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.

Budget Planning 2021: 9 Supply Chain Things to Know

The booming e-commerce marketplace opens access to new segments of consumers seeking direct delivery on a growing list of staples previously procured through brick-and-mortar channels. Meanwhile, end users seeking personal protective equipment, sanitizers, cleaning supplies and other products required for contagion response will create new revenue streams for organizations nimble enough to shift supply chains and adjust processes to meet fluctuating demand.

Responding in this environment, executives who prioritize supply chain strategy will be best positioned to not only meet and exceed customer expectations, but also control costs that jeopardize bottom line profit.

Looking ahead to the remainder of 2020 here are some looming trends I expect to emerge, as well as recommendations for how a supply chain master can continue to control business performance, even through the disruptions that are bound to happen in 2021.

4 Supply Chain Predictions Influencing 2021 Planning

Looking ahead to the remainder of 2020, ongoing marketplace awareness informs a few predictions that will determine priorities for 2021.

  • The recovery will be a saw tooth, with an upward trend. There will be ups and downs as economic activity re-emerges, particularly in regions that experience fluctuating levels of COVID-19 outbreak and control. Companies have to really protect themselves for that and plan alternative ways to serve their customers and compensate for workforce disruption. As Gartner points out, the path to recovery will be unique for every organization as they respond, recover and renew.

  • Companies that deal in non-essential goods will struggle, and they need to be the most agile. Consumer spending will continue to shift, largely toward e-commerce channels. There’s going to be fluctuating demand for hand sanitizers, cleaning products and personal protective equipment. A lot of companies can maintain workforce in the manufacturing realm by pivoting to secondary products that support pandemic response and recovery. Expect demand spikes, particularly related to the back-to-school and Christmas shopping seasons. Organizations impeded by shipping limitations, will depend on a nimble supply chain to access available shipping channels.
  • Boards and executives will expect robust contingency planning to deal with disruptions. Contingency planning is one of the most critical pieces that informs everything else about how you respond to another likely disruption, whether it be a COVID relapse, an unexpected stop in production or depletion of raw materials.
  • Companies that invest in process and technology during this time will see the best long-term growth. These companies will be in the best position to take advantage of consolidation in their respective industries.

Five Recommendations for 2021 Planning

Organizations creating budget plans for 2021 should consider these recommendations to maintain customer service levels while controlling costs.

  • Treat the 2021 budget as a range and be prepared to adjust as conditions on the ground evolve. In many ways budgeting will be a guessing game, and companies need to put together a plan based on contingencies. When revenue doesn’t meet expectations, have a plan for cost-cutting measures to implement. If earnings swing the other way, identify investments to make. Executive leaders must commit to evolving cost management so that scarce resources and funds consistently flow to the most valuable business outcomes.

  • Leverage supply chain resources to determine corporate impact (cost, service, risk) of plans produced by the other departments (sales, procurement etc.). Experts working in supply chain possess analytical capabilities and a global picture of an organization’s total business. This supports acute awareness of the control levers that affect cost and service. When you put supply chain masters in the role of trusted advisor, they are in the best position to help those executives and leadership boards navigate tumultuous waters.
  • Take a partnership approach with all relationships. The supply chain is dependent on everyone succeeding. Often, by working with an expert supply chain partner you can access end-to-end transparency that facilitates more opportunities across your network. That visibility allows you to be a better partner to your domestic and foreign vendors. With good clear communication around sales information, time-in-shipping data and other key performance indicators, you can help predict when you will need to reorder supplies and track trends that can help drive production guidelines. This supports a workflow that keeps your shelves stocked with the right items, and customers happy with the efficiencies of their orders.
  • Aggressively evaluate the entire supply chain and take an open-minded approach to the long-term structure. Ensure the supply chain strategy aligns with corporate strategy – and leverage analysis and expertise to inform that strategy. This is especially important as e-commerce demands continue to drive increased expectations for flexibility in customers’ end delivery options. You may be getting product shipped out the door – but are you making any money on it?
  • Low water exposes a lot of rocks. Take the opportunity to evaluate internal processes and systems. Balancing resiliency and efficiency, supply chain leaders can secure their networks. A recent Gartner survey revealed that only 21 percent of respondents believe their supply chain is resilient enough to provide “good visibility and the agility to shift sourcing, manufacturing and distribution activities around fairly rapidly.”

