In the last decade, the number of parcel shippers using parcel carrier services as a primary or very significant portion of their overall transportation spend has exploded. This is primarily due to the growth of the e-commerce market and the demands to compete with changing package delivery expectations. The market has seen a rapid shift from 2 -3 day delivery being the most common customer expectation, to a delivery expectation of same day delivery being an achievable new normal. At the same time, and as a direct result of this growth and complexity brought on by the aggressive shift in delivery expectations, we have seen an explosive growth in the number of regional parcel carriers entering the market to meet customer demand. The parcel shipper has more choices to make than ever before when it comes to determining the carrier mix and related volumes to operate and maintain an optimized parcel network rapidly increasing in complexity. The analytical and execution tools, expertise, and bandwidth a high volume parcel shipper requires to make these decisions at a pace commensurate with common e-commerce growth rates of 40%, are rarely, if ever, available within their own organization. As a result, many high volume parcel shippers are turning to the third party industry at a pace reflective of their needs to help them augment their current resources and related bandwidth to more aggressively manage the rapidly growing concern that is their parcel shipping volume and related spend. As a result the third party industry specifically serving the parcel shipper has seen an explosive growth over the same time period.
The Options in Third Party Parcel Spend Management Solutions
Today, the vast majority of third party providers in the parcel space are operating with a similar solution model as they did a decade ago. Most have chosen to continue to target the medium to large parcel shipper shipping 100,000 to 2,000,000 packages annually. These solutions are primarily designed to help these shippers negotiate a new contract and possibly provide a high level optimization of their parcel network. The business and pricing model of these providers is to take a gain share of the related savings and move on to the next customer. Get in, get out. This business model results in quick revenue gains for the customer and the third party provider, but adds little value long term for the customer in being able to sustain an optimized parcel network and competitive parcel agreements. Moreover, this type of engagement provides little to zero focus on adding value for the shipper’s parcel carrier partners that are absolutely critical to their day to day business operations. There are MANY more of these medium to large volume parcel shippers than there are mega parcel shippers shipping millions of shipments per year or greater. The gain share pricing model is more appealing to the medium to large parcel shipper for several reasons. These companies have typically grown into being medium to large parcel shippers fairly quickly and have outgrown their parcel agreements in many cases so there is opportunity for the shipper and the third party to get a quick revenue gain in a down and dirty renegotiation effort or bidding of their parcel agreements in a formalized RFP process. Their networks are usually fairly simple as they are not that large in terms of volume, so the need for an ongoing engagement with a third party provider is just not there. Because the total parcel shipping dollars involved are in the millions, not tens or hundreds of millions, these shippers have less net financial exposure in a gain share payout. This arrangement works for these shippers and the third party providers, not so much for the parcel carriers.
The mega parcel shipper, defined by our company as shipping 4,000,000 packages a year or greater, is in need of a different type of business and pricing model from a third party provider of parcel spend management services. These shippers have the same fundamental issues in managing their parcel networks and related spend week in and week out as the medium to large shippers, limited resources and expertise, inadequate analytical tools and bandwidth, and a limited view of the market. The problem is these issues are magnified exponentially by the volume and complexity possessed by the mega volume parcel shipper. These issues force these shippers to manage their parcel spend mostly at the macro level. As discussed earlier, they simply lack the resources, expertise, or tools to manage their parcel spend and networks any other way. These shippers are in a category by themselves in the market from every perspective, most importantly the parcel carriers’ perspective. These shippers are the foundation of the parcel carriers’ networks and the parcel carriers are committed to keeping these shippers as strategic partners in the growth of their business. These shippers simply garner a different level of support from their parcel carrier partners in every way the parcel carrier can support them. However, as much support as they are given from their carrier partners, they don’t have the business model or support system to augment the needs of their customers’ resources in the management and execution of their parcel spend. While the carriers offer third party services that touch this area in some ways, the type of engagement that is necessary for these mega volume parcel shippers to manage their parcel networks and spend at the micro level with third party provider objectivity is simply not or possible. This leaves these shippers turning to the third party industry looking for a solution that fits their unique needs and position in the parcel shipping market. For now there are few options available. Green Mountain Consulting is one of them. The growth we are experiencing is very reflective of the need, our unique approach for delivering a solution, and the limited options commercially available.
Jim Jacobs is EVP, CMO, Green Mountain Consulting. Contact him at jim@gmcps.com or visitwww.GreenMountainConsulting.com.
The Options in Third Party Parcel Spend Management Solutions
Today, the vast majority of third party providers in the parcel space are operating with a similar solution model as they did a decade ago. Most have chosen to continue to target the medium to large parcel shipper shipping 100,000 to 2,000,000 packages annually. These solutions are primarily designed to help these shippers negotiate a new contract and possibly provide a high level optimization of their parcel network. The business and pricing model of these providers is to take a gain share of the related savings and move on to the next customer. Get in, get out. This business model results in quick revenue gains for the customer and the third party provider, but adds little value long term for the customer in being able to sustain an optimized parcel network and competitive parcel agreements. Moreover, this type of engagement provides little to zero focus on adding value for the shipper’s parcel carrier partners that are absolutely critical to their day to day business operations. There are MANY more of these medium to large volume parcel shippers than there are mega parcel shippers shipping millions of shipments per year or greater. The gain share pricing model is more appealing to the medium to large parcel shipper for several reasons. These companies have typically grown into being medium to large parcel shippers fairly quickly and have outgrown their parcel agreements in many cases so there is opportunity for the shipper and the third party to get a quick revenue gain in a down and dirty renegotiation effort or bidding of their parcel agreements in a formalized RFP process. Their networks are usually fairly simple as they are not that large in terms of volume, so the need for an ongoing engagement with a third party provider is just not there. Because the total parcel shipping dollars involved are in the millions, not tens or hundreds of millions, these shippers have less net financial exposure in a gain share payout. This arrangement works for these shippers and the third party providers, not so much for the parcel carriers.
The mega parcel shipper, defined by our company as shipping 4,000,000 packages a year or greater, is in need of a different type of business and pricing model from a third party provider of parcel spend management services. These shippers have the same fundamental issues in managing their parcel networks and related spend week in and week out as the medium to large shippers, limited resources and expertise, inadequate analytical tools and bandwidth, and a limited view of the market. The problem is these issues are magnified exponentially by the volume and complexity possessed by the mega volume parcel shipper. These issues force these shippers to manage their parcel spend mostly at the macro level. As discussed earlier, they simply lack the resources, expertise, or tools to manage their parcel spend and networks any other way. These shippers are in a category by themselves in the market from every perspective, most importantly the parcel carriers’ perspective. These shippers are the foundation of the parcel carriers’ networks and the parcel carriers are committed to keeping these shippers as strategic partners in the growth of their business. These shippers simply garner a different level of support from their parcel carrier partners in every way the parcel carrier can support them. However, as much support as they are given from their carrier partners, they don’t have the business model or support system to augment the needs of their customers’ resources in the management and execution of their parcel spend. While the carriers offer third party services that touch this area in some ways, the type of engagement that is necessary for these mega volume parcel shippers to manage their parcel networks and spend at the micro level with third party provider objectivity is simply not or possible. This leaves these shippers turning to the third party industry looking for a solution that fits their unique needs and position in the parcel shipping market. For now there are few options available. Green Mountain Consulting is one of them. The growth we are experiencing is very reflective of the need, our unique approach for delivering a solution, and the limited options commercially available.
Jim Jacobs is EVP, CMO, Green Mountain Consulting. Contact him at jim@gmcps.com or visitwww.GreenMountainConsulting.com.
