2021 Parcel Rates: 3 Areas for Attention

The average rate increase for primary services provided by UPS and FedEx mirrors that same familiar 4.9 percent increase that we have seen for many years. 

And just as we have seen for many years, the 2021 parcel rates increase announcements are just a visible layer in the carriers’ rate and service pricing structures. With multiple layers, the complex pricing and surcharge practices of UPS and FedEx can make it difficult to determine the true cost for your small package shipments. 

Beyond the average increase on standard services, it is also important to recognize that surcharges, accessorials, new fees and tweaks to the carriers’ terms and conditions could require you to budget a 2021 cost increase closer to 8.5 percent. Capacity pressures created by exponential e-commerce growth during the pandemic and uncertainty about mid-year or peak surcharges for 2021 creates an environment of unknowns.

You need to understand how your shipment characteristics align with carrier networks. If you are a large shipper with a great contract, be prepared to defend that as tight capacity drives renegotiation motives for UPS and FedEx. Your parcel partner can be a real asset during this time if they have the ability to analyze your historic performance and determine areas for future cost savings that do not jeopardize performance. 

Let’s explore three aspects of this year’s parcel rate increase that could drive new costs in your transportation budget. 

  • Expanded ZIP Codes for Delivery Area Surcharge 

More ZIP codes than ever before will be eligible for Delivery Area Surcharges (DAS) for both UPS and FedEx. Both carriers adjust the applicable ZIP codes every year, but the past two years have reflected significant changes. In 2021, these charges will apply to almost 38 percent of the United States.

The increase for UPS DAS areas will apply to almost 12.3 million people, while the FedEx changes will affect about 11 million people. Ultimately, that means you are facing an additional surcharge for more of your customers. 

This is a difficult adjustment to calculate on your own, but when that much of your customer-base is affected by new costs, deep analysis is required to determine how these changes will impact your budget in 2021.

We talked more about the changes around DAS during our recent parcel rates webinar. Watch the replay for more insight on the how and the why behind this move by the carriers. 

  • Additional Handling Charges for Large Parcels and More to Come

    If your packages measure over 105 inches in length and girth combined, you will be charged an Additional Handling Fee of $16. This dimension change on the fee targets packages that barely miss the Oversize criteria of 130 inches (L and W combined). It applies to packages that take up a lot of space on conveyor belts, but do not get charged high dimensional weight.  

    Parcel carriers are becoming increasingly selective about the packages that move through their automated networks. Large packages, in certain instances, can cause significant problems in an automated facility. Moving them often requires more work from human resources, a costly and time-consuming element. 

    Beyond this $16 charge, UPS is also implementing a new structure for additional handling and large package rates that will differ by zone. Those rates will be announced at a later date, April 11, 2021 for non-hundred-weight packages and July 11, 2021 for hundredweight packages. 

    For heavy retail customers that are not clothing-oriented, this change could create a significant impact. We work with clients to identify specific impacts and solutions to mitigate the added cost.
  • Lightweight 2021 Parcel Rates Face Steepest Increases

    It is important to understand that when the carriers have a rate increase, it is not a universal rate increase across all weights and zones. The average rate increase is 4.9 percent. The level of rate increase for your volume depends on your shipping characteristics. For many shippers a larger percentage of their packages qualify for minimum charges, especially larger shippers with more aggressive pricing. 

    This year, parcel shippers charged at the zone 2, 1-pound minimum will face a steeper increase – about 6.4 percent – than their counterparts in other weight and zone combinations. Likewise, UPS and FedEx rates match between 1 and 15 pounds, and for these lightweight shipments the increases are generally higher than those for heavier packages. 

This strategy of larger increases on lightweight packages is an abrupt change for UPS and FedEx. Two factors likely affect the decision:

  • Competition from Priority Mail: Last year (before COVID-19), FedEx and UPS were both concerned with competition from Priority Mail. Lightweight Priority Mail rates are significantly lower than UPS and FedEx Ground rates, especially to residential addresses. Heading into 2021 with the parcel industry at capacity, there is less concern on competitiveness and more emphasis on profitability.’
  • Profitability: Lightweight packages are typically less profitable for small package carriers than heavier weight packages. Carriers are likely to continue to increase lightweight packages at higher levels as long as there are capacity constraints. Regional carriers can offer an efficient alternative in some of your lightweight shipping scenarios. In light of capacity challenges and other disruptions during 2020, many of these operations have filled a niche and grown. These carriers can sometimes be easier to implement, and they don’t often bring the surcharges the national carriers apply.

