Today, many large-scale shippers have discovered the benefits of destination entry alternatives or zone skipping. For these shippers, volume is a key enabler, providing options to select destination regions, negotiate low truckload rates and reduce the overall zone impact of distribution.
For shippers with residential delivery needs, the U.S. Postal Service is a viable destination solution whether it be direct entry (destination bulk mail center) or through a Postal Service work-share partner who provides entry at the closest possible point: the local post office, or destination delivery unit (DDU). Because of scale, high-volume shippers can manage cost and service for each component of distribution. But what about the less-than-large-scale shipper?
Without enabling, volume distribution options are limited. Several large package carriers and national consolidators offer complete "origin solutions," providing empty trailers for loading, retrieval (pickup) and distribution of packages through their networks. For the shipper, the process is easy but expensive because these transportation solution providers must pass on the cost of transporting products through their networks. This includes pickup cost, multiple handling, internal line-haul movement and final delivery. For Postal Service consolidators, this also includes the cost of their DDU delivery agents.
It is time to teach you what the big-volume shippers already know. Soon, with a little work and a little flexibility, you can create your own destination or zone-skip solution. Why pay the other guys to do what you can do better?
The Five Factors
With the understanding that volume is always an important and enabling factor, this discussion is designed to identify other factors worth consideration when determining an effective transportation strategy. Some factors are obvious: low cost, reliable service and information visibility. Other factors are not so obvious: distribution center constraints, third-party truckload rates and transit time shortcuts.
Not all shippers can effectively take advantage of destination or zone-skip opportunities. National carriers and consolidators provide much value through leveraged operations. Hopefully, this discussion will help you understand the distribution options that exist as other shippers are learning to take control and manage the components of transportation. The discussion has been narrowed down to five key factors.
1. Understanding Your Distribution
Ask yourself, "What are my package weight characteristics? What is my distribution pattern among destination zones? How does my package cube compare to package weight? What percentage of my packages are destined for residential (or rural residential) addresses?"
Determining the answers to these questions will help you understand some of the pricing methodology used to determine your existing rates. This is important as it gives you the current baseline cost structure.
2. Understanding Your Requirements
Knowing that low cost is usually a requirement in any transportation solution, what other requirements can help you dictate your transportation strategy? There are many factors to consider when quantifying your distribution requirements:
Information What role does information play? How much importance is placed on tracking and tracing? Is delivery or return data required (i.e., for customer service)?
Carrier decision Has a customer dictated carrier selection (i.e., through the product purchase process or fulfillment)?
Delivery requirements Are there specific delivery require-ments? High-value products, apparel and perishable goods are examples of packages with higher-than-average return rates. Carrier-release packages leave open the possibility of theft or spoilage. If a delivery notice is left, what is the likelihood and ease of re-delivery or customer pickup?
3. Understanding Your Constraints
Large-scale shippers benefit from large distribution centers complete with a multitude of outbound load doors, a sophisticated sortation system with multiple lanes, integrated warehouse management systems (WMS), manifest systems and plenty of floor space. In some cases, these distribution centers are designed to facilitate destination entry. Outbound trailers are loaded with packages and then sent directly to a destination region for sortation, assembly and delivery by a carrier who specializes in local zone delivery.
What are the physical constraints?
Outbound load doors The number of outbound load doors in a distribution center dictates the number of available destination sorts.
Floor space Your transportation strategy may contain fluid-loaded trailers, palletized product or a combination of both. Palletization requires sufficient floor space.
Sortation capability Destination entry requires sortation capability. The methodology of sortation depends on the requirements and capabilities of the zone-skip delivery partner. The sortation scheme (three digit, five digit, multiple regions, etc.) all dictate outbound package volumes with which line-haul transportation decisions can be made.
4. Understanding the Cost Components
Taking more control of your distribution requires a change in thinking. Currently, the single invoice received from the national carriers or consolidators covers transportation from your dock to the consignee's door. A "destination" or zone-skip shipper controls each component of transportation: internal sortation management, procurement of trailers, inter-regional line-haul movement and negotiated rates for lowest possible zone entry.
Destination sortation When selecting a destination or zone-skip transportation strategy, destination sortation is required, and the associated increase in warehouse cost must be quantified. Depending on the physical constraints of the distribution center, sortation could involve either fluid-loaded trailers or palletized destination shipments.
Inter-regional transportation The cost associated with inter-regional package movement is typically mileage, cube or weight based. Truckload or LTL package volume plays a key enabling role. Consolidated regions help to increase destination volume and thereby reduce inter-regional transportation cost.
Destination delivery carrier To minimize zone impact, product must be drop shipped closest to destination. The DDU saturation (percentage of packages inducted at the DDU level), service area radius as well as existing scale all help determine the competitiveness of delivery rates.
5. Understanding the Options
Volume is a key driver in determining your distribution options. Understanding your service requirements, facility constraints and distribution pattern will help you understand the flexibility within the options. For example, to receive the best possible destination or zone-skip pricing, shippers can "drop ship" packages directly into each of a provider's regional hubs. This provides the least zone impact in destination entry rates. However, there could be a conflict between the two important requirements: cost and service. If your service requirements mandate frequent drop ships, you will be unable to hold or consolidate volume to allow for low-cost transportation to a particular destination region.
What are the options? To take advantage of destination entry, packages must be drop shipped into the destination regions. Because the line-haul cost component plays a key role in the overall cost structure, it is important to maximize trailer load factor through higher trailer volume. This reduces the allocated inter-regional cost component. One solution is to consolidate multiple destination regions.
To maintain the dispatch frequency and sufficient load factor (trailer volume), consolidating destination regions creates higher levels of package volume per drop point. Rather than four distinct entry points, fewer drop locations throughout consolidated regions means fewer dispatched trailers but maintains the better dispatch frequency.
Transit Time Analysis
Just as you did with the individual cost components, to maintain or improve your service performance you must analyze and manage the service components of your transportation solution. These components include transit time from distribution center to region entry point and from regional delivery partner to destination. For residential and some commercial delivery, utilizing Postal Service work-share entry (DBMC or DDU) enables an additional delivery day (Saturday) not currently provided by UPS. DDU entry provides the closest entry point prior to consignee delivery, which typically occurs within one day. This is an efficient process because the Postal Service leverages its vast coverage: every address, six days per week.
When destination regions are consolidated, it is important to understand the role of your delivery partner. Managing transit time means optimizing the schedule from dock departure to entry point arrival to DDU delivery to consignee delivery thereafter. Ask the important questions of your destination delivery partner such as, "Does DDU delivery occur everyday? Is there an optimal arrival time or cutoff?" Adjusting to the processing and cycle times of your delivery partner will help you optimize service.
Developing a transportation strategy that involves more direct control means focusing on and managing the various components of transportation. This means separating your distribution process into its components from distribution center to consignee door and managing each component in a way so that the sum of its parts is less than the original baseline or "origin" transportation method.
Asking the right questions forces shippers to examine their transportation process from different angles and hopefully provide for the creation of a more effective strategy.
Kevin Collins is vice president of Business Development at APX. He can be reached by email at kcollins@shipapx.com. For more information, visit www.shipapx.com.
