Determining the most cost
effective way to send a small parcel shipment can be cumbersome. Although typically shipments are sent with
one of the two global players, there are numerous cost elements associated
based on what you are shipping, where you are shipping to and from, when you
want your shipment to arrive, etc. Therefore, how does one ensure both an
optimal sourcing engagement and competitive price when approaching the market,
as well as choosing the ideal shipping methodology?
As a sourcing
professional, understanding the impact market shifts have to pricing and supplier
viability, is key in making recommendations to my clients. A standard practice
I pursue is conducting a benchmarking exercise. Benchmarking is used to analyze
a company’s ‘current state’ in terms of existing category spending behaviors
and requirements, and how it compares to what the market is offering similarly
profiled customers. This process also establishes necessity versus wants to
uncover opportunities to remove unneeded services or optimize the use of a supplier,
whether through an incumbent or alternate. The result allows me to provide an
informed recommendation on the best choice supplier from both a qualitative and
quantitative perspective while encouraging adopting industry best practices
allowing for better controls of company spending.
Identified below are some
of the small parcel service and pricing elements I would incorporate into a
benchmark assessment with corresponding considerations for each.
Supply Base: A major
factor when looking at the following elements is who the suppliers that should
be assessed are and what do they offer? Today, there are two primary suppliers
that must be included in your benchmark, UPS and FedEx. Although there is a comparative
translation between services, in terms of pricing, gross rates for these
suppliers are not the same so looking at net pricing and discounts is not a
true ‘apples-to-apples’ comparison. You must understand the correlation in both
pre and post discount costs. Also, who can support both existing requirements and
offer innovative and additional solutions that enhance and improve business
operations. This may be a smaller more regional player so take a step back and think
about this before jumping in.
Time of Day: Supplier
pricing and incentives will vary based on when you want a package to arrive. Typically
earlier deliveries are most costly with minimal opportunity to discount. Therefore
you should understand the impact of selecting a later timing service that may
result in the same actual delivery time and offer an improved net shipping
rate; of course depending on where you are shipping from. Make sure to also
factor in cost impacts by centralizing shipping within a specific zone and trying
to accommodate a standard time of day.
Weight Factors:
Understanding dimensional weight application encourages shipping more efficiently. As DIM calculations are applied to all packages, make sure to
understand the pricing variables and incentives available for all weight groups
within each shipment category. Although Ground is a creature of its own, typically
air shipments should be streamlined when looking at available discounts.
Surcharges: How and when surcharges
are applied can have a pricey impact to overall costs. What do suppliers offer
to alleviate these sometimes ignored costs? Some examples would be additional charges
and associate discounts for weekend deliveries and comparing commercial versus residential
delivery fees and incentives.
Other Cost Considerations:
Ancillary account fees or contractual commitments can pop up based supplier requirements,
such as minimum package volumes or revenues and pickup requests, each with an
impact to customer spend. The contract should breakdown how these costs are established
and what the supplier is willing to offer to offset these costs. Comparing
alternative approaches to how these charges and fees are established and
incentivized can provide visibility into negotiation tactics as you move
forward in sourcing this category.
As mentioned, the benchmark
will help to uncover your current shipping profile with more clarity and allow
you to narrow down your actual need while identifying opportunities for contracting
with your incumbent or an alternate supplier. It will guide you to have better
controls in place for when and how shipments are sent and produce reduced spending.
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