Imagine your creative advertising campaign went completely viral on TikTok. E-Commerce orders start pouring in. First 10,000 orders, then 20,000, then 50,000, all in a weekend. Will it be your company’s wildest dream come true? Or your biggest nightmare? The answer will likely depend upon how your supply chain is built to handle the strain, both operationally and financially.
For Jim Herman, Chief Commercial Officer for Maersk E-Commerce Logistics in North America, the goal for any company looking to successfully master the e-commerce channel is to plan the most predictable supply chain possible where nothing comes as a surprise. In other words, blissfully “boring.”
Before joining Maersk in January 2021, he was SVP of Sales and Marketing for XPO Logistics. He also served as Supply Chain and Chief Commercial Officer for Tompkins International. Jim is integral in driving exponential growth with Maersk customers seeking e-Commerce Logistics and Parcel delivery solutions, propelled by the Sales & Marketing organizations at Maersk in North America and the world.
"A company’s e-commerce capacity is a months-in-the making exercise,” said Herman. “Contracts should have been negotiated well in advance to ensure the right supply chain partners are working in lockstep, from the factory to the customer’s door.”
For Herman, the e-commerce planning basics include 1.) having multi-carrier strategies in place that mitigate the risks to your operation, 2.) a deep understanding of the costs of your e-commerce operation, 3.) the ability to pivot and implement a new strategy quickly when needed.
“When you think you have cared for every detail, you will still need to be ready to pivot if your assumptions don’t quite match reality, which they rarely do,” said Herman. “By its very nature, supply chain management is a fluid exercise that needs to be continuously monitored, measured, and fine-tuned to control the flow of goods through the pipeline.”
Preparing for “Carrier Caps” with a Multi-Carrier Parcel Strategy
One of the e-commerce planning assumptions Herman speaks to is the wildcard of “carrier caps.” These are shipping volume limitations set by United Parcel Service (UPS), and FedEx. To make matters more complex, businesses won’t really know their cap until a month or so before the ever-critical November/December shopping season is upon them. Even though the combined capacity of the United States Postal Service (USPS), UPS, and FedEx, (or even Amazon) to deliver goods to consumer doorsteps is nothing short of amazing, it is very short of “limitless.” At some point every fall, limits may come into play when some last mile carriers send out notices to the shippers of the world that their cap is going to be “X” even if their order volumes are “Y.”
That said, according to Herman it’s always prudent to consider some key questions that every supply chain manager should be asking themselves as well as their supply chain partners when it comes to caps:
- What caps could be put on my business?
- What would the impacts be?
- How will the business close the gap if there is one?
“Q4 is a tough time to begin hunting for additional capacity with another last-mile provider, whether one of the big label providers or regional players,” said Herman “In fact, you probably won’t even be able to sit down with anyone until at least January or later, because everyone is working flat out to meet the holiday shopping season peak demands.”
Plan for parcel shipping costs – all of them!
E-Commerce driven parcel shipping costs can run as much as 60% of your total operational costs, taking a significant bite out of your margins. Proper pre-planning is essential so that your business can model the costs in advance and not run into any surprises at year end. The last thing you want is for the finance team to deliver a final report that reveals how unexpected shipping costs consumed an unhealthy portion of the anticipated profit margins from your star-selling product.
When it comes to costs, the “base rate” for parcel shipments is just the starting point. The true cost of your parcel shipments only comes into focus after you have cared for the multitude of surcharges that are layered on top of the base.
Depending on the scenario, there can be dozens of surcharges applied to the cost of getting your parcel to a customer’s door. Some of the common surcharges include:
- Residential surcharge – A fee applied to the base rate of a shipping label for an order being delivered to a home, home business, or any location deemed residential by a carrier or carrier driver.
- Delivery Area Surcharge (DAS) – a fee carriers add when your shipment is going to a less-populated area because it takes the driver more time between deliveries. There can also be an Extended Delivery Area Surcharge (EDAS) when your shipment is going to an even more remote location.
- Additional Handling Surcharges (AHS) – a fee carriers add when the size or shape of your parcel is outside of a set standard.
- Fuel surcharges – fees established to help carriers cover the rising cost of fuel, which has been significant in 2022.
- Peak season surcharge – a variable fee that some carriers may apply during times of peak demand.
To build the best cost model for you, your e-commerce logistics provider needs to consult with you on all your parcel costs by size, shape, and weight, plus the impacts of carrier location, as well as your unique company data. Access to AI-powered software is particularly helpful for managing the myriad of factors that go into cost models and developing a parcel strategy that balances efficiency and cost effectiveness.
No parcel strategy review is complete without a thorough assessment of the relative strengths of the various last-mile carriers. For example, some carriers ship different parcel types better and more cost effectively than others. Other carriers can get the job done faster. While others can get the job done no matter where the packages are heading or how many are in the funnel, even if it takes a little longer. Determining the carrier that ultimately delivers a particular parcel you’re shipping is a criteria-based business decision that affects the outcome and the bottom line.
Watch for Volume Commitments
Sometimes sales forecasts come in lower than expectations. This poses an altogether different risk for some shippers when their costs are tied to last-mile carrier revenue tiers.
“While businesses can be enticed by an attractive parcel shipping base rate in return for single source commitments to final-mile carriers, there’s usually a tradeoff,” said Herman. “Base rates are typically tied to volume commitments. If the volumes shipped don’t reach the levels expected, the cost equation can change depending upon the agreements in place.”
For example, if a shipper’s holiday sales volumes are significantly less than the business had expected, their unit price for shipping each package might go up dramatically. This can result in a double jeopardy scenario where not only does the shipper fail to achieve the revenue they had hoped for, but their unit costs go up as well.
One way to mitigate this risk is to leverage an e-commerce logistics firm like Maersk with existing carrier contracts, where Maersk maintains the pricing integrity with the final-mile parcel carriers. As a result, the burden of the shipping volume requirements gets removed from the shipper’s cost equation.
Plan the Postmortem Today
Even if you are feeling a little tired having just come out of the holiday peak season, you need to at least plan your e-commerce logistics postmortem today. The experience is fresh in your mind and the window of opportunity for improving the 2023 season is already open. By now your team should be ready to objectively review its performance and address the tough questions. How do you think you did? What KPIs are you reviewing to assess your performance? Does the team want to “go it alone” once again for the coming year and handle all the details in-house? Or is the team ready to consider partnering with those who have “been there, done that” so that the business can focus on core business activities?
“Planning a successful e-commerce operation is a science. Executing it correctly is an art form,” said Herman. “Start early by putting multi-carrier solutions in place as soon as you can. Get your tech right. Know your costs. Refine your strategy. Set yourself up with options all along the year so when 80% of your season is on the line come November-December 2023, you’ll be ready to deliver the goods.”
Implementing a Quick Fix
If you find yourself facing unexpected caps that you need to overcome or are just in need of additional resources to execute your e-commerce strategy during a peak period or viral expansion, the best bet is to pivot towards a service provider that has rapid implementation capabilities. It’s key that your provider of choice has existing relationships already in place with multiple carriers. These relationships care for the established rates, capacity contracts and the essential API/EDI technology integrations necessary to create, print, and apply labels to parcels that meet the latest specifications of multiple carriers.
The complex web of arrangements needed to establish a line of business with a new carrier is difficult, if not impossible, to establish under 90-day time frames unless your partner has everything already in place. Getting your own shipping contract could take up to a year or more with negotiations. To move fast, you will need a partner with IT infrastructure that is primed for easy interface and quick adoption with attributes such as:
- Employs standardized onboarding protocols to quickly integrate your company’s data into cloud-based API/EDI interfaces
- Integrated with advanced Operations Management System / Warehouse Management Systems
- Integrated security features
- Access to 24-7 IT expertise
- Ability to print pre-approved labels with the carriers
- Configured with rate shopping capabilities to optimally route shipments
To enable faster integrations with third parties, your business will need to have handy the following breakouts:
- A detailed understanding of how your technology systems interface
- Data flow pathways from customer order to customer receipt
- “Customer Promise” shipping requirements (e.g., shipping rate and time in transit)
- Customer notification practices (e.g., label creation, shipped notification, received receipts)
- Returns practices and policies
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