Companies across North America are seeing transportation costs rise as a percentage of their total costs. That’s driving a need for many business leaders to closely oversee their transportation spending.

The Total Economic Impact of Managed Transportation: 251% ROI

Total Economic Impact of Managed Transportation: 251% ROI and freight cost savings, according to independent study commissioned by Transportation Insight.

Of course, this requires easily accessible visibility to all those transportation activities. It also takes a keen eye focused on opportunities to improve your current managed transportation performance – and your service to customers.

To help small and mid-sized businesses identify the best support services available in a volatile freight transportation environment, we commissioned Forrester Consulting to complete a Total Economic Impact™ study of our Managed Transportation solution.

Forrester’s analysis identified some of the benefits our managed transportation brought one customer during a three-year period:

  • Freight and cost mitigation savings over $1.4 million; average annual LTL savings and cost mitigation of more than 10 percent of the annual transportation budget
  • Personnel cost savings exceeding $840,000
  • Transparency into freight costs allowing stakeholders to see all transportation spending in one place
  • Better on-time delivery to fulfill our customer’s specific shipping requirements, control costs and protect end customer experience
  • Technology tools supporting needs for specific capacity and special handling situations

According to the study, “Transportation Insight Managed Transportation provides managers with transparency into their total spend and allows them to see managed transportation not as a cost center, but as a source of competitive advantage.”

Let’s unpack some of the reasons the Forrester Consulting Total Economic Impact (TEI) study determined our managed transportation solution can deliver a 251 percent return-on-investment and $1.6 million net present value over three years. For an abridged version of the case study we commissioned, open our infographic.

Transportation Insight’s Managed Transportation solution delivers our customer a 251% ROI and a net present value of $1.6 million with a payback of less than 6 months.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation

Managed Transportation Customer Testimony

Using its TEI methodology, Forrester interviewed the senior vice president with a Transportation Insight customer that provides school supplies and educational resources to its clients. Forrester based a three-year financial analysis on this conversation.

As Forrester’s interview revealed, transportation visibility is important as our customer:

  • Compiles products from several inbound resources into large shipments for outbound delivery
  • Aligns delivery within specific schedules for on-site work crews that offload, install and remove packaging refuse
  • Requires specialized equipment or wide trailers and doors.

“We’re very watchful of freight costs as they continue to go through levels we never thought they would,” our managed transportation customer said according to Forrester. “… It’s always at the top of the list when we’re monitoring expenses, so it’s easy to understand the reason we need a third party to provide these services.”

Need-Focused Transportation Solution

Prior to our partnership, this organization worked with another third-party transportation service that utilized a broker model to send most freight tenders through one preferred carrier. According to our customer’s comments to Forrester, this left many decision-makers wondering whether their organization was getting the best price or quality of service.

Considering a change, the organization sought a managed transportation provider that:

  • Works with multiple carriers on a pure cost and quality-of-service basis
  • Offers technology that allows a better view into freight spend to support full understanding of the cost of goods sold (COGS)
  • Provides carriers capable of meeting specialized needs of its shipping and installation services
  • Identifies additional efficiencies to reduce transportation costs on an ongoing basis

Forrester’s TEI analyzed how Transportation Insight’s managed transportation solution has been meeting those needs for the past three years. Elements of our solution considered in the TEI include:

  • Named enterprise service team including single-focus account manager a customer can call any time
  • Consolidated electronic billing
  • Customer understanding and improvement of standard operating procedure for each customer
  • Continuous improvement projects
  • Network simulation and modeling
  • Proprietary tools including:
    • Insight Freight (our freight audit and payment portal)
    • Insight Fusion (our business intelligence portal providing business analytics and reporting for actionable insights)

Based on the customer interview and financial analysis, Forrester determined a total present value of our solution at $2.23 million over three years. Compared to a cost of $632,000 during that time, the TEI determined a $1.6 million net present value of our managed transportation solution to our client.

Consolidated three-year, risk-adjusted metrics detail total costs, total benefits and cumulative net benefits of Transportation Insight’s Managed Transportation solution
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation

Findings: Managed Transportation Provides Freight Savings, Cost Visibility

According to the TEI’s key findings, Transportation Insight’s managed transportation solution provides quantified and unquantified benefits. Both are significant.

Our proprietary technology and processes, combined with our expertise across the less-than-load and truckload transportation environments, achieved savings on freight costs and cost mitigation of more than $1.4 million.

Using our transportation management system (TMS) bid board functionality, our customers can route shipments with the optimal, low-cost carriers that we help identify through a rating system based on their feedback. We also helped this customer achieve the best transportation costs on inbound freight shipments from its vendors.

