PARCELindustry.com

Best Practices

(on hand matches perpetual inventory quantity)

Best Practices General

Chart 8

If yes, what is your Inventory Accuracy Rate?

79%

Chart 6

100% General

52%

(i.e., how much product is available and when it needs to be replenished)

21%

95% or less

96%-97%

98%-99%

100%

I don’t know

Does your company track “Cycle-Counts and/or Inventory Accuracy”?

Best Practices

64%

(i.e., identify product discrepancies on scheduled basis)

Does your company track “Inventory Turnover”?

General

52%

Best Practices

13%

12%

17%

23%

31%

General

Yes

I don’t know

While about two-thirds of the general group track inventory accuracy versus 98% of the best practices group (Chart 7), actual inventory accuracy reported varied significantly: Seventy-nine percent of the best practices group reported accuracy of 98% or higher, versus 53% for those 36% of the general group that track the metric (Chart 8). Only about half of all survey respondents (52%) track inventory turnover compared with 84% of the best practices group (Chart 9). While optimal inventory turnover varies between industries, low inventory turnover can lead to overstocking or obsolescence, and it can indicate deficiencies in product line or marketing. High turnover lends itself to product shortages, which may lead to a loss in business.

december 2010 | www.PARCELindustry.com

Yes

I don’t know

For many companies, the goal is to increase inventory turns to reduce holding cost, increase net income and reduce obsolescence. In general, companies that measure cost impact and draw comparisons of financial measurements like gross sales made the best practices list. One hundred percent of the best practices group measures warehouse costs as a percentage of gross sales, as compared to only 52% in the general group (Chart 10). The very act of tracking these numbers leads toward continuous improvement. Companies that use financial metrics as part of logistics management enjoy lower costs. Eighty-three percent of the best practices group reported warehouse costs of less than three percent of gross sales. Of the 52% of the general group that

Chart 9

All Products

84%

Some Products

Chart 7

96%

Limited or No Products

13%

17%

18%

17%

31%

46%

Does your company track “Product Availability and Replenishment”?

(i.e., total inventory and carrying costs as a percentage of sales) Best Practices General

34%

22% No

I don’t know

0% I don’t know

General

22%

1% or less

2%-3%

4%-5%

>5%

Chart 14

(i.e., total transportation costs as a percentage of net sales) Best Practices General

18%

tracks warehouse costs as percentage of sales, only 54% reported costs of less than three percent of sales (Chart 11). Charts 12 and 13 demonstrate that best practices respondents track inventory costs as a percentage of sales by nearly a two to one basis (76% versus 44%) and enjoy lower inventory costs. Eighty-nine percent of the best practices group enjoy inventory costs of three percent of sales or less, versus only 54% of the general group that tracks the metric. The next two survey questions addressed freight costs as a percentage of sales. Eighty-three percent of best practices group formally tracks this measurement versus only 38% of the general group (Chart 14). Only 20% of the best practices group reported freight costs as a percentage of sales in excess of five percent, versus 41% of the general group that tracks the measure (Chart 15).

Does your company track “Freight Costs as a Percentage of Net Sales”?

>5%

44%

4%-5%

12%

2%-3%

38%

1% or less

83%

13%

23%

24%

11%

14%

39% 15%

Best Practices

26%

General

Chart 13

Chart 11

70%

Best Practices

63%

If yes, what are your Inventory Costs as a percentage of sales?

40%

If yes, what are your Total Warehouse Costs as a percentage of sales?

13%

12%

12% 18%

30% 0%

Yes

24%

52%

Best Practices General

Yes

Chart 12

76%

Does your company track “Inventory Costs”?

44%

(i.e., labor, employee benefits, supplies, operating equipment and maintenance, rent, utilities, depreciation, etc. as a percentage of sales)

Chart 10

100%

Do you track “Total Warehouse Costs”?

Yes

I don’t know

december 2010 | www.PARCELindustry.com

Other measurements — accessorial charges (Charts 1617) and total logistics costs as a percentage of sales (Charts 18-19) — were consistent with the survey results mentioned previously. The companies with well-defined metrics enjoy lower costs than those that do not track these metrics. One hundred percent of the companies in the best practices group have developed metrics to track warehouse employee productivity, versus only 44% of all survey respondents (Chart 20).

