Determining the ROI of a Parcel TMS

parcel TMSInterest in adding a TMS for parcel continues to rise among shippers as the multifaceted ROI of a parcel TMS becomes better understood. While a TMS for parcel can help shippers better manage rapid increases in parcel volume, it can also help manufacturers and other new parcel shippers instantly adapt to provide excellent customer service in a profitable way. No longer just about saving dollars, more shippers have begun to realize they can provide improved proactive customer service via rapid delivery and shipment status transparency when they use the right parcel TMS.

While a parcel TMS can transform a shipper’s operations and provide multi-faceted gains, how a shipper implements the technology impacts just how well the investment will pay off and can be forecasted in advance. Shippers with a firm understanding of the status quo can forecast the impact of potential changes, but they should always ask two preliminary questions before getting started:

  1. Do the benefits offered by a parcel TMS outweigh its total cost of ownership?
  2. Can adoption of a parcel TMS deliver ROI during each stage of its rollout?

Creating suitable business objectives

Of course, questions about cost of ownership and ROI require suitable, measurable and meaningful business objectives to be in place. A TMS for parcel can deliver solid returns against a variety of business objectives, but objectives should be meaningful to the shipper and the challenges it seeks to overcome. Some of the most common business objectives shippers seek to accomplish by adopting a TMS for parcel include:

  • Offering cost effective next-day delivery service to customers
  • Getting the best rate every time they ship a parcel
  • Ensuring they select the most appropriate carrier and service for every parcel, based on the shipment’s needs
  • Providing delivery status transparency to customers

Depending on the business objectives in place, shippers should forecast the ROI of various if/then scenarios before using a parcel TMS to make sweeping changes to fulfillment and operations or even choosing the right solution.

Single-carrier shippers should forecast multiple cost scenarios

In some cases, big gains can be achieved just by switching from one exclusive carrier arrangement to another. Shippers should analyze a representative sample of their actual shipping data to determine how different carriers would have handled the same shipments and extrapolate these findings to determine the most cost-effective single carrier. Analysis should include the shipper’s current carrier and several other top options specific to the business.

Others test the potential of a multi-carrier approach to achieve more sweeping gains. The same general approach can be used to study a representative sample and extrapolate those findings, but the if/then scenarios to be forecast must account for the increased complexity of selecting the best carrier and service for each parcel. Compound Annual Growth Rate (CAGR) reports prove helpful in this process by demonstrating potential savings a multi-carrier solution can provide in rate and carrier selection vs. the way this works today.

To forecast the potential cost savings of a multi-carrier approach with a representative sample of parcel shipment data via CAGR reports, a shipper needs:

  • A starting point that reflects the status quo with data on the actual deliveries, chosen carrier and service, costs, and a map with associated parcel destinations
  • Various scenarios to test to determine if more elaborate multi-carrier parcel delivery strategies can deliver far greater returns

Common examples of the many viable scenarios that can be tested during these exercises include:

  • Adding a second carrier or carrier service
  • Adding two or more carriers and multiple carrier services

 

 

 

 

Just by selecting from the standard services of three carriers instead of one, the shipper reduced their parcel fees by 24% without sacrificing service.

Supporting business objectives with efficient carrier and service selection

Of course, any multi-carrier scenario worth testing should be developed specifically with business objectives in mind. If, for example, a shipper currently offers one-day shipping to all customers and fulfills these orders with an overnight service from Carrier A, its objective could be to maintain this level of service but to do so more cost effectively. In this example, the shipper should work to forecast at least a few scenarios to determine how each would affect parcel shipping costs:

  • Moving all this business from Carrier A to a different carrier
  • Using multiple carriers’ overnight services
  • Using multiple carriers and seeking strategic opportunities to use ground shipping services

In the last scenario, the right TMS for parcel can provide the essential data and insights a shipper needs to know the most cost-effective way to deliver each parcel from its distribution point to the customer within one day. Often, in this scenario, unnecessary carrier and service upgrades often lead to overspending; a ground shipping option that delivers in one day will perform just as well or better than a higher priced overnight option, for example. Identifying overlaps where carrier services can be downgraded without missing a beat on delivery at scale can produce big gains for parcel shippers, and they should be forecasting these gains before even getting started.

Accessorial fees: the low-hanging ROI of a parcel TMS

Addressing accessorial fees can deliver instant and significant savings, and problems can often be corrected automatically. Accessorial fees typically consist of errors on the label, specifically related to how a parcel is addressed or packaged. Bad addresses or bad information (dimensions, etc.) slow carriers down, and they assess fees in response. Shippers should not lazily accept the fees as a cost of doing business; most who try to address the problem do so in one of three ways:

  • Negotiating fixed rates: ignores the problem altogether
  • Outsourcing: manages the problem
  • Correcting behavior: fixes the problem

Although a parcel TMS can help to fix these problems, shippers first need to choose a system of record for all orders; this could be an ERP, WMS, OMS or other system. With a system of record in place, they must determine the best way to communicate with carriers or how they will send orders, receive deviations and delivery notifications, and manage invoice reconciliation and electronic payments.

At that point, two types of reports can quantify the problems with accessorial fees and clarify the potential ROI of fixing them. Address correction reports organize correct and incorrect addresses and incorporate carrier fees to assess costs. Shipment correction reports organize fees associated with dimensioning and other packaging problems. Since these problems can be easily corrected with the right parcel TMS, the reports help shippers determine if penalties and the ROI associated with fixing them outweigh total cost of ownership.

 

 

 

 

 

 

 

As shippers seek to improve customer service while reducing costs, a TMS for parcel can assist, and at least three methods are helping them use clean, reliable data and analyses to forecast the ROI of this investment specific to their shipping needs and with great precision to better understand what’s at stake.

Ken Fleming is president of Logistyx Technologies, the leader in Transportation Management for parcels. Since the mid-1990s, Ken has led successful launches of many new technologies and services, including supply chain management, e-commerce, SaaS, and enterprise software and systems integration solutions. Ken can be reached at ken.fleming@logistyx.com.

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