Parcel spend management of course is not a new concept. Shippers have always looked for ways to lower their costs, toiling over ledgers and spreadsheets in an effort to find opportunities for savings, and engaging consultants for carrier contract analysis and contract negotiation expertise.
In recent years, though, the parcel shipping role has changed. Shippers are under greater pressure to deliver savings than ever before. They are also increasingly seen as stewards of top-line growth by C-suite leaders who appreciate the impact they have on omnichannel businesses, including the ability to absorb the costs required to offer “free” or discounted shipping.
E-commerce itself is also more prevalent. In 2001, it represented just over one percent of retail sales. In Q3 of 2023, the United States Census Bureau estimated that 15.6% of total retail sales, or $284.1 billion, were online purchases.
Then there is the march of technology itself. Over the past two decades supply chains and fulfillment operations, like some many business functions, have evolved to include technology-enabled sophistication previously unimaginable.
Business intelligence is now ubiquitous across industries, e-procurement software has enabled industry leaders to all but tame maverick spending for supplies, and fulfillment operations increasingly rely on automation and robotics that enable throughput levels and order accuracy inconceivable until recently.
Now parcel shipping, so long isolated from such transformative trends, is front-and-center in what I call parcel spend management 2.0 – a time when data-driven decision making and insights are used not only to better manage and lower shipping costs, but also to elevate and empower shippers in the businesses they serve.
Parcel Spend Management 2.0 Is Now Mainstream
Powerful data analytics, machine learning, and artificial intelligence now make it possible for shippers to take proactive cost-saving steps in real time that were not possible before, but the strategies on-demand software enable are not new. In fact, the shipping intelligence platforms available today democratize practices long embraced by leading shippers.
The best shippers all share a similar approach: All employed what I call active shipping management. They planned, measured, monitored, and optimized their parcel spend on a continual basis.
This approach, active shipping management, is the backbone of parcel spend management 2.0. It marks a significant departure from the reactive approaches of the past and is broadly applicable to any organization.
● The best shippers plan.
The days of poring over spreadsheets and carrier invoices are over. With the active shipping management inherent in parcel spend management 2.0, shippers proactively align their shipping strategies and financial plans – something data-driven decision-making makes easier than ever.
Perhaps no other business imperative reveals this more than the creation of parcel shipping budgets. Historically, many shippers applied the carriers’ annual general rate increases (GRIs) to their existing budgets, added margin, and hoped for the best, but the most effective shippers have long looked not only at carriers’ rates, but also how the numerous new rules and fees carriers introduce impact their business.
Technology has taken this to a new level – making it possible to run models that let shippers compare how new carrier contracts and rates will impact their spend if they make the same shipments. Our own analysis shows just how impactful this can be. Although FedEx and UPS introduced a 5.9% GRI this year, we found that the average FedEx customer will pay 8.17% more in 2024 than they did last year; and the average UPS customer will pay 7.72% more.
Such granular analysis empowers new levels of sophistication in other planning initiatives, too, from pricing strategies to the SKU-level analysis of the profitability of specific product lines once shipping costs are factored in.
● The best shippers measure.
You can’t manage what you don’t measure. The most effective shippers measure the vital factors of their shipping operation continually. These include total shipping spend, the average cost-per-shipment, surcharge spend, the average weight per shipment, average zone, and where they fall on minimums.
They also assess how changes like fuel surcharges impact spend and know that even a subtle change like a new box with dimensions that subject it to oversize fees can dramatically impact costs. Just as importantly, they actively compare their operational performance to that of peers with a similar shipping profile, something technology now makes possible.
● The best shippers monitor.
Parcel spend management is dramatically impacted by many constantly changing variables. The best shippers constantly monitor their shipping activity and the factors that influence it.
One common example is negotiated surcharge discounts that expire before the contract. It’s a common occurrence that radically influences spend.
Another is parcel auditing. A comprehensive audit typically uncovers savings of one to two percent of total spend, often because a package arrived late; however, it is estimated that 75% of rebates are never requested. In contrast, the best shippers always monitor service-level guarantees and other factors.
● The best shippers optimize.
The best shippers constantly look at how to take their parcel spend management efforts to the next level. This includes everything from designing ergonomic facilities to being constantly vigilant of how close they are to the next volume discount tier.
They understand which discounts to pursue and how to ask for them. And just as importantly, they constantly analyze their options – whether it’s considering a new carrier or using a different service; for example, opting for ground delivery rather than air when timing allows.
For years, the best shippers have actively managed their shipping – planning, measuring, monitoring, and optimizing continually. In the new, technology-enabled era of parcel spend management 2.0 they can do so faster, easier and more effectively than ever. Now the strategies of the very best shippers are applicable and available to all.
Josh Dunham is the co-founder and CEO of Reveel. The company’s Shipping Intelligence Platform provides shippers with the actionable insights they need to optimize their operations and save money.
This article originally appeared in the March/April, 2024 issue of PARCEL.
