An efficient supply chain is one that meets customer expectations in a cost-effective manner. With two-day delivery (or less) becoming the retail standard for customers, balancing cost and customer service is no small feat. According to the GMT 2018 Brand Shipping Policies and Execution Research Study, 58% of consumers seek same-day shipping. Meanwhile, 48 of the 54 retail respondents offered some form of free shipping.
Unfortunately, reducing shipping costs and increasing delivery speed seem to be at odds with one another. And while it’s easy to blame the struggle on carriers who annually raise costs without improving commitment times, highly effective shippers are looking internally for cost reduction opportunities.
How? Over 90% of Benchmark respondents’ parcel volume was shipped either via FedEx or UPS. As a result, an efficiency battle for a competitive edge is being fought through the fulfillment network. Little can be done to improve cost or efficiency once a shipper hands off an order to a carrier.
Internal Diagnosis ─ Wait, We’re Inefficient?
To identify inefficiencies, take a step back and evaluate the system as one entity. Lean Process Improvement identifies seven wastes: defects, over processing, over production, movement, transportation, work in progress, and waiting. These can be roughly translated into symptoms of an inefficient parcel network.
1. Defects: Internal operational errors resulting in incorrectly shipped packages. Ask yourself: Are you getting slammed with address corrections? Are packages shipped at the correct service level? Recommendation: Blame the system.
Well-established fulfillment processes are essential for an efficient shipping network. Unfortunately, the more steps involved in the process, the greater opportunity for error. Evaluate each step in the process where defects could occur. Include the transportation management system (TMS), packaging and labeling procedures, and the customer interface. Are these systems protected against human errors?
There is one constant across all systems involving people: mistakes will be made. Categorize defects as an error in the system, not an issue with its users. Fortify your fulfillment process by creating procedures that minimize opportunities for human errors. Rely less on human decision making and more on standardized processes.
2. Over Processing: Non-value-added work. Ask yourself: Do you have a high number of avoidable accessorial charges? Are your packages shipped in larger boxes than necessary? Recommendation: Know your contract and your volume.
UPS and FedEx have a growing list of accessorial charges. While many of these charges are unavoidable, a few can be mitigated with proper planning.
Handling charges are based on a shipment’s weight, dimensions, or packaging. Understanding the criteria for these charges is essential for planning shipping costs. Consider alternative packaging methods to avoid these charges. Evaluate freight shipping options when those $850 Over Maximum Limits fees kick in.
Another avoidable charge is UPS’s Shipping Charge Correction Audit fee, a penalty for incorrectly supplied package details. Ensure your TMS remains up to date with accurate dimensions and weights for all your boxes and SKUs.
3. Over Production: Exceeding requirements. Ask yourself: Do packages arrive faster than the customer expectation? Recommendation: Strive for just-in-time (JIT).
In a manufacturing system, JIT refers to completing a product exactly when the customer needs it. Any early or late completions are inefficiencies. Similarly, shipments that arrive before customer expectations can be a sign of an efficiency. Early arrivals indicate an opportunity for downgrading service.
Monitor your number of Express shipments for opportunities. Shipments in lower zones often have one- or two-day commitment times via Ground. If Express volume cannot be transferred to Ground, downgrading an “early AM” Express Service to a standard Express service significantly reduces shipping costs and only increases delivery times by a few hours.
4. Movement: Shipping more shipments than necessary. Ask yourself: Do you have a high number of small shipments going to and from the same locations? Recommendation: Put that box inside another box.
Besides shrinking box sizes or changing package contents, there are few options to change a shipment’s billed weight. However, package consolidation can reduce the average cost per pound for multiple shipments. On most rate cards, heavier packages are cheaper per pound than smaller packages. If dimensional or weight-related handling fees are avoided, consolidating shipments with the same origin and destination can produce significant savings.
5. Transportation: Shipping a package further than it needs to go. Ask yourself: Are shipments coming from the closest DC? Do packages have a high average zone? Recommendation: Work with what you have.
When reducing transportation costs, take a holistic approach. Visibility into your network’s customer base and distribution capabilities is essential. Evaluate why you have a high average zone ─ if orders are not being shipped from the ideal location determine whether this is an inventory or TMS issue.
Shipping from store has become a common tool among retailers to reduce shipping zones. Eighty-four percent of GMT’s 2018 Benchmark Report retail respondents utilized or planned to utilize ship from store. Incorporating the entire retail network into the fulfillment process will be essential for competing in a next-day shipping market.
6. Work in Progress: Keeping too much inventory or works in progress in the system. Ask yourself: Is batching causing backups or delays in fulfillment? Are shipments ready to ship long before the cutoff time? Recommendation: Find a balance.
Work in progress is a symptom of an unbalanced system. Longer queues result in longer fulfillment times. Map out your entire fulfillment process and identify where your backups are occurring. Alleviate stress in these areas.
If orders are late due to spending a significant amount of time in a virtual or physical queue, consider upping fulfillment staffing or redistributing your workforce. If a large number of shipments are constantly staged for pick-up, consider increasing your carrier's pick-up frequency or changing the pick-up time.
7. Waiting: Delaying the next step in the process due to lack of resources. Ask yourself: Do I have the resources I need to fulfill an order? Recommendation: Share the wealth.
Maintaining the minimum inventory levels to meet customer needs can be risky. However, an interconnected multi-DC system can minimize the impact of starvation. Understating customer volume by product type and region is essential for distributing volume and optimizing among DCs. In addition, treating all DCs and stores as a part of one interconnected inventory storage can mitigate the risk of low inventory.
Visibility in Your Supply Chain
Any efficiency analysis or optimization initiative requires a comprehensive view of a shipper’s supply chain. As customer expectations rise, accurate and accessible parcel data is invaluable to shippers. Remaining in the dark about a network’s volume distributions or contract impacts is not on option for retailers wishing to gain a competitive edge.
Ensuring your supply chain is interconnected and running smoothly requires taking a few steps back to evaluate the whole network and focus on opportunities.
Jessica Wurst is a Strategic Solutions Engineer at Green Mountain Technology (GMT), a Parcel Spend Management service provider for shippers with over 10 million parcels per year. Jessica has a Bachelor of Industrial and System Engineering from Auburn University and is a certified Lean Six Sigma Green Belt. Visit GreenMountainTechnology.com for more information.