Now that spring has arrived, I’ve been spending a lot of time at the ball fields watching my 10-year-old son play baseball. At the end of every game, his coach offers up some words of wisdom as a takeaway from their performance. Often he enthusiastically says, “Boys! Remember, it’s a thinking person’s game!” He follows this up with some specific example, such as, “When fielding, understand your current situation and what your options are before the ball is hit.” For the boys, it’s easy to forget the importance of evaluating these scenarios and thinking strategically in the excitement of the game. Baseball appears to be a simple game, but when you evaluate the seemingly infinite scenarios that can occur; one realizes it’s actually a very complex and strategic game. Typically the team that prepares the best and outthinks the other wins the game!
The same can be said for managing your company’s parcel spend. On the surface, the casual observer may think it’s a piece of cake. This person tends to reason, “Just negotiate some good rates with a carrier” and let them handle the rest. It’s easy to put parcel shipping on autopilot with your carrier. Unfortunately, to effectively manage and optimize a large parcel network, it’s not that simple. Today when time and cost matter more than ever, logistics has become a key component to an organizations’ survival. Any shipper in the retail world can relate to this, with Amazon changing the entire landscape of retailing and distribution as we know it! As a result, it is not just about negotiating good rates with your favored carrier. Today, managing a large parcel network requires shippers to develop and implement carrier, service, and cost strategies that collectively keep their firms in a competitive position.
It’s not uncommon that a shipper jumps straight to tactical execution of a parcel solution without first fully understanding their strategy. It’s easy to fall into this trap when the requirements of transportation managers’ jobs are many and resources are limited. Slowing down to work on strategy can be difficult to do and often an afterthought. Unfortunately, boiling down a parcel strategy to just negotiating better rates with a carrier often leads to suboptimal performance. To be effective, a shipper must develop a parcel strategy that clearly defines their goals and objectives pertaining to service, carriers, and cost. This process requires thoughtful evaluation of the current state and assessment of a multitude of options in order to create a roadmap leading to optimal results.
Let’s start with carrier strategy. Carrier strategy can vary from shipper to shipper and many factors such as volume, service requirements, shipper constraints, and even carrier relationships can drive carrier utilization decisions. Therefore, a shipper should clearly assess their situation and understand the market to develop a carrier strategy. Assessment of the current situation should involve the following:
• Evaluation of parcel profile - volume & spend by service, weight, and zone across relevant business segments and origins
• Review of competitors’ service offerings and shipping policies
• Analysis of opportunities for optimization
• Identification of rate and contract opportunities with current carrier(s)
Shippers must also understand the current market and carrier solutions available. There are a multitude of national, regional, and local carriers in addition to FedEx and UPS that may provide an optimal solution in terms of both price and service. There is a good chance that these carriers can meet shippers’ particular needs based on their volume profile, optimization, and rate opportunities. Best of all, these carriers are eager win shippers’ business by partnering with them to meet their strategic goals.
Consider this example of carrier strategy development. You may be a high volume shipper benefitting from the booming growth of Ecommerce year over year. You have a single carrier that you have built a relationship with over the last ten years. Your contract has been extended several times without testing the market through a bid process. You’ve implemented some of your carrier’s new service solutions to improve transit time and maintain cost. Chances are if you assess your current situation and the market, you would find a lot has changed. Your competition may be offering faster service at lower costs to consumers. Your distribution network may not be capable of supporting your volume profile and the needs of your customers. And more than likely, there are other carriers with solutions that outperform some of the services you are using with your current carrier. If you find yourself in this situation, you may set the following carrier-related Goals and Objectives for the current year.
Goals:
• Strategically engage with multiple carriers to optimize the parcel network
• Become carrier independent from a systems and technology perspective
Objectives:
• Implement a best-in-class returns process
• Implement niche carriers for low weight and heavy weight outbound DC shipments
• Evaluate use of regional & local carriers to gain a strategic advantage in specific markets
From these goals and objectives, tactical and strategic projects can be developed. For this example, the projects might include:
• Execute a bid process with parcel and postal consolidation carriers
• Implement required system changes to support multiple carriers
• Conduct an RFI with regional and local carriers
Service is the second component in outlining an overall parcel strategy. Shippers must evaluate service level requirements for their customers, create a service strategy, and develop a cost effective parcel solution to support the strategy. The process of developing a solution is complex, with a multitude of distribution network and carrier service options to consider. Ultimately, once a shipper aligns to a distribution footprint that can be supported, they should seek carriers that can provide service solutions to complete the puzzle.