ROB MARTINEZ, MQC, CMDSS, is President & CEO of Shipware Systems Group, a value-added audit, information systems, benchmarking and consulting firm that helps volume shippers reduce costs 10-30%. He welcomes questions and comments, and can be reached at 858-538-3359 or rob@shipware.com. @SHIPWARE.COM.

Best Practices

40%

24%

28%

31%

General

15%

17%

40%

If yes, what are your Freight Costs as a percentage of net sales?

Chart 15

For the full survey, go to The Experts section on www.PARCELindustry.com.

3%-4%

5%-6%

>6%

Does your company track “Accessorial Charges as a % of Total Freight”?

60%

(i.e., total accessorial/surcharges like fuel, demurrage, redelivery, residential and other extra services as a % of total freight costs)

54%

Best Practices

14%

32%

33%

General

Yes

DECEMBER 2010 | www.PARCELindustry.com

I don’t know

Chart 16

2% or less

73%

Chart 17

If yes, what are your Accessorial Expenses as a percentage of total freight costs?

55%

Best Practices

10%

13%

23%

20%

General

11%-15%

16%-20%

>20%

Does your company track “Total Logistics Costs”?

47%

72%

(i.e., total logistics costs including inventory, warehousing and transportation as a percentage of sales)

Chart 18

10% or less

35%

Best Practices

19%

20%

General

I don’t know

Best Practices

35%

13%

17%

General

17%

39%

35%

44%

If yes, what are your Total Logistics Costs as a percentage of sales?

Chart 19

Yes

4% or less

5%-6%

7%-8%

>8%

DECEMBER 2010 | www.PARCELindustry.com

Itâ&#x20AC;&#x2122;s All About the ConneCtions International e-commerce strategies for connecting with overseas buyers and shipping success By Andrew Manning Over much of the past decade, US-based e-commerce grew at 20 to 30% per year due to increases in broadband access and consumer confidence. However, these growth curves flattened during the economic downturn. Today, with a 10% compound annual growth rate (CAGR), US online retail sales are forecasted to reach $248.7 billion by 2014, according to research firm Forrester. At the other end of the spectrum, international e-commerce is on the upswing. Worldwide Internet usage is rapidly approaching the two billion mark. Asia now comprises 42% of Internet users in the world, while Europe consists of 24% of users. In many ways, global market conditions echo the US conditions at the early part of this century. This includes an increase in tech-savvy consumers, an increase in Internet access and growing confidence in payment security and privacy. 22

December 2010 | www.PARCELindustry.com

Understanding the Challenges of International Shipping International shipping is more complex than domestic package handling. Organizations that fail to address challenges up front could end up with a poor customer experience, low sales revenue and higher-than-expected costs. As a result, it is important to understand what makes international shipping intricate. For example, understanding local laws and regulations is critical for success since each country has its own import and export laws. International shippers should make sure they know in advance whether they can legally ship their goods to a customer in another country. Currency, livestock and radioactive materials are prohibited almost everywhere. Each

country also has a long list of prohibited and restricted items. For example:

Argentina prohibits furs, radios, televisions, phonographs and ready-made clothes.

Australia prohibits goods produced wholly or partly in prisons or by convict labor.

3 3

Brazil’s list includes canes and umbrellas.

3 3

Fiji prohibits dyes and coloring materials.

China prohibits walkie-talkies, wrist watches, cameras, bicycles and sewing machines.

Iran does not allow games involving dice, musical instruments or brown sugar.

Italy’s list includes bells, clocks, leather goods, playing cards and typewriter ribbons.

Nepal prohibits cameras, cinnamon, photographic paper and watches.

Pakistan requires that fountain pens and toys be mailed in insured parcels.

3 3

Peru does not allow gloves, household linens or wooden utensils. Sri Lanka prohibits leather goods including handbags, volleyballs and footballs.

Another area that organizations should pay close attention to is rules established by local postal administrations that impact how shipments are addressed and prepared. In addition to customs forms, value limits and size limits, many countries do not follow the US standard of street address, city, state and ZIP. Proper addressing helps ensure that parcels reach the intended recipient, but also sends a message that a retailer understands and values its customers’ business. Some retailers look to simplify shipping by engaging a single high-cost carrier who provides door-to-door service. In most cases, these unnecessary shipping expenses can make the overall cost too expensive. It is not unusual for ready-and-willing shoppers to bail out of shopping carts when shipping costs are revealed, especially when lower-cost shipping alternatives are readily available. Organizations that succeed will be the ones who can manage shipments across multiple carriers and take advantage of reliable, efficient postal networks.

