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
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
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.
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.
The final parcel optimization method is customer alignment. You many have ten shipping locations in the
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
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 firstname.lastname@example.org.