Data Drives Performance
A great illustration of utilizing data to improve both financial and operating performance is highlighted in parcel shipping pricing, carrier selection and negotiating parcel rates. In many respects, this activity has become a very data driven activity. For years, the major integrated parcel carriers have understood just how crucial a deep understanding of the data related to customers shipping activities is. For example, in the mid 1990s, the carriers transitioned their operating systems from paper based manifesting to the electronic tendering of package level detail.
The change allowed them to more widely understand key core information about a package - costs associated with cycle time, volume, weight, origin and destination pairs, labor burden, revenue yield and numerous other major cost and performance drivers.
Collecting this information while building incredibly comprehensive price models and operating processes around it gave these carriers better mechanisms to manage these many variables. Defining these different types and characteristics of the parcel delivery business enabled the carriers to recover consistent and solid financial returns on their operating activity. In essence, they used the data to create a path to ensure that they could serve customers well by meeting delivery commitments, and, at the same time, provide their stakeholders a solid return on investment. In short, the carriers were able to better manage more aspects and complexity within their businesses with greater precision at consistent financial returns.
What does this mean to you? It means that you need to approach the management of your data in relation to your freight spend, specifically parcel spend, with a very similar disciplined
approach. Making your numbers isnt enough because it may not always be sustainable. Todays logistics professional needs to behave like an experienced statistician with an advanced analytical aptitude.
Data Drives Decisions
Accessibility to your companys shipping and delivery data coupled with an advanced capability to evaluate and analyze freight spend are two of the most important elements in being able to effectively restructure or create more efficient carrier contracts. Understanding your data more extensively will expand your potential to be more successful and far more effective in managing all of the elements that impact your distribution spend.
Accordingly, the ability to address the challenging nature of annual rate and fee changes, adjustments and increases will most likely be a major factor in the difference between making and missing your companys annual freight budget commitment. For most companies, making budget is still the most widely used yardstick for bonuses, advancement and individual and departmental performance evaluations. It is something that everyone in an organization wants to achieve.
Data Constantly Changes
The parcel rating world is in constant change: base rates, rural ZIP Codes, dimensional rate calculations and numerous other fees can all change annually and may be different among carriers. It is necessary to have the ability to evaluate and re-rate your historical shipments against a carriers new rate proposal.
Building a truly clear understanding of your parcel freight cost elements and fees, how they are applied as well as being able to run what if scenarios is essential. Without this capability, a shipper could find themselves in the unexplainable and undesired position of grossly missing their budget plan for freight spend in a given year.
Once you then have a strong handle on the key performance data and understand the changes proposed to your baseline costs, the actions required to make improvements become more practical to implement and easy to regularly monitor.
Where to Start
Okay, so how can you get going? As a shipper, you need to understand where your data comes from, how accurate it is and whether it is in a format that is usable. If it is not possible for companies to establish an accurate internal baseline, it will be difficult to effectively negotiate carrier contracts. Getting the right baseline is tough, but it is critical and not impossible.
Frequently, many data sources have errors and dont provide the comprehensive level of detail that is critical in understanding current spend and projecting new spend, or modeling different scenarios based upon the changing environment.
Many companies use manifesting data to interpret their cost basis. While manifest data provides package level detail, it does not completely represent the real and total cost you paid for the shipment. The manifest data has issues reporting on tiered based pricing (after shipment accessorial fees) and only provide visibility to shipments executed through the system.
Another method to collect spend information is the use of e-bills or flat file invoices. These sources give the appearance of the needed package cost detail but do not break out key spend areas like gross freight along with certain accessorial fees.
Some companies attempt to pull the actual cost paid from their accounting systems. This is the least beneficial option, since it is rare for a company to account for true package level detail vs. gross total spend.
To get a clear picture on package spend, you need to start with accurate charge detail: base rate, discounts, fuel surcharge, delivery area surcharge, declared value and other accessorial amounts. Charge detail allows you to understand spend at the granular level.
Some companies choose to analyze their data using systems created internally, while others choose to outsource to the burgeoning segment of third parties that specialize in this work. Either way, to get the best service at the least cost, the data aggregation, synthesis and conversion to useful information must be done. Getting to this position will now give you, the shipper, tools you need to structure the right contract directly with the carrier.
We work in an industry where the service providers the integrated carriers are truly world class. The ability to function comparably with them in relation to understanding your shipping data will allow you to build a stronger connection founded on a common understanding. Functioning at this high level of data knowledge, will help to strengthen your relationship with your carrier and simultaneously support you in driving your cost and delivery efficiency.
Using your data to drive contract negotiations will generate great results for your company regardless of whether you ship several thousand or several millions of packages per year. You
can negotiate effectively and productively with your carrier just be sure to have command of your data.
Jonathan Shaver is the president and founder of IntraVex. He has been a leader in the parcel and transportation field for 17 years working for Pitney Bowes prior to launching IntraVex in 2000. He is an MBA from Northwesterns Kellogg Graduate School of Business with a focus of Transportation Management, Marketing and International Business. Mr. Shaver also serves on the Board of The Freight Transportation and Consultants Association. Contact him at jonathanshaver@intravex.com.