Further Complexities While retailers are familiar with managing tax rates across multiple states and jurisdictions in the US, these challenges are multiplied when it comes to international e-commerce. Organizations need to know the appropriate rates for taxes and duties by country, then calculate, collect, remit and manage these funds.

Two factors add to the complexity: 3 Shipments must be coded using the HS (Harmonized System) number. These classification numbers are assigned to individual products and are used by customs authorities 3 In Tanzania, Japanese shaving brushes are prohibited. around the world for the application of duties and taxes. This captures only a small fraction of the restrictions. These numbers are typically six to 12 digits long. The first However, it shows the variety and complexity of internasix digits are standardized worldwide, while additional numtional import laws. For additional information, visit the US bers are used by some governments to further distinguish Environmental Protection Agency’s website at www.epa.gov/ products in certain categories. compliance/international/importexport.html. Shippers also need to confirm the country of origin for the It is also critical for international shippers to follow and com- 3 goods being shipped. Regulations and fees are often based ply with US rules regarding cargo transported on passenger airnot on the location of your company or warehouse — but on craft. For example, the Cargo Screening Mandate, which went the locale of the original manufacturer. Retailers who sell into effect in August 2010, requires 100% of all air cargo to be goods that were produced in countries around the world need screened at the piece level prior to being loaded onto passento create a mechanism to identify, capture and communicate ger aircraft. This law was established by the 9/11 Commission that information as part of their shipping documentation. Act of 2007 and is critical for ensuring the security of the air cargo supply chain and making it safer to transport packages Another key component of international e-commerce and and mail on passenger aircraft. shipping success are returns and special handling. Most comTo help meet this goal, the Transportation Security panies that sell via the Internet understand the importance of Administration (TSA) established the Certified Cargo Screening a good returns process. However, international returns processProgram, which allows shippers and mailers to screen cargo ear- ing can be far more intricate. Procedures established for outgolier in the process through trusted, vetted and audited facilities. ing shipments must also be created in reverse. This can help organizations expedite their mail and packages Establishing a process for documentation, cost-effective safely and on time to their destination. For more information shipping and returns back to the US is only part of the chaland a list of facilities that participate in the program, visit the lenge. For returned goods, the customs authorities in most TSA’s website at www.tsa.gov/assets/pdf/cert_locations_b.pdf. countries will refund up to 100% of the original duties and

United Arab Emirates does not allow pork products or imitation pearls.

December 2010 | www.PARCELindustry.com

fees paid upon import. However, customs will only refund duties and fees under the drawback program to those claimants that can substantiate the importation and re-exportation of the duty-paid merchandise. Therefore, it is imperative that organizations maintain the proper records for the required period of time, so drawback claims are fully supportable in the event of a customs audit. Adding to the complexity, this same detailed record keeping required for duty drawback on re-export is necessary for the re-entry or import of the returned goods into the US on a duty-free basis. The last key area for international e-commerce and shipping success is maintaining a positive customer experience. In earlier days, customers might deal with bumps and glitches in the process because e-commerce was new and the added convenience a real benefit. Today, online shopping experiences have been enhanced and expectations are high. To serve customers well and tap into the growth in international e-commerce, organizations must communicate accurate information to customers at the point-of-sale and then deliver on their promises. Failure to manage these challenges will translate into customer dissatisfaction. At a minimum, retailers need to reassure shoppers that they can:

3 3 3

Handle payments in the currency preferred by the shopper;

3 3

Provide accurate estimates of delivery dates; and

Choosing Where to Invest and Cut Corners Once an organization is equipped with the capabilities to sell internationally, there are still decisions to be made. Choosing where to invest and cut corners can play a significant role in overall profitability and growth potential. Areas to consider include:

Product variety. Some organizations choose to offer international shoppers only a subset of their full product catalog. While simpler, it can send the wrong message. Even though sales may be concentrated in a limited number of SKUs, it is often the range and variety of products that attract buyers in the first place. Visitors can easily see what you offer to US shoppers, and when they are redirected to a sitelet where only a fraction of these products are available, a secondclass status becomes self-evident.

