On January 1, 2015, Dimensional (DIM) weight charges for Domestic small parcels were implemented by FedEx, UPS, and USPS. Now shipping charges are calculated by the greater of actual weight or DIM weight. DIM weight is calculated by Dimension (LxWxH) divided by a DIM factor, the DIM for FedEx and UPS 166, for USPS 194 with the DIM weight rounded up. These changes have caused increased shipping charges for many companies.
Ralph White, Acme Suppliers Warehouse Manager, had read the articles about this change. He realized that he needed to take action after recovering from the shock of the dramatic 21% increase in total small parcel shipping charges in his January invoice. Ralph’s first step was to understand the total effect of the new DIM weight small parcel shipping charges on his outgoing shipments; to peel back the layers and determine the current reality. He knew that if he did not take corrective action quickly, the profit loss would continue. Ralph began an Outgoing Small Parcel Shipping Audit to determine the impact by following these steps:
Outgoing Small Parcel Shipping Audit
The first step was to learn the outgoing shipping profile:
- What shipping carriers are used, such as UPS, FedEx, Priority Mail, etc.
- How many carton sizes are used and the LWH of each carton
- What other shipping containers are used such as polybags
- How many of each shipping container is shipped
- What dunnage and how much is used to fill the void
Next, using the small parcel shipping invoice, for each DIM weight-charged shipment, Ralph created a spreadsheet with the shipment ID, weight in pounds, price by weight, and price by DIM weight.
Lastly, Ralph visited the packing area and observed how the packers selected the box, packed the items in the box, the dunnage used to fill the void in the box. He noted several boxes with 25-30% void being filled. He then discussed with the packers the effect of the new rates to the company and the project to reduce the increased shipping costs.
The Outgoing Small Parcel Shipping Audit review revealed an opportunity to reduce the shipping costs by reducing the 25-30% void. This void could be reduced by packing the items in shipping containers with less volume (LWH), thereby reducing the DIM weight charges.
Ralph, working with the packers, established a goal to reduce DIM weight charges, and then created and implemented the following action plan.
The Action Plan
The action plan had three phases. The first phase, Quick Fixes, were fixes that could be implemented quickly with minimal expense and rapid payback. The second phase consisted of fixes that would take more time and required more study. The third phase was made up of fixes that would require assistance from other departments. They immediately went to work implementing the first phase, Quick Fixes, and established a measurement system to evaluate results.
The Quick Fixes
1. Added new equipment to weigh and measure cartons. For the packers to calculate the DIM weight charge of a carton, at each packing station he added a scale for weighing packages and a tape measure.
2. Trained the packers on how to calculate the DIM weight charges, as well as when and how to cut down the packages.
3. Purchased a Carton Sizer/Reducer to make it easier for the packers to cut down the boxes and to make them look more professional. Carton sizers are available from numerous sources and are less than $20.
To view a demonstration, watch this video https://www.youtube.com/watch?v=fXk3EmUf_nE.
4. Purchased a few variable sized boxes, multi-depth cartons.
5. Analyzed and changed the size of existing boxes.
A small change in the box dimensions made a big difference. For example: Reducing one box by one inch changed the dimensional weight to three-pounds, thus generating a 24% lower shipping cost than a four-pound box.
6. Switched to polybags for some shipments.
7. Trained the packers when to ship using USPS instead of FedEx or UPS. USPS has a better DIM rate as shown below:
|CARRIER||DOMESTIC DIM DIVSOR|
8. Modify the packing measurement. After a week, a review of the shipping invoices revealed the initial reductions were lower than expected. Talking to the packers, Ralph learned that they did not repack cartons or cut them down all the time. He learned the reason was that when they did their productivity, packages per hour went down. The light bulb went on; their measurement system was causing more DIM weight charges. By relaxing the focus on packages per hour and encouraging the packers to pack using the best size box even if it meant spending time cutting down the box or changing boxes, they experienced lower DIM weight charges.
Fixes That Required More Time
9. Negotiate a better DIM divisor with the carrier. A higher DIM divisor would lower the DIM weight shipping charge.
10. Perform a Transportation Mode Study to determine which carriers to add if any and for what types of shipments. There are a number of regional parcel carriers, including: LSO, Eastern Connection, Lasership and PITT OHIO Express to name a few that could provide better rates.
Fixes That Required Assistance from Other Departments
Ralph also realized that these other areas of the company could be helpful in reducing the profit drain from the increased DIM weight shipping costs:
Package Design: Packaging of a product influences the size of the shipping carton. Ralph began to educate Purchasing and Finance regarding how package design affects shipping costs and worked to be involved in new product packaging as well as review existing items with high DIM weight charges.
Shipping Charges to Customers: Outgoing shipments charged to customers based on the company shipping tables were not updated reflecting the increased DIM weight charges requiring a review of the shipping tables.
Shipments from Vendors: Incoming shipments with increased shipping costs from DIM weight charges, increasing the total cost of goods requiring an Incoming Small Shipment Audit.
Pitfalls to Avoid
Listed below are common pitfalls to avoid:
Doing nothing. For most companies, small parcel shipments’ outbound, as well as inbound, costs have increased. These costs are draining profits as well as causing budgets to be inaccurate. Failure to understand these costs and implement an action plan may not be received well by your supervisor, and can be embarrassing whereas a well-executed plan will be viewed positively.
Bias to add additional boxes. When trying to add boxes, you may be faced with, "We don't want add them because it will cost more, require more work to keep track of, and be more difficult for the packer to choose the box." In this case, stand fast.
Failure to measure, feedback and share the results. The temptation is great to skip the measurement and reporting of the results. If Ralph did, he would not have realized the packer measurement system was working against the goal to reduce the shipping costs. Additionally, measuring the results and feeding them back to the Packers will reinforce their extra effort and provide the opportunity for the department contribute to profits. Sharing the results with other departments, Purchasing, Finance, etc. may encourage participation in the project that requires their assistance.
Going it alone. Depending upon the complexity of your operation, the number of SKU's, creating thousands of volume combinations to be shipped in a container may make a box study difficult and produce minimal results; it may be beneficial to seek outside assistance.
Like Ralph, there are several immediate successful actions you can take to reduce your increased charges from the new DIM weight calculations. Further, there are actions you can take by enlisting the help of other departments in the company that can increase profits. Together, these actions can make a major difference in reducing the increased shipping charges resulting from the new DIM weight calculations and increase profits.
One final note, LTL Dimensional pricing is not far behind, it is not too early to prepare and be proactive.
Wayne M. Teres, President of Teres Consulting Inc. with over 25 years of warehouse and fulfillment consulting experience, Wayne is a frequent writer and featured industry speaker. Wayne has assisted 100’s of operations reduce costs and improve, quality and service. He can be reached at firstname.lastname@example.org or 508-872-4922