In today’s economic climate, companies need to find new ways to reduce shipping cost, eliminate shipping errors, and be more efficient in processing shipments. Doing more with less has become the new normal. That being the case, it is no surprise that transportation costs and warehouse processing efficiency are closely scrutinized by today’s organizations. Analysts who track this data will tell you that most companies spend between four to eight percent of their total revenue on transportation. As an example, a company with 50 million dollars in sales will normally spend two to four million dollars a year on transportation. These same analysts have revealed that deploying “automation” in the transportation arena can save a company anywhere from four to eight percent of their overall transportation spend. If you apply this to our example of a 50 million dollar company, it will save between $160,000.00 and $320,000.00 per year of its transportation spend. You do the math for your company, and you will see why lots of people are interested in learning more about how to reduce shipping cost by optimize their shipments. So, how can companies control shipping costs in the face of rising fuel costs and annual carrier rate increases? 

Shipment optimization is revolutionary new way for companies to offset rising transportation costs and improve efficiency within their warehouse. Shipment optimization not only reduces freight cost, but it can also drive processing velocity within the warehouse. Shipment optimization can be used to predict shipping cost, whether this be orders taken via the internet or at order entry time. Shipping costs are also a key reason a customer often chooses one vendor over another, and there is no question that shipping costs directly affect the profitability of companies of all sizes. One way for companies to ship more efficiently is to accurately predict the cost of shipping in advance of shipping. Finding a way to optimize shipments is the new way companies can approach shipping and servicing their customer. It can also give companies a competitive advantage over others that can not optimize their shipments. Can shipment optimization be a game changer for you? 

 What Is Shipment Optimization? 

o Simply stated, shipment optimization is the ability to accurately predict shipping cost in advance of actually shipping the product.

 What advantages does shipment optimization provide?

o It allows you to quote freight at the time an order is placed.

o It allows you to take orders in a web shopping cart and quote real shipping cost.

o It allows you to save money on your shipping cost.

o It allows the ordering experience to be a better experience for your customer.

o It allows you to streamline processing within your warehouse.

Would any of the above be a competitive advantage to you? If so please read on!

If you take orders over the web and using traditional freight costing methods to calculate freight, maybe there is a better way. Would you like the ability to accurately determine shipping cost at the time the order is processed? If you absorb shipping cost, then shipment optimization allows you to ship at the least cost, and if you add shipping to the order, it allows you to present a more reasonable, friendly, and accurate way to charge shipping to customers.

Now just imagine that when you process the order, you can print shipping labels up stream before the goods are picked or packed. This could enable you to pick and pack more efficiently and increase processing velocity within your warehouse. Shipment optimization could also allow you to eliminate traditional “manual” shipping stations. 

In order to print labels in advance, you need a way to calculate what items should go into each box. This has been historically known as a cartonization process. Cartonization systems were deployed mostly by large shippers and were either developed in house or by Warehouse Management Software companies, but never Transportation Management Software companies. Once a cartonization process determined what box items could be packed into, it might even compute the cost of shipping if it was hooked up to a rating engine. These systems offered the hope that shipping cost could be accurately predicted, but upon further analysis, we realized that cartonizations systems were NOT actually using freight cost to determine the right size container. Being in the shipping business, it was clear to us that this was the wrong approach.

Cartonization systems found in the market today can determine the size of the container but do not use rating to predict the correct box or boxes needed to process the order the most cost- effective way. 

Shipment optimization, on the other hand, uses real shipping cost to predict the right number of boxes and the size of each box. In our opinion, cartonization systems had it all backwards as they were predicting the box first and then maybe rating the box, which doesn’t consistently give you the correct answer. This might have worked 20 years ago, but not today. Today, carriers have complex rules for dimensional rating, a multitude of services, and even flat rate packaging. In addition, the dimensional rules differ from carrier to carrier and even service type to service type. What makes this even more complex is that carriers even negotiate specific DIM weight factors on a customer by customer basis. That’s why shipment optimization has made these old style cartonization systems obsolete.