“We put our complete confidence in Transportation Insight to manage that process and provide us good carriers at the best market prices,” said our customer’s executive, according to the Forrester study.

Findings: Managed Transportation Amplifies Personnel Efficiencies

It can be hard to quantify the benefit of technology applications like our TMS and our business intelligence and reporting tools. Still, transparency to freight costs and the cost of goods sold, as well as on-time delivery adherence delivers benefits across an organization, often in ways that mitigate future financial impact.

That said, implementing and managing a technology-enabled freight solution does come at a cost. And creating internal workflow efficiencies with easy-to-access reporting and streamlined execution realizes hard-dollar savings.

Forrester’s TEI determined that our managed transportation solution helped our client realize a personnel savings value of $847,214 over three years. That benefit represents the cost of personnel if our customer tried to develop and maintain an in-house solution to replace all the technology services and reporting we provide.

“The information that is in (Insight) Fusion  can be combined with our company information, and we can look at margin by carrier, margin by customer, and margin by lane,” our customer told Forrester according to the TEI we commissioned. “I can’t even conceive of all the ways we can slice and dice [the information].”

Quantifying Benefits Against Cost

Transportation Insight commissioned a Total Economic Impact study of our managed transportation solution to help shippers understand the cost, benefit, flexibility and any risk factors associated with this service offering.

I believe that the costs and risk factors of our managed transportation solution are far outweighed by the benefits – and we scratched the surface of those benefits above. But I also believe that shippers should have a clear view to the costs they incur when partnering for a new beneficial solution.

Transportation Insight’s fees depend on the customer, and they are often a combination of fixed transactional fees, subscription fees and/or savings share. Within the context of this managed transportation analysis, Forrester Consulting identified our fees over the past three years.

According to the TEI study, the total benefit of our managed transportation solution for this customer over three years is $2.23 million, compared to $632,000 paid in fees to Transportation Insight during that time. In this case, those fees varied from year to year based, in part, on the freight volumes our customer shipped during the period. Forrester concludes the payback period on this cost is less than six months for this client.

Transportation Insight’s solution delivered our customer $2.23 million in total benefits, including $1 million in personnel savings and $1.6 million in freight cost savings during the three-year period.
Source: The Total Economic Impact™ Of Transportation Insight Managed Transportation

That is an important benchmark for small- and medium-sized businesses. We know our customers often compete with larger shippers that possess the scale and capital to invest in a more complex transportation management platform. So we are focused on providing hybrid-digital solutions that make transportation control and visibility accessible to a broader market.

That is translating to managed transportation solutions that we are implementing in a matter of weeks and delivering return for our customer almost immediately thereafter. For this shipper, based on the TEI analysis, that Year 1 return was an $811,305 net value.

To learn more about the benefits and cost analysis of our managed transportation solution, download the Forrester Consulting Total Economic Impact™ of Transportation Insight Managed Transportation study.

Holiday Shipping 2020: Will Your Parcels be Picked Up and Delivered on Time?

Days after “Black Friday” UPS put holiday shipping restrictions on Nike and Gap and directed drivers to stop Cyber Monday pick-ups at other large retailers that are already exceeding parcel volume forecasts through booming online sales.  

In a year marked by a pandemic-driven shift in consumer buying habits that has driven consecutive quarters of record e-commerce growth, parcel networks have been at or near capacity for months. An unprecedented holiday peak has been on the radar, but as expected, early promotions and efforts to bring parcel volume forward could never be enough.

And in the midst of a monumental peak period, the parcel carriers continue to adjust their strategy to not only drive revenue growth in high demand e-commerce service areas, but also protect volume and achieve competitive advantage as Amazon’s delivery networks continue to evolve. 

Let’s look at some of the latest developments in the parcel shipping environment. They may affect your ability to delight customers this holiday season – and continue serving them well through 2021 and beyond.

E-Commerce Bloats Parcel Volume Beyond Capacity

Demand for the 2020 holiday peak shipping season is forecast to exceed 86 million packages a day – about 7 million packages outside current parcel network capacity. These estimates are validated by the National Retail Federation’s estimate that online shopping increased 44 percent during a five-day stretch that included Black Friday and Cyber Monday. 

Both UPS and FedEx prepared retail shippers for tight holiday shipping capacity, issuing advice for holiday shippers and encouraging clients to “shop earlier than ever with special offers or other incentives.” Yet, before December even dawned, both carriers were enforcing volume agreements and applying peak season charges and accessorial fees that create additional order fulfillment cost for shippers. 

In this environment it is critical that you have real-time understanding of your parcel shipping activity. While volume outside agreed-upon levels or historical averages may result in added cost during other parts of the year (as it did with COVID peak surcharges), packages exceeding a shipper’s determined space simply will not be served – at least until additional capacity becomes available.

