In the May and October issues of PARCEL, we discussed unique strategies for taking advantage of great parcel rates, including how to create a world-class contract and optimizing your overall network. But how shippers manage the individual components of their transportation networks can have a huge impact on the financial success of a company’s supply chain. As supply chains increase in complexity, more and more shippers are looking to reduce costs. Actively managing your parcel network can mitigate and often times eliminate costs in the supply chain that otherwise may slip through the financial cracks.
Package Level AnalyticsManaging a parcel network means understanding the full impact of changes that occur within the supply chain. Let’s face it. Change is inevitable in the logistics business. Someone at the corporate level makes a decision, and as logistics professionals we are expected to find a way to make it happen. Most of us manage to get it done. But what about understanding the impact downstream? Can you quantify both the cost and service impact of strategic decisions? Evaluating changes in strategic direction can be a daunting task. When performing complex network analytics, large parcel shippers can’t afford to rely on averages. The stakes are simply too high. The old adage that the devil is in the details is very applicable to the parcel world. Having access to detailed, package-level data is a requirement for any complex parcel analysis. Parcel contracts are getting more complex as carriers get more creative with incentives and discounts. Therefore, the level of analysis required by shippers is also getting more difficult. Most shippers don’t have the technology or resources to execute a package-level analysis using a large historical sample. Key financial decisions, such as whether or not to shut down a distribution center, can’t be completed by using average package rates or a small data sample. Parcel shippers who are actively managing their networks know their contracts inside and out, have developed the technology to store and manage their data and have access to resources to perform the analysis. But what do you do if you don’t have the time and resources to get there? Many shippers have chosen to outsource these functions to third party providers or freight payment companies which provide consulting and analytical support in addition to core services.
What’s Driving the Numbers?Another key component of managing your parcel network is understanding what is driving the numbers. As a consultant, I continue to be amazed at how many large shippers take a broad-brush approach to managing their parcel network. Many shippers report their numbers each month to senior management using educated guesses or what they “think” happened as explanations instead of fact-based reporting. Shippers should be able to explain bottom line cost variances by understanding the network drivers that affect the overall cost equation. Variances in volume, cost and mix of service should be tracked and explained on a monthly basis. Parcel networks are not static entities. They are constantly changing and difficult to predict. Shippers who manage their network understand the elements that create financial fluctuations and can accurately report and manage the variability. Mix of service issues (shipping more overnight shipments than planned), changes in average zone (opening new retail stores in new geographic region) and changes in package characteristics (change in master case quantities) can all wreak havoc on a parcel budget. By understanding these elements as the drivers of their parcel network, shippers are able to separate actionable issues from business conditions.
If you asked most shippers what performance means, they will probably respond with something related to the on-time performance of their parcel carrier. That answer is not wrong, but managing a parcel network is about much more than just the delivery component. The best practice for measuring the performance of a parcel network is through a balanced scorecard process. Volume, Cost, Service, Quality and Innovation are summary categories that collectively can tell the story of how a parcel network is truly performing. The initial setup can be complex and difficult to implement. Defining performance across carriers, services and even internal divisions can seem like a daunting task at first. But the setup process can be used as a strategic tool to improve your parcel network. Involving the carriers is a big part of the process of defining the performance indicators that will ultimately drive your parcel network. Using a balanced scorecard to manage a parcel network creates a common goal across internal divisions, the parcel carriers and the logistics professionals who are responsible for execution.
Parcel management is about being able to perform accurate analysis, understanding the business drivers and having detailed metrics across all areas of the network. It doesn’t happen overnight. But selecting the right third parties and carriers to support your network can put you on the right track in no time.
Mike Williams is the Vice President of Consulting Services for Green Mountain Consulting. You can contact him via email at firstname.lastname@example.org or visit www.greenmountainconsulting.com.