    During our Parcel Rates Roundtable we share tips for leveraging regional carriers as part of your parcel program. Watch the webinar to make sure that type of move does not drive up cost with your national carrier due to your tier commitments.

Parcel Bills: Do Not Pay Late

Another area for attention: when its GRI takes effect Jan. 4, 2021, FedEx will begin applying a 6 percent late payment fee. UPS implemented this fee in 2004, and this gives FedEx customers cause to pay close attention to the payment terms in their contracts. 

Not paying your bills on time now becomes a more financially impactful decision, and these fees can add because they apply at the invoice level.

Master Your Parcel Plan, Minimize Rate Impact. 

Do you have your finger on the pulse of your parcel program so you can understand the true cost impact of the 2021 annual General Rate Increase across your end-to-end supply chain?

Questions to consider:

  • How do your contract terms and conditions address volume caps?
  • How will volume caps affect your actual rate increase, surcharges and other fees?
  • How does your customer base change now that more than 11 million people have been added to the DAS delivery charge?
  • How do you budget for these changes?

Open our Parcel Rate Outlook 2021 for our expert support in preparing a plan that carefully considers these questions – and all changes across the parcel environment. Leveraging deep parcel expertise, tools and technology, we’re able to provide rate impact analysis specific to your personal needs and design a business solution that controls cost and protects experience.

Get our Parcel Rate Outlook 2021 today and make sure your 2021 transportation budget considers the nuances lurking in the layers below the 4.9 percent average rate increase.

E-commerce Supply Chain: 6 Challenges

The e-commerce supply chain challenges this year will be as long a family’s shopping list.

Here are the top 6 challenges to consider during the holiday peak shipping season.

  1. The traditional holiday peak converges with elevated online demand due. E-commerce sales will match or surpass brick-and-mortar. Consumers have multiple ordering channels to tap. E-commerce supply chain fulfillment and delivery operations need to respond to this decentralized − and unprecedented − demand-pull.
  2. Many supply chains remain out of kilter, one of the pandemic’s many legacies. U.S. inventories are at their lowest levels in five years, according to several analysts. Stock-outs have been common. U.S. imports are spiking. However, those goods may not reach store shelves or distribution centers in time to satisfy peak consumption needs.
  3. Parcel networks have been overwhelmed by demand since March 2020. This has led to inconsistent delivery performance across the board. National and regional parcel carriers have maxed out their fulfillment and distribution infrastructures. Late deliveries mean that consumers will be forced to accept holiday service levels that are beneath their expectations. If there is good news, it’s that e-commerce consumers are aware of the problems and will be more tolerant of slower delivery. What they demand, and should expect, is access to real-time information about any service issues.
  4. Consumers may order goods earlier than usual, allowing the supply chain to spread out delivery timetables to create a “load-leveling” effect. That would be positive news, but it should not automatically be counted upon.
  5. Warehouse space is severely constrained. Retailers with brick-and-mortar exposure need to position stores as “forward fulfillment” nodes. This allows orders to be pulled from store inventory and delivered over relatively short distances. Store networks will also support what is expected to be major demand spikes for in-store and curbside pickups of online orders. Pure-play e-tailers without store networks need to get creative.
  6. FedEx and UPS are levying meaningful peak surcharges on volumes from their largest customers. The U.S. Postal Service imposed the first peak surcharge in its history. Carriers say the fees are needed to offset their higher costs to serve. That is true, up to a point. Demands on delivery networks will be unprecedented, and carriers are pricing their services accordingly. Companies will have to consider this in their free shipping strategies to maintain profitability.

THE CLOCK IS TICKING

Retailers relying on the e-commerce supply chain are racing the clock and capacity constraints during holiday peak season.

Is it too late for shippers and retailers to get their holiday house in order?

Not necessarily, but it will take fast action and deep e-commerce supply chain planning. The challenges, as we’ve laid out, are immense. One key is to get ahead of the “demand curve.” When shippers gain visibility into end demand, they can prepare and execute a plan that enhances customer satisfaction and does so profitably. After all, meeting customer demands while losing money in the process is the hollowest of victories.

Managing the upstream channel is just as critical. Calibrating inventory flows with replenishment needs is a year-round challenge, and especially so during peak. The challenge is magnified this year with the headwind of COVID-19. Retailers need a clear line of sight into supplier production so they can forecast their inventory replenishment. In normal times, lack of visibility can lead to costly over-ordering to ensure adequate buffer stock. This season, however, over-ordering may be an adequate response, given how and where the inventory is positioned. 

