In this Q&A session, supply chain experts Glenn Gooding and Cory Tower answer some of the most pressing questions for businesses experiencing high growth. Cory Tower managed Drugstore.com’s growth (former division of Walgreens) in annual shipping spend from $15 million to $80 million. Cory offers his insights below from the shipper’s perspective, while Glenn Gooding— well-known thought leader in carrier cost model methodologies — addresses the same questions from a carrier and market perspective.

When is it time to consider a multi-sourcing vs single sourcing strategy?

Shipper Perspective (Cory Tower)

As with most things, there is no simple answer to this. Many things will come into play, like the service levels you are providing to your customer and the capabilities of your IT systems and warehouses. Most shippers have at least two carriers making pickups at their warehouses, with USPS being one of them and UPS or FedEx being the other. To me, the real question is, when do you expand beyond that?

The best answer I can give is based on my experience. I came into a situation like the one I described above. We were using USPS and UPS. UPS was the primary carrier, and USPS was used to deliver to locations that UPS could not reach within the desired service level. We experienced many benefits from this consolidation of volume, such as aggressive rates, drop trailers late pickup times, simplified account management etc. However, eventually, we reached the point where we wanted to expand. It came when we approached UPS about a business need that they were not able to meet, which made us look for a carrier that would meet this need. I was fortunate to work in an environment that supported adding additional carriers. There was, of course, some IT work and changes within the warehouse to support the change but nothing that required infrastructure changes. I continued to use this approach, ultimately doing business with all the major carriers as well as some regional carriers. Each one was added to meet a specific need.

Adding additional carriers comes at a cost. The benefits from adding them need to outweigh those costs. That said, if you can justify adding the additional carriers, the biggest benefit you gain is the constant competition amongst your carriers. Instead of them competing for your business once every three years when your contract is up for renewal, they compete for it every day on every single package.

Carrier/Market Insight (Glenn Gooding)

I agree with Cory. Getting there is the trick. Shippers that are fledgling with small transportation spends need to first focus on grasping an understanding of their transportation expenses. As they grow and as they consider different DC strategies, there are many questions they need to answer. Should I fulfill regionally vs nationally? What’s important to my customer base? What are you having to consider to compete effectively in your marketplace? That will lead you to down a path moving away from a single source strategy to a dual or multi sourcing strategy. In the near term, I think the USPS offers a phenomenal e-commerce product — Priority Mail — that allows incredible service levels along with great simplicity and visibility to true landed costs. That said, our national small parcel carriers — the duopoly — don’t like to facilitate that. Their contracts are laden with performance language, early termination and a number of "gotcha’s" that are placed in the contract to create the perception that you — as the customer — have to manage to your contract rather than to your business. Be aware of those things. Devise a strategy for what a dual sourcing solution might look like and how you get there. You can count on your incumbent carrier not welcoming you with open arms if you suddenly strip 30-40% of your business away from them. Have a plan. Have a contingency.

I have limited packaging tech options. How can I mitigate the impact of carrier dimensional billing?

Shipper Perspective (Cory Tower)

I have been to several trade shows where I have seen many solutions for trying to optimize box size. However, I have yet to work anywhere that it didn’t come down to a packer selecting a box (often one the system recommends) to place the items in. The key to mitigating the impact of dimensional billing is to make sure that packer has the best box size(s) to choose from.

To do this, you need to analyze your order data. You need to understand the make-up of your orders. What combinations of items go into your orders? How big are they, and what special packaging considerations do they have? Based on the cube of your ‘typical orders,’ you can calculate the sizes of the boxes you need to be able to fit all the items with enough extra room for dunnage. Now most shippers will say, ‘I don’t have typical orders.’ I can tell you that I have seen this approach used in an environment that shipped over 70,000 different items ranging from electric motor scooter to mascara.

