How parcel sortation contributes to business advantage
Sortation strategies decrease shipping costs while optimizing time-in-transit to the benefit of you and your customer.
Competing with agility and speed has dominated the business press for years. Doing things faster, at less cost, and more effectively than competitors, creates a lasting source of business advantage. And-if you're looking to meet customer demand for free or heavily discounted shipping, while deploying faster, more cost-effective fulfillment systems, give serious consideration to zone skipping through sortation. Here's why:
Reduce and contain shipping costs
Ignoring the free shipping trend proposes risk to initiatives designed to acquire and retain more customers. Buyers are accustomed to free and/or heavily discounted shipping fees (the National Retail Federation reports nearly 60% transactions last year shipped free). Moreover, free shipping options are at the top of shopper priorities during online checkout; many willingly alter their behavior (such as purchasing additional items) to qualify for free shipping. Moreover, lack of free or discounted shipping continues to be a leading cause of shopping cart abandonment.
Outbound freight typically represents 6-8% of the average order and will not decrease in the foreseeable future due to the carrier's annual General Rate Increases (UPS and FedEx have raised package rates an average of 5.5 percent annually since 2009). Other cost contributors include retailer surcharges for residential addresses and rural deliveries, and pressures on Dimensional Weight (DIM) rates. Sortation offers light at the end of the tunnel.
Attempts to alter customer insistence on free, or heavily discounting shipping, is a losing proposition. Sortation however, can be used to your advantage-and such systems have become fairly common in the modern distribution center.
Historically, carriers fetch unsorted parcels at a DC then drop them at their ship-point local parcel facility where they are sorted for regional hub delivery, then sorted again for a local destination facility. Sorting occurs a third time for the "last mile." This excessive handling adds time-in-transit and carrier handling costs (which is passed to the shipper). While sortation automation gets parcels to the right carrier's trailer, it gives little consideration to ultimate destination. Retailer presorting by carrier-and by destination-reduces your carrier handling costs.
Two techniques leverage Zone Skipping to reduce shipping costs and time-in-transit, both begin with the ability to sort by zone, i.e., 3-digit zip code, for drop shipping:
LTL line-haul. This technique skips the local parcel handling facility through a line-haul to the regional (or even district) hub. Moving the sortation burden and delivery to the regional/district hub can result in significant savings often reported to be up to 50%. In this scenario, you need enough volume to warrant sortation, and the more volume you have, the more granular your sort can be. For example, narrowing your sort from 3 digits to 5 digits would get your parcel even closer to the destination via line-haul.
Utilize the carrier. Many shippers negotiate with their carriers to treat the parcels they've sorted into pallets as freight until they are unpalletized at the Regional Hub or even the Local Destination facility. This means the shipper doesn't need to find and hire an LTL to deliver the shipment to the Regional Hub. (This technique may even be an option for those with lower volumes; for example, utilizing USPS Priority Mail Open and Distribute (PMOD)program and small parcels can be sorted into sacks.)
Both approaches help you reduce cost by negotiating better carrier rates. In some cases, they let you fulfill your commitment with a less expensive shipping method. For example, via sortation, one could deliver a pallet to the local facility, ensuring next day delivery while potentially paying ground freight rates.
Many shippers get even more creative by using their own internal fleet as the LTL, or using the above-described pallet method to consolidate and line-haul across borders.
Maximizing the benefit
If you are considering an investment in sortation-enabling material handling equipment and technologies, don't overlook the additional value of a Parcel Management System in the sortation process. Realizing sortation's maximum value requires giving your carrier more than the standard delivery address information. To aid their sortation effort, while getting credit for yours, provide them pallet labels, carrier route codes, and other sort information. Incorporating custom information on a carrier-compliant label can be a bit challenging, as can generating carrier route codes, given you must match your customer-generated (and perhaps, validated) address information with the USPS carrier route tables. It is not an impossible task, but it isn't trivial to even get to a 75% match where you miss out on the savings for 25% of your shorted shipments. With some help from skilled and experienced resources, you can increase match-up to over 95%.
Evaluate your own business case
Re-thinking sortation techniques can reduce shipping costs and optimize delivery times. Impatient customers will be less likely to abandon their shopping carts if you meet their demands for relaxed shipping costs along with faster delivery. Especially if you have the volume to leverage proactive carrier negotiations, analyze the benefits of sortation and zone skipping. You may be surprised at the resulting strong business case.
- National Retail Federation's 2016 Retail Holiday Planning Playbook