During CSCMP’s EDGE 2020 Virtual Conference, Target Executive Vice President and Chief Supply Chain and Logistics Officer Arthur Valdez advised to “not be afraid to overreact.” That may sound counter-intuitive, but it can be an appropriate step during this peak. Target will be investing heavily in transportation services with a focus on improving delivery timing, Valdez said. Again, that appears to run against the grain as transport is considered a cost center. Yet it will be less costly than failing to execute deliveries because capacity is not available. A seasoned logistics partner can map out a strategy to leverage a customer’s existing assets, as well as to bring in outside capabilities that profitably meets customer demands.

This is especially important as shippers encounter an increasingly complex surcharge environment constructed by FedEx, UPS and, to a smaller degree, USPS and regional carriers.  High-volume FedEx and UPS customers could be looking at surcharges as high as $4 to $5 per piece. These are by far the most expensive surcharges we have ever seen. They can spell the difference between peak season success and failure, even if everything else breaks right. Any shipper expecting to tender significant traffic to either or both must be able to navigate those surcharges all within the framework of their logistics execution.

Amid the coming storm, it may be hard for folks to get a good fix on demand profiles beyond the holidays. But it pays to do so. For example, we may see another e-commerce surge early next year as fears of a combined COVID-seasonal flu cycle keep more consumers homebound. Already, we are seeing 2021 budget plans being adjusted to account for the lingering effect of COVID-19. We also expect similar peak season patterns for the next 3-5 years even after a coronavirus vaccine is approved and distributed. A strong logistics partner not only can help you get through 2020. It can prepare you for 2021, 2022, and beyond.

4 Tips: Improve Profitability Despite Rising Transportation Costs

Profitable shipping is a very attainable goal, even in today’s uncertain environment, where FedEx and UPS peak carrier surcharges have become a moving target for all parcel shippers. Despite these rising costs, there are ways all companies can improve shipping profitability in 2020. 

Try using these four tried-and-true tactics for improving shipping profitability in any market conditions. 

  1. Think at a Package Level
    If you’re handling multiple pick-and-pack orders, you need to know what you’re putting into different sized packages. Align that information with the actual transportation costs, and then figure out the profitability level on each. 

    This can be a complex process, but ultimately it is important to understand that the dollar amount on your transportation invoice does not tie into your product profitability. Once you determine what it costs to ship each SKU, it becomes clear that offering free shipping at a $50 order threshold, for instance, may not yield a profitable order for your company. 
  2. Use Good Margin Management
    When your marketing department launches a promotion – “Buy $50 worth of stuff and get free shipping” – make sure the “losers” do not fill-up e-commerce shopping cart and drive your cost above profit. To avoid these problems, share relevant information across your organization to keep everyone marching in the same direction. 

  1. Leverage Data 
    Look not only at carrier data, but also sales data, product costs, fulfillment costs, and other metrics that go into a single order. Transportation Insight helps shippers accumulate all of that information and consolidate it into a unified dashboard that is used to track trends, pinpoint winning/losing SKUs, and single out other areas where the company may be losing money.

  1. Partner with a Transportation Expert
    Work with a reliable logistics provider that has built out the necessary systems and that spreads the value of those systems across numerous different users. The latter allows providers to leverage economies of scale and offer their services at an affordable cost. This translates into high value for shippers in any business or economic condition. 

Protect Profit for Every Customer and Every Order

Our latest strategy guide “You Shipped It, But … Did it Make Money?” raises a question that is on the minds of many business leaders. 

Your business has responded to significant shifts in consumer buying behaviors and your customers expectations are being met. But did the transaction yield profit for the business? Or did transportation cost complexity eclipse your margin in the rush to serve?

Open our guide on margin management for more strategies that will help you master your supply chain to protect profit for every order.

You Ramped Up E-Commerce Shipping for COVID…Now What?

The effort didn’t go unnoticed. 

Comparing year-over-year e-commerce sales, DigitalCommerce360 says volume was up 76% in June. And while that increase leveled off at 55% for July 2020, e-commerce sales are still up 55% year-over-year for the first seven months of the year. 

Retailers are driving much of that growth as many completely changed their distribution models (either permanently or temporarily) away from brick-and-mortar and over to alternative online fulfillment strategies. Already underway pre-pandemic, the movement to sell more online accelerated rapidly once B2B and B2C customers started placing more orders from their laptops and mobile devices. 

Reacting quickly to an event that hit fast, hard and unexpectedly, companies made e-commerce shipping decisions based on a desperate need to stay in business. As a result, those decisions do not always include a complete analysis of the true cost of shipping those goods to customers. As added costs emerge, including peak parcel surcharges from UPS and FedEx, the true cost picture becomes blurry. 