Shipping Delays: Expect, Forewarn and Facilitate

Based on the recent trends observed, the average package delay rate during the 2020 holiday season may range between 14 percent and 18 percent. Consumers in densely populated cities can expect delays as high as 25 percent to 30 percent. 

Unless you create an expectation of delayed delivery, this can be a real problem for customer experience. Proactive communication with your customers about anticipated delays is one of the most important steps in preserving holiday shipping experience.  Use your website and email communications to help set expectations. 

That said, as consumers’ expectations on speed evolve, we are seeing an increased willingness to wait for a delivery, especially if it means free shipping. According to BoxPoll, more than half of consumers opting for free shipping (57 percent) considered five-day delivery to be “fast” – that’s up 8 percentage points compared to last year. One-third of respondents in the weekly survey said that seven-day delivery is “acceptable” at minimum.

Retailers are positioned to capitalize when they maintain awareness of shipping characteristics, alternative service models and, of course, their customers’ expectations. A “no-rush” option is a familiar part of the Amazon order process, and now other brands are following suit, even offering incentives for delayed or “slow service.” If a consumer considers five-day service “fast,” are you driving up cost by offering more service then they need?

FedEx Counters Amazon’s E-Commerce and Logistics Buildout

The FedEx acquisition of ShopRunner complements the actions that we have seen FedEx taking to remain relevant in e-commerce as Amazon continues to strengthen its logistics and fulfillment capabilities.  

The move reinforces the FedEx position as the anti-Amazon solution for companies seeking an Amazon alternative. Some of the carrier’s other recent activity following the same strategy includes:

  • Acquisition of GENCO to form the basis of Fulfillment by FedEx
  • Moving to a seven-day-a-week delivery schedule
  • Severing ties with Amazon for delivery to focus on other e-commerce volume
  • Pulling SmartPost deliveries into the Home Delivery network to bolster density and profitability.

With the global parcel market positioned to more than double by 2026, fueled by e-commerce growth and further accelerated by COVID-19, both FedEx and UPS will need to continue adding value to retailers’ unichannel solutions to keep volume when Amazon opens their delivery network to third party shipments. Amazon suspended its delivery service earlier this year due to the pandemic, but it is expected to reopen in the near future.

Of course, the parcel carriers are among an ever-growing contingent of organizations devising new strategies to compete with Amazon. Just in time for the holidays, WalMart is dropping the $35 minimum on free shipping for e-commerce purchases of electronics, toys and clothing made for participants in its WalMart+ membership program. The move – and the program – are both designed to compete with Amazon Prime.

Are You Positioned to Compete?

Can you quickly determine how your parcel shipping volume falls within your capacity agreement with your carriers? Do you know how quickly your customers are getting their orders – and whether you are meeting your delivery commitments? Can you determine which SKUs are making money – and which are not?

Ongoing awareness of evolving trends in the parcel environment – from service disruptions to capacity shortages – is integral to your ability to pivot your small package shipping strategy. 

Understanding how those trends affect your transportation cost and service to end customers requires expert analysis and actionable intelligence. The latest enhancements to our technology platform puts the power of that information at your fingertips with best-in-class visualization of data gathered across your entire supply chain.

Schedule a demonstration today to see how our clients are able to identify business trends, understand the impact of cost and service on working capital, and recognize ongoing performance improvement opportunities.

Transportation Costs in 2021: Less-Than-Truckload

Carriers are reacting to market changes in other ways beyond transportation costs, as well. One example: early in 2020, one national carrier indicated it would match any volume LTL quote from another carrier. Six weeks later, that carrier wasn’t accepting any volume shipments due to the dramatic shift in the market.

Carriers also have grown more comfortable implementing LTL surcharges that further drive up transportation costs. Some are turning away freight that is more difficult to handle.

The LTL transactional market is seeing tight capacity and generally widespread delays, including with premium carriers. Driving this is a 10-12 percent growth in demand, several times the typical range. 

Capacity constraints in the LTL markets may seem out of step with some of the economic news, which continues to reflect the pandemic toll on many businesses. The September 2020 unemployment rate (7.9 percent) was more than double the rate a year earlier. And while the gross domestic product jumped by $1.64 trillion in the third quarter of 2020, that followed a drop of $2.04 trillion in the second quarter.

One reason for the disconnect is the drop in the consumption of services, which dwarfs the drop in the consumption of goods. Between the first and second quarters, consumption of services dropped 13.3 percent, according to the American Trucking Association. The consumption of goods dropped by a more modest 2.8 percent, also according to the ATA. 

Looking at LTL Transportation in 2021

Even as the economy slowly recovers, demand for goods likely will outpace demand for services, the ATA predicts. Until a vaccine has been broadly distributed and COVID cases drop drastically, consumers appear comfortable continuing to spend more time at home. As they do, newly formed online shopping habits probably will continue. Online purchases of furniture and appliances, apparel, and groceries, among other items, are likely to remain at least 10 percent higher post-pandemic, consulting firm McKinsey found. 

This shift is contributing to expected ongoing capacity tightness. In turn, that likely will contribute to a favorable carrier’s market next year. The rate increases some carriers are imposing in high-capacity lanes likely will continue into 2021, until capacity corrects itself.

The level of those rate increase can vary. LTL carriers develop market-specific rate bases so the impact of increases passed along in 2021 can be influenced by carriers’ operating needs and your shipping characteristics. 

Carrier mergers also appear poised to continue. Most take one of several approaches. Some companies join forces to pool resources and become more efficient. Others bring together companies in different sectors, allowing all to expand their range of services.

Shippers of bulky, low-density, non-dock-to-dock freight, along with shippers of over-dimensional freight that parcel carriers are trying to price out of the parcel network, may face additional obstacles. Some LTL carriers are trying to push these freight types to the truckload market and are raising rates accordingly. 

Surcharges appear likely to remain and even increase. If some states, as predicted, add taxes, other LTL surcharges may appear. 

Prior to the pandemic, some LTL carriers began investing in box trucks so they could more easily handle residential e-commerce deliveries. These efforts have slowed during the pandemic and capacity crunch. However, once demand and capacity rebalance, expect to see LTL carriers make another move into this market. 

Managing Transportation Costs Through Capacity Constraints

While shifting from one carrier to another might seem like a way to improve service and transportation cost, jumping may not help. In fact, it’s possible service will further decline. 

Several other steps tend to be more effective. One is to take a longer-term perspective, work with a carrier, and establish a partnership that benefits all involved. Another is to build lead time into processes and set realistic expectations with end customers. 

For more insight on the motor freight environment we expect to emerge in 2021, watch our webinar focused on Brokerage and Capacity Planning 2021. We take a deeper dive into the outlook for LTL, Truckload and International transportation in our Freight Rate Outlook 2021. Read it today for multi-modal rate forecasts and analysis from our Supply Chain Masters.

How will NMFC Classification Changes Affect Your Cost?

The National Motor Freight Traffic Association considers quarterly updates to NMFC Classification.

The NMFC classification, according to the National Motor Freight Traffic Association, is a way of grouping different commodities that move in interstate, intrastate, and foreign commerce. The commodities are grouped into one of 18 classes, ranging from class 50 to class 500, based on four characteristics that determine how easily different commodities can be transported, or their “transportability.” Generally, products with a lower the class are denser and easier to ship. That translates to a lower freight rate. 

Each quarter, the National Motor Freight Transportation Association, which is made up of motor carriers, considers updates to the NMFC. The proposed changes then are voted on by the members of the Commodity Classification Standards Boards. The CCSB is made up of employees of the National Motor Freight Traffic Association. 

It is important to understand how the latest round of changes affect your freight. Doing so allows you to make adjustments and leverage these changes to your benefit to improve your transportation cost control.

NMFC Classifications

NMFC classifies commodities for transportation based on four characteristics: stowability, liability, handling and density.

Stowability: This considers how easily items will fit and/or can be transported with other items on a truck. For instance, hazardous materials generally cannot be transported with non-hazardous materials, making them less “stowable.” The same tends to hold true for items of unusual or oversized shapes. The lower the stowability of an item, generally, the higher its class and cost to ship.

Liability: This covers the likelihood a product may be stolen or damaged, or damage the freight around it while in transit. It also takes into account whether a product is perishable. The more a product faces these risks, generally, the greater the liability to the carrier, and the higher its class and cost.

Ease of HandlingThis covers multiple characteristics that affect how easily products can be loaded or unloaded, including their size, weight and fragility.

Density: As you might guess, this is calculated by measuring an item’s weight and dimensions. The higher the density, the lower the NMFC class and thus, the cost. While this may initially seem counter-intuitive, the calculation recognizes that denser items take up less room than less-dense items, when compared to their weight. That leaves more room on the truck for other shipments.

Updates to the NMFC Classification

In general, the changes this quarter take the density of shipments into account to a greater degree than they previously did. For instance, gloves and mittens, along with sealing and masking tape, are shifting from a single class to a density-based classification. This is similar to other NMFC classification changes that have occurred recently. 

