Consolidation Defined

Consolidators have had trouble for years explaining what they do and how they work. Although this is becoming less of a problem as the industry grows, it is important to define consolidation what it is and what it isn't for those who don't know:

Consolidation is the combining of parcels from various merchants into one truckload in order to make the most efficient use of resources and benefit from a significant cost-savings.

Consider the cost of transporting four quarter-full trailers for four merchants compared to transporting one full trailer with all the merchants' packages riding together. The four partially full trailers will cost both the consolidator and the merchants more money than one full trailer. The consolidator works to make the most efficient use of resources to save money for itself and the merchants' services.

Consolidation is not the packing of as many parcels as possible onto a single trailer, regardless of the destination point. Consolidators save time and money by strategically arranging trailers with parcels bound for approximately the same geographic area. If a truck leaving a Philadelphia facility contained parcels bound for Seattle, Dallas and St. Louis, that would not be cost-effective. Good consolidators combine parcels when it makes sense, not simply because they want to move a full truckload.

Consolidation Redefined

There is a dramatic difference between consolidation players who survive in the highly competitive consolidation market and those who not only survive but thrive. Merchants who are considering various consolidators must examine whether the consolidator consistently generates enough volume to serve the areas where consumers reside. If not, then that consolidator is not the most intelligent partner to select.

The consolidators offering end-to-end solutions for their customers are going to be the real winners as the industry grows and changes. This includes not only optimizing volume discounts and zone-skipping but IT capabilities and a returns management process. The merchant must always be number one. If this is overlooked, the consolidator will have trouble surviving in the marketplace.

The following is a rough guideline for merchants looking for a consolidator to help with their transportation needs. Many of the key elements of a thriving consolidator's business plan are outlined below.

Location: Network design is an integral component of a successful consolidator. In order to optimize the delivery network, operations personnel must examine the location of facilities and the logic behind their existence. Are they in the right places to really take advantage of population and traffic patterns for transportation and for maximum discounts?

In order to get the most penetration to the local post office, consolidators must have strategically located facilities around the US. This will keep the consolidator well-positioned at both ends of the line, close to both its own customers and the final consumers it serves. By having a network of distribution facilities located around the country, transit times are reduced, and companies are able to provide better service all around.

Merchants should determine whether their consolidation partners review their distribution networks every year. If this is done in conjunction with evaluating the state of the industry, population trends and customers' needs, it will help determine whether changes should be made to the consolidator's delivery network and the location of facilities.

Zone-skipping: Zone-skipping is the method of "skipping" United States Postal Service processing centers to ensure timely delivery to the consumer at a reduced cost for both the merchant and consumer.

By delivering as close to the local post office or Destination Delivery Unit (DDU) as possible, packages are brought close to the consumer's home before entering the postal system; this will help ensure timely delivery. The U.S. Postal Service will spend less time handling the package from the time it is entered into the postal system, and it will still make it to the consumer's door in a timely manner.

Another reason to try and penetrate deeply into the USPS is that, in most instances, it is more cost-effective to skip the Sectional Center Facility (SCF) and Bulk Mail Center (BMC) levels of the postal system and make deliveries directly into the DDU. Customers save money because they are bypassing levels of the postal service, which charges fees for each package it handles at each facility.

Volume: As alluded to earlier, perhaps the most significant reason to use a consolidator is to receive volume discounts. The consolidator has significant buying power in the marketplace and will receive deep discounts for purchases (i.e.: trucks, couriers, etc.).

Consolidators work with merchants to ensure they maintain high package volumes and maximize every shipment that is sent. By working closely with customers, the consolidators will save transportation costs, which translates into cost-savings for the merchant and also for the consumer.

Technology: Logistics IT is evolving rapidly, becoming increasingly sophisticated with each new development. Because this is an important component to succeeding in the industry, consolidators need to have complex IT capabilities that can scale to accommodate the changing needs of customers. Merchants should take advantage of its consolidators' large investments in IT.

When consolidators integrate IT systems with the USPS, consumers can take advantage of the USPS' Delivery Confirmation service, which allows tracking of packages through the USPS all the way to the consumer's doorstep. Finding a consolidation partner with this capability can lead to a very real reduction in call volume at merchant call centers because consumers can track their own packages online.

Returns Management: Handling returns may be one of the most difficult aspects of selling merchandise. Customers don't like the hassle of returning items, whether purchased in a store, online or through a catalog. These days, sophisticated consolidators are making an extra effort to help customers devise a comprehensive, efficient returns management process that addresses the consumer pain points.

By adding a returns management process to an already robust distribution cycle, consolidation companies will provide an end-to-end solution that will not only make their customers happy, but ease the hassle consumers face when returning merchandise.

Merchants who want a "one-stop" solution should look for a consolidator who has a strategic distribution network, can optimize on-time delivery, reduce cost and provide a comprehensive returns management solution.

Merchants looking for a consolidation partner have their choice of a variety of players in an ever-changing marketplace these days, but the consolidators who will thrive are the ones who keep the customer number one.

David Garcia joined Donnelley Logistics in April 2001 and currently serves as marketing director, Package Services.  Prior to joining the company, David was executive director, Channel and Segment Marketing for SBC Communications.

R.R. Donnelley Logistics provides logistics solutions for catalogers, e-retailers, publishers and financial services firms. As the nation's largest commercial mailer, the company annually directs more than 19 billion print and mailpieces and 130 million parcels.  For more information about R.R. Donnelley Logistics, contact the company at www.donnelleylogistics.com.