It’s time for a thorough assessment of exactly what your COVID-related e-commerce strategy is costing your company.

Take a Step Back, Assess E-Commerce Costs

As you continue to hone your business model to accommodate e-commerce growth and changing customer demands, it is time to take a step back and truly assess the costs associated with these models. 

Many of these companies will continue handling more e-commerce volume than they did pre-COVID (even with their physical stores opening again). Managing both sides of the equation profitably requires a thorough investigation of the true cost of shipping and a strategy that factors in customers’ needs with organizational profitability. 

Companies should also weed out their “losing” SKUs, assess shipping costs right down to the package level, practice good margin management across the entire organization, utilize data for good decision-making, and work with a reputable logistics partner. 

Master E-Commerce Shipping, Master Order Profitability

Continue shipping products without closely examining the time, effort and money that goes into sending out each package and you will soon find yourself underwater. As pandemic pushed e-commerce sales and residential orders to new heights, was your organization among those that raced into reactive mode?

Do you know the true cost of your e-commerce shipping decisions? You can not afford to ignore this problem.

To help you master your response to online demand, our Supply Chain Masters created “You Shipped It, but … Did It Make Money?” Read today and access strategies to protect profitability for every order and every customer.

Manage Surcharges: 4 Things to Know for Holiday Season

Less predictable, peak surcharges are creating additional complexity for parcel pricing, especially as UPS announces its holiday peak season surcharges. These new charges come in addition to similar costs in place the past few months. Combined, it is a difficult environment to manage surcharges.

For example, a parcel carrier may announce a general rate increase of 4.9%, but this is an average taken across all services, weight breaks, and zones. In reality, many rate increases are above 6% when applied to a shipper’s actual volume. 

Predictable by nature, these annual increases are usually baked into the “cost of doing business” for shippers, many of which understand that the GRI impact on their transportation rates is at least an increase of about 5% annually. 

Now, carriers are introducing accessorial surcharges at different times throughout the year in response to seasonal demand swings and business peaks. These unexpected peak season surcharges can be difficult to manage, especially during a global pandemic when dynamic shifts are occurring across the marketplace. 

Here are four things all shippers should know about peak season surcharges in 2020.

  1. Peak Season Surcharges Becoming Routine It pays to stay on top of these variations and respond accordingly. Companies that take proactive measures to offset pending surcharges are often best positioned to maintain profitability, protect their bottom lines, and keep their customers happy (and coming back for more).

    Alongside existing peak surcharges implemented earlier in 2020, UPS announced it will increase surcharges for the holiday season. Starting Nov. 15, surcharges on Ground, SurePost and domestic Air services will increase to between $1 and $4 per package, depending on the shippers’ parcel volume. At a minimum, that triples the increases implemented May 31.
  2. Parcel Carriers Felt the COVID-19 Impact During the traditional holiday season, UPS and FedEx often start hiring up to six months ahead of time. They also require larger shippers to provide volume estimates to support capacity planning. Staffed and trained, the carriers position everyone for success during the busiest time of the year. 

    These proactive moves weren’t possible during the global pandemic, and that’s precisely why the surcharges surfaced quickly in 2020.
  3. Residential Deliveries Bear the Brunt of COVID Surcharges Surcharges surfaced quickly in 2020, with higher costs on residential deliveries and large package shipments to homes and businesses quickly consuming the carriers’ margins. In response, UPS and FedEx implemented peak surcharges for U.S. domestic residential shipments and large/oversize packages due to the increased demand. UPS implemented the new charges on May 31, and FedEx quickly followed on June 8. 

    Not all shippers were caught in this particular surcharge web. Some charges solely affected large shippers with significant increases in residential deliveries compared to their average pre-pandemic weekly volume from Feb. 2 and Feb. 29, 2020.
  4. Advance Peak Season Surcharge Planning Isn’t Easy Budget planning to manage surcharges isn’t easy in an environment where these increases can arise unexpectedly. No one was prepared for the massive impacts of COVID-19, for example, so shippers had little (or no) time to prepare in advance for the surcharges. 

    The good news is that even though individual companies can’t control parcel carriers’ surcharges, they can minimize the budgetary impact with accurate shipping data, experienced logistics partners, and quick responses to carrier announcements. 

Avoid Peak Season Surcharge Shock

As you plan your transportation spend for the remainder of 2020 and into 2021, be sure to factor in the reality of “unexpected” carrier surcharges. It doesn’t take a global pandemic to create peak season pressure on carriers’ profitability and spur added fees on your parcel shipments. At the same time, in the wake of COVID-19, expect significant changes in the last-mile delivery environment, especially in terms of pricing complexity.

