Aug. 8 2006 04:21 PM

Consolidators have had trouble for years explaining what they do and how they work. Although this is becoming less of a problem as the industry grows, it is important to define consolidation what it is and what it isnt for those who dont know. Consolidation is the method of combining parcels from various merchants into one truckload to make the most efficient use of resources and to benefit from significant cost savings.


Consider the cost of transporting four quarter-full trailers for four merchants compared to transporting one full trailer with the merchants' packages all riding together. The four partially full trailers will cost both the consolidator and the merchants more money than one full trailer. Consolidators work to make the most efficient use of resources to save money for themselves and the merchants they service.


Consolidation is not packing as many parcels as possible onto a single trailer regardless of the destination point. Consolidators save time and money by strategically arranging their trailers with parcels bound for approximately the same geographic area. If a truck leaving a Philadelphia facility contained parcels bound for Seattle, Dallas and St. Louis, that would not be cost effective. Good consolidators combine parcels when it makes sense, not simply because they want to move a full truckload.


Consolidation Redefined

There is a dramatic difference between consolidation players who survive in the highly competitive consolidation market and those who not only survive but also thrive. Merchants who are considering various consolidators must examine whether the consolidator consistently generates enough volume to serve the areas where the consumers reside. If not, then that consolidator is not the most intelligent partner to select.


The consolidators offering end-to-end solutions for their customers are going to be the real winners as the industry grows and changes. This includes not only optimizing volume discounts and zone skipping, but also IT capabilities and a returns management process. The merchant must always be number one. If this is overlooked, the consolidator will have trouble surviving in the marketplace.


The following is a rough guideline for merchants who are looking for a consolidator to help them with their transportation needs. Many of the key elements of a thriving consolidators business plan are outlined below.


Location Network design is an integral component of a successful consolidator. In order to optimize the delivery network, operations personnel must examine the location of facilities and the logic behind their existence. Are they in the right places to really take advantage of population and traffic patterns for transportation and for maximum discounts?


In order to get the most penetration to the local post office, consolidators must have strategically located facilities around the US. This will keep the consolidator well positioned at both ends of the line and close to both its own customers and the final consumers it serves. By having a network of distribution facilities located around the country, transit times are reduced, and companies are able to provide better service all around.


Merchants should determine whether their consolidation partners review their distribution networks every year. If this is done in conjunction with evaluating the state of the industry, population trends and customers needs, it will help determine whether changes should be made to the consolidators delivery network and the location of facilities.


Zone skipping Zone skipping is the method of "skipping" U.S. Postal Service processing centers to ensure timely delivery to the consumer at a reduced cost for both the merchant and consumer.


By delivering as close to the local post office or Destination Delivery Unit (DDU) as possible, packages are brought close to the consumers home before entering the postal system, helping to ensure timely delivery. The USPS will spend less time handling the package from the time it is entered into the postal system, and it will still make it to the consumers door in a timely manner.


Another reason to try and penetrate deeply into the USPS is that, in most instances, it is more cost-effective to skip the Sectional Center Facility (SCF) and Bulk Mail Center (BMC) levels of the postal system and make deliveries directly into the DDU. Customers save money because they are bypassing levels of the postal service, which charge fees for each package handled at each facility.


Volume As alluded to earlier, perhaps the most significant reason to use a consolidator is to receive volume discounts. The consol-idator has significant buying power in the marketplace and will receive deep discounts for its purchases (i.e. trucks, couriers, etc.).


Consolidators work with their merchants to ensure they maintain a high package volume and maximize every shipment that is sent. By working closely with customers, the consolidators will save transportation costs, which translates into cost-savings for the merchant and also for the consumer.


Technology Logistics IT is evolving rapidly, becoming increasingly sophisticated with each new development. Because this is an important component to succeeding in the industry, consolidators need to have complex IT capabilities that can scale to accommodate the changing needs of customers. Merchants should take advantage of the consolidators large investments in IT.


When consolidators integrate their IT systems with the USPS, consumers can take full advantage of the USPS Delivery Confirmation service, which allows tracking of packages through the USPS all the way to the consumers doorstep. Finding a consolidation partner with this capability can lead to a very real reduction in call volume at merchant call centers as consumers can track their own packages online.


Returns management Handling returns may well be one of the most difficult aspects of selling merchandise. Customers dont like the hassle of returning items, whether purchased in a store, online or through a catalog. These days, the more sophisticated consolidators are making that extra effort to help their customers devise a comprehensive, efficient returns management process that addresses the consumers' pain points. By adding a returns management process to an already robust distribution cycle, consolidation companies will provide an end-to-end solution that will not only make their customers happy, but will also ease the hassle consumers face when returning merchandise.


Keeping the Customer Number One

Merchants who want a "one-stop" solution should look for a consolidator who has a strategic distribution network, can optimize on-time delivery, reduce cost and provide a comprehensive returns management solution.


Merchants looking for a consolidation partner have their choice of a variety of players in an ever-changing marketplace these days, but the consolidators who will thrive are the ones that keep the customer number one.


Matt Bernstein joined Donnelley Logistics in 1998 and serves as senior vice president of Marketing and Strategy. For more information, visit