Scenario planning can lead to more informed decision-making, as we covered in our recent whitepaper. By analyzing facilities, volumes, lanes, services, and carriers, you can identify areas for improvement.
But asking the right questions will help take the process from the hypothetical to the tactical —ultimately getting you on the path to enhanced efficiency and profitability. Here’s where to start.
1. Where do you have the highest frequencies, the highest costs, and the most volume?
The first step in any scenario planning exercise? Understanding your baseline.
Identifying areas with the highest shipping frequencies, costs, and volumes will highlight the most obvious starting points for cost reduction. Analyzing cost trends over time can reveal patterns — and opportunities for savings.
How to analyze cost trends over time:
Start by centralizing and standardizing all your shipping data from every carrier into one view. Ensure cost and operational data can be split by carrier, lane, accessorial, service-level, facility, and customer.
- Track the frequency and cost of shipments within each category to identify patterns and inefficiencies.
- Utilize advanced reporting tools (like Loop) for deeper insights into cost drivers.
- Benchmark your costs to understand how your spending stacks up against peers and pinpoint areas for improvement.
Helpful tools and/or metrics for tracking and analyzing shipping costs:
Effectively tracking and analyzing shipping costs requires the use of several key tools and metrics, such as:
Tools:
- EDI parser
- Converting data from a spreadsheet to database
- Database to consolidate and standardize data
- Analytics tool
- Rate shop (if you have more than one carrier)
Metrics:
- Cost per pound
- Cost per package
- Freight cost: fuel, accessorials, service-level, totals
- Cost per service-level
- Cost per lane
- Cost per customer
- Cost per product/SKU
- Cost per unit
- Cost per customer
2. Where do you have redundancies?
Duplicative routes, carriers, and facilities are the low-hanging fruit of scenario planning. To start:
- Evaluate redundancies in lanes and regions.
- Look for overlapping service areas.
- Analyze performance metrics across your network.
Let’s take carriers as one example. You might find that you are using multiple carriers where fewer would be more efficient. (Or, you might discover that redundancy doesn’t have a big impact.) Consolidating carriers can streamline operations and lower costs. Great rates aren’t enough— shippers need carriers that maintain high service levels while still keeping costs low.
Optimizing shipping routes helps identify the most efficient paths, minimizing transit times and reducing fuel costs. By consolidating shipments and avoiding congested areas, shippers can significantly improve overall delivery efficiency.
Sometimes redundancy is more literal. With Loop, one shipper found $1M in duplicate missing package level detail (PLD) charges. They’ll charge you twice if you manifest twice, and you have to file a claim. For another customer, Loop uncovered $60,000 in duplicated billed packages — in our first week.
Streamlining operations can be achieved through carrier rationalization and route optimization. Loop’s self-service analytics can help you select carriers that offer the best rates and services, ensuring you consolidate effectively. Additionally, Loop's scenario planning can identify the most efficient shipping paths, reducing unnecessary overlaps and improving overall operational efficiency.
3. How would reallocating volume between carriers impact your efficiency, function, and cost?
Conducting a volume analysis helps you understand the potential impacts of reallocating shipments among different carriers.
How to conduct a volume analysis:
- Start by segmenting your data to analyze it by region, location, service-level, and package size.
- Then, simulate reallocations using scenario planning tools to model different volume distributions.
- Look at potential efficiency gains.
Consolidating shipments can lead to better discounts and service levels. It also helps you understand the cost implications of shifting volumes.
By giving more volume to one carrier, you might secure higher discounts thanks to the increased business. Yet reducing volume with another carrier could affect the discounts you previously received – rendering the move moot.
A global retail company recently realized how complex and time-consuming it had become to manage five different carrier relationships. Moving more volume to a single carrier or two could make them a significant customer — which would streamline management and ensure priority service.
They decided to consolidate their parcel shipping operation. But first, they ran scenario planning to assess the impact.
- Volume analysis looked at regions, locations, size packages, etc., to understand which carriers could be candidates
- Studied aggregating volume to the carriers where they would be considered a “big fish”
Ultimately, the move resulted in substantial cost savings — and efficiency. It had some other benefits as well, like enhancing negotiation power.
4. What are your customer expectations? How to align SLAs with service-level costs
Customer expectations play a crucial role in shaping your shipping strategy. Any scenario plan should confirm that your service-level agreements (SLAs) align with these expectations while managing costs.
- Evaluating current SLAs: The first place to start is evaluating current SLAs requires a thorough review of performance metrics to ensure they meet customer needs without incurring unnecessary costs.
- Understanding customer expectations and requirements: You may want to conduct surveys to gather feedback. More impactful, though, maybe analyzing customer data to look at purchasing patterns and delivery preferences. Does a slower shipping speed lead to cart abandonment? Or do your customers pay to upgrade? These insights should inform your approach.
From there, you want to find the overlap between SLAs, expectations, and opportunities to make changes that enhance efficiency.
5. What impact would a warehouse change have?
Changing warehouse locations can significantly impact shipping costs and efficiency, so this should be a key initial question in scenario planning.
You’ll want to consider:
- Proximity to customers — closer warehouses can reduce shipping times
- Rent, labor, and utility costs — what it actually costs to run the warehouse
- Service level impact — customer satisfaction and delivery speed
One Loop customer wanted to know the freight savings by opening a distribution center on the West Coast to complement its distribution center (DC) in NJ. When the team ran the analysis, they saw that 80% of their packages hit the minimum charge. So opening a new distribution center had a negligible impact on their freight cost. Combined with the cost of opening a new DC, the company ultimately decided to scrap their plans and focus on improvements elsewhere.
Power profit and performance with parcel scