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Logistics Don’t Always Deliver Joy

When was the last time you paid for shipping? Some would have to think a while for the answer because so many of us select the “free shipping” options available for online orders.  In truth, though, shipping services are never really free. Their cost can be quite significant, particularly for businesses that that operate in the supply chain.

Shipping is lifeblood of a supply chain business. In fact, freight should be considered among a business's key performance indicators, according to Mel Smith, director area business development at Avnet. Just like the Amazon customer who can be oblivious to the fact that he is covering his “free shipping” in the cost of the item he ordered (a fact sometimes revealed by locating another seller that has it for a price that is lower without the free shipping) businesses the cost for delivery for goods to businesses “can be hidden within” the price of the products that can knock out up to four percent of the business returns. 

Consequently, the cost of freight affects the “bottom line, gross margin, inventory, purchasing staff productivity, receipt processing as well as fulfillment operations,” Smith said.  He emphasizes the need for businesses to gain an understanding of the expenses and options involved and to work out “supplier freight negotiated contracts.”

That is one of those things that is easier said than done. Shipping, particularly on a global scale, involves working through complicated logistics subject to different regulations, rates, and schedules. It can be rather difficult for a business to master, which is why some call on freight consultants.

Freight consultant services find the best shipping options for businesses in the supply chain. They don't just refer to static data on rates but apply algorithms to optimize outcomes. For example, Transplace promises businesses that it will “optimize their network design and processes” through “a robust set of algorithms” that “model supply chain scenarios” tailored to their requirements. As a result, they anticipate savings of “three to 10% of historical transportation costs.”  

The consultants also establish benchmarks the set up comparisons for the business's own history and comparisons to competitors. That's an important consideration because customers are not going to buy from a company that disappoints on shipping when they can source the products through another with more reliable delivery that has accurate tracking information.

We can see the difference in delivery services from retailers who optimize their shipping and those who don't in our own experience.  I ordered a few items on Target.com on May 28. The email confirmation gave a range for delivery for all the items of June 3 to 5. June 5 arrived, as did some of the items, but not all of them. The UPS tracking information provided still showed June 5 as the date of arrival, despite a notation of a delay on a truck, as confirmed by a Target representative on the phone.  The UPS man who delivered part of the order assured me that there was no way another shipment would come before Monday

His prediction turned out to be correct, and that was the only insight I gained from UPS, which failed to give me a new arrival time despite my request for information via email.  (Note: Both Target and UPS claimed to want to help when I tweeted about it, but only Target offered some conciliation in the form of a $10 gift card.)

As I told the Target representative, Walmart shipping is far better. I put it to the test that same day by placing an order at Walmart.com for the same items I had ordered at Target. They arrived on June 10, in the span of three business days. Walmart also gives a lot more specific information about delivery on orders, assigning different delivery dates for different items and selecting among FedEx, UPS Ground, and the postal service for each of them.

Items ordered from Walmart.com may also arrive more quickly because they may come from a store that's relatively close to the customer's location rather than a remote warehouse. Last year the Wall Street Journal quoted Michael Bender, chief operating officer of global e-commerce for the retailer, who said “Our stores actually become our advantage.” Since implementing “ship-from-store,” in 2012, Walmart's online orders have become 15% faster. Consequently,  even items that come through the economical “value shipping,” the option customers get free with $50 purchase, can arrive within just two days. While Walmart is selling a lot of the same items at Target for the same price, it beats the later on efficiency for shipping, which does give it a business advantage.

 The advice for succeeding in business used to center around efficient design and manufacturing, as in “build a better mousetrap.” Today, that is not enough. The world will not beat a path to your door; instead, you have to find an efficient way to get your mousetraps to your customers.

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