Of course, the more varied your orders, the harder the challenge. You will never have the ideal box size for every order available to your packer. You may work in an environment where it makes sense to make custom boxes for your orders or you may be able to influence the packaging of the items to reduce their cube. Bottom line is you need to understand your order make-up and how they are impacting your shipping costs to make the right decisions. This is something you should re-evaluate every year as carrier changes continue to increase these impacts.

Carrier/Market Insight (Glenn Gooding)

It’s always a best practice for a shipper to efficiently and intelligently make packaging decisions. That said, there’s always another side to the coin when considering efficient packaging. Less dunnage in a package around your product may correlate directly with the number of claims you file when you hand those packages over to the carrier, ultimately impacting the customer experience. There has to be a balance. Secondly, there’s a limit if you’re stocking 90,000 SKUs in your distribution center. There will be countless scenarios where your packaging solution is not going to be the most efficient. You certainly don’t want to spend a dime on packaging solutions with the potential to save a nickel on your transportation spend. There is another way to approach this. Through the use of good data matched with great industry expertise, you can devise ways to go back to the marketplace and mitigate the effect of dimensional billing. The market has moved toward dimensional billing, and it can be a difficult negotiating point with your national small parcel carrier. However, if you thoroughly understand your package characteristics and where packages fall within the rate card with the effect of dimensional billing methodologies, there may be ways to devise rate structures, contract structures, and terms and conditions that effectively mitigate a portion of today’s dimensional billing.

We are experiencing phenomenal year-over-year growth. What is the single most important thing I can do to manage my small parcel program in 2017?

Shipper Perspective (Cory Tower)

I am an analytical person at heart, so my answer to this question is always going to be: data. If you are experiencing massive growth, chances are that new systems and tools will need to be put in place to manage this growth. Make sure data capture is part of every one of these projects.

I have experienced very aggressive growth in both a large scale and a small scale environment. In both environments, the challenge was the same — the need to move quickly. As volumes grow, you need to replace shipping systems, add warehouses, create new processes, and on and on. The temptation is to get something up and running. I can’t emphasize enough the need to make sure you get data capture at a minimum added to all of these projects.

I will give one example from my experience. The company I worked for had tripled in size in a little over two years. One day, the shipping system crashed. We were completely unable to ship. The CEO comes out of his office and says I want a new shipping system. I immediately saw this as an opportunity to fill in some gaps in understanding our current shipping. So I added data warehousing the shipping logic decisions to the replacement project. By the time we were done, not only would we solve the initial system stability problem, we were going to understand why our packages were being shipped with the carrier/services with which they were being shipped. I never would have been able to get a data warehousing project approved on its own. This crisis had created an opportunity for me. I merely needed to take advantage of it. You will get push back. Stand your ground. I promise you in the long run you will be in a much better position.

I have done this many times throughout my career. Every single time, the benefits we were able to gain far outweighed any minor delays in project timelines. Look for your opportunities and seize them.

Carrier/Market Insight (Glenn Gooding)

I agree with everything Cory is saying. Everything has to be driven by data. The reality is that topline revenue growth hides a lot of sins. So often, procurement strategies and supply chain solutions lag in development as compared to top line growth. Growth provides a lot of opportunity in the small parcel market. To Cory’s point, data needs to be a foundational element in decisions moving forward. Additionally, it’s important to understand with this growth what you’re going to look like in subsequent years. Better visibility into understanding your short and long term growth strategies will help you create a small parcel shipping program that will best align with your short and long term needs. Who knows, it may even segue into an excellent dual or multi-sourcing strategy as previously discussed.

Hear more from Glenn and Cory by attending next Thursday’s (Feb. 23) online webinar titled, “Supply Chain Explosion: How to Manage a Growing Supply Chain in 2017.” Learn more and register here.

Glenn Gooding is Executive Vice President of iDrive Logistics, and Cory Tower — former Sr. Director of Logistics at Drugstore.com and Walgreens — is an independent thought leader and guest speaker in educational supply chain forums.