By Ian Hobkirk
Managing Director of Commonwealth Supply Chain Advisors
Under increasing pressure to work faster, better, and smarter in today’s omni-channel and e-commerce business environment, companies need help getting their distribution operations up to speed with customer demands and expectations. To help, I’ve identified 10 key tactics that successful companies are employing in order to make a graceful transition to higher levels of e-commerce in the distribution center.
In Parts 1 through 4 of this ten-part series, I covered the four basic tactics: Create a Forward Pick Area, Setup Effective Replenishment, Determine Overall Pick Strategy and Determine the Optimal Pick Methodology. Parts 5 and 6 introduced the first two Intermediate Tactics: Practice Real-Time Warehousing and Optimize Packing. This blog, Part 7 is about how to manage parcel shipments effectively.
Tactic #7: Manage Parcel Shipments Effectively
With increased e-commerce come increased levels of parcel shipments. The choice of parcel carriers in the United States is generally limited to two main providers: UPS and FedEx, with some shipment profiles also lending themselves well to the United States Postal Service (USPS). Among shippers, the choice of which carriers to use is almost a religious debate. For every shipper with a strong preference for one carrier, there is another shipper with the same preference about the opposite carrier. Horror stories abound about “the time we switched to the ‘other’ carrier”, and why we switched back.
Part of the reason for such differing opinions often comes down to the strength or weakness of the shipping manager’s relationship with the parcel carrier’s local account manager. The speed with which a carrier acts to resolve problems, and the perceived level of attention from the carrier, often factor heavily into a shipper’s choice. Additionally, shippers may go for long periods of time without aggressively renegotiating rates. Then, when they introduce the competing carrier and give them an opportunity to bid for the business, the new carrier submits extremely aggressive rates in an attempt to unseat the incumbent. This can lead to the perception that the shipper had been taken advantage of by the incumbent carrier. In reality, both major parcel carriers tend to get complacent when a shipper does not aggressively negotiate for better rates on a regular basis.
Dynamic Multi-Carrier Rate Shopping
To effectively deal with this oligopoly, I often recommend that shippers divide their shipments between UPS and FedEx, rather than giving one carrier all of the business. This forces both carriers to constantly be “on their toes” to offer competitive discounts, and allows shippers to determine the best carrier for each parcel on a shipment-by-shipment basis. To do this effectively requires the use of multi-carrier manifesting software. Rather than having separate computer terminals for both UPS and FedEx manifesting, these systems allow each parcel to be quickly shopped against rates from both carriers (and the USPS in many cases), and select the lowest cost provider based on the shipment characteristics, destination, and service level required. In a matter of seconds after weight capture, the appropriate carrier can be selected and a shipping label can be printed, from one terminal and one label printer. Manifesting software can interface with the WMS or ERP systems to receive shipment data and transmit tracking numbers and other data in a timely fashion. Multi-carrier rate shopping can reduce freight spend, improve manifesting efficiency, and reduce the number of terminals and other hardware required on the warehouse floor.
Parcel Invoice Auditing
In addition to making effective carrier-selection decisions upfront, it is just as important for companies to carefully audit their parcel invoices after the fact. For many firms, this is a daunting challenge. Parcel bills are complex by their very nature. In addition to ensuring that the correct rates and discounts have been charged, a single parcel shipment can have a maze of confusing accessorial charges attached to it, which may or may not be valid. Duplicate shipments may be invoiced. The guaranteed service level may not have been met by the carrier. Proper auditing involves at least 34 points of validation on each shipment, including:
| Parcel Invoice Auditing Points | ||
| 1. Incorrect Rate or Discount | 13. Inaccurately Billed Collect Shipments | 25. Saturday Delivery and Pick-up Validation |
| 2. Incorrect Accessorial Charges | 14. Inaccurately Billed 3rd Party Shipments | 26. Early A.M. Deliveries |
| 3. Late Deliveries (GSRs) | 15. Duplicate Invoice | 27. Invalid Account Number Usage |
| 4. Dimensional Weight Errors (DIMS/SCC) | 16. Duplicate Tracking Number | 28. Returned Service Labels not used |
| 5. Manifested but Not Shipped (Voids) | 17. Inactive Account Reporting | 29. Additional Handling Charges |
| 6. Address Corrections | 18. Multiple Account Validation | 30. No Proof of Delivery |
| 7. Commercial/Residential Adjustments | 19. Declared Value (Insurance) | 31. Special Contract Consideration |
| 8. Delivery Area Surcharge (DAS/Rural) | 20. C.O.D.s | 32. Packages Not Previously Billed |
| 9. Extended Commercial/Residential DAS | 21. Undeliverable Returns | 33. Chargebacks |
| 10. Fuel Surcharge | 22. Weight Accuracy | 34. All Miscellaneous Charges |
| 11. Minimum Net Charge | 23. Large Package Surcharge | |
| 12. International Import and Export | 24. Late Payment Fee Visibility | |
Companies that have invested time into a meticulous auditing process generally find that they are able to uncover a surprising number of errors and recover no small amount of funds. However, the act of checking each of these 34 points can be a never-ending task that consumes a tremendous amount of administrative resources. Many companies choose to outsource this function to a third-party auditing firm that specializes in parcel billing. These firms often work on a contingency basis, and only bill their clients for a percentage of the funds they are able to recover.
In the next installment of this ten-part blog series we’ll move on to the Advanced Tactics, starting with: Pick-to-Shipping Container.