Outlining a specific service strategy is important so that optimal solutions can be engineered. For example, you may have a goal to improve transit time in line with your competition. Based on this goal, you can now develop a clear set of objectives for yourself and seek carriers to attain this goal. Examples of potential service-related goals and objectives include the following:
Goals:
• Implement a 2 day transit network to compete with e-commerce market leaders
• Minimize backorders
Objectives:
• Implement ability to rate shop for optimal service selection
• Assign inventory to optimal DCs based on transit and cost opportunity
• Leverage inventory from other distribution channels (stores)
Tactical and strategic projects that may result from these goals and objectives include:
• Implement required system changes to support optimization of multiple services
• Identify root causes for shipping from the least optimal DC
• Test ability to ship from stores
Developing cost objectives is the last component in outlining an overall parcel strategy. Obviously all shippers want to reduce cost. However, a strategic plan is required to do so. Primarily, shippers can reduce cost through optimization and rate reductions. As a result, cost-related goals and objectives tend to equate to projects that the shippers can implement themselves, in addition to partnership with their carriers. Common cost-related goals and objectives include:
Goals:
• Optimize carrier contracts
• Reduce wasteful practices and avoidable expense
Objectives:
• Implement best in class carrier agreements
• Identify non-optimal use of carriers and services
• Reduce billed weight of packages
• Reduce controllable accessorial expenses
• Leverage processes to consolidate packages for an order to reduce split shipments
The tactical and strategic activities to meet these goals require a great deal of analytic power and resources. Shippers should ensure they remove any constraints and challenges to producing powerful business intelligence.
In summary, developing and executing carrier, service, and cost strategies are fundamental to executing an optimal parcel network. Business demands, competitive threats, new solutions, and evolving technology require shippers to continually evaluate their parcel strategies to stay on top of their game. The pace of business will only continue to increase, and leaving a parcel network on autopilot will lead to sub-optimal network. Shippers must be “aware of their current situation and what their options are” at all times. It’s a thinking person’s game, and the most strategic players will win!
Mike Lambert is Vice President of Consulting Services for Green Mountain Consulting. In this role, Mike is responsible for the development and execution of all strategic Parcel Spend Management solutions which include spend analysis, network optimization and contract management. Mike can be reached at mlambert@gmcps.com.
The same can be said for managing your company’s parcel spend. On the surface, the casual observer may think it’s a piece of cake. This person tends to reason, “Just negotiate some good rates with a carrier” and let them handle the rest. It’s easy to put parcel shipping on autopilot with your carrier. Unfortunately, to effectively manage and optimize a large parcel network, it’s not that simple. Today when time and cost matter more than ever, logistics has become a key component to an organizations’ survival. Any shipper in the retail world can relate to this, with Amazon changing the entire landscape of retailing and distribution as we know it! As a result, it is not just about negotiating good rates with your favored carrier. Today, managing a large parcel network requires shippers to develop and implement carrier, service, and cost strategies that collectively keep their firms in a competitive position.
It’s not uncommon that a shipper jumps straight to tactical execution of a parcel solution without first fully understanding their strategy. It’s easy to fall into this trap when the requirements of transportation managers’ jobs are many and resources are limited. Slowing down to work on strategy can be difficult to do and often an afterthought. Unfortunately, boiling down a parcel strategy to just negotiating better rates with a carrier often leads to suboptimal performance. To be effective, a shipper must develop a parcel strategy that clearly defines their goals and objectives pertaining to service, carriers, and cost. This process requires thoughtful evaluation of the current state and assessment of a multitude of options in order to create a roadmap leading to optimal results.
Let’s start with carrier strategy. Carrier strategy can vary from shipper to shipper and many factors such as volume, service requirements, shipper constraints, and even carrier relationships can drive carrier utilization decisions. Therefore, a shipper should clearly assess their situation and understand the market to develop a carrier strategy. Assessment of the current situation should involve the following:
• Evaluation of parcel profile - volume & spend by service, weight, and zone across relevant business segments and origins
• Review of competitors’ service offerings and shipping policies
• Analysis of opportunities for optimization
• Identification of rate and contract opportunities with current carrier(s)
Shippers must also understand the current market and carrier solutions available. There are a multitude of national, regional, and local carriers in addition to FedEx and UPS that may provide an optimal solution in terms of both price and service. There is a good chance that these carriers can meet shippers’ particular needs based on their volume profile, optimization, and rate opportunities. Best of all, these carriers are eager win shippers’ business by partnering with them to meet their strategic goals.