This quarter, the changes cover about 20 NMFC Groups:  

  • Automobile parts
  • Building materials, miscellaneous
  • Building metalworks
  • Building woodwork
  • Chemicals
  • Clothing
  • Drawing instruments, optical goods, or scientific instruments
  • Electrical equipment
  • Furniture
  • Games or toys
  • Hardware
  • Iron or Steel
  • Machinery
  • Paper articles
  • Plastic or rubber articles, other than expanded
  • Tools or parts named
  • Bases, flagpole or sign, concrete, with or without metal attachments
  • Compounds, industrial process water treating, o/t toxic or corrosive materials
  • Forms, concrete retaining, sign or lamp post base, taper-sided, sheet steel 

In addition to these changes, a rule change under Item 110 clarifies that “coin- or currency-operated” refers to items that accept debit or credit cards, or other forms of payment, as well as cash payments. 

Working with Transportation Insight to Stay Abreast of Changes 

When your product ships, you will want to make sure the correct NMFC code is visible on the bill of lading, so the carrier knows to use it. It also helps to describe the product being shipped to the extent possible. 

Every year hundreds of shippers master their supply chain leveraging Transportation Insight’s ability to monitor the industry trends that affect transportation costs. To ensure our clients are using updated codes, Transportation Insight proactively checks all products against the NMFC database to help you manage the changes and control your spend. Our freight bill audit and payment solution provides an additional layer of support that ensures alignment between your billing and invoiced classification.

Do you have questions about how the fourth quarter NMFC classification changes affect your products? Contact a member of our team for a consultation.

For more analysis on freight capacity planning strategy, watch our Capacity Masters Roundtable. It offers guidance from our truckload, LTL and brokerage experts that will help you understand – and control! – cost drivers in the year ahead. 

5 Tips: Curtailing the Supply Chain Bullwhip Effect

A phenomenon that quickly turns otherwise accurate forecasts into far-reaching supply chain inefficiencies, the bullwhip effect refers to the increasing swings in inventory — in response to shifts in customer demand — as one moves further up the supply chain

Accustomed to seeing ample supplies of diapers, toilet paper, and cleaning products on store shelves, consumers were in for a shock when COVID-19 began to take its toll on the world’s supply chains in early 2020. Although the barest of shelves began to rejuvenate by midyear, there are still some lingering effects (plus the potential for more shortages later in the year and into 2021). 

Blame the bullwhip effect for creating a lot of this chaos and uncertainty. 

“Supply chains allow companies to focus on their specific processes to maintain maximum probability,” Osmond Vitez writes in The Bullwhip Effect in Supply Chain. “Unfortunately, supply chains may stumble when market conditions change and consumer demand shifts.”

Here’s what companies should be doing now to avoid supply chain disruption in the future. 

5 Supply Chain Takeaways for 2021

Under “normal” circumstances, companies invest in extra capacity, inventory, labor and work shifts to minimize the bullwhip effect or to avoid it altogether. The problem this time around is that otherwise routine approaches didn’t work. Demand sensing, forecasting and other forward-looking predictions were equally as ineffective, and mainly due to the unprecedented nature of the global pandemic. 

Here’s the good news: shippers now have boots-on-the-ground experience with a fairly extreme case of the bullwhip effect. Using their 2020 experience as their guide, companies can now prepare for the next potential disruption with a better understanding of the hefty impacts that it could have on their global supply chains. 

Here are five lessons that all companies should apply toward their future supply chain management: 

  1. Communication, data sharing, and visibility trump all when it comes to minimizing the bullwhip effect. One large national retailer, considered to be a leader in supply chain strategy, opened the lines of communication by allowing suppliers to access their inventory data. The result: increased customer satisfaction, a decrease in inventory and warehousing costs, and more stable supply lines.
  2. Third-party logistics experts have proven their worth. Well equipped to handle the logistics, transportation and technology that go into a well-oiled supply chain, experts like Transportation Insight know both sides of the business (i.e., shipper and carrier), and we can demonstrate and articulate how each node in the supply chain will benefit from a specific decision. 
  1. Scenario planning and simulations actually work. Think of them as the “war games” of your own supply chain, use them to run simulations on historical data across different hypothetical scenarios (e.g., if we can’t get raw materials from country A, how will it impact the rest of the supply chain?). Getting the answers to these questions before a disruption occurs will help you be more prepared in the event of a disruption.
  1. Use dashboards and control towers to get big-picture views in real-time. The days when a warehouse manager had to wait until the end of the month for a printed performance report are long gone. Thanks to advancements in technology, the same manager can get that information in real-time and then use it for good decision-making. Being able to drill down into order profits, for instance, will help you better understand what you should actually be charging for shipping. This, in turn, helps support good margin management in any business conditions.
    