Individually, a 30-cent surcharge on a residential parcel shipment may seem innocuous. Multiply that fee across thousands of packages, and it’s clear just how burdensome this unexpected fee can be to a company’s bottom line. 

Remember the proverb: forewarned is forearmed. Prior knowledge of a potential issue will always give you a tactical advantage.

To help you avoid surcharge surprises, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.

From NAFTA to USMCA: All Trade Agreements Are Not Created Equal

Furthermore, many companies focused on overcoming operational challenges of the pandemic have been able to delay response to a regulatory action that’s been outside the spotlight.

Until now.

On July 1, the United States-Mexico-Canada Agreement (USMCA) replaces the existing requirements of the North American Free Trade Agreement (NAFTA), with an exception for certain automotive products that will have a three-year transitional period. Many elements of NAFTA were retained in the new agreement; however, there are distinctions in the USMCA that require review and consideration by trade participants to ensure they effectively manage compliance during this program transition. According to a recent survey, there appears to be some confusion among supply chain managers on how to implement these changes and mitigate non-compliance risk to maintain company profitability.

Importers’ goods that qualified under NAFTA may also be eligible for USMCA; however, there are subtle changes that may impact those determinations. USMCA due diligence should be conducted by all trade participants as a demonstration of compliance, for all companies participating in North American trade between the United States, Mexico and/or Canada.

5 Differences Between NAFTA and USMCA

  1. Importers will no longer be required to complete a formal NAFTA certification document. A certificate of origin may now be completed based on information provided by the producer. U.S. Customs and Border Protection (CBP) is not mandating a standard format for certificates of origin as long as they contain all of the required data elements. A best practice is to have the certification in hand before making a claim. Previous NAFTA certificates and certification documentation under USMCA must be kept for a minimum of five years.
  2. The de minimis threshold increases. NAFTA’s threshold of 7 percent for FOB value increases under USMCA to 10 percent. The de minimis for textiles and apparel is different.
  3. The terms of the USMCA will remain in effect for 16 years, after which time the parties can choose to revisit and/or renegotiate those terms, or withdraw from the agreement altogether. The agreement is also subject to a review every six years, at which point the United States, Mexico, and Canada can decide whether or not to extend the agreement if they feel doing so would be beneficial.
  4. Merchandise Process Fee (MPF) refunds will not be made on post-importation claims. An importer who fails to claim preferential tariff treatment at the time of entry will not be able to recoup their MPF through a post-summary correction or reconciliation later.
  5. Changes were made to the Rule of Origin for various goods (e.g., manufactured goods, pharmaceuticals, healthcare products, textiles and apparel, agricultural goods, etc.). However there are significant changes within the automotive sector concerning eligibility based on regional value content. In general, USMCA now requires the total North American-based content of a vehicle to equal 75 percent (up from 62.5 percent). USMCA also requires that 70 percent of a vehicle’s steel and aluminum must originate in North America.

How should importers prepare for the USMCA transition to ensure compliance?

Importers should carefully review their imported goods to ensure they understand the new rules of origin and can verify that they qualify under the new agreement. Binding rulings that determine parameters of origin determination under NAFTA will be invalid, and a new binding ruling will be required for USMCA.

We also recommend performing a comprehensive review of imported goods through internal or external compliance means to demonstrate USMCA Compliance due diligence. For example, there may be cases where goods did not qualify under the terms of NAFTA but may now qualify under USMCA.

And above all else, it is imperative that importers maintain a proper record-keeping system. This means you must document where all of your goods originate, and you must have on file a detailed description of your sourcing, production and determination process that clearly defines that the goods qualify.

Our Experience is Your Compass

It is a grave error for importers to assume their goods qualify under USMCA, even if they were NAFTA eligible.

To help guide you through the necessary process to determine whether or not your products do meet USMCA rules, Transportation Insight’s team of international compliance consultants are ready to help you outline and execute a personalized scope of work plan to ensure your USMCA program is in full compliance.

While your focus today on maximum supply chain efficiency can improve your ability to meet arising market demands, a partner with expertise in international trade compliance brings you peace of mind – and so much more. We take over the work of helping you navigate through the change from NAFTA to USMCA so you can progress toward global supply chain mastery.

Make sure your trade compliance processes are updated to protect your business financial risk that emerges during the implementation of complex new regulations. Contact one of our global trade compliance experts today for a free consultation.

The Relativity of the Supply Web


This fundamental truth applies to many aspects of our lives, including how we run our business. It’s a question that logistics managers and technology teams will have to consider when they think about their transformation from a single-direction supply chain to a multi-direction supply web. Does your team have the time to build out a technology suite of value? Or does partnership allow us to save time to focus on what’s best, and drive long-lasting change.

It may come as no surprise that the time you save through partnership may be the most valuable investment of all.

Technology: The Core of Supply Web Change

For manufacturers and distributors, the question on transforming into the supply web comes down to technology. If your current systems don’t provide a deep look into how your supply chain operates, then you could be losing out on data that could provide insight and identify opportunities.

Your team isn’t the only ones struggling with these questions. A recent Gartner survey identified the overwhelming majority of supply chain executives said digital business software and advanced analytics/big data is key to their future business plan, making them a top priority for the remainder of 2020 and beyond.

While this is one of the top priorities for supply chain leaders in the future, the problem lies in building the solution. Creating a custom, in-house solution requires dedicated time and resources from your supply chain, shipping, and technology teams. Taking them away from their tasks means lost man-hours in fulfilling customer demands, which can result in an immediate loss your team cannot recuperate because the time to serve them is gone.

Meanwhile, customers expect their providers to have the technology to identify the most efficient and expedited processes to fulfill orders. If you don’t have that capability, they will go to the next source that does. Can you afford to lose orders because of a lack of supply chain transparency?

Finding Agility and Transparency Through Partnership

Agility in the supply chain is all about being able to react quickly to customer behaviors. Because e-commerce and direct ordering increases are part of our “new normal,” customers demand their packages get to their destinations faster and with full transparency.

There are two ways to achieve this audience demand. The first way is to work with partners who already have the supply chain technology you need to succeed leading to being a better partner to your component and supply chain partners through data sharing and expectation setting.

Your company is already good at providing your core products and services to your audience. Time and money should not be spent building systems that already exist – they should be spent serving your customers and helping them succeed. This is why you need an analytics and business intelligence partner who understands your business, and has both the technology and know-how across supply chains to develop the data and options you need to execute.

This is where a partner like Transportation Insight comes into play. With proven tools that give you the supply chain transparency you need to transition into a supply web, your team can get access to big data analytics and business intelligence tools sooner rather than later. This gives you end-to-end transparency which can help you identify new synergies within your web, including fewer internal touches before shipping, and the potential to drop-ship directly from suppliers.

With this information, your team can be a better partner to your domestic and foreign suppliers. With sales information, time-in-shipping data, and other key performance indicators, you can help predict when you will need to reorder supplies, track trends which can help drive production guidelines, and ultimately create a workflow that keeps your shelves stocked with the right items, and customers happy with the efficiencies of their orders.

Tying It All Together

As the supply chain transforms into the supply web, driving a durable information network will give you the agility and intelligence you need to meet your customer demands. By utilizing a partner to tie it all together, your team can get the insight and transparency you need to make the best decisions for business.

Now and into the future, Transportation Insight is here to help your business grow at the speed of commerce. Schedule a consultation today to learn how we have the tools and skills needed to save time and save money.

Engineering and Analyzing the Supply Web

As an example, sourcing from multiple producers across your web can add inbound shipping costs on all modes: ocean freight, multi-modal inbound delivery and outbound shipping. If your company decides to offer direct fulfillment as a service, can you identify how much additional shipping and handling costs affect your bottom line?

Moving to a supply web model is not an overnight experience. Rather, it is a process that involves understanding how all the pieces work together, how they can drive improved revenue and how to best share information and work hand-in-hand with your partners.

Becoming the Conductor of the Supply Web

When you consider managing the supply web, think of the work an orchestra conductor must do before a symphony performance. At the center, the conductor leads multiple parts that must work together to create art. Although each individual section can create beautiful music on its own, one slip from the brass, strings or percussion and the sound of the entire symphony is broken. Only by building up each part’s strengths as a collective whole can the conductor get everything performing in harmony.

In the context of the supply web, logistics leaders are the conductors, bringing multiple pieces together to create symbiosis across each part. This requires analysis on multiple metrics, including profitability by SKU category, customer types and service levels.

Without a knowledge of how granular cost components affect the supply web, you can’t achieve cost savings in both order and promotion management. Good shippers put multiple pieces together to get their supply webs operating in line, including linking order data with carrier billing data, and tracking SKU-level and order-dimensional profitability. Understanding each metric can help your supply web perform on cost targets and with more efficiency – exactly like a well-tuned orchestra ready to perform.