A global pandemic changed priorities for many supply chain leaders, elevating the agility of their network alongside the balance of service and cost. As Gartner points out, more than half of its survey respondents expect their supply networks to be “highly resilient” within two to three years. 

Master your 2021 Budget Planning

The first half of 2020 provided painful lessons for many organizations, some of which still face jeopardy. The businesses that quickly adapted to dramatic marketplace changes have often done so through an effective strategy for risk management. 

Future success relies on your ability to assess potential risks that exist in your network and create alternative ways to plan demand response. Contingency planning today, especially in light of network weaknesses revealed in the past six months, will position your business to not only weather the storm but also seize growth opportunities.

While you are in the midst of managing your business, a supply chain master can provide the risk assessment and strategic planning required to establish a flexible responsive network. With that, you will always satisfy customers in the most cost-effective way.

Cost Changes Hide in Shift to Online Fulfillment

By expediting moves toward ship-from-store, buy-online-pickup-in-store (BOPIS) and other alternative fulfillment options, those retailers seized a growth opportunity in a slow economy. At the same time, they continued to move inventory, employ associates, and effectively utilize brick-and-mortar assets all while delighting customers.

However, in the rush to make those changes and meet consumer demand, it is not enough to have resources capable of adapting and executing your supply chain network strategy. It is essential that those resources provide a clear understanding of how alternative services affect costs across your transportation network.

While offering service alternatives to a demanding consumer base can drive revenue growth, profit margins can quickly disappear without awareness to how those new delivery options can affect freight cost, time-in-transit and carrier utilization, among other key transportation performance metrics.

We help our retail clients recognize the financial implications of their service changes with a transportation alignment study that helps them quickly redesign their network strategy, execute on transportation procurement and access the evidence required for decision-making that protects profitable performance.

Evolving Fulfillment Strategy to Meet Online Demand

When the pandemic began affecting U.S. retailers, many of our clients with distribution centers faced the risk of closure due to “Stay at Home, Work Safe” guidelines issued by federal and local agencies. At the same time, revenue was stagnant for retailers with brick-and-mortar storefronts that were required to close due to social distancing expectations.

With online sales booming, some of our retail clients took brave action to convert darkened stores into mini-fulfillment centers. Deploying staff from distribution centers and stores to complete fulfillment activity at the retail locations, these clients are not only able to keep staff gainfully employed, they are also utilizing store inventory that might have otherwise gone unsold.

Making this type of move with your fulfillment strategy can happen quickly – scenarios within 10 days have been reported for some retailers. Adding BOPIS with curbside capabilities can happen in 60 days. These types of changes have become a necessity for retailers across the country, but by changing fulfillment models, these organizations also completely changed their supply chain and distribution network. Unfortunately, because this adaptation occurred so quickly and with such a need to continue business, it is not always supported by the essential transportation study and analysis that determines the cost implications of the network changes.

Do you have the systems in place to determine how these changes affect freight cost, profit margin and customer experience?

Leveraging Data, Analysis to Manage Cost of Online Fulfillment

As our retail clients are rapidly responding to the changes the pandemic is driving in consumer behaviors, we use technology tools and industry expertise to support network alignment studies that clarify cost implications of service changes.

Using historical shipping data, analysis and multi-modal expertise, we help clients manage cost/identify opportunity by providing greater visibility to:

  • Impact of network changes to overall transportation cost
  • Time in transit through predictive modeling based on carrier zone information
  • Freight expense as percentage of cost to serve
  • Margin impact by product level
  • Consumer geography and accessorial changes
  • Overlapping shipment details
  • Store-level profitability
  • Split-order percentage trends
  • “True” customer experience metrics
  • Consumer behavior analysis

With the results of our network alignment/margin management study, we help our retail clients make changes to their carrier contracts, their carrier utilization or their market response. In doing so, we’re able to help make sure they are fulfilling orders in a profitable way, while protecting customer experience.

Master Online Fulfillment

Organizations that create a supply chain personalized to the expectations and behaviors of their customers can achieve greater brand loyalty and improve customer retention. At the same time, the shippers that establish a nimble network can rapidly respond to fluctuations in supply and demand and capitalize on opportunities for growth.