  2. Alternate sources of supply are a good thing to have. In surveying 150 senior manufacturing executives, law firm Foley & Lardner found that most expect to make “fairly drastic” changes to their supply chains post-pandemic, including a shift away from just-in-time manufacturing (JIT) and sourcing in China. In Global Supply Chain Disruption and Future Strategies Survey Report, the law firm says that of those companies that were operating in China pre-pandemic, 59% have either already withdrawn operations, are in the process of doing so, or are considering it. Many of those organizations are looking to reshore their operations closer to home in the U.S., Canada, or Mexico.

Depending on how you approach it, transportation can play a major role in avoiding the bullwhip effect in your supply chain. Through good communication and data-sharing across all supply chain partners, you’ll gain an understanding of both real-time and historical information as it relates to all points in the supply chain. The better decisions you can make, the better the odds of avoiding the bullwhip effect.    

Tame the Bullwhip: Manage the Demand Waves

We examine the steps you can take to build a responsive supply chain management system in our latest Supply Chain Masters Series digital event. 

Watch the webinar to learn best practices for collecting, retaining and analyzing supply chain data. We also highlight the business intelligence solutions that drive continuous improvement and proactive strategy adjustment. 

Click the link below to learn supply chain strategies that minimize risk and protect your profitability today and tomorrow.

The Bullwhip Effect: Managing Swings in Demand

The “Bullwhip Effect” is a term often used to describe a phenomenon that quickly turns otherwise accurate forecasts into outdated information, amplifying misinformation along the supply chain. The dust was brushed off this broad concept, and it returned to the shelves not long after COVID-19 began disrupting global supply chains.

“Supply chains allow companies to focus on their specific processes to maintain maximum probability,” Osmond Vitez writes in The Bullwhip Effect in Supply Chain. “Unfortunately, supply chains may stumble when market conditions change and consumer demand shifts.”

That’s exactly what happened when an abrupt change in customer demand plus factory shutdowns put companies in the tight spot of having to forecast demand in the middle of an unprecedented, worldwide pandemic.

With demand for certain items amplified, the tiniest crack of the bullwhip’s handle caused an uncontrolled, snapping motion at the tip of that whip.

Balancing Demand Effects and Available Inventory

“When major swings in inventory occur from panic buying and hoarding, the impact of this sudden demand is magnified as it moves upstream in the supply chain (similar to the way a bullwhip’s thong amplifies in a wave as it moves away from the handle),” Jenny Reese explains in “Preparing for COVID-19 and the bullwhip effect: What happens to the supply chain when you buy 100 rolls of toilet paper?” The customer feels the anxiety of empty aisles, the retailer loses sales, and customer service suffers. “Distributors are left scrambling to determine who should get how much of a given product in a shortage,” Reese continues, “and manufacturers are overwhelmed with sudden, unanticipated spikes in demand.”

With little or no visibility into demand patterns to lean on, many companies wind up flying blind and hoping for the best.

How Does the Bullwhip Effect Work?

Without accurate, accessible, and strong communication across the various partners in the supply chain, the bullwhip effect can occur in any business environment. In a supply chain made up of a factory, a distributor/wholesaler, retailer, and end customer, for example, the retailer and customer tend to be closely aligned. For instance, a customer places an order and a retailer reacts accordingly.

Continue further up that supply chain, however, and that alignment begins to diminish.

Manufacturers don’t always align their forecasts with retailers’ own projections and distributors are, frequently, caught in the middle of two entities that have zero communication with one another.

These gaps widen during events like COVID-19, with even a small variance creating a Bullwhip Effect. In fact, Jay Forrester, who first conceptualized the Bullwhip Effect in these terms, says that even a 10 percent change at either end of the supply chain can result in a 40 percent fluctuation in the middle. That’s when the wheels fall off the cart; all players in the supply chain make quick adjustments to compensate for the problem.

Why Should You Care?

Virtually every organization must address or, at least be aware of, the Bullwhip Effect. Without up-to-date and wide supply chain communication, companies risk having it adversely impact their operations and their customers. Since no organization is an island, even the most vertically-integrated companies should know the signs of the Bullwhip Effect and how to deal with it effectively.

It’s easy to recognize the Bullwhip Effect in retrospect, as customers are cancelling or returning orders that they were clamoring to buy because they bought too much, overestimating their need. In order to meet perceived demands, erratic production, excessive inventory and depletion of resources highlight this effect. During COVID 19, suppliers most at-risk from the Bullwhip Effect included makers and distributors of PPE, hand sanitizer, toilet paper, and other hard-to-find items.

As a Supply chain professional you’ve been exposed to the Bullwhip Effect. The costly consequences materialize quickly and immediately erode your profitability.

Are you able to make informed decisions based on real time data?