Engineering for Data-Forward Supply Webs

The transformation from a single-source, lowest-cost supply chain into a supply web presents the prime opportunity to start gathering previously inaccessible data from your supply network. By building in the capability to accurately determine production, storage and shipping costs at granular levels that support cause and effect analysis, your company is prepared to identify cost factors that ultimately affect performance.

This is a two-step procedure, requiring deep insights on both shipment sizes, as well as carrier analysis.

Regular investigation of network costs can help you recognize where increases are occurring, and why they are cutting into SKU-category profit. Gaining visibility and taking a deep look into each cost category gives you a deep understanding of where your costs are, and how to control them.

Furthermore, understanding costs today can help you navigate around operational peaks and valleys. With regular research into your procurement and shipping habits, you can maintain costs and drive additional value.

Bringing the Supply Web Together

Simply put: operating in a supply web model gives you visibility into your operations like never before. Operational redundancies, a deeper understanding of SKU-level profitability, the ability to adapt with changes in consumer behavior and demand, and ultimately managing costs through continued improvement gives you the opportunity to compete at a higher level. When they all operate in harmony, the supply web offers a prime opportunity to drive your business forward and use logistics as an overall competitive advantage.

Transportation Insight can help you evolve from the supply chain into the supply web, using our logistics mapping skill sets and LEAN methodology. Contact us today to start your transformation.

5 Ways to Build an E-Commerce Delivery Engine that Wins

Facing stiff competition from web-based suppliers, e-commerce providers and even traditional companies, retailers must enhance the customer experience by offering variety in delivery options − and all without impacting the cost to the consumer.

In most cases, achieving this balance starts with a modern e-commerce engine that’s supported by a robust transportation and fulfillment approach.

E-commerce delivery is increasingly important to retailers seeking to serve the digital marketplace.

Best Practices Achieve Competitive Advantage

Here are five critical steps for developing an e-commerce transportation and fulfillment plan that goes head-to-head with the e-tailing giants. 

  1. Make your website user friendly. This sounds elemental enough in theory, but in reality, very few companies are doing it. Success in e-commerce starts with a user-friendly interface that doesn’t frustrate customers or send them off to buy from another site. If your online store’s ordering system is cumbersome and difficult to use, no one is going to use it unless they have to. And mobile friendly is vital.
  2. Drive up online checkout rates. The retailer that isn’t boosting online checkout rates will quickly find itself struggling to survive in a sea of companies that have figured out the formula. If you ignore the need to drive down abandonment rates, all of the advertising, marketing and sales efforts in the world won’t help you compete against the likes of Amazon and other large e-tailers. Measure key performance indicators (KPIs) like page views to cart conversions in order to get a gauge on 1) current state, and 2) what you can do to drive those numbers up.
  3. Develop a same-day order fulfillment strategy. Handled improperly, same-day delivery can be a logistical nightmare and major risk for retailers. Although becoming a necessary evil that all retailers must do for at least some of their customers, making that happen requires locations and/or warehouses positioned close to those buyers; a modification of existing fulfillment procedures; and ensuring that the right product is in the right place and at precisely the right minute. Aligning BOPIS strategies with profitability is significantly important when developing same-day order fulfillment.
  4. Factor in parcel, heavy home, and customized deliveries. When it comes to bulky goods that require extra muscle and/or assembly, retailers need to factor in three different scenarios: leaving the box in the entryway of a home or apartment; placing it in the room of choice; or both, plus opening up the box, removing the packaging, and setting up the product(s). Retailers must deliver on some, or all of these, expectations for the end consumer, who is typically willing to pay for those additional services.
  5. Select the best and most economical transportation mode. Retailers don’t always have access to the data that allows them to utilize economical mode selection. Instead, they focus only on getting same-day and next-day shipments out the door as quickly as possible (without worrying about whether or not those are the best and most economical decisions). Retailers should be leveraging carrier contract agreements that align with package characteristics/shipping networks. They should also use technology (i.e., transportation management systems or TMS) to select not only the mode that is most economical and provides tracking visibility, but one that also meets customers’ delivery expectations.

By keeping customers at the center of the conversation, providing visibility to shipments, working to fulfill their needs on every order quickly, and developing a transportation plan that aligns with these goals, smart companies can position themselves as suppliers of choice in today’s competitive e-commerce world. 

Ready to learn more ways retailers can improve e-commerce performance to satisfy customer demands for service and choice? Download Transportation Insight’s e-commerce guide, Managing the Risk of Racing Amazon.

7 Pitfalls Imperil Indirect Spend Management

Indirect Spend analysis requires different processes and technology knowledge from those of direct procurement. There are more stakeholders, segment complexities, and varying levels of expertise at the suppliers. Some items are commodities, and others are specialized for a business unit and rely upon a continually changing and improving set of technologies.

