Youve negotiated your contract and are auditing your bills, so whats next in your effort to reduce your parcel shipping spend?

Further optimization of your parcel spend, like zone skipping, can seem daunting and difficult to implement, however there are other engineered solutions that can easily be implemented into your operation and result in a reduction in your parcel spend.

Optimizing your service level, package weight and customer alignment are all optimization methods that can result in significant savings in parcel shipping costs without significant headaches in implementation.

Service Level Options

The first area to optimize is your service level. You do not necessarily need to use an air service just because you need it there next day.  For example, lets say you are in Atlanta, Georgia and need to get a five pound package to your customer in Charlotte, North Carolina tomorrow.   Your only choice is which Next Day Air service to select, right?   Not always.  In this case, the parcel will arrive in Charlotte the next day regardless of the service level chosen.  Using UPS published rates, UPS Next Day Air Saver® service is $29.96 for this package while UPS Ground service is $7.22.  Using Ground service results in a savings of $22.74 for that one parcel with the same delivery time.  In fact, it is likely that both a UPS Next Day Air Saver® parcel and the UPS Ground parcel traveled from Atlanta to Charlotte via the same truck. 

Now start multiplying the savings by the number of parcels shipped at your company each day, each month, each year.  The savings from choosing the correct service level quickly becomes significant.

In another example, lets say you have committed to your customer that you will have an important part to them within 48 hours.  Since the part is going from Atlanta to Dallas, a journey of over one thousand miles, one would think a 2^nd day air service is the logical choice.  However, Ground service is guaranteed for the same delivery time at a savings of $13.40 for a five pound parcel. 

You already know that choosing the best service level can result in significant savings.  How do you communicate this to the mail room or in the warehouse?  The development and implementation of a routing guide that takes into account service level requirements is the key to selecting and paying for exactly the service you need.  The routing guide developed should be zip to zip or from each shipping location to each customer.   A state by state routing guide is not sufficient.

Weight Optimization

Optimizing the weight of parcels that you ship will also reduce your shipping expense.  Typically, cost per pound decreases with additional weight per parcel up to about 70 pounds.  Conversely, the cost per pound increases steeply with added weight for parcels above 70 pounds.  Understanding how the cost per pound curve works for your contract is the first step to optimizing parcel weight.  Combining or in some cases splitting shipments can result in parcel shipping savings.  In one example, sending a customer one 45 pound shipment instead of three 15 pound shipments resulted in savings of $6.69 or 20% of the shipment cost.  On the other hand, shipping one 80 pound parcel is $7.23 or 14% more than shipping one 70 pound parcel and one 10 pound parcel.

Aligning Customers

The final parcel optimization method is customer alignment.  You many have ten shipping locations in the U.S., but are you sure that you are shipping to the right customers out of the right location?   Shipping to Louisiana out of Atlanta might seem to make sense, both are Southeastern states.  But the Dallas branch can reach your customer in Northern Louisiana using a Ground service the next day, while out of Atlanta the service is two days. Additionally, it will cost more to ship the same package from Atlanta to Shreveport, $1.16 more, and it will arrive a day later.  Shipping out of the optimal facility will not only save you time and money, but your customers will benefit too.

Utilizing Network Studies to improve parcel costs

You likely cannot afford the time to do this type of analysis on each order that you receive, however, a network study that takes into account your historical customer locations and current shipping points can identify a game plan going forward and realign the customers assigned to each facility.  Additionally, a network alignment study serves as a foundation for the evaluation of your entire network.  You may learn that one or more of your locations are redundant and customers can be served just as well out of other locations. Or you may learn that adding one additional location may increase your next day service area while reducing transportation costs. 

In a recent study of a company that distributed products across the U.S., it was found that through network realignment and the elimination of three facilities, next day service percentage actually increased by 5% with a corresponding reduction in shipping cost.  The company was able to eliminate facilities and increase service.

Look at All Transportation Possibilities

It is also important not to look at parcel costs in a vacuum.  Your LTL and truckload shipments will also be affected by changes in customer realignment and decisions to open and close facilities.  Next day service areas for LTL shipments do not always coincide with parcel delivery next day areas.  Taking into account all modes of transportation in your network realignment study will create a holistic transportation solution.

Optimizing your parcel shipping will result in a reduced shipping expense and likely an increase in service level to your customer.  Parcel engineering does not necessarily mean complicating supply chain operations.  In fact, service level optimization, parcel weight optimization, and customer realignment can all be implemented with minimal disruption to your supply chain and major positive impact on your bottom line and customer service.

For questions or comments about this article, please contact Michelle Gripenstraw, VP Parcel Solutions at GENCO. 

Email her at gripensm@genco.com.