Navigating Small Parcel Rates and Capacity ‘Perfect Storm’ in 2021

The first quarter of 2021 promises to bring much of the same volatility and uncertainty to the small parcel rates and capacity environment . With the holiday season behind us, many service providers are now fully entrenched in a worldwide vaccine distribution effort in a shipping environment that was already more expensive and capacity constrained than it was a year ago.

Here’s what all shippers should know as we move out of the chaos of 2020 and into a New Year that promises even more challenges – and opportunities! – for parcel shippers.

Small Parcel Capacity Lessons Learned from the Holiday Season

The 2020 holiday season was like no other. Record volumes of e-commerce orders  pushed major small parcel carriers to levy new fees while also capping volumes in order to balance their networks. Affecting ground, express, and postal service, very few shippers escaped the impact.

“As Americans increasingly shop online because of the coronavirus pandemic, private express carriers FedEx and UPS have cut off new deliveries for some retailers, sending massive volumes of packages ordered past deadlines to the Postal Service,” the Washington Post reported.

With capacity at a premium in the small package environment, shippers were left to their own devices when it came to getting their goods out the door and monitoring the cost and service impacts. We were called upon to help many companies as carriers took a brutally honest approach and let everyone know that they were buckling under the strain.

We’re really gridlocked all over the place ,” a Postal Service manager told the Washington Post. “It’s bad. I’ve never seen it like this before.”

Navigating the Perfect Small Parcel Storm

With carriers implementing caps in order to avoid being overwhelmed (or completely collapsing) and volume congestion riddling networks nationwide, shippers had to swallow a bitter pill: meeting consumer expectations for next-day or two-day service wasn’t happening. Shippers with contingency plans in place going into the holidays fared best as elections and vaccine distributions claimed an extraordinary amount of parcel and mail shipping capacity during the fourth quarter of 2020.

As with any crisis, there are always lessons to be learned. If 2020 taught shippers anything, it’s that it pays to listen to your small parcel carriers. Pay attention to their market moves and announcements, and then factor those insights into your overall transportation planning. We saw a similar uptick in awareness levels in 1997, when a 13-day UPS employee strike crippled the nation’s parcel network.

Fast-forward 23 years and COVID-19 had a similar impact – albeit more sweeping and longer in duration – on an industry that now includes multiple parcel carrier options. This time around, we saw that companies capable of distributing their shipping volume across FedEx, UPS, DHL, the USPS, and other providers (versus relying on just one) fared best during the 2020 holiday season.

Moving forward, smart shippers will continue to integrate flexible tactics into their supply chain planning, knowing that a “squeeze” on one end of that value chain will equate to a diversion at the other end of that sequence. This is where regional carriers and last-mile delivery services are helping to pick up the slack and, as a result, are now being taken more seriously than ever before. We expect this trend to continue in 2021 as companies shore up their transportation plans and work to avoid the challenges of 2020.

Small Parcel Network Visibility is the Key

Even with the vaccine distribution, COVID, and other outside forces impacting the small parcel landscape right now, we do expect a competitive, more rational, parcel shipping landscape to emerge later this year.

We could see a retreat in surcharges and other extra fees, but only when volume begins to wane and the environment starts to normalize. We also expect more competitors to enter the parcel marketplace and grab some of the opportunities that the larger carriers are overlooking right now. As this takes place, shippers should get some benefit from the heightened competition.

Regardless of the current small parcel shipping environment and the challenges that it’s inflicting on shippers and end customers, supply chain visibility continues to rise to the top as the ultimate combat tool. In an environment where next-day and two-day deliveries are the norm – and where these options are getting more expensive – the company that understands its total shipping costs is the one that will be best equipped to offset the “perfect storm” of capacity constraints, rising rates, and surcharges.

A critical tool for any market conditions, supply chain visibility includes all aspects of your transportation network—from the time the goods leave the loading dock until they reach their final destination, and all points in between. “The COVID-19 pandemic has moved supply chain and logistics technologies to the public eye like few times before,” Crunchbase states, “as shortages at grocery stores and the distribution of a possible vaccine highlight the importance of moving goods and essentials.”

End-to-end supply chain visibility also helps companies pinpoint areas of concern (i.e., is fulfillment causing the delay?), and address them quickly. It also gives shippers accurate insights into carrier performance and enables good decision-making on that front. Transportation Insight, for example, breaks down the data by geographic region and individual carrier to come up with the best possible options for shippers.

