Multi-Carrier Rate Shopping Parcel TMS Optimization
With increasing carrier costs and expedited customer delivery expectations, multi-carrier rate shopping solutions are a proven positive ROI investment.
While most organizations utilizing multiple carriers have some sort of capability to reduce costs via a carrier selection methodology, many are using manual processes leveraging Excel, rigid rules engines, or a generic Parcel TMS rate shop. These methods are not capable of the breadth of analysis necessary to realize full savings potential. Whether you have a multi-carrier rate shopping solution that requires optimization, or you are considering purchasing a solution, distilling the situation to define system requirements is the first (and often daunting) step.
An investment in a Parcel TMS multi-carrier rate shopping solution has proven to reduce costs over 25% (depending upon the sophistication of the prior method used) while improving on-time delivery (yes, a rate shop also improves OTD…more on that later). To improve the implementation ROI, one should consider the following elements when selecting a solution, designing the requirements, and maintaining a multi-carrier Parcel TMS.
1) Ship point (Origin)
For many organizations, a simple zip to DC mapping is adequate (although it’s ideal to run scenarios on a periodic basis to ensure that edge case zips are not missed). The complexity of decision-making increases dramatically as DC count, Drop Ship Vendors, and (retail) Store shipping increases. This complexity may lead to the consideration of a multi-ship point rate shop. Some of the variables that should be used to influence the decisions include:
-Carriers/Ship methods available
-Ship Point capacity
-Store capacity and fulfillment efficiency
A multi-carrier rate shop is not only designed to optimize cost, it is also responsible for improving on-time delivery. Generally, the first date/time to take into consideration is when the customer expects to receive the delivery. Does the customer have a needs-on delivery requirement (on Valentine’s Day) or a needs-by delivery requirement (by Christmas)? This will impact your rate shop configuration.
Second, one should consider the Expected Ship Date if the rate shop is run before actual shipping. This evaluation may consider fulfillment expectations, back-orders, and other elements to predict when the item will be ready to ship. In this calculation, time of shipment may also be important to account for carrier cut-times. One carrier may not be available if the order is expected to ship after 6pm, thus effecting the rate shop results.
Finally, the carriers’ time-in-transit for each ship method for each zip/zone is used to determine the final set of ship methods that can deliver to the customer’s expectations. To correctly make this analysis, the rate shop must consider shipping holidays, if weekend delivery is viable, etc. While many shippers use the carrier-provided time-in-transit, historical performance for various zips/zones may also be used to override the published times in order to feel more confident the parcel will be delivered when promised.
Most basic multi-carrier rate shops have the ability to handle the unique elements of destination, but they shouldn’t be ignored. Key considerations are commercial versus residential, P.O. Box, APO/FPO, and international destinations that alter the relevant carriers and ship methods that can be considered in a rate shop. You might also want to consider temperature sensitivity and any service blocks in place (see below), and even the actual recipient at destination (the National Association of Letter Carriers prefers USPS for example).
4) Parcel Attributes/Contents
Basic analysis includes dimensions and weight; complexity is added when a parcel contains dangerous goods, cold packs, temperature-sensitive, or restricted items (like a state-regulated item, or one that requires an adult signature). These attributes combined will alter the rate shop results.
It is critical that all costs associated with a delivery are included in the rate shop. Dimensional weights, accessorial, fuel surcharges, and carrier incentives should be included or the rate shop will not be accurate and could lead to poor decisions. (Carrier incentives are essential to achieving negotiated rates, and if an annual incentive is missed, major penalties can result.)
Advanced rate shopping systems capture destination temperature forecasts to adjust rate shop results. If a temperature-sensitive product is shipping into an extreme temperature region (high or low temp), the rate shop should be able to alter results to protect the shipment. Examples include expediting delivery, adding a signature requirement (to avoid damage on a customer’s porch), or allowing a Saturday delivery (for residential addresses).
7) Service Blocks
This may seem like an obvious one, but if the carriers aren’t delivering to certain areas, you shouldn’t try to ship there. You want the ability to manipulate your rate shop to easily add/modify/delete service blocks regardless of reason: a hurricane impacting the state of Florida, or a fire in a carrier hub. You also want the ability to get as granular as needed (certain carrier/ship methods to a selection of zip codes for example).
It requires significant analysis to evaluate all of the above in a production environment. Your customers want results immediately, you may be feeding hundreds of orders at a time to your Parcel TMS, and/or your operators will not be patient enough to wait 3-5 seconds for a rate shop to complete and get a label. Therefore, the above analysis needs to be calculated in under one second at scale.
Finally, an important question to ask is, “When to Rate?” The most common answer is, “when you create the shipping label…of course.” While this answer is true, we just mentioned your customers, and your operators; there are additional points in the order lifecycle you may want to consider using a rate shop:
-Shopping Cart: Rate shopping can be used by the ecommerce system to provide rating and time-in-transit to the customer. This data may or may not be altered based upon business rules like discounts applied for certain ship methods, discounts applied based upon shopping cart size, estimated fulfillment times for the cart, etc.
-Ship Point Selection (Multi-Ship Point Rate Shopping): Used to determine the Distribution Center, Drop Ship Vendor, or Store that can ship the parcel at the lowest rate. (Note, shippers often want to put a burden cost on the Store option to reflect the inefficiencies of store versus DC fulfillment operations and limited store capacity.)
-Packing: A multi-carrier rate shop can help make packing decisions, especially within cold-chain environments. For example, is it more expensive to expedite a shipment with less dry ice, or ship Ground with more dry ice?
- Shipping: Regardless of how many times you rated the parcel before shipping, it should be re-rated as it leaves the DC due to variance in processing time. If the initial processing time was beat, the parcel may be downgraded. If the initial processing time was missed, the parcel may have to be upgraded so as not to miss the customer delivery commitment. This is also an opportunity to audit weight and/or dimensions and reevaluate.
Considering of all of the variables above in your rate shop may not be possible immediately, and some of the variables may not be relevant for your business needs. However, having a plan for improvement—and a partner that can help you achive your vision—will keep you on the path to optimization. The good news is, the business cases for investment to improve rate shopping are usually straight forward and contain hard cost reduction, along with improved customer satisfaction, so project prioritization should be in your favor once you have your plan.
We realize this piece is very high-level, and if you’d like to drill down on any of our recommendations, reach out to us with questions or comments. We also welcome opportunities to deliberate or dispute our insights and recommendations. No conversation is off limits.
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