In today’s highly competitive retail market, the focus is on getting your product to a customer in the fastest, most convenient way possible. The challenge for most shippers is that consumers have been conditioned to expect near zero shipping costs. Unfortunately, most shippers don’t have the luxury of an uncapped transportation logistics budget to drive this insatiable consumer demand. Given these market limitations, how does one ship faster while minimizing the total cost of transportation? The answer is a highly optimized supply chain that includes proper inventory management combined with the right carrier and service mix, including national, postal, and regional carriers. If done right, shippers can have their cake and eat it too when it comes to cutting costs and increasing customer satisfaction. If your long-term strategy is to improve delivery time while minimizing costs and reducing peak season risk, a multi-carrier strategy may be the right one for you.
Embarking on a multi-carrier strategy is a journey, and the time and effort to get to your destination depends on where you start on the path. Assessing your current technological capabilities, your network distribution strategy, and your shipping profile (by customer ZIP Code) are all important perspectives. No matter where you are currently, I have found it a safe bet to live by a simple philosophy: Think Smart, Start Small, and Scale Fast. Understanding your as-is state can be categorized into these basic areas: network design and topology, transportation execution strategy (shipment profile), and technological capabilities. To achieve the best result, the journey is best taken with input from IT, supply chain, transportation logistics, finance, and, of course, executive level support.
Network Design and Topology
If we start with network design and topology, which is especially important if you’re embarking on an omnichannel strategy, knowing from where you plan to ship product is paramount. While inventory optimization is not a topic for this article, any changes to shipping volume as a result of executing an omnichannel strategy must be planned for and reflected in your choice of carriers and their respective volume commitments. This would include a good understanding of direct shipments from suppliers, from fulfillment centers, from stores, and reverse logistics into stores and/or fulfillment centers. Having a historical perspective of shipment activity and modifying it to reflect future network changes will be a key input into your overall strategy.
Transportation Execution Strategy (Shipment Profile)
Understanding your current transportation execution strategy and shipment profile (including carrier mix, service mix, transit times, and contractual volume and/or spend commitment) is also very important. A rich set of historical data should provide an excellent foundation of shipment activity for all of your delivery channels. This data also enables you to match your shipping characteristics with the proper set of national, postal, and regional carriers (by ZIP or postal code).
Often one of the most compelling constraints is in the area of technological capabilities. Do you have the proper distributed order management (DOM) and/or warehouse management system (WMS) capabilities in all locations to implement a multi-carrier strategy that has the capability to route certain shipments under certain conditions to a specific carrier and service? This is important, as ultimately you will route shipments to certain carriers by a set of criteria – including but not limited to origin and destination ZIP Code, package size, package weight, and possibility even inputs such as peak/non-peak season and revenue commitment (artificially ensuring a carrier is allocated the minimum amount of packages).
Selecting the correct national, postal, and regional carriers is fundamentally an exercise of matching your destination ZIP profile with a carrier’s coverage. A good practice would be to create a heat map overlaying a carrier’s coverage with your package density by ZIP Code. The goal is to ensure the carriers chosen align with your outbound package density and attempt to minimize overlap and/or carriers that cannot serve your market. Additionally (and this could be done in a formal procurement event), it’s critical you understand the carrier’s service levels, on-time performance, technology enablement (track and trace, for example), peak season capacity, and references from existing customers. Contractual pricing could ultimately decide your final selection of carriers, but only after your have confirmed the non-pricing criteria.
Forming a strategy around consolidation to terminal or pick-up from location is also important as it impacts cost and transit time. This is usually driven by package density and how well-aligned the carrier’s network is with your network topology. If the package density permits, using full truck loads to move packages is an excellent method to consolidate and save costs. Be sure to factor the average pro-rated cost per package of the truckload leg into the final costs of delivery by the regional carrier when modeling and performing cost comparatives.
Contracting your selected carriers, whether in a formal RFP or a direct procurement event, requires standardization of contractual cost drivers for base rates, fuel surcharges, and permitted accessorial charges (yes, regional carriers can have accessorial charges too). The best method to enable contract consistency is to prescribe the general framework around pricing. Things like weight/zone pricing, dimensional weight and dimensional factors, fuel surcharges, and residential / extended area and oversize/overweight accessorial surcharges all should be clearly defined and considered in contractual terms and factored into the total cost to service for each regional carrier.
Ultimately, carriers selected will most likely be chosen by price, time in transit, service, coverage, technology, and your ability to execute a strategy by location (DC, FC, store, etc.). I like to call this constraint modeling, which is going to be the most practical outcome and most likely to succeed as a planned execution strategy. And, as we all know, nothing goes as planned, so contingencies for unexpected disruptions or issues in or out of your control are always good to have ready and available if the situation warrants. Ongoing monitoring to ensure proper execution to plan will enable you to stay on track and proactively manage exceptions if they occur.
Executing a multi-carrier strategy combining national, postal, and regional carriers can seem daunting, especially for those shippers not yet leveraging modern execution platforms and state-of-art business analytics tools. While this strategy is certainly not for everyone, the benefits for those that are ready to implement can be significant in terms of cost savings and delivery time. As consumers continue to push for faster delivery at no or little shipping cost, shippers must look for innovative ways to compete not only in today’s market, but also into the foreseeable future.Steve Beda is EVP, Customer Solutions, Trax. He has spent the last 25 years working with companies on supply chain automation, execution strategies, compliance strategies, and more recently, spend management strategies. Over the past ten years, he has assisted dozens of clients with contract optimization strategies through coordination of transportation RFPs as well as measurements of savings post-RFP. He has blended the effective use of predictive modeling, modal expertise, and an optimized process for all modes of transportation.
This article originally appeared in the November/December, 2019 issue of PARCEL.