In other words, we’re not just throwing information over the fence to our customers; we take a highly consultative approach that helps companies shape successful supply chain strategies in any market conditions. As we move further into 2021, expect new parcel shipping opportunities and challenges to emerge. Those companies that align themselves with a knowledgeable, tech-enabled logistics partner will be best positioned to leverage these opportunities and circumvent the challenges.

Tap into our team’s insight to support your freight and parcel management practices. Download our Q1 ChainLink 2021 for multi-modal trend forecasts and cost impact analysis. Read it today  for supply chain strategy guidance, as well as the latest changes in truckload, less-than-load and small parcel transportation.

For more detail, listen to our SME Roundtable discuss transportation trends in our latest digital event.

Fulfillment Strategies: Is Your 2021 E-Commerce Plan in Place?

Fulfillment Strategies: Is Your 2021 E-Commerce Plan in Place?

This is important for many reasons, not the least of which is the big uptick in e-commerce that’s occurring in 2020, and that will likely continue well into 2021. Already increasing year-over-year, U.S. e-commerce sales were up 43% in September 2020, having grown by 42% the prior month. This growth impacted manufacturers, distributors, and retailers, many of which were unprepared for the onslaught. 

If you spent most of 2020 just trying to get through the pandemic, it’s time to dust off your supply chain, logistics and transportation plans and make sure your fulfillment strategies align with your 2021 e-commerce goals.

Changing Business Models 

As a whole, the pandemic was a wakeup call for these companies that were forced to question some of their fundamental assumptions. 2021 could bring an entirely new set of supply chain, logistics, and transportation challenges with it. 

“As many executives heave a sigh of relief, they are also preparing for a dramatically different environment in 2021,” Industry Week points out. 

“Recent economic challenges have forced manufacturers to change their business models, seemingly overnight, to stay competitive and prepare for not just recovery, but unprecedented growth,” it continues. “However, it may be difficult for manufacturers to keep up with both a snap-back in demand and a huge appetite from customers for innovative products and solutions.”

Navigating the New Fulfillment Normal

Under normal circumstances, companies can add labor and shifts to make up for throughput problems in their warehouses and DCs. With social distancing guidelines in place and the need to keep employees healthy a huge issue for companies right now, simply throwing labor at the problem doesn’t work anymore. 

These realities directly impact customer service which, in turn, affects margins and revenues. When customers feel like they’re being kept in the dark or that they’re not in control of the ordering and shipping process, they’ll take their business elsewhere. 

Here are six more strategies that all companies should include in their 2021 plans: 

  • Get your parcel shipping act together. In a world where nearly all customers expect their goods in three days or less, and where 30 percent of them expect them next day, you can’t reduce shipping costs at your customers’ expense. With this emphasis on delivery expectations, companies have to create parcel strategies that acknowledge the fact that shipping is the highest cost component of any e-commerce order.   
  • Watch your accessorials and peak surcharges. With the parcel carriers continuing to roll out increasingly-complex pricing strategies and inflating rates due to the lack of competition, shippers also have to keep a close eye on accessorials and peak surcharges at the package level. Understand how it’s impacting your costs and how to adjust and adapt moving forward into 2021. If SKU-level profitability is an important KPI, for example, then add that to list of metrics to measure. 
  • Consider a multi-carrier solution. There’s a lot of good value to be had by working with regional carriers and freight consolidators. Varying your approach also helps support customers’ delivery expectations. Amazon, for example, has worked hard to ensure high levels of visibility that starts when an order is placed and that doesn’t end until the package is on the buyer’s doorstep. With more of these customers having same-day and next-day delivery expectations, the multi-carrier approach can help support your overall fulfillment strategy and even make it more affordable. 