Consider this example of carrier strategy development. You may be a high volume shipper benefitting from the booming growth of Ecommerce year over year. You have a single carrier that you have built a relationship with over the last ten years. Your contract has been extended several times without testing the market through a bid process. You’ve implemented some of your carrier’s new service solutions to improve transit time and maintain cost. Chances are if you assess your current situation and the market, you would find a lot has changed. Your competition may be offering faster service at lower costs to consumers. Your distribution network may not be capable of supporting your volume profile and the needs of your customers. And more than likely, there are other carriers with solutions that outperform some of the services you are using with your current carrier. If you find yourself in this situation, you may set the following carrier-related Goals and Objectives for the current year.
Goals:
• Strategically engage with multiple carriers to optimize the parcel network
• Become carrier independent from a systems and technology perspective
Objectives:
• Implement a best-in-class returns process
• Implement niche carriers for low weight and heavy weight outbound DC shipments
• Evaluate use of regional & local carriers to gain a strategic advantage in specific markets
From these goals and objectives, tactical and strategic projects can be developed. For this example, the projects might include:
• Execute a bid process with parcel and postal consolidation carriers
• Implement required system changes to support multiple carriers
• Conduct an RFI with regional and local carriers
Service is the second component in outlining an overall parcel strategy. Shippers must evaluate service level requirements for their customers, create a service strategy, and develop a cost effective parcel solution to support the strategy. The process of developing a solution is complex, with a multitude of distribution network and carrier service options to consider. Ultimately, once a shipper aligns to a distribution footprint that can be supported, they should seek carriers that can provide service solutions to complete the puzzle.
Outlining a specific service strategy is important so that optimal solutions can be engineered. For example, you may have a goal to improve transit time in line with your competition. Based on this goal, you can now develop a clear set of objectives for yourself and seek carriers to attain this goal. Examples of potential service-related goals and objectives include the following:
Goals:
• Implement a 2 day transit network to compete with e-commerce market leaders
• Minimize backorders
Objectives:
• Implement ability to rate shop for optimal service selection
• Assign inventory to optimal DCs based on transit and cost opportunity
• Leverage inventory from other distribution channels (stores)
Tactical and strategic projects that may result from these goals and objectives include:
• Implement required system changes to support optimization of multiple services
• Identify root causes for shipping from the least optimal DC
• Test ability to ship from stores
Developing cost objectives is the last component in outlining an overall parcel strategy. Obviously all shippers want to reduce cost. However, a strategic plan is required to do so. Primarily, shippers can reduce cost through optimization and rate reductions. As a result, cost-related goals and objectives tend to equate to projects that the shippers can implement themselves, in addition to partnership with their carriers. Common cost-related goals and objectives include:
Goals:
• Optimize carrier contracts
• Reduce wasteful practices and avoidable expense
Objectives:
• Implement best in class carrier agreements
• Identify non-optimal use of carriers and services
• Reduce billed weight of packages
• Reduce controllable accessorial expenses
• Leverage processes to consolidate packages for an order to reduce split shipments
The tactical and strategic activities to meet these goals require a great deal of analytic power and resources. Shippers should ensure they remove any constraints and challenges to producing powerful business intelligence.
In summary, developing and executing carrier, service, and cost strategies are fundamental to executing an optimal parcel network. Business demands, competitive threats, new solutions, and evolving technology require shippers to continually evaluate their parcel strategies to stay on top of their game. The pace of business will only continue to increase, and leaving a parcel network on autopilot will lead to sub-optimal network. Shippers must be “aware of their current situation and what their options are” at all times. It’s a thinking person’s game, and the most strategic players will win!
Mike Lambert is Vice President of Consulting Services for Green Mountain Consulting. In this role, Mike is responsible for the development and execution of all strategic Parcel Spend Management solutions which include spend analysis, network optimization and contract management. Mike can be reached at mlambert@gmcps.com.