If your business is pursuing rapid deployment of alternative fulfillment practices, make sure you understand fulfillment costs at the retail store location. Retailers that can manage network costs associated with a strategy adjustment in order fulfillment can realize competitive advantage. That’s especially meaningful in a tumultuous environment where rapid supply chain pivots are required to capitalize on changes in consumer behavior.

As a supply chain master, we’ve worked with hundreds of organizations mapping thousands of supply chains. Applying expertise across diverse retail categories and industry segments, multi-modal transportation management capabilities and technology-enabled data management and analysis, we help clients align their transportation practices with their business goals.

To master your online order fulfillment and deploy a variety of final delivery options talk to one of our experts today.

Mitigating Parcel Challenges in a Post-Coronavirus World

Consumers are now using e-commerce as their primary channel to buy everything from groceries and small electronics to home appliances and even cars. Most of those items move through one of three parcel networks: FedEx, UPS, or the U.S. Postal Service. Because of the sheer amount of parcels being processed and handled across the United States, we’re seeing natural “log jam” points come alive, resulting in delayed delivery and dissatisfied customers.

With the challenges mounting, is it possible to mitigate issues and maintain customer satisfaction? It’s possible – but it’s critical for teams to work together and understanding the challenges currently in play.

UPS Experiences Backups In The Northeast

The Northeast region of the United States was heavily impacted by the spread of COVID-19, forcing major cities like Boston and New York to virtually shut down overnight. Although those cities are starting to open, there remains a major backlog of parcels waiting for sorting and delivery.

At one UPS facility in Rhode Island, at least 40 UPS trailers remain on the dock, waiting to be processed. The parcels in these trailers represent a substantial amount of packages, destined for many different destinations across the northeast. Potentially, that could reflect over tens of thousands of customers who are frustrated because the items they ordered are not being processed for delivery.

The northeast isn’t the only facility experiencing problems. In Tucson, Arizona, employees at one facility is expressing concern about an outbreak of COVID-19. The local union claims 36 employees tested positive for Coronavirus, while three have been hospitalized for COVID-19 symptoms. If this facility shuts down for cleaning and sterilization, it could also create problems for parcel delivery in the Southwest as well, including the major population centers of Los Angeles and Phoenix.

Trouble Continues for the U.S. Postal Service

Packages sent through the mail are also facing delay threats due to the COVID-19 pandemic. The U.S. Postal Service is chartered by the U.S. Congress to deliver first-class mail, and in 2019 they delivered over 143 billion pieces of mail to 160 million addresses across the country, including parcel delivery through Priority Mail and other products.

But the COVID-19 outbreak has forced massive changes in their structure and how they manage their workforce. According to data from the USPS, at least 60 postal workers have passed away due to COVID-19 complications, 2,400 have tested positive for Coronavirus, and 17,000 employees – or three percent of their workforce – were temporarily displaced on quarantine. While there’s no way to measure the human loss, the number of employees affected by this virus is forcing the Board of Governors to work up a plan to keep employees healthy despite a decline in profit.

The profit drop comes from a reduction in one of their most successful business areas: Direct mail advertising. At one point, direct mail advertising made up 23 percent of revenue for the Postal Service. As companies look to save money and find new ways to get in front of consumers, they are pulling away from pre-sorted and direct mail advertising, putting a major impact in the USPS budget. The future of the Postal Service is now in question, as they are experiencing both a cash and personnel crunch like never before.

Managing Difficulties and Driving Customer Satisfaction

Although the COVID-19 pandemic is creating challenges, it’s nothing that we cannot overcome. With a combination of actionable insight and sound decision making, it’s possible to still drive customer satisfaction by understanding and controlling the current situation.

To start, it may be useful to start a relationship with a secondary carrier. Opening a new door with a carrier can expand your options, especially when it comes to expedited parcel delivery. For example: although UPS has an expansive ground network, FedEx can offer more daily flight connections. Understanding the tradeoffs and opportunities give you an upper hand in determining how to ship parcels to consumers, and through what options.