Transportation Insight allows your business to make evidence-based decisions. We amass data about your supply chain to give you a comprehensive understanding of your logistics network. Our expertise and tools enable contingency planning through “what if scenarios” that address the Bullwhip Effect before it impacts your bottom line. Transportation Insight monitors multiple key performance indicators that measure your business activity and reveal threats and opportunities to drive continuous optimization of your supply chain.

Tame the Bullwhip: Manage the Demand Waves

We offer more context around the Bullwhip Effect in our Supply Chain Masters Digital Event. Watch the webinar today and learn how you can manage demand fluctuations with a responsive supply chain management system:

  • Best practices for collecting, retaining and analyzing supply chain data.
  • Processes that encourage scalability and readinesss for decline, recovery and even growth.

Learn the supply chain strategies that minimize risk and protect your profitability today and tomorrow.

Indirect Spend Cost Increases Continue

Many of the elements driving these indirect spend cost increases cannot be controlled. 

That does not mean your organization is limited in its ability to manage and mitigate some of these rising expenses. A strong relationship with your support partners helps. So, too, does an expert partner with awareness of industry trends and spend management tactics that realize efficiencies, even during volatile times. 

To support your indirect spend management efforts in Q4 and heading into 2021, let’s explore some of the factors driving cost increases in your operation.

Resin Increases, E-Commerce Demand Drives Indirect Spend Cost Spike

Demand is driving up indirect spend costs on mailing envelopes, poly bags and other packaging materials used in e-commerce shipping.

Resin costs continue to fuel increases for companies that utilize stretch film, bubble wrap, flexible mailers and other polyethylene products. Each resin increase usually translates to a product cost increase of 6-7 percent.

Five consecutive months of resin cost increases have inflated prices 44 percent. That has translated to a 20-25 percent uptick on flexible packaging-related products costs, such as the Oct. 1 increase announced by all major manufacturers of stretch film. That is the second stretch film increase this year – and we anticipate there will be additional increases on other produces that rely on polyethylene. 

At the same time, demand is up in the plastic market compared to 2019. A growing e-commerce marketplace began booming when COVID-19 accelerated consumers’ online buying behaviors for a broader range of products, from groceries to home office products. 

More e-commerce businesses are utilizing plastic packaging, bubble bags and poly bags to ship their products, whereas a few years ago they put those items in small boxes. In the 2020 parcel shipping environment, it is more cost effective to use poly mailers, and that is impacting demand.

While demand is up, some of the major manufacturers implemented maintenance related shutdowns in Q2 and Q3, reducing supply in the process. Increased hurricane activity along the Gulf Coast is also forcing shutdowns for many resin operations and nearby poly-product manufacturing plants situated close to petroleum refineries in the region. Additional shutdowns will only create a tighter market.

Cardboard and Other Commodity Costs Require Awareness

Market conditions may not support a fourth quarter cost increase on corrugated and linerboard. Often the top producers of these materials float the prospect of a rate increase to gauge pushback. Expect talk of a 6-8 percent increase to emerge toward the middle or late part of the quarter. 

Due to activity that scaled back for many operations during the pandemic, the demand and inventory levers may not support that increase. Expect that increase to emerge in 2021.

As businesses continue to ramp up coming out of COVID-19, demand may increase on those cardboard products, as well as others that are already in short supply. Costs for Personal Protective Equipment (PPE), safety supplies and cleaning products will continue to escalate into 2021. That will cause pain for businesses from a pricing and availability standpoint. 

Cost increases on steel and related products will have a similar effect on MRO supplies. Expect price movement on nuts, bolts, fasteners, and other maintenance products in the early part of next year.

Lessons Learned for Future Performance

The challenges emerging in 2020 really validated the importance of strong relationships with your support partners. 

Do you always beat up your suppliers to get the best price?

If you do, the pandemic has taught us, you might suddenly find that you do not have a reliable supply base because you have not been loyal to a supplier. If you focus on buying what you need at the lowest cost and jump from vendor to vendor, when trouble arises you may not have a partner you can count on. 

Thanks to partnerships forged through Transportation Insight’s Group Purchasing Organization, we have the leverage to secure both the best product prices and the supplies you need to continue operating.

The pandemic has taught us that when businesses align with national supply partners, they have access to competitive prices and products delivered on a timely, reliable basis. 

This is especially important in the poly-packaging space. When times get tough and supply gets tight, suppliers will take care of the customers that have been good to them. They will have a difficult time supplying customers that are here today and gone tomorrow. 

Relying on long-term partnerships established in Transportation Insight’s Group Purchasing Organization, we are able to secure both good pricing and consistent supplies of products necessary to your operation. At the same time, we help you manage indirect spend areas that is driving up your overall operational costs that could be jeopardizing your profit. 

To learn more about how we help organizations manage their indirect spend and achieve double-digit savings watch our recent webinar.

Why Audit Parcel Service Now? Here’s 4 Reasons

If you don’t think the delivery experience is directly related to customer retention, think again. According to Dimensional Research, of customers who report a bad experience, almost all of them (97 percent) changed their future buying decisions. Further, 58 percent stopped buying from the company, more than half went to a different company for the product or service, and 52 percent told others not to buy the product or service. 

Maybe the shipment was late, perhaps it was damaged, maybe it was delivered to the wrong house, or perhaps the shipping label was wrong in the first place. In the small package shipping environment, it is hard to have awareness of the problem without parcel audit validating the service received.

Whatever caused the problem, the bottom line is that this and other issues could be making you lose customers right at a time when no company can afford to have this happen. Between the global pandemic, the economic recession, and the business volatility occurring in most industries, organizations need to be at the top of their games when it comes to customer service. 

$1.50 Per Package Adds Up Fast

No matter how much customers love your product, many won’t come back if the experience is not good. This should be reason enough to conduct frequent service audits. 

There are also other reasons, some of which do not relate to the customer experience. For example, Transportation Insight recently worked with a shipper that noticed a significant change in its per-package shipping costs. After a service audit, it realized that its cost-per-package had increased by about $1.50 due to a billing adjustment error made by the carrier (for early-morning deliveries). 

Had the shipper not conducted that analysis, there’s no telling when it would have recognized that it was being overcharged by $1.50 per package. Multiply that number times thousands of shipments per year and the value of frequent service audits becomes crystal clear.  

Why Bother Auditing?

With service guarantees being waived right now, many companies are wondering if they still need to audit their invoices and charges. The answer is “yes,” and here’s why: even with these waivers, there are still a high number of errors and ways to ferret out savings on pretty much any transportation bill. 

For example, shippers are still being hit with duplicate charges and other billing errors on top of late, incorrect and damaged shipments — problems that can directly impact customer service and retention. With fewer drivers on the road and higher demand for parcel capacity — largely due to the massive uptick in e-commerce shopping — both loss and damage incidences have increased. 

By auditing every package to make sure it’s successfully delivered, companies can manage the loss and damage process from start to finish. Audits can also uncover data regarding insufficient packaging and ensure that payments are accurate and on time. In fact, auditing is a great risk management tool that companies can use during both peak and regular seasons.    

Here are four more reasons why you need to continue service audits:

  • Good visibility into what you’re actually paying. The audit platform you use should break down carrier invoice details to the charge level to analyze all peak season surcharges, rates, and discounts. This year, we’ve seen a number of rate errors and worked on our clients’ behalf to recover over $1.4 million in savings. We’re also identifying duplicate charges and billing errors at the charge level, which is impossible to do without an invoice audit in place.
  • Make sure it gets there on time and in one piece. Sure, some service guarantees are waived right now, but shippers should still want to audit every package to ensure it is delivered and not lost in transit or damaged. This year, we’ve seen the perfect storm of greater-than-usual demand, fewer drivers, and more retailers shipping items that normally would be purchased and picked up in store. Without a doubt, that’s caused an increase in lost and damaged packages. 
  • Tracking losses and damages. The best approach is to manage the entire loss and damage process from identification to resolution and recovery. So far this year, Transportation Insight has secured over $1.7 million in loss and damage savings, and all while providing data regarding insufficient packaging details down to the SKU level. This is particularly helpful for companies that are introducing new products and/or shipping with new vendors.  
  • Pay accurate bills on time. The data collected during a service audit provides insights into how new surcharges or new carrier rules will impact transportation and the related costs. For example, FedEx recently announced a new late-payment fee effective January 2021. Using a compliance audit, companies can keep close tabs on these types of fees and either avoid them completely (by paying on time) or correcting errors (by flagging erroneous late fees). With so many staffing changes and work-from-home scenarios taking place in 2020, shippers need to be especially careful about paying their carrier invoices correctly and on time.

Helping You Rest Easier

Transportation Insight is the only parcel audit and logistics solution provider that undergoes an annual SOC 1 Type II third-party compliance audit. We check every parcel package within your supply chain to make sure you’re getting the service you selected at your contracted price. For example, if your company is paying for guaranteed service, Saturday pickup or delivery, or other services, we’ll make sure you get them. We also check for invalid pickup, as well as identify and follow up on lost or damaged packages.

Possessing deep industry expertise, our parcel team also monitors ongoing changes in the small package environment to help keep shippers apprised of the emerging cost-drivers that affect their profitable performance. 

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.

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.