Nimbleness. Some retailers are thrilled when their international e-commerce sites are up and running, but fail to manage these properties the way they would their domestic stores. They test and measure a variety of offers domestically but are content with a static checkout experience elsewhere. Market leaders do not assume that what works at home will work overseas. Test whether costs for duties should be included in the product value, shipping cost or charged separately. Determine if customers prefer speed or cost when it comes to shipping. Overall, retailers should experiment and identify what works best in each market.

Co-opetition. Technology firms and shipping services eliminate barriers to international e-commerce, but retailers still need to attract customers. The first step is to recognize the limitations of your brand. Some companies are well-known in the US but are completely unknown in other countries. To reach new markets without breaking the bank, many look to portals, marketing alliances and cooperative databases â&#x20AC;&#x201D; often with competitors â&#x20AC;&#x201D; to attract attention.

Correctly calculate shipping costs, taxes and duties in advance; Offer a clear, easy-to-understand process for returns and after-sales service;

Honor the price quotes provided with no hidden fees or surprises.

Fortunately, new technologies and services are making these requirements easier to manage.

Building Expertise without Building Infrastructure Over the past few years, aggregators and systems integrators have introduced technologies that support international e-commerce. Given the vast revenue opportunities, even the largest retailers have opted to outsource key aspects of the shopping experience to deliver a world-class customer experience. E-commerce platform providers make it easy for retailers to automatically present and settle transactions in foreign currencies, handle international payments processing and simplify logistics. These aggregators and systems integrators have also collaborated with leaders in international shipping. The integration of third-party shopping carts and international shipping solutions enables retailers to fulfill orders by shipping goods to a centralized facility in the US. This eliminates the need for cross-border infrastructure or up-front capital purchases to help increase efficiency and capabilities without risk or expense. Retailers should select international service providers who deliver end-to-end support, with scal-

ability and the flexibility to lower costs and improve customer satisfaction at every step.

December 2010 | www.PARCELindustry.com

Retailers looking to tap into the enormous growth potential of international e-commerce no longer need to navigate the complexities alone. New technologies and international shipping services have eliminated logistics barriers, so retailers can now concentrate their efforts on sales, marketing and merchandising. Organizations must choose their e-commerce and shipping solutions with care to achieve the levels of speed, scalability and flexibility essential for success. Market leaders will work with suppliers who understand the complexities of international e-commerce and shipping, and provide for seamless processes, market insight and well-executed customer experiences.

Andrew MAnning is Vice President, Operations, International Services, Pitney Bowes Inc. Visit www.pb.com for more information. inforMAtion.

Give me an L

If you haven’t considered Lean lately, here’s why you should. By Charlie Jacobs There are times when a well-placed capital letter can change warehouses’ operations in some way. In fact, some of the best everything. Nowhere is this difference more pronounced than ideas for our facilities’ Lean projects have come from folks who spend the majority of their days driving forklifts, working in the case of the term lean. Spell it with a small l, and you’ve got an apt description the pick lines or manning the phones. And some of our most of the economic times in which we live. But spell it with an successful projects have come from teams that included paruppercase L instead, and you’ve hit upon one of the most ticipants from several organizational departments as well as effective ways you can help your company weather these times. representatives from our clients and vendors. Look at Lean as a chance to allow various personnel to shine — Over the past four years, I’ve trained hundreds of warehousing professionals in Lean principles. Just as important, I’ve and to help your operations do the same. And embrace the opporhad the privilege of witnessing the extraordinary things that tunity it provides to break down organizational walls, reduce silo can happen when they’ve taken these principles back to their thinking and encourage cross-functional excellence. operations and put them into action. The result has been nearly $16 million in documented sav- You can Lean just about anything. ings – and numerous real-life examples of how this quality Unlike some process improvement tools, Lean truly can apply improvement tool can work as well for pick lines and loading to almost any supply chain activity, including several that are docks as it does for production lines. Here are a few reasons often overlooked by other disciplines. I’ve seen Lean teams why I believe that introducing a Lean warehousing initiative rack up substantial savings simply by changing the position could be a capital idea for your company, too. of a label printer or the way their operation disposes of its corrugated packaging. And I’ve watched others achieve similarly positive results by focusing on tactical things such as paper You can Lean on just about anyone. When it comes to selecting members for Lean teams, you don’t flow or other clerical tasks. By the same token, I’ve also worked with teams that have need an all-star lineup of employees with advanced degrees or years decided to swing for the bleachers — and hit the equivalent of a of logistics management experience in order to get good results. Any one of your DC professionals — from your top facility $1 million cost savings home run — by choosing to channel their managers to your non-exempt hourly employees — can wind energies into a more strategic issue such as space utilization. From back-office functions to accounts receivable, there’s up making a substantial contribution, as can professionals in IT, finance and other functions that intersect with your almost always something related to a DC that can benefit from 26

DECEMBER 2010 | www.PARCELindustry.com

a Leaner approach, provided you have Lean-trained teams that are prepared to honestly and openly explore all of the options.