From there, constant analysis of parcel delivery optimization can help you determine how effective your plans are, and how to improve them even further. Through service and compliance audits, you can find out how quickly your packages are moving, if they are moving within guaranteed service parameters, and if how many packages end up lost or damaged.

Finally, understanding the current parcel situation can help you mitigate and manage customer expectations. Expressing the potential problems and managing an understanding of when parcels may be delivered can help customers better plan for the issues, driving better loyalty in the end.

Bringing it All Together With a Trusted Partner

Navigating the parcel world in a post-Coronavirus world doesn’t have to be intimidating. The experts at Transportation Insight can help you identify change opportunities in your parcel delivery program, and lead to long-term success. Schedule a consultation with us today, and learn how our decades of experience can quickly improve your parcel program.

Drop Shipping: The Path to E-Commerce Growth for CPG Companies

We can thank brick-and-mortar retailers for some of this. Many now require consumer products manufacturers to support e-commerce initiatives by drop shipping online orders to consumers. 

This drop shipping requirement can seem daunting to operations that aren’t set up for direct-to-consumer fulfillment, especially when it needs to begin quickly. Even so, as the face of consumer retailing evolves, this forced entry into e-commerce fulfillment has its advantages:

  • Retailers save money because they aren’t warehousing the merchandise and managing fulfillment.
  • The manufacturer’s carbon footprint is reduced because drop shipping eliminates transportation of goods from the manufacturer to the retailer’s warehouse for order fulfillment.
  • Shoppers often receive their orders more quickly.
  • The brand can explore e-commerce growth potential on a smaller scale.

Manufacturers responding quickly to retailer drop shipping needs often get outside help, at least initially. This strategy offers significant benefits: 

  • It minimizes disruption in the warehouse while allowing companies to respond quickly. 
  • When contracting with experienced professionals, logistics managers learn best practices before bringing the process in-house.
  • Manufacturers can test e-commerce feasibility without making the often-significant changes required internally. 

E-Commerce Expansion Comes in Many Forms

Drop shipping often leads manufacturers to accept that in order to keep growing, they need a direct-to-consumer sales channel of their own to protect market share and remain relevant.

Their e-commerce expansion can take many forms that include:

  • A musical instruments manufacturer that provides extensive product information on its e-commerce site, but encourages shoppers to buy the product from a local brick-and-mortar retailer so they have it immediately.
  • An athleticwear brand that uses its online platform to add value through an upsell to product customization and personalization that isn’t offered in brick and mortar stores.
  • The jeans maker that intensified branded e-commerce site marketing and enhanced delivery options after watching in-store sales decline.

Some ease into e-commerce by selling through Amazon. The mega e-tailer’s Fulfillment by Amazon program lets manufacturers avoid establishing their own e-commerce system by shipping merchandise sold on Amazon to one of that company’s warehouses. Amazon handles all order processing and fulfillment. 

This end-to-end out-sourcing simplifies things for the manufacturer, but has a significant disadvantage. In this model, Amazon, not the brand, sets the product price. Consider the potential impact of price-cutting on the brand’s image when reviewing this option. 

Others sell on Amazon, but control pricing and order fulfillment by becoming Amazon Prime-certified through the Seller Fulfilled Prime option. Yet another option that lets brands avoid establishing their own e-commerce platform involves selling on Amazon, but partnering with a Prime-certified third-party logistics provider for fulfillment. 

Options such as these give manufacturers time to gather and analyze data. This helps determine which products to sell from a brand site, how many they can expect to sell, and where to set up fulfillment to meet consumer demands for speedy delivery.  

Can You Go It Alone?

Companies that go to the next level and launch a branded e-commerce platform often partner with experienced enterprise logistics providers on the fulfillment side. This significantly reduces the learning curve as they staff up. It also lets them identify existing fulfillment processes that are ripe for improvement.

That was the case when a national brand expanded from brick-and-mortar locations to online sales. When it encountered problems with shipping trends analysis, invoice audits, and payment protocols, its leadership knew that reducing transportation costs and creating a more efficient supply chain had to become a top priority.

The company turned to our experts at Transportation Insight for help. By providing services that included optimizing the company’s logistics operation, providing auditing services, and creating greater shipping data visibility, we helped the brand save an average of $9 million-plus annually

In addition to partnering with outside resources, manufacturers that pursue direct-to-consumer sales do two other things that make a difference. 

