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Parcel Spend Management: An Effective Solution in a Rapidly Changing Industry

Most large parcel shippers would agree that the parcel industry is evolving at a pace more rapidly than we have seen in recent history. After years of shippers designing and operating their parcel networks primarily based on FedEx and UPS’s service capabilities, we are seeing a shift to alternative network strategies that permit the incorporation of other carriers’ solutions. In an industry dominated primarily by two large carriers, opportunities are quickly arising that lower the barriers…

 Mike Lambert

Most large parcel shippers would agree that the parcel industry is evolving at a pace more rapidly than we have ever seen in recent history. After years of shippers designing and operating their parcel networks primarily based on FedEx and UPS’s service capabilities, we are seeing a shift to alternative network strategies that permit the incorporation of other carriers’ solutions. In an industry dominated primarily by two large carriers, opportunities are quickly arising that lower the barriers to entry for new carriers and the switching costs for shippers. The change is evolving rapidly as a result of the dramatic shift in how retailers interact with and fulfill the requirements of their customers. Incorporating mobile technology with the latest marketing strategies and leveraging a new breed of order fulfillment system capabilities, retailers have established entirely new parcel shipping channels that change both their parcel network requirements and package profiles profoundly. As a result, we are finding the rapid evolution of the parcel industry is directly linked to the speed of changes in recent technology. These changes are disrupting the industry, challenging the established carriers’ networks, creating new carrier and service opportunities, and exponentially increasing the complexity of shippers’ parcel networks.

In the past, many networks consisted of only a handful of fulfillment locations serviced by one or two carriers, but now the current environment requires the ability to ship from potentially hundreds or thousands of local origin points in a network. As a result, new opportunities are emerging for established regional carriers and local couriers. At the same time, new delivery and service innovations based on the latest technology and mobile device capabilities are quickly evolving. It’s a new world for parcel transportation managers and the requirements for planning and executing their network are nothing like they were just a few years ago. As a result, most shippers are finding they lack the resources needed to manage parcel in this new world. In the past, one person could manage his or her parcel network and relationships with FedEx, UPS, and/or USPS. Now, due to the complexity of managing a network that incorporates thousands of origin points, a growing carrier and service base, constantly changing service level requirements from consumers, and exponential amounts of data, retailers are in need of resources with established parcel industry intelligence and data analytic capabilities. However, the resources needed are limited in the marketplace and expensive to develop. That’s why many retailers are partnering with third-party Parcel Spend Management companies with the resources and capabilities to aid them with planning, executing, and monitoring the performance of their parcel network.

Your firm may be a good candidate for such a Parcel Spend Management partner if you ship millions of packages annually and are impacted by the industry changes, complexities, and resource challenges described previously.

Planning a network involves developing your cost and service goals and then evaluating and implementing strategies to achieve these goals. Typically, a shipper will be assessing an optimal fulfillment footprint (origin locations) combined with service level strategies (time in transit). This planning will involve potentially evaluating the use of a multitude of carriers and services and understanding how they may impact your current network situation. Most of this work is based on very intensive data analytics and requires the technology to support it. Ultimately, the plan finds its way into the annual budget with cost expectations that are expected to be met. The value of a Parcel Spend Management provider in this process is providing strategic guidance based on their industry intelligence and ensuring you make the correct decision that minimizes cost utilizing their analytic processes.

Once the plan and budget has been established, a shipper must execute the plan. Executing the plan typically involves the bid and implementation of parcel carriers along with properly fulfilling orders based on inventory allocation strategies. A Parcel Spend Management firm will support a shipper in both these exercises. A quality partner will aid you with managing the bid process and ensure it is conducted with integrity. A few key values a Parcel Spend Management partner provides in the bid process are: utilizing accurate and representative data, providing analytics to understand the value of each proposal, and having the capability to evaluate multiple carrier implementation scenarios to optimize cost and transit time goals. The provider can also supply the capabilities to determine where to source inventory optimally for each destination and understand inventory items that are not profitable to ship parcel.

Plans and budgets that have been implemented require monitoring budget expectations versus actual spend to identify gaps in execution. An ongoing Parcel Spend Management partner engages with companies to identify the gaps and determines root causes for potential resolution. The ability to manage big data and identify the drivers of cost and service issues is typically a significant challenge for shippers without the aid of a Parcel Send Management firm. The use of business intelligence and data visualization technology is employed by best-in-breed Parcel Spend Management firms.

In today’s rapidly evolving parcel environment, most large and complex shippers struggle with planning, executing, and monitoring the performance of their parcel network. Limited resources, expertise, technology and the pace of change are requiring shippers to think differently about how they manage their network. If your firm falls in this category and has the need or appetite for change then you most likely will find value in engaging with a Parcel Spend Management partner on an ongoing basis.


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