Efforts to improve Indirect Spend management relies on a complete understanding of the wide variability in factors that affect the cost of an item, the cost of procurement and issues that arise for vendor and buyer .

7 Variables Complicating Indirect Spend Management

  1. Low Average Spend: The product volume is generally on the smaller side because of the wide assortment of product and service categories and a large number of suppliers. In this case, the procurement group is unable to coerce better pricing or terms during negotiations with suppliers.
  2. Frequent low-volume purchases: Often, the frequency of purchases of small individual values, makes indirect sourcing difficult and resource-intensive.
  3. Maverick/Uncontrolled/ Non-negotiated Spend: Maverick Spend is the purchase of legitimate goods but using unauthorized buying arrangements or unapproved suppliers. Companies understand the value of robust management of direct spend, but may not recognize the benefits of managing Indirect Spend. The fact is that cost savings for indirect procurement does not originate from a specific bill of materials, as with direct procurement. Often, companies underestimate the Indirect Spend totals and the potential cost savings. Indirect Spend purchases usually are not covered by a contract negotiated in collaboration with a professional procurement group. Items purchased outside of an agreement could be a one-time purchase of office supplies, or travel expenditures, or expenditure on critical ad-hoc technical troubleshooting services. These costs add up over hundreds of items, categories, suppliers, and transactions.
  4. Driven More by Internal Stakeholders: Indirect procurement professionals may not have any mandate over an internal stakeholder’s budget. Unlike with direct spend, the procurement group has less say concerning Indirect Spend. Internal stakeholders hold on tightly to their approved budget and spending authority. Also, many of the expenditures require in-depth industry knowledge and experience to specify a product or service. These factors and this complexity make it more difficult for the procurement function to control indirect spending. The company’s procurement team must act as an internal advisor, influencing decision-makers about optimizing spend and getting more from suppliers.
  5. Hard to Evaluate: There exists hundreds of categories, adjacent categories, item suppliers and distributors, and each mandates an exceptional understanding to procure cost-effectively and also with an eye on long-term value to the company. Each of the tens of thousands of suppliers invests in a sales team assigned to each buyer. Motivation for those sales teams may not always be in the buyers’ best interest.
  6. Measuring Suppliers: It can be more challenging to measure the quality of indirect goods and services. There might be metrics for individual vendor performance, but there are few industry standards against which to benchmark those metrics. In some cases, delivery of indirect products and services is not in a company’s ERP system, so tracking contract renewal and evaluating vendors can be spotty. 
  7. Requires Diverse Experience: Purchases are as diverse as safety products, marketing software, maintenance items, and electricity supply. This breadth of categories requires a procurement group with expertise and a willingness to learn the full range of products and services.


Indirect Spend Management Requires Broad Capabilities

Organizations working to manage Indirect Spend must maintain a variety of skill sets within the operational areas tasked with overseeing these critical budget areas. 

Facing these diverse needs, companies are often challenged to maintain the level of expertise that a trusted procurement partner can often provide:

  • Professional purchasing experience or training
  • Broad category expertise
  • Project and change management
  • Influencing, engaging and advising budget-owners (stakeholders) across the company
  • Specification, facilitation, negotiation, and supplier management
  • Data analysis, creating business insight from raw data
  • Technological know-how
  • Recognizing supply risk from issues like constraints on industry capacity, regulation, or rapidly rising demand
  • Acknowledging the market’s preference for sustainability and the ability to cost-effectively comply
  • Understanding of current market conditions and market pricing trends

Strategic Sourcing Supports Procurement Decisions

Buyers are not all the same. Many procurement decisions have an economic buyer, the person who makes the money decision, and a needs buyer, the person with a job-to-be-done.

Guidance from a procurement group can help meet the requirements of both of these buyer-types. Proper specification of the product or service delivers what conforms to the need, while aggregating volumes and dutiful negotiations keep prices low.

By employing a Strategic Sourcing mindset, these procurement experts look across all activity to address planning, supplier qualification, item specifications, technology advances, training, support, outsourcing, contract negotiation and periodic contract review. Strategic Sourcing identifies the lowest total cost − not just the lowest purchase price. It embraces the procurement lifecycle, from specification to payment.

Strategic sourcing often creates a close, partner-like relationship with a supplier to meet the needs of all buyers, and in turn, improve service to end customers. For more information on employing a strategic sourcing mindset to control Indirect Spend costs through improved procurement practices, download Transportation Insight free guide, “Uncover Indirect Spend: Control Cost with Strategic Sourcing.”