  1. They add leaders with relevant expertise to the staff.
  2. They include representatives from all affected areas, from finance to product development to logistics, in all planning.

Adding e-commerce to an established operation requires organization-wide collaboration plus insights, guidance, and advice from experts who are steeped in this growing segment. To help you improve your ability to serve online customers, download our resource guideStart the Cart: A Manufacturer’s Guide to Achieving E-Commerce Fulfillment Excellence. You’ll discover insights into how e-commerce logistics challenges and solutions are affecting CPG companies.

What’s your biggest e-commerce fulfillment challenge today? Tell us in a comment. 

Improve E-Commerce Experience Without Sacrificing Profitability

With Amazon commanding 47% of U.S. e-commerce sales and on track to grow its online sales by 20.4% to $282.52 billion, pursuing this formidable opponent makes sense to a lot of companies. Unfortunately, many of them are sacrificing profits in their attempt to compete, with transportation and fulfillment costs consuming a large part of their budgets.

Opportunity or Liability?

In many cases, the risks of racing Amazon have literally turned into liabilities, effectively slowing progress and forcing companies to rethink everything from their online order interfaces, shopping cart conversions, and final-mile/same-day order fulfillment management.

The brick and mortar world has really ramped up its game, but Amazon has conditioned us, as end consumers, that those efforts just are not good enough.

4 Practices to Protect Profitability

The good news is that there are steps that companies can take to improve e-commerce strategies without sacrificing profitability. Here are four that your company can start using today: 

  1. Develop an above-par order fulfillment strategy. Amazon built its order fulfillment strategy around offering choices to its customers. In doing so, it made the online shopping experience all about the customer and his/her decisions. The e-tailer provides high levels of supply chain visibility as shipments move from Point A to Point B, maintains good inventory control, and understands its cost to serve. One good metric to use, when judging the efficiency of your order fulfillment processes, is the “Perfect Order,” or one that is on time, complete, intact, and includes the right shipping paperwork. In an environment where order fulfillment can comprise over 60% of the typical warehouse’s total direct labor, even small gains in this area can lead to profitability improvements
  1. Now, deliver on that strategy (on every order). Not only does shipping have to be free and fast, but if it includes a hovercraft and a promise to get a package to your doorstep within an hour, then all the better. We’re at a point where anything less simply doesn’t meet customer expectations. There’s little (if any) room for error on this step. Retailers that want to convert digital consumers know that competing on price and customer experience just isn’t enough anymore; they have to also be able to compete on speed and choice. Handled improperly, same-day delivery can be a logistical nightmare and major risk for retailers. It’s also a necessary evil for them, and something that they all have to be able to 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; a smart, profitable BOPIS strategy; and ensuring that the right product is in the right place and at precisely the right minute.

  1. Focus on continuous monitoring and improvement. Companies can no longer wait until quarterly review meetings to uncover a problem that happened a month ago. Smart companies use daily scorecards to gather, compare and disseminate meaningful, actionable intelligence (e.g., what products were shipped? How quickly were orders fulfilled? Did we pick all of our orders yesterday? If no, how can we make that up today?). By taking an introspective look at their e-commerce operations and developing metrics based on those results, retailers can adapt faster in a world that demands speed, accuracy and delivery on promises. 
  2. Make the right transportation choices. If your company can’t access data that provides strategy around carrier contract alignment and then facilitates choosing the most economical transportation mode, it’s probably losing money. And, if it’s channeling all of its resources into 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 − it’s losing even more money. These are huge risks in an era where companies are being forced to go head-to-head with Amazon and Walmart, both of which offer same-day and one-day delivery to 72% and 75% of the total U.S. population, respectively. Retailers should be using technology (i.e., transportation management systems or TMS) to select not only the most economical mode, but also one that meets customers’ delivery expectations. Leveraging transactional audit across all modes, provides companies consolidated, visibility to know the rate they paid, identify service gaps, and improve their ability to make good transportation decisions going forward.

Following these guidelines, companies can effectively improve the e-commerce experience without sacrificing profitability − all while satisfying a lot of happy, repeat customers.

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.