Business data is as old as commerce itself, but the relatively new technologies that allow supply and demand chain executives to utilize that data are drastically changing the way companies do business.
And that change is only just beginning. Most executives are highly aware of the need to harness the power of Big Data to manage increasingly complex supply chains, forecast future demand, and eliminate the costs of unproductive inventory. But many have yet to recognize that data analytics can offer yet another powerful advantage: reducing shipping costs.
Starting with the analysis of weekly parcel invoice data, you can gain transformative insights that can inform your operational decisions. Here are four ways to use your own data to substantially lower your overall shipping costs:
1. Monitor Service Usage
From an operational perspective, you should always be keeping a close eye on service usage.
Information, like that shown in Figure 1, can be pulled from parcel data and used to determine shifts from one service to the next. For instance, a movement toward expedited services can certainly inflate your costs. Every e-commerce company has a unique customer profile, and understanding the services (transit time) your customers select can help you identify what is more important: a lower shipping cost (longer delivery time) or an expedited delivery (higher cost).
2. Understand Zone Usage
Shipments by zone are also important to understand. Zone 2 would indicate a delivery within a 150-mile radius of the pickup location. Zone 8 would be a cross-country delivery or delivery within a radius that is greater than 1,800 miles.
Shipment costs increase, respectively, from Zone 2 through Zone 8. As shipment volume to the outer zones increases, so does the shipping budget. Consequently, moving your inventory closer to the outer zones can transform the outer zone pricing to inner zone pricing.
Keeping an eye on zone usage (see Figure 2) can help you determine when it’s time to evaluate the opening of another warehouse location or outsource inventory to a fulfillment center.
3. Identify and Mitigate Pain Points
Weekly analysis of parcel data also serves to educate supply chain management, procurement and operations professionals on shipping pain points. Each shipper has unique shipping characteristics. Due to the complexity of parcel pricing and its direct correlation to shipping characteristics, it’s imperative to analyze your own weekly data.
A thorough and proper analysis can uncover multiple pricing pain points that could be addressed through contract negotiation efforts.
For example, you can determine how many shipments for each service are being negatively impacted by the minimum charge (see Figure 3).
The minimum charge of $6.94 for 2016 for ground service can be discussed and negotiated with your carrier. (Note: UPS recently announced the 2017 ground minimum charge increase. The 2017 ground minimum charge will be $7.32. This increase will have a dramatic financial impact on most shippers.)
The charts in Figure 4 represent a 2014 scenario (ground minimum charge was $6.24) in which a shipper negotiated and improved minimum charges for multiple services.
In this example, the negotiated improvement to the ground minimum charge was insufficient. As you can see, more than half the shipments are still impacted. This means the shipper is not taking full advantage of the negotiated discount. This particular shipper has a 42.7 percent discount for ground service in the one- to five-pound category.
Figure 5 depicts the standard list rates for the one- to five-pound weight range. Once the discount is applied, list rates are improved to the net rates seen in Figure 6.
However, the carriers apply a minimum charge to all services. So even though the net rates are attractive and competitive, they’re void of an applied minimum charge. The negotiated minimum is applied in Figure 7. All the cells highlighted in red are not taking full advantage of the 42.7 percent discount due to the pricing floor or minimum charge.
Reference Figure 8 to see how the effective discount for shipments to these zones at these weights is significantly mitigated from the negotiated 42.7 percent discount.
On average, this shipper is losing 11.4 points on his 42.7 percent discount due to the minimum charge (see Figure 9).
4. Evaluate Surcharge Impact
Countless insights can be gleaned from an analysis of your weekly parcel data, but getting a good understanding of the minimum charge impact is going to be critical for most shippers. Additionally, accessorial surcharge impact should be evaluated.
Because no two shippers are alike, the surcharges that have a material impact can vary from one shipper to the next. Understanding which accessorial surcharges are your top offenders is important. (See Figures 10 and 11.)
Some of these top accessorial offenders have a negotiated incentive and others do not; however, all accessorials can have a discount applied.
Parcel Data Gives You an Edge
As you likely concluded, a proper and thorough analysis can be extremely helpful in identifying key areas of strategic focus, whether it be for operations or pricing discussions with your carrier. The benefits of this type of analysis can extend beyond your bottom line.
Analyzing parcel data is an exercise that most supply chain executives have yet to take advantage of. In fact, roughly 83 percent of organizations aren’t utilizing Big Data analytics to improve their supply chain management. Removing yourself from this majority can give your business a tremendous advantage when it comes to unraveling the complex world of pricing in such an ultracompetitive space.
Trevor Outman, MBA, is a co-founder and principal partner of Shipware, a San Diego-based parcel consulting and audit firm that has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, complex analytics, rate benchmarking, carrier and mode optimization, invoice auditing and other services. Leveraging years of experience analyzing volumes of parcel data and carrier contracts, Outman is widely regarded as an expert in the parcel industry.