  • Rethink your fulfillment approach. To meet your customers’ fulfillment needs, you can either offer a higher shipper service level or you can change how your product is fulfilled and positioned (i.e., either with a bicoastal or multiple fulfillment level location plan). Whether you’re fulfilling it yourself, using a third-party logistics provider (3PL), or a hybrid approach, the key is to look to 2021 and beyond when setting up these networks. 
  • Use advanced technology tools. To get a head start on 2021, companies can tap into the tools that help automate, personalize, and engage virtual transactions, and that fuel their e-fulfillment engines. Cart integration, for example, automatically answers buyer questions like: How much is it going to cost? What are my shipping options? And, is there an opportunity for me to pick it up in-store? Through that integration and automation, the customer gets the choice and the control that they’re looking for today.
  • Focus on more than just the sales process. Companies should also consider post-purchase experience and post-purchase engagement tools, both of which automate the customer buying journey. These data-centric tools also lighten the workload for your customer service team. Finally, having shipping analytics right down to the individual order level puts the power of business intelligence (BI) into the shipper’s hands, and allows it to make good decisions based on accurate, relevant information (versus just guesswork).  

While it’s easy to get mired in the complications of 2020 right now, you’ll be much better prepared if you break the mold and start planning for the future today. That way, you’ll be in the right position and ready to pivot—in whichever direction is necessary—when 2021 comes. 

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 2020: Digital Deck the Halls

The challenges this year will be as long a family’s shopping list:

  • The traditional holiday peak converges with elevated online demand due to the COVID-19 pandemic. 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.
  • 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 throughout most of 2020. U.S. imports are spiking. However, those goods may not reach store shelves or distribution centers in time to satisfy peak consumption needs.

  • Parcel networks have been overwhelmed by demand since March. 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.
  • 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. Amazon’s shift of its “Prime Day” program from July to mid-October could pull forward a fair amount of holiday activity.

  • Warehouse space is severely constrained. Amazon said several months ago it will need 50 percent more space to keep up with its projected holiday demand. 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 will need to get creative.
  • 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

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 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.

6 Qualities to Look for in an E-Commerce Logistics Partner

With changing customer demands, new carrier surcharges, COVID, and other challenges taking a bite out of shippers’ bottom lines right now, those companies are best served by logistics partners that bring a high level of value to the table. Even better, they do this while helping shippers overcome their key pain points and achieve their organizational goals.

If your e-commerce logistics provider isn’t living up to expectations in these six areas, it may be time to find one that will.

  1. Technology Systems that Mirror the Carriers’ Own Systems
    This allows the provider to estimate cost impact and predictive modeling to the penny. Every time the carriers make a change, that change should also be made in your provider’s system.
  2. A Strong Team of Subject Matter Experts
    That team should include engineers and analysts that know how to leverage the carriers’ profitability areas to gain better advantages for you (versus what a traditional account rep can manage). Our experts regularly share their insight with the marketplace.

  1. Ongoing Analysis and Strategic “Thinkery”
    Look for a partner that thinks well beyond the “one and done” approach. Today’s business environment requires a partner that focuses on continued delivery optimization and cost mitigation.
  2. A Proactive Auditing Function
    Rather than relying on a reactive mindset (e.g., asking for the same refunds over and over again), your provider should be working with an “identify and repair” mindset to eliminate these potential issues and mitigate ongoing costs.
  3. Advanced Analytics and KPI Tracking
    As e-commerce continues to grow, you need a partner that is constantly innovating and adding functionalities like margin management, SKU-level profitability, KPI tracking, order performance management and high levels of supply chain visibility.   
  4. A Problem-solving Mindset
    When new accessorials or surcharges are released, your logistics provider should be measuring the impacts of those changes on your budget and helping you mitigate those impacts.

Master Your E-Commerce Supply Chain

Possessing these key qualities, we bring our client partners ongoing value as they race to meet demands for delivery speed, service and choice. Supporting your efforts to enhance customer experience, we also implement strategies to control costs so that you can maintain awareness of how each and every product and customer is performing. 

Our Parcel Experts created “You Shipped It, but … Did it Make Money?” to identify some of the emerging challenges that jeopardize your profit. It highlights our approach in the marketplace and gives you a glimpse into the level of analysis that we bring our customers. 

Let’s take a deeper look at the supply chain challenges you are experiencing. Reach out to our supply chain masters today to begin a conversation about your personalized solution.

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.

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.

Serve Customers With a Personalized Supply Chain

Society’s sudden move to a shelter-in-place and work-from-home environment dramatically affected buying behaviors, and, in the process, expectations increased on companies responding to demand.

Organizations equipped with an agile, customer-centric supply chain network are capitalizing by evolving their service to the current environment. Distributors are re-locating inventory to meet emergent demand for products needed to support COVID-19 response in specific geographies. Retailers have kept Americans fed and working by adjusting online fulfillment strategies to utilize brick-and-mortar curbside pick-up or alternate home delivery methods. Manufacturers are drop-shipping products directly to homes to meet newfound interests in exercise.