Lean doesn’t take long to learn — or earn its way. Although the fact that Lean teams must undergo formal training may not seem like a selling point, consider this: Not only can basic Lean training take place in a very short period of time (as little as two to five days), it also has a highly practical payoff that’s inherent in its design. A major part of each training session involves addressing a real-life issue from each team’s sponsoring operation. So if your facility’s Lean teams return to work and immediately start to tackle that issue using the tools and plans they worked on during training — and if those plans deliver anything near the average savings that our teams’ initial projects yielded — their training will probably pay for itself very quickly . Better yet, it could pay for another team’s training instead, and then that team’s project savings could pay for another team’s training and so on. Our company adopted this pay-it-forward model very early on, and it’s allowed the majority of our program to be self-funded. On another positive note, many Lean projects can take just three to six weeks from start to finish, which means it’s not only possible to see some “Quick Wins” shortly after you roll your Lean warehousing program out, it’s also possible for your teams to tackle multiple projects within the first year — and have some very impressive savings to show for it. And should you have some employees who would prefer to have a more extended immersion in Lean that focuses on more complex projects or more advanced tools, you can always provide them with training in more advanced Lean tools at a later date. The bottom line? Lean is a highly scalable set of tools with the potential to provide almost instantaneous and frequent fiscal relief in an era when most companies need quite a bit of it — without your having to make it a big line item in your company’s budget.

Lean can last (and multiply). All Lean projects have a definitive beginning and end. However many of their savings have a considerably longer lifespan. Because Lean tools allow companies to permanently eliminate wasteful practices or non-value-adding functions, they essentially mean companies never have to spend money on those practices or functions again — even though this change in spending may not be officially noted after a certain point. Once you put Lean processes in place, they truly will be gifts that keep on giving.

Lean adds value. Although Lean is primarily about subtracting waste and inefficiency, it has another side to it that’s equally important: its tremendous ability to add value and positive energy to many areas of your organization. For one thing, the fact that you employ Lean — especially if you pass any of the savings from Lean along to your clients — will have a powerful impact on your company’s ability to attract and retain business. Time and time again, we’ve seen our Lean achievements come into play during contract renewals and new business decisions. In addition, we’re beginning to see DECEMBER 2010 | www.PARCELindustry.com

questions about how we use Lean and other quality principles crop up more often far more frequently on RFPs, which leads me to believe that one of these days, companies may consider Lean to be a must-have instead of a nice-to-have. Perhaps most important of all, Lean is a tremendously empowering and encouraging phenomenon. Its whole emphasis is on the achievable, attainable and improvable. And during these difficult economic times, when there are so many negative circumstances that we as professionals can’t control it’s helpful to be reminded that there are still some things we can affect — and change for the better.

Unlike Lean savings, you may not be able to quantify the positives these three Lean advantages add to your corporate culture. But they’re there all the same. And, ultimately, they may just be the most valuable Lean achievements of all.

ChArliE JACObS is director of process improvement at APL Logistics, one of the world’s largest supply chain management and warehousing companies. For more information about APL Logistics’ quality initiatives, contact Charlie at Charlie_Jacobs@apllogistics.com.

An ExpErt SAyS… When implementing a WMS, the most important considerations include careful WMS vendor and product selection, clear goals visible to everyone, purposeful implementation planning and focus on realistic and quantitative results (ROI). Select a WMS provider that will be a long-term partner for your company and values post-implementation service. They should have a proven record for providing quality attention and support after the sale. They should know their own product inside-out and be a good sounding board for your continual business needs. Select a WMS with a solid product foundation. The product should be flexible and scalable enough to satisfy your daily business needs and complement your long-term business goals. The product should be proven in demanding industries like food, pharmaceutical and 3PL. WMS Functions should include multiple methods for:

3 3 3 3 3

Yard Management ASN Receiving QC Putaway

3 3 3 3 3

Kitting & Manufacturing Inventory Control Picking Returns Shipping & Tracking

Integrated features of the WMS should include:

3 3

Multi-Company, Multi-Building and Multi-Warehouse

Product Tracking controls configurable for batch, lot and serial numbers

Product Date controls configurable for Receipt Date, Production Date, Expiration Date, Shelf-Life and Maturity Hold

december 2010 | www.PARCELindustry.com

Implementations are most successful when goals are clearly defined up front and the implementation remains focused on these goals. Work out the plan on paper first and make sure that it makes sense. Remember the old saying “measure twice, cut once.” We all know that the bottom line is cost and ROI. The sooner the implementation is up and running, the faster the company will achieve the ROI and reap the cost savings of the WMS. Finally, don’t forget to get the employees excited about the new changes. When the employees are on board with the changes and feel confident with the training, the implementation has nowhere to go but up.

Common Pitfalls Common WMS product pitfalls include features and functionality that have been added through acquisitions and are not part of the core product. Another common pitfall is a specialized industry product that only focuses on one business model. These solutions are typically counter-productive and result in poor support of your overall business needs. Common WMS provider selection pitfalls include RFPs (Request for Proposals) that are typically tailored to consultants or specific WMS providers. They ignore your business needs and automatically exclude ideal WMS solutions. Another common WMS selection pitfall is the provider who outsources most, if not all, of their product development, customization and support.

JESSiE MillEr, prESidEnt/CEO of Interlink Technologies, which is consistently ranked in the Top 100 Technology Providers and has specialized in WMS solutions since 1986. Interlink’s turn-key solution includes WHSeLINK Software, Hardware, Project Management, Implementation & Training, and Customer Support. For more information, www.thinkintErlink.COM.

PARCEL COUNSEl with Brent

Wm. Primus, J.D.

Marking Up the Freight: Lawful Revenue Center, or Illegal Fraud? Terms such as “Freight Prepaid and Charged Back,” “Freight Having said that, there are perfectly legitimate reasons why Prepaid and Add,” “Freight Collect and Allowed” and other the party paying the freight may be entitled to an extra amount. payment term modifiers are not defined in either the Uniform For instance, the party paying the carrier may be in a posiCommercial Code (UCC) or the National Motor Freight tion to obtain much lower rates based on higher volumes of Classification (NMFC). Rather, they originate from industry freight than the other party could negotiate for themselves. practice and custom and have never been codified into law. Additionally, the party who negotiated the rates, arranged for The phrases “F.O.B. Origin, Freight Prepaid and Charged the carriage and paid the freight bills no doubt incurred adminBack” and “F.O.B. Origin, Freight Prepaid and Add” mean that istrative costs to do so. There is nothing inherently unlawful the seller pays the freight charges to the carrier but then collects about marking up freight charges; it just must be done in a from the buyer by adding the amount to the seller’s invoice. non-deceptive manner. Similarly, the phrase “F.O.B. Destination, Freight Collect and A similar analysis applies when a seller quotes a product at Allowed” means that the freight charges are paid to the carrier a given price plus “shipping.” If the seller is “marking up the by the buyer who then deducts the amount paid for the freight freight,” this would be a deceptive trade practice. In this situfrom the seller’s invoice. The term “F.O.B. Destination, Freight ation, the problem is easily resolved by using the phrase “shipPrepaid & Add” means that the freight charges are paid to the ping and handling.” carrier by the seller, who then adds the amount paid to the carAccordingly, if one party to a sales transaction wants to be rier to the seller’s invoice. paid something more than the amount paid to the carrier, an Care must be exercised by a seller when prepaying and add- agreement needs to be reached with the other party. For examing freight charges to the invoice to the buyer to avoid violating ple, the parties could agree in a separate writing that the term state laws prohibiting deceptive or fraudulent business prac- “freight” means “the freight charges actually paid to the carrier tices. A seller would be susceptible to such a charge if it adds plus 20%” or “the freight charges actually paid to the carrier to an invoice more than it actually paid the carrier. Such a plus $20.” Failure to have such an agreement exposes the party practice is colloquially referred to as “marking up the freight.” “marking up the freight” to both civil and criminal liability. Similarly, a buyer would be in violation of such a state law if it All for now! p were to misrepresent to the seller the amount the buyer actually paid to the carrier. While a thorough discussion of this issue is beyond the BrENt Wm. PrimUS, J.D., is the CEO of Primus Law Office, P.A., the Senior scope of this column, an example of such a violation of a state Editor of transportlawtexts, inc., and is the co-author of the text US Domestic law would be when either the buyer or seller submits the car- Terms of Sale and Incoterms 2000 and Uniform Commercial Code vs. Incoterms rier’s original invoice for freight charges to the other party, but 2000. Previous columns, including those of William J. Augello, may be found in then later receives an “off-bill discount” from the carrier. An the “Content Library” on the PARCEL website (www.PARCELindustry.com). Your example of such an “off-bill discount” would be when the car- questions are welcome at brent@transportlawtexts.com. rier issues a credit based on a volume incentive which cannot be determined until the end of a given period of time. Such a credit effectively retroactively lowers the freight charges for all shipments subject to the volume incentive. As between the carrier and its customer, such discounts are perfectly legitimate. What is not legitimate is for one party to a sales transaction to misrepresent or artificially inflate the amount (i.e. by failing to include the discount) that it tells the other party it paid for freight charges. 30

