Spend Matters welcomes this post from Art van Bodegraven.
The Rumbling In The Background
Off in the nether regions of dirty fingernails supply chain execution, practitioners are leaving work early to stock up on sackcloth and ashes. Oh, the wailing, the gnashing of teeth! It is as if a plague of Biblical proportion had been loosed upon the people.
The proximate cause of the hoopla and furor has been the announcement by UPS and FedEx of dimensional weight (dim weight) pricing for its commercial customers. Stripped of all the anti- rhetoric and pro-smooth talking, what dim weight comes down to this is: A parcel of twice the cubic size of another will cost twice as much to ship. There is an expectation for the weight of packages to be in a certain range, as calculated based on bazillions of parcel transactions through the past years.
Exceptions will be made, with packages of weight greater than the calculated amount for its size will be subject to a premium charge. Here's how that makes sense – the object of the game is improved asset utilization, that is, to fill a trailer's cube capacity, thus, size-based fees. And, for parcels of disproportionate weight, which could reduce the ability to cube out a trailer, a greater charge to reflect the (theoretic) loss of capacity, and associated revenue.
So, shippers are going to be taking a series of body blows until they figure out what to do about radical changes to a cost structure that will occur more or less overnight, even though it has been announced months in advance.
My Heart Cries For You
“So what!?” you are saying, “It's not my job, man. I'm just doing my job here, buying stuff and beating up the lying, cheating suppliers.” I've got news. The shift to dim weight parcel shipment pricing will, for those shipping boatloads, but not truckloads, of smaller packages profoundly impact what has to happen in sourcing and procurement. And, that applies to both B2B and B2C environments. “How so?” you may ask.
Dealing With The Imminent Change
Ultimately, shippers cannot simply absorb the inevitable added parcel shipment costs. Neither can they pass through the increases, not to cost-averse commercial customers, and certainly not to consumers trained to expect "free" shipping and same day, next day, and two-day delivery.
Where the sourcing and procurement organizations earn their keep involves a number of pathways. For one, spend analysis needs to be redone immediately to understand dim weight impact before the fact. Then, mix and match options of what ships via the Big Two, what moves at some indeterminate speed through USPS channels, and what might benefit from local/regional parcel carriers all need to be rethought – along with consideration of inclusion of LTL options in the mix. Those all indicate a reordering of roles and relationships among competing transport options.
The real key to managing the cost impact involved lies in redesigning product packaging, appropriate to the weight, fragility and environmental control aspects of various products. Past exercises in simplifying, so-called rationalizing, the number of box sizes involved – this effort was in vain. Tomorrow's world will see a proliferation of packaging sizes and characteristics. This will fundamentally alter supplier relationships in both design and pricing and open a door to continuing collaborative efforts to improve cost, “shipability,” manufacturability, pick/pack friendliness - reinvigorating a world that might have become a little stagnant.
Of course, when packaging undergoes a functional rationalization, rather than a proliferation rationalization, the next step is re-thinking dunnage materials and delivery systems, another opportunity to change specs and take bids on new material, equipment and processes.
Is This A Lonely Journey?
Yes and no. A lot of companies will be going through this process; the first and best finishers will prosper with a new competitive edge. But, many within the company might fight change and waste time railing against the new order . But, the work must get done.
There are no slam-dunks here. In looking at USPS for options, you've still got to weigh the value of track and trace, time-certain delivery, and technology support against a growing raw cost differential. The parcel carriers will offer analytic and process design help, but they have vested interests in the end decision. Some software can help with cost and trade-off analyses, but it will be up to you to gain confidence in the currency and comprehensiveness of their tables and algorithms.
Good luck. It's not the end of the world, despite what others might say. And, you can make a difference in how well your company competes - and succeeds.