As customer preferences carry even greater weight in modern supply network planning, the organizations with a holistic network view will deliver the most cost-effective shipping strategies that empower choice-conscious clients.

Customers Take Control

In 2016, parcel and express delivery volume bypassed railroads to become the second-largest transportation sector behind motor freight, according to the Council of Supply Chain Management Professionals’ 28th Annual State of Logistics Report. With that leap, consumers seized control of logistics spending and “supply chain as we’ve known it” changed forever.

In the past, traditional retail strategies put the brand in control, using a push-based system with consumers at the end of the supply chain. Throughout the rest of the supply network, past experience drove inventory decisions, and product was pushed to stores based on what consumers “should” like and purchase.

Ongoing expansion of e-commerce has increasingly shifted decision-making for many organizations toward the customer experience. With the outbreak of COVID-19, historical buying behaviors are no longer valid and the consumer is in charge now more than ever. Companies that didn’t have a consumer-centric approach are adapting to survive.

Adopting a consumer-centric approach isn’t automatic, however. It requires thorough understanding of your customers’ preferences from point of purchase to final delivery.

Consumer Behaviors Changing Forever

While society has steadily shifted more buying to online platforms, COVID-19 sent more people online to buy a broader array of products than ever before.

In March, online grocery sales hit an all-time high. And in April, online grocery retailers topped that record by about 37%, according to survey data from grocery consultant Brick Meets Click (BMC) and research firm Symphony RetailAI.

Driving the sales growth was a 33.3% increase in the total number of orders: 62.5 million in April vs. 46.9 million in March. Spending per order grew more modestly, as did the number of online grocery shoppers.

Retailers like Wal-Mart and Target are reporting record online sales growth as well, giving further evidence that more buyers are turning to e-commerce sales channels for everyday needs. As the convenience of online buying appeals to a broader population, the need for diverse delivery options will increase, just as it has since parcel transportation took the No. 2 spot in logistics spend in 2016.

Effectively fulfilling those customer delivery demands requires a transportation strategy supported by multi-modal expertise and technology. Transportation management systems that integrate vital transportation information from freight and parcel service providers, along with historical shipping data, can offer a strong basis for decisions that improve customer service and protect bottom line profitability.

A Case for a Personalized Supply Chain

Organizations that can create a supply chain personalized to the expectations and behaviors of their customers can achieve greater brand loyalty. By allowing customers more control over their delivery experience, brands can create greater 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.

To learn more about creating a truly personalized supply chain that serves your customers’ needs, read Transportation Insight’s Guide to Mastering Your Supply Chain.

In it, we share more data about emerging customer trends as well as strategies and tactics to create a stronger supply chain that ultimately drives growth. Read it today to evolve your supply chain to meet your customers changing fulfillment and delivery needs.

Service Merchandise omnichannel fulfillment

Master Omnichannel Fulfillment, Enhance Experience

Retail has changed a lot in nearly four decades since Service Merchandise – and its catalog – was familiar in households across North America. Still, many of the retailers’ leading-edge concepts are just as applicable in an e-commerce age that requires customer service capabilities across multiple channels.

Let’s look at some supply chain practices that can support an omnichannel service that enhances the experience of your customers – whether they are shopping in-store, online at their desktop on their smartphone or by telephone.

Can You Compete with Amazon? Should you Try?

Most retailers are still trying to figure out the right recipe for omnichannel. Revisiting the strategies that anchored the success of Service Merchandise, alongside modern supply chain best practices can help retailers focused on managing fulfillment costs and expanding growth across all sales venues.

Companies have to decide where they want to play. With more service comes more cost. You have to understand your customer base and understand who you want to compete against. Can you compete against Amazon at a national level? Maybe not, and if you try you may bankrupt yourself.

With customers’ rising expectations for free shipping and 2- or 3-day delivery, retailers need to be able to design a distribution network where every customer in the U.S. can be reached within two days.

For companies that have brick and mortar locations, the question becomes: How do you leverage all inventory assets to decrease customer lead time – and do it cost effectively?

That requires analysis, good data, good tools and people who know how to interpret that information.

