Small Parcel – How to Avoid Leaving Money on the Table

Spend Matters welcomes a new guest post from Barnali Dasverma of Treya Partners.

“We’d love to save money, but we already have a great small parcel deal,” a client once commented. Several months later, he was thrilled to report a 15% savings on his company’s small parcel expenditures. This is not uncommon. In our experience, small parcel is an area with tremendous savings potential through rate reduction, leveraged purchasing, demand management and inbound shipping optimization.

Rate Reduction. Always benchmark your small parcel rates to see if you’re getting the best pricing given your usage patterns and volume. A consultant can often do this at little or no cost. Conduct a detailed analysis instead of just comparing “list discounts,” since depending on your shipping profile, charges like minimum package charges, fuel surcharges, residential surcharges and additional handling charges can have a big impact on your overall cost. If you’re not getting best-in-class pricing for your volume, a bidding process backed by detailed usage information and industry analysis can result in competitive pricing.

Leveraged Purchasing. If you’re not a large enterprise, a way to maximize small parcel savings and ensure ongoing category management is by using a Group Purchasing Organization (GPO). For example, the client quoted earlier achieved 15% in savings on a $1.3M annual small parcel baseline by joining our GPO contract. This company effectively pooled its volume with many others, and now it has pricing enjoyed by organizations with much greater volume.

Demand Management. Aligning purchasing behavior with business needs also generates savings. Review your shipping data, understand usage patterns and ask tough questions. How often is your company using overnight shipping, and how often is it actually necessary? Would your needs be met if ground shipping became the norm instead? You should also understand to and from where the majority of packages are shipped. If most overnighted shipments are going from one large city to another, there’s a good chance most packages can arrive within a day, even if your company just pays for ground shipping. Your incumbent carrier or consultant can analyze your shipping patterns and identify areas for improvement.

Inbound Shipping Optimization. While many organizations have competitive outbound shipping programs, they are often overpaying for packages from others (e.g. suppliers). If your company receives many shipments, investigate this. Identify your company’s top suppliers and understand their shipping terms. There’s a strong likelihood that many shipping charges are being passed through to you at close-to-retail rates. Ask your suppliers for passed through rates and analyze them. Quantify the savings opportunity (60-70% savings is not unusual) and ask suppliers to start using your contracted carrier and shipping account instead of theirs. Some will agree grudgingly; others with ease.

Don’t Leave Money on the Table. Each organization’s small parcel rates, usage and needs are unique. But the fact that many are leaving money on the table is not. If cost savings are your priority, give small parcel a hard look. Benchmark rates, consider GPOs, pursue demand management, and see if you’re overpaying for inbound shipping.

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