Under a shipment optimization model the way to accurately determine the carrier and box requirements is to go through a series of complex algorithms that places items into all combinations of containers, calculates them for each carrier and then compares cost for all carriers to get the right answer. Any shipment optimizer tool should accurately predict the right number of boxes, the size of each box with the best carrier and service to ship them. 

Why Is Shipment Optimization so Complex? 

Carriers often charge freight not on actual weight but on the DIM weight of a box, and in many cases, the DIM weight of the box is much more expensive than the actual weight of the box. 

What Actually Is Dimensional Weight Rating? 

Simply put, dimensional weight rating is the length multiplied by the width multiplied by the height of a box, divided by a DIM factor, and that equals the DIM weight of a box. Further complicating this is the fact that dimensional factors differ between carriers and service types, and carriers negotiate on DIM weight factors, so rating for every customer can be unique. Dimensional rating actually started with air services and has expanded to include ground services in recent years. Flat rate packaging (“If it fits, it ships”) adds even more complexity in determining the correct box. All of this complexity makes it difficult, if not impossible, for a human to determine the best way to ship. Remember, the fewest number of boxes is often not the cheapest way to ship. The fact is that packaging size and weight play a huge role in shipping costs.

Only recently has the concept of shipment optimization been understood and perfected. To accomplish shipment optimization, you need a powerful multi-modal rating engine that maintains rates for all parcel carriers like UPS, FedEx, DHL, USPS and all freight carriers that provide LTL & TL service. When shipment optimization is run, packing configurations are generated and then rate-shopped to determine every combination of box size and items within each box that are possible. Packaging is then dynamically assigned based on the weight, cube and rating results and returned for each carrier with all service levels considered. Rating should also allow you to take in consideration both your contracted rates and/or published rates. Shipment optimization also allows you to determine the best and least costly way to pack all items into a box or boxes and determine which boxes should go on each pallet for LTL freight. Shipment optimization should include the ability to nest items, identify items that should be packed alone, identify items that cannot be packed together, control the fill rate of each box, and add dunage. These factors, along with other configuration settings, are often needed for shipment optimization to get the correct answer. 

Shipment optimization should allow Internet quoting for both parcel and freight, order entry quoting for parcel and freight, printing carrier labels at pick ticket printing time, picking to a box or picking to a label, and directed packing to container. 

Shipment optimization can save you money because the box can be predicted and optimized to ship at the lowest rate possible rate. It can save you time because you can predict the box, thus allowing you to employ more efficient methods to pick, pack, and ship the box. Shipment optimization can also allow you to increase customer satisfaction because freight cost can be accurately predicted and you can employ better ways to deliver your product to a customer. If your customers are paying for shipping, it will cost them less, and if you are absorbing shipping cost, it will save you money on shipping. Shipment optimization can be used to make companies more competitive, more efficient, and ultimately more profitable. Either way, shipment optimization allows you to present a more appealing value proposition to your customer.
Shipment optimization needs to support all carriers, service levels, contract services, and specific containers types for all the national known parcel carries such as FedEx UPS, USPS, and DHL. It should also handle all flat rate boxes or envelopes, plus all local or regional carriers as well as all LTL and full truckload carriers. 

My friend and colleague Tom Reber once joked that, “Maybe it’s time we start thinking outside of the box.” I jokingly replied back, “Maybe we should start focusing on what’s inside the box.” That was a revelation we both would never forget. Stop trying to think outside of the box and focus on what’s in it.

Mike Parrilli is Vice President of Sales at Varsity Logistics, Inc. and Logimax, Inc. Varsity Logistics, Inc. and Logimax, Inc. are business units of the Friedman Corporation that are part of Constellation Software Inc., a publicly trade company with 2011 sales of 773 million. Varsity and Logimax are leading suppliers of Transportation and Warehouse Management Software. Mike has over 20 years experience in the logistics software industry. Tom Reber and Mike developed the concept of Shipment Optimization and since then have created a product called “Ship Optimizer.” Ship Optimizer provides a revolutionary way for companies to approach shipping and is a sure fire way for companies to reduce shipping cost and improve shipping efficiency. Mike can be contacted at