A 21st Century Hurdle

One obstacle facing today’s retailers that Service Merchandise didn’t have to deal with: massive SKU proliferation. While the retailer probably carried a significant number of SKUs in its backroom, it also knew that most of its customers were not walking in the door with the goal of buying 10+ items.

This didn’t pose a problem until the definition of “convenience” changed. The world’s super centers caught onto the shift and started carrying dozens of different “similar” items – all on the sales floor.

At that point, all that a shopper had to do was walk in, fill a cart, and walk out the door.

In today’s landscape, if you are competing against retail and e-tail giants, it is critical to understand the profit performance of each product you offer, particularly in light of any associated fulfillment and delivery costs.

Model Networks to Manage Mistakes

Modelling exercises help retailers determine cost trade-offs versus service before you start an initiative. This can allow you to determine where to guarantee 2-day delivery in certain areas, while offering longer service time and lower cost in other areas.

One of the core benefits of network modelling: you can do all the what-if scenarios so you know how the network reacts before you invest dollars and make a mistake.

Data-driven network modelling is also an asset when disruption threatens the order-to-cash cycle. This type of proactive modelling allows a shipper to identify response options before disaster occurs and jeopardizes successful final delivery.

Leverage the Right Resources

Most retailers may not have resources to manage massive amounts of data and then turn around to review and reproduce network designs every six months or faster – all while managing a separate returns network and a separate dot-com network.

Many organizations cannot afford to obtain the people, obtain the tools and manage to keep them. If you do have a staff on site, those people may not always be needed for network design or analysis. You end up re-tasking them with other things so they are not staying fresh on their modelling skills, and when it is time to update the model – what if they are working on other critical projects? That work falls by the wayside.

Another downside of an internal modelling team: They get to know your business, and how it works. There’s a tendency to get into a modelling rut, modelling within your constraints rather than challenging “sacred cows”.

Someone outside your organization knows what other companies have done, what works and what doesn’t, – and they’re not limited by your constraints. That’s why consulting companies exist. They can think outside the box and apply your constraints rather than operating under assumptions.

Master Your Domain

Retail companies in particular should focus on their strengths.

Buying the best products and marketing to customers is the core competency of most retailers – not transportation and logistics. In that case, an outside expert can offer an unbiased, view informed by supply chain best practices effective in varied industries and many different retail organizations.

Hire an outside expert that can leverage fulfillment expertise, data and supply chain planning to help take care of customer delivery demands, so you can focus on the retail areas where you excel.

Manage Fulfillment Cost, Support Prime Performance

We are in an era where higher fulfillment costs continue to erode retail margins. It’s time for stores to think harder about how to fulfill orders across all channels, while also factoring in parcel transportation costs and how to package in a way that minimizes dimensional charges.

The complexities of omnichannel fulfillment and all the requirements that come along with it drives many retailers to rethink store layout plans, network design and support partners. Applying the Service Merchandise approach to customer experience in the 1980s could give today’s retailers a competitive advantage in the marketplace.

To help retailers understand how Service Merchandise delivered experience and omnichannel excellence we created “Prime Before Its Time: The Service Merchandise Experience.”

Download the guide to learn how the retail innovations of yesterday can help you deliver a prime performance today.

Omnichannel: 3 Ways Service Merchandise Got it Right

In its heyday, Service Merchandise was a retail force. With 413 stores and $4 billion in revenues at its peak, the company singlehandedly turned the “catalog showroom” shopping experience into one that consumers flocked to for fine jewelry, electronics, toys, and other merchandise. 

Hindsight being 20/20, modern-day concerns like high inventory carrying costs, the escalating cost of expansive retail space, and the labor-intensive nature of its decidedly non-DIY showroom should have all been red flags for Service Merchandise. Despite these oversights, the company definitely had a few things nailed when it comes to omnichannel. Let’s look at three areas where Service Merchandise excelled.

Lesson 1: Sales in the Front, Fulfillment in the Back

Service Merchandise stored inventory in the backroom versus in the front of the house and basically understood the value of the omnichannel model as far back as the 1980s.

Stores aren’t meant to be fulfillment centers. Employees don’t know how to pack boxes efficiently. They rely on their own judgment about how much packing material and product to load into a box for a ship-to-home customer. That can get expensive when dimensional minimums come into play. For example: If a box is too large relative to the weight going into the box, the shipper is going to overpay. 

