Drop Those Rates

Problem: Multititle cataloger Shindigz/Stumps wanted to reduce overall transportation expenses, while retaining flexibility in its product shipping options offered to customers.

Solution: The multichannel merchant put its parcel shipping business up for bid.

Results: A switch in carriers enabled Shindigz/Stumps to reduce its overall transportation costs by 27 percent.

Brad Grimsley knew he needed to make some changes. The vice president of service and fulfillment at Shindigz/Stumps, a South Whitley, Ind.-based party and prom supplies merchant, says he noticed soon after arriving at the company in 2003 that he had an opportunity to reduce shipping expenses.

Meanwhile, the company’s overall order volume for its eight catalog titles had risen 28 percent since 2002, but its average order size was down 14 percent. One other variable: Stumps’ officials wanted to continue offering free shipping (ground only) to customers of certain catalog titles who order a predetermined amount of merchandise. The question was how to do that profitably.

Grimsley took a hard look at his overall transportation costs. “The accessorial fees my then-current parcel carrier was charging me totaled nearly 30 percent of my spending,” he recalls. These included, for example, residential delivery charges, excess package weights, fuel surcharges and additional handling fees.

“It was ridiculous,” he says. “They were even charging me extra fees for handling dangerous goods. We sell prom kits! How dangerous can they be?”

Following was the five-step action plan Grimsley used to reduce Shindigz/Stumps’ shipping costs.

1. Collected Data

Grimsley began by looking at overall shipping data. Shindigz/Stumps typically has two peak seasons: February to May and September to November — seasons that usually are counter-cyclical to other shippers. “That became a negotiating point for us,” he says.

He also looked at returns data, package distribution by shipping zones and states, and package sizes. This information would come in handy when he started bidding out his transportation business.

2. Identified Service Providers

Next Grimsley set out to investigate other shipping options, including the following:

- Parcel carriers offered several types of services his company could use, including shipment tracking. Moreover, some parcel carriers have consumer points of contact (e.g., FedEx/Kinko’s) that would make customer returns easier. However, Grimsley found the small, lightweight packages his company often shipped could be relatively expensive, and the carriers’ rate fees discouraged shipments to customers in rural areas. And then, of course, there were those pesky accessorial fees.

- The U.S. Postal Service (USPS) had several advantages. “It’s expanding its service options; it’s good at handling small, lightweight packages; it delivers everywhere; and it has few accessorial charges.”

- He also looked at consolidators, which he defined as “essentially an extension of the USPS network. They provide zone-skipping for the postal system.”

- Finally, he investigated the use of dedicated transportation fleets of other merchants, that is, companies with their own trucks that transport other merchants’ goods for just enough money to cover expenses.

A careful man by nature, Grimsley also sought advice from colleagues and consultants. And he bought merchandise from competitors to see how they shipped — information that could prove useful in the final analysis, he reasoned.

3. Developed an RFP

In April 2004, Grimsley put his transportation business out for bid. Each request for proposal (RFP) that he sent out included:

- a cover letter;

- an overview of Stumps’ business;

- the transportation services the merchant required and requested;

- his expectations regarding carriers’ service levels, operations support, and technology; and

- a non-disclosure agreement.

After the second contact with each bidder, Grimsley provided his then-current shipping data with appropriate descriptions and explanations.

In the RFPs, he also included guidelines for how he wanted the pricing data to be presented. For example, the bidders were asked to identify service charges beyond the base pricing structure, and to list and cost out their accessorial charges by service types (e.g., air and ground shipments). He also requested a summary of their data, which helped ensure easier comparisons among carriers.

4. Negotiated and Selected

Within days of sending the RFPs, responses started coming in. Grimsley allowed carriers to make in-person presentations, which he scheduled close together. “But not so close that the presenters were passing one another in the parking lot,” Grimsley notes. He wanted to keep the comparison process as professional and dispassionate as possible.

Once the bids were in, he created a large grid that made comparisons easier to view at a glance.

In July 2004, three months after sending the RFPs, Grimsley made his carrier selections: a parcel carrier and a postal consolidator for packages of 5 pounds or less. He says he based his decisions on both pricing and service levels. He notified the other bidders after he made his choices.

Takeaway tips: Grimsley notes that the process reiterated the importance of several strategies, such as: “Ask for the moon. Let them tell you ‘no.’ Then negotiate up,” he says. And don’t make quick decisions. “Balance all the data together before making your selection,” he notes.

5. Planned Carrier Switch

Once he had new carriers lined up, the next step was to carefully plan the switchover from his old carrier. Following were some of his considerations:

Systems: Grimsley had to be sure the carrier’s computer system could be integrated with his. Moreover, Shindigz/Stumps’ labeling processes had to be approved by the carrier. Finally, billing and manifesting, as well as shipment tracking and tracing capabilities, had to be worked out.

Identify risks: Grimsley was understandably worried about his old carrier’s service levels in the days leading up to the switchover. So the start date for the new carriers had to be carefully planned so it wouldn’t fall during one of the merchant’s peak selling seasons.

Grimsley did take the time to explain to his old carrier’s representatives why they were losing his business. “It was a 45-minute conference call,” he remembers. “I told them about the accessorial charges, the poor service levels, etc. I answered their questions honestly.”

Grimsley also had to factor in some customer confusion. “We surmised there would be more talk time in the contact center regarding our use of a new carrier,” he recalls.

Once a new start date was set, Grimsley made sure he had all hands on deck. “A carrier rep was on site for the first three days to make sure shipments went out smoothly,” he says.

The merchant also carefully audited its first billing statement, and made it a point to quickly address customer feedback regarding shipping.

Conclusion

After one year, Grimsley says the results were worth the effort. “We were able to increase how many free shipping offers we could make to customers, which makes our marketing department happy. And overall, we reduced our transportation costs by 27 percent, all of which went right to the bottom line,” he notes.