Fulfillment: Five Simple Approaches to Parcel Cost Savings

For many catalog and online retailers, parcel shipment cost is the highest single line item in the fulfillment process. Fortunately there are some simple checks available to determine if your company is spending too much. In conjunction with rate negotiations and invoice auditing, look at the following five areas as tools to control unnecessary parcel costs.

1. Zone Skipping: If you have a small number of distribution centers, relative to the geography they serve, and a medium to large volume of daily shipments, look here for savings. Zone skipping is a practice where shippers consolidate pre-labeled parcel orders, ship past several geographies and deconsolidate the packages closer to their destination.

A parcel shipment going across the country can easily be three times the cost of a local shipment. At a certain volume, shipping long distance using a truckload (TL) or less-than-truckload (LTL) common carrier and having a parcel carrier deconsolidate and deliver, will be less costly and faster than using parcel delivery the entire distance. A simple breakeven analysis for this is: breakeven shipments required = (fixed TL or LTL cost + deconsolidation cost) / (direct ship parcel rate per package - local ship parcel rate per package)

2. Service or Transit Time Selection: If you offer your customers more than one transit time option or give transit time autonomy to your fulfillment team, look here for savings. Be aware of the standard ground transit days that carriers publish on their Web sites. Only pay the expedited delivery premium if the expedited service actually is faster than ground service. For example, when shipping from New Jersey, UPS Three-day Select makes sense only if the shipment is traveling farther west than Nebraska. Sound obvious? Look at your shipment history; you’ll be surprised.

3. Hundredweight Pricing: If you ship a total of more than 100 pounds in multiple packages to the same customer address on the same day, look here for savings. At certain weight bands (typically 150 to 500 pounds), hundredweight pricing is far less than single parcel shipment pricing and LTL cost. With hundredweight pricing, an incremental increase in average order size may drastically reduce parcel cost.

4. Case Consolidation: If you often ship more than one case to the same customer address on the same day, look here for savings. If the combined weight of the two or more cases is less than 70 pounds and does not exceed carrier defined cube limits, it’ll cost less to bind the two cases together with a banding machine or to repack them in a master box.

5. Case Weight Control: If you often ship heavy cases or packages, look here for savings. Bigger is better to a point, namely, 70 pounds. From one to 70 pounds, rates generally increase 1 to 4 percent per pound. At 71 pounds rates jump 45 percent locally but increases become less pronounced in zones farther away from the shipping origin. If possible, set a policy against single cases weighing more than 70 pounds. One caveat: If there are many heavy cases going to the same consignee, hundredweight pricing will apply and costs will decrease.

In short, there’s an optimal way to ship based on your company’s shipping profile. Spend a day with a spreadsheet and your shipping history to find it. The cost savings you can achieve with a few policy and training changes may pleasantly surprise you.

Luke Zaientz is a Principal at Zaientz & Co., a focused consulting firm. He holds a Masters of Logistics Engineering from MIT and has provided Logistics and Supply Chain guidance to companies in a dozen industries. He can be contacted at Zaientz@alum.mit.edu or directly at 415-516-5133.