Service Merchandise escaped these challenges.

  • All inventory was maintained at the store level, in the back of the house, where customers couldn’t touch it until they ordered it, initially using a clipboard and written order and later using the “Silent Sam” ordering system.
  • Employees were trained on efficient fulfillment techniques: The goods were either sent by conveyor to the customers or shipped to their homes. 

“The average price of an item sold in the store was $30. The average transaction was $55, so we were selling less than two items per transaction,” says Service Merchandise CEO Ray Zimmerman. “Because they were $30 items, it was less expensive for us to handle it on a pick and conveyor basis than it was to stack it out and let the customer pick it up.”

Obstacles emerge when fulfillment creeps into a retailer’s sales floor customer-facing roles:

  • Store employees picking orders instead of taking care of customers. 
  • Aisles congested with big carts and harried fulfillment individuals trying to fill orders quickly. 
  • Online shipments packed inefficiently by store employees untrained in the fine points of fulfillment. 
  • Unnecessary touches: product is received, unpacked, put on store shelves, retrieved, repacked and shipped back out. 
  • Multiple touches create a high volume of dunnage and corrugate waste.

Just think about how far a store employee has to walk to collect all of the items from an online order, versus someone who was working in a warehouse with very high pick densities. Warehouses also incorporate technology (i.e., pick-to-light and voice options) that makes picking and packing more efficient.

Lesson 2: Technology is Integral to Omni-Channel Success.

Retail has come a long way since the 1980s, but it’s clear that Service Merchandise’s leaders had a knack for understanding their customer base and serving it well. They also weren’t afraid to invest in technology long before terms like omnichannel, automation, robotics, and Amazon were common vernacular for retailers. 

“We had a great group of IT people – and that was unique for most companies at the time,” Zimmerman says. “At the time, there was no point-of-sale system that had an alpha numeric. They were programming in BASIC language, it was very simple, but that’s how we developed all these systems.”

Those systems monitored inventory, too.

“We had to keep inventory tight and we spent a lot of time monitoring to make sure that stores were making inventory adjustments,” Zimmerman says. “If they didn’t have any adjustments, the store wasn’t doing its job verifying inventory count; if there were too many, the store was having a shrinkage problem.”

If afforded today’s technology advances, omnichannel data management and its innovative mindset, here’s what a profitable “Service Merchandise 2020” might look like.

  • An early adopter of warehouse automation, it deploys advanced technologies like robotics.
  • Warehouse pickers are equipped with wearable technology that enables them to do their jobs faster in a hands-free environment. 
  • Integrating automated co-bots, conveyors and cranes into its stockrooms, it effectively leverages technology to shorten fulfillment times and hit two-day and one-day shipping windows.
  • Leverage artificial intelligence (AI) and machine learning to optimally determine placement and levels inventory based on predicted customer demand. 

Lesson 3: Give Customers an Experience

Customers like going into stores to look at and touch products. 

Service Merchandise knew that its customers really wanted to experience a product before buying it, which meant stores didn’t really need to have all of their inventory visible and stacked to the ceiling when those customers walked in the door. 

With its part-catalog/part-showroom approach, Service Merchandise was meeting customers where they were in the ‘80s.

“The catalog was not for people to order from. It was an advertising tool – people could pick what they want and come into the store,” Zimmerman says. “If that customer drove 3 blocks to come into our store, they expected to get it. We had to be in stock every day, on every item.”

Many people still remember fondly a key aspect of the Service Merchandise experience, even if the retailer’s dominant presence has faded.

“When the company liquidated, I bought the name to keep it in the family. I put up a website – it didn’t sell much merchandise, but it got a tremendous amount of comments,” Zimmerman says. “Many wanted to tell me how much they loved watching the merchandise coming down the conveyor belt.”

Putting it all Together

Retailers are still trying to figure out the right recipe for omnichannel success. A multichannel approach to sales focused on providing customers with a seamless shopping experience — be it online, on a desktop, via a mobile device, by telephone, or in a brick-and-mortar store — omnichannel is pushing companies into new terrain when it comes to fulfillment, transportation, and delivery.

To help retailers understand how to improve omnichannel performance, we created “Prime Before Its Time: The Service Merchandise Experience.”

Download the guide to learn how the retail innovations of yesterday can help you deliver a prime performance today.