Recently, I’ve talked to several executives at transportation execution software companies. One type of transportation execution solution is called a multicarrier solution. These are also known as parcel solutions. In today’s article I will focus on the functionality and technology associated with these solutions and their ROI.
These software solutions allow shippers to rate shop among different types of small package services (next day vs. two day ground, for example) and carriers (FedEx, UPS, DHL, and many smaller regional players), use workflow to ensure that packages are sent using the preferred carrier and service, print the required carrier labels, tender loads, track them, and use analytics to track costs and service. A few solutions also offer freight audit functionality that ensures that shippers are not being over charged for their shipments.
Actually, things are a bit more complicated than I’ve described. The solution is known as a multicarrier solution because the software allows for compliant labeling to be printed for a variety of carriers, not just carriers specialized in parcel, but also less-than-truckload (LTL) carriers, for example. But the solutions are overwhelmingly used for tendering to parcel carriers. Pricing LTL arrangements is very complex, and parcel solutions, as opposed to transportation management systems (TMS), generally lack this capability unless they make use of the SMC3 tariff engine which supports LTL in North America. Kewill’s Flagship product is an example of a multicarrier that makes use of the SMC3 engine.
Further, rate shopping is not quite as straight forward as I’ve described. Bob Malley, the CEO at Pierbridge, pointed out that “there are no standards for parcel rating, unlike freight which do follow standards because it was once a regulated industry. Also shopping rates is further complicated because the services are not identical.” Further, UPS won’t allow their rates to be displayed on the same screen as other parcel carriers’ rates if those rates are accessed by web services. However, if the parcel software suppliers purchase a license to use Connectship, a software company owned by UPS, the rates can be displayed in conjunction with other carriers’ rates.
Europe is also different than North America when it comes to rate shopping. Marc Fürstner, the CEO at the MHP Solution Group, which is headquartered in Germany, points out that on the continent the typical multicarrier solution does not do rate shopping. MHP offers an additional tool called F-COST that does calculate freight costs for both Parcel and LTL. You can’t do an accurate freight audit afterwards if you can’t accurately price shipments before they leave.
There is also the question of what kind of technology platform makes the most sense. The advantage of a public cloud solution is that as carrier’s compliance labeling requirements change, those requirements can be incorporated into the solution without requiring users to install a software patch.
Public cloud solutions also offer the possibility of allowing for transportation benchmarking analytics, something I’m not currently seeing in the multicarrier cloud solutions being offered. But Kewill recently acquired LeanLogistics, a provider of public cloud TMS and managed transportation services. LeanLogistics does offer truckload (TL) lane benchmarking in their TMS.
Because LeanLogistics offers a multi-tenant, network-style TMS, it captures anonymous data on all the TL moves, made by all clients, on all lanes. LeanLogistics TMS customer data is than aggregated in a manner that protects the privacy of individual shippers, while allowing for the creation of lane benchmarking rates across the US. Now, LeanLogistics’ roadmap involves bringing the Kewill parcel solution functionality into their public cloud TMS, and Doug Surrett, a VP at Kewill, is excited about extending that kind of benchmarking into the parcel arena.
But both Ken Woods, an EVP of Product Management at Descartes, and Chris Johnson, the CTO at LeanLogistics/Kewill, point out that for high volume shippers, on premise solutions will probably be preferred. If a shipper has a labeling machine that is applying those labels to packages as they whiz by on a high speed conveyor, a cloud solution that solely relies on low latency internet connectivity can create problems. Descartes and Kewill both support deployment flexibility.
So what is the ROI associated with parcel software? Clearly high speed labeling allows for warehousing throughput efficiencies. ARC’s research also shows that using a solution that enforces the use of preferred carriers and services typically saves shippers two to four percent of their freight spend. Freight audit can save up to four percent of freight spend, although it is typically less than two percent. However, parcel auditing can be complex so it could be higher for this mode. Finally, parcel solutions are much less expensive than TMS solutions, so the payback can be quick.
But we should not be too quick to discount TMS solutions. TMS suppliers historically partnered with multicarrier solution providers to support parcel. Debra Phillips, the Director of Marketing at MercuryGate, explained to me that MercuryGate took a different path; they built native parcel capabilities into their TMS. The advantage of this is the ability to do mode optimization – to look for opportunities to combine parcel shipments into a less-than-truckload shipment. Making this decision as part of the holistic transportation process managed within the TMS is apt to discover far more opportunities for consolidation than if the parcel solution is not native to the TMS.
What I’ve described in this article is the traditional functionality associated with parcel software solutions. Future articles will talk about how multicarrier functionality has changed to support ecommerce and omni-channel, optimization capabilities surrounding parcel, integration issues, and some interesting managed transportation offerings in this area.
ARC recently published a global market study on the transportation execution market, which includes parcel solutions.