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What is Parcel Network Optimization?
Parcel Network Optimization is a heavily involved – and typically a continuous improvement – process that utilizes Big Data, Network Intelligence, and a variety of other strategies (e.g. resource efficiency, contract management, cost avoidance, etc.) to yield greater efficiency across the parcel network with the ultimate purpose of reducing costs and speeding up delivery times.
Most shippers see contract negotiation as the primary way to meet these objectives, but shippers should take note that eliminating the waste in their current networks can reduce costs and improve service within the framework of their current carrier agreements. You don’t have to wait until your contract expires to improve.
The 4 Steps of Parcel Network Optimization
Optimization means to modify and achieve maximum efficiency in capacity, time or cost. Companies that are not operating their parcel networks to achieve maximum efficiency can reduce costs, improve service levels and reduce transit time through optimization. Most large shippers do not have the technology or resources to perform the level of analysis required to identify optimization opportunities, but those that do can expect a 10-20% improvement in overall network efficiency. This optimization process begins by identifying the answers to four key optimization areas/questions:
- Understand the value of operating a single carrier vs. a multi-carrier model. You may consider and weigh the differences between which approach is best for the cost of your parcel network vs. what will affirm your ideal brand perception from your customers. Many shippers have turned to carrier diversification or alternate carriers in order to maintain the balance between network cost and brand perception. More notably, carrier diversification has become an important and focused strategy for many shippers during COVID-19 as carrier networks have become overwhelmed with limited capacity.
- Define your order management model to determine what is the customer’s expectation of service. It’s critical to remember during this step how necessary it is to ensure your brand strategy is also tied to your transportation strategy, as the right order management model for you should meet the basic requirements of both. Keep in mind that flexibility is also an important factor to consider when evaluating and selecting an order management model and system, especially during times of crisis or large change, as you will want your model/system to adapt quickly if necessary.
- Calculate the preferred contract cycle for each business segment. Sometimes the most intensive and challenging component of parcel network optimization, this step requires a great deal of future-focus and is often enhanced by a continuous improvement approach. More importantly, understanding how to calculate the impact of these decisions down-to-the-penny through network modeling can be incredibly beneficial to the long-term success of your parcel network.
- Identify future infrastructure plans, such as additional shipping locations. Taking a fresh look at your network strategy is a key enabler to true network optimization, and understanding where you want your network to grow is just as important as understanding where it is today. Any shipper operating without a clearly defined parcel strategy is treading in dangerous territory.
In short, parcel network optimization is a long-term coordinated effort to align your transportation strategy (including your parcel carrier contracts) with your brand strategy, typically driven to reduce the costs and improve the speed of your parcel network. Almost all shippers understand the importance of being able to accurately report and monitor the performance of their network; however, many companies overlook the ability to utilize this data to optimize and improve their network from the inside. More importantly, many don’t have the right metrics in place to explain variance from period to period or strategy to strategy, making the parcel network optimization process more challenging. Identifying these types of opportunities takes time, resources, and technology to execute.
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