december 2010 | www.PARCELindustry.com

Wrap up with Michael

J. Ryan

Fuel vs. Optimization

There has been a lot of “chatter” about sustainability in the shipper community. This topic is important to everyone, but the real issue is which energy source will drive future global supply chains. It is a fact that the world is running out of fossil fuels, and this is everyone’s problem. The world takes for granted that it can order something today and get it tomorrow. During this transition from fossil fuels to energy “X,” sustainability will be the focus. However, the clock is ticking and the transportation manufacturers are working desperately to find a solution to a cleaner, cost-efficient and abundant energy source. In the movie, Back to the Future, they were using garbage as a fuel source… a concept way ahead of its time. There will be a day in the near future that “tax credits” will be given to organizations that deliver finite results in reducing their carbon footprint. These types of requests are already showing up in RFQs from major organizations. So, what can you do to start this process? Here are some ideas: 3 Current Carbon Footprint: It is essential to understand the current carbon footprint of your total supply chain. This includes all modes of transportation (air, surface, ocean, mail). Please keep in mind all of the service providers that may be part of your supply chain (from extraction of natural resources to consumer). There are many service providers that can assist in this area.

Supply Chain Network: With today’s changing customer needs, you should be reviewing your global supply chain network on a continual basis. There is a shortage of talent in this area, but many of the top universities with supply chain programs are developing students in this area. Also, your supply chain partners and consultants can provide this service. The right product in the right place at the right time… this is ever-changing!

Demand Management Tools: You need to provide your organization with the tools that will not only rate shop your shipments but also at the least amount of carbon emission.

Contract Sustainability Element: You probably use over 20 transportation providers. As we travel this journey to a new energy source and a cleaner world, we need to have all of our partners committed to this and the ability to report on it.

Let’s put this into perspective. If we ran out of fossil fuel tomorrow, this is what the world would look like:

3 3 3

You would need to grow your own food or live on canned foods.

FedEx and UPS would cease to exist… that could change your supply chain.

3 3 3 3

The horse industry would prosper once again.

There would be no mail service… the Internet would take over. Global trade would slow down because the ships would truly be “sailing.”

The railroads would be “king” …again. Electric cars would go from a choice of one to hundreds. Teleconferencing would explode in demand.

Some of these are a bit of an exaggeration, but you get the point. We simply cannot wait for an “alternative” fuel solution. As stated above, you can be the “change catalyst” in this process. There is an optimal solution in each of your supply chains. I believe that you can be more “green” and pull cost out in this process. Recently, I attended the CSCMP Annual Conference, and Pepsi received the Top “Innovation Award,” which was a great example of this. They reverse engineered their supply chain process through a highly collaborative approach and created an efficient Direct Store Delivery System. They achieved substantial cost reductions and an optimized carbon footprint… and their next opportunity will be a vehicle system that utilizes an alternative energy source. Hats off to the Pepsi organization for being a leader in this area. It is up to each of us to develop an optimized carbon footprint before the “new” energy source vehicles are available. p

Michael J. Ryan is Director, Business Development at DSC Logistics and has been in the parcel industry for over 25 years. He can be reached at 847-3935862 or mike.ryan@dsc-logistics.com.

December 2010 | www.PARCELindustry.com