| By Jim Haller | Senior Manager, Parcel Optimization | Chainalytics |
Historically for most organizations, parcel spend made up a much smaller component of their transportation spend as companies focus their procurement efforts on truckload and LTL. With e-commerce’s exponential growth rate, many organizations have not been able to implement the parcel strategy needed to stay competitive in a market where volume is quickly moving to online sales. Honestly, many retailers do not fully understand how it impacts finance, operations, network, customer experience, and more. Examining factors such as model complexity, network optimization, and product value, it is time to rethink your parcel strategy.
As retailers and manufacturers alike witness volume shifts across the omnichannel marketplace, they must now place additional focus and consideration into the service type associated with existing and new volume. Examples may include shifting from postal-hybrid services to ground, or from ground to air. Additionally, organizations need to consider geographical challenges and plan for an international service mix and/or cross-border capabilities.
When assessing volume shifts, organizations must also include the channels of distribution in their analysis as well, including direct to consumer from manufacturer, manufacturer to store, store to consumer, 3rd party to consumer, and the possibility of return shipments. Are these channels currently maintained by national carriers such as FedEx, UPS, and DHL? Are you exploring the opportunities to shift volume to regional, local couriers, or specialized carriers? All of these factors should be examined as part of your parcel optimization strategy.
Amazon’s customer service levels, and those who attempt to match, have created a new level of expectation in today’s consumer. As organizations begin promising their own service level advancements, they must be sure they can manage the price associated with the “promise” being conveyed, which is proving very difficult for many global retailers. High service levels typically come at a much higher cost, and companies must evaluate and embrace the mindset involving a shift from cost saving to cost mitigation or risk being surpassed by their competitors. Maintaining service level promises has become a key component in developing long term customer loyalty as residential delivery becomes an organization’s consistent point of presence.
Benchmarking, Rate Negotiation and Network Optimization:
Parcel rate benchmarking allows organizations to gain insight into the performance and/or volatility of their current network. Assessing the data derived product volume, network lanes, and package characteristics provides the network transparency many companies lack in their e-commerce and omni-channel distribution. Additionally, benchmarking allows you to analyze your current rate data as it compares to others competing in similar industries and marketplaces. Failure to benchmark parcel spend forces the organization to rely solely on internal data and past transactions for future negotiations and procurement events.
When preparing for parcel procurement, it’s important to make sure the staff responsible for rate negotiations is acutely familiar with both the organization’s network and procurement process. Does your organization have a single person responsible for all transportation procurement? Do you use the same process for parcel as you do for truckload? Do you have the tools and expertise in place to receive the best available rates while simultaneously optimizing your parcel delivery network? Do the carriers you use meet the service levels your customers expect? These concepts must be considered when building upon your e-commerce business model.
While the components mentioned above should be the key drivers to your parcel strategy, an assessment of your current methodology and overall parcel spend is the first step in determining which areas require the most focus. With the persistent expansion of online sales, organizations should regularly assess their parcel contracts, service requirements, and network opportunities to ensure they remain competitive and profitable in demanding marketplace. For help finding the best strategy for your parcel budget, contact Chainalytics and inquire about our Parcel Spend Optimization services today.
Chainalytics Senior Manager Jim Haller leads the firm’s Parcel Spend Optimization offering, which enables multi-level organizations to reduce costs, improve service levels, negotiate better pricing agreements and generate cost savings of 8-15 percent on their parcel spend.
Read more about how Chainalytics supports better parcel optimization and transportation strategies for our clients:
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