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Avoiding Operational Pitfalls in a Dynamic Parcel Network

As the pressure to stay ahead of the competition has increased, many shippers are working to increase flexibility in their networks. A common goal for shippers is developing a nimble network to meet the high expectations of consumers… Well-meant intentions can result in increased cost and poor service if quality processes for operational execution are not deployed…

 Mike Lambert

As the pressure to stay ahead of the competition has increased, many shippers are working to increase flexibility in their networks. A common goal for shippers is developing a nimble network to meet the high expectations of consumers while reducing cost and improving transit time. Transportation managers are striving to meet these goals by exploring all available options. Whether it be leveraging store real estate to conduct direct to customer fulfillment operations or implementing new carriers, shippers are aggressively challenging old norms of shipping practices. However, implementing additional carriers, services, and origin points creates operational complexity, and managers need to be aware of the potential pitfalls that can result from a more complexnetwork.

Over the past few years, free shipping promotions created the need for a low-cost shipping solution for online retailers. Postal Consolidation services from carriers such as FedEx, UPS, Newgistics, and DHL Global Mail filled the need perfectly.These services are low-cost and have a longer transit as a result of utilizing the Postal Service for final mile delivery. The carriers’ rates for these services are targeted toward lower weight shipments, typically less than 10 pounds. Heavier shipments tend to be less expensive with Ground service. As a result, the selection of the least cost service is based on the billable weight of a package. Unfortunately, many shippers may have hidden dangers in their operations that cause them to compute incorrect billable weights and thus select improper services that result in unexpected cost increases.

Some of the operational issues that cause this are as follows:

  • Incorrect system SKU and package tare weights
  • Invalid system carton dimensions
  • Lack of system rate shop capabilities
  • Operator errors and poor quality control processes
  • Non-optimal carton size usage

Some WMS/TMS systems determine the actual physical weight of a carton based on the system weight of a carton’s SKUs and carton tare weight. Unfortunately, many managers may find that the system weights of the SKUs or packaging material are incorrect. In fact, this is fairly common for shippers who have a vast and rapidly changing SKU assortment. Add to this the fact that many retailers are decentralizing the shipment of product from distribution centers to stores and the complexity to manage system weights increases exponentially. As a result, a shipper may be shipping cartons that are actually heavier than their system computes and therefore improperly utilizing more costly services. Carriers will weigh the parcels, and if the physical weight is determined to be higher than the manifested weight, they will bill the package at the higher weight.

Carton dimensions also impact the choice of service in a rate shop system. For example, UPS considers dimensional weight when computing billed weight for their SurePost service, similar to their Ground service. The dimensional weight can potentially drive the billable weight over nine pounds and thus makes it more costly to ship a package SurePost versus Ground. FedEx does not consider dimensional weight for its SmartPost service as they do for Ground and Home Delivery. FedEx computes a balloon weight or oversize weight for SmartPost that corresponds to higher billable weights and rates. The Balloon rate is utilized when any package that is less than 20 lbs. measures more than 84 inches but less than 108 inches in combined length plus girth. Balloon packages are rated at the 20 lb. rate. Oversize is any package that measures more than 108 inches but not more than 130 inches in combined length plus girth. An extraordinarily high rate is applied to Oversize packages.

Carriers also bill a Non-Machinable surcharge for their Postal Consolidation services based on the size of a carton. This surcharge can negate any savings achieved with SurePost or SmartPost versus Ground service. The carriers will assess a Non-Machinable fee to packages with one of the following attributes:

  • Any package with one dimension measuring more than 34 inches
  • Any package with any two dimensions each measuring more than 17 inches
  • Any package weighing over 35 lbs
  • Any package in a cylindrical shipping tube.

As you can see, carton dimensions are an important component for calculating the correct billable weight and selecting the least cost service. If the carton dimensions in a shipper’s system are not well maintained, then there is a high likelihood of incurring higher shipping costs than expected.System rate shop capabilities mayalso create an operational pitfall. Older systems may not apply the proper rating rules during a rate shop, especially for newer carriers and services. While system updates are often available, a shipper may have chosen not to upgrade in the past. For example, an unsuspecting manager may find his shipping cost spiraling out of control because his system doesn’t calculate or consider dimension in selecting carrier services! A recent and impactful example that shippers will need to address is FedEx’s announcement that effective January 1st, 2015 the three cubic foot threshold for Ground shipments will be eliminated. Shippers will need to ensure the new FedEx Ground DIM weight calculation is updated in their shipping system to properly rate packages.

Operator errors can also create issues for managers. These errors typically result from poor process design and lack of quality checks. Some operations may require that an operator manually weigh packages to determine actual package weights. It is very possible that an operator can weigh packages incorrectly, resulting in the potential of an incorrect service selection. Retailers with “ship from store” operations should be especially cognizant of this potential operational pitfall since the management of the shipping operations decentralized across the country. To minimize issues, managers should ensure processes have quality controls to validate package weights and measures; along with developing processes that minimize employee errors.

Shippers should also pay close attention to the cartons sizes that are being utilized in their packing operations, especially shippers with a vast assortment of small and large SKUs of varying weights. Many times a shipper may discover they are wasting money shipping more air thanproducts. In this case, dimensional rules typically apply to the billable weight as referenced above and are the root cause of incorrect service selection. Managers can identify the carton sizes that are most frequently impacted by dimensions on the billed weight and determine if the carton or packing processes can be reengineered.

Consider this specific example of a shipper who encountered some of these pitfalls. An online retailer ships an array of decorative accessory products for the home. Conducting a strategic assessment of its network and service goals, the retailer concluded that implementing FedEx’s SmartPost service was a wise decision. The service would minimize the cost to ship to customers who choose free shipping. The service made sense for shipping low weight and low value products. For Black Friday, the retailer offered two sofa pillows as a “Door Buster” item, a $10 product to attract customers to the retailer’s website. The retailer shipped the two sofa pillows in an 18 x 18 x 18 carton.

The carton’s physical weight was seven pounds. The retailer shipped 20,000 packages in a single day utilizing the low cost SmartPost service. Unfortunately, the retailer’s shipping manager was unaware that the carton dimensions were not entered into the warehouse management system properly and as a result the system did not compute a balloon weight. As a result, the system selected the SmartPost service based on the package’s actual weight of 7 pounds. However, the carrier computed a balloon weight of 20 pounds plus a non-machinable surcharge! The shipper’s SmartPost rates were four times higher at the balloon weight versus the seven pound rate, and FedEx Home Delivery service was actually half the cost. The package could have shipped for less and faster using Ground service -a costly error!

These are just a few examples of operational pitfalls to consider when utilizing multiple carriers, services, and origin points in your network. The added complexity aids shippers in meeting their customers’ cost and service expectations. However, managers must diligently examine their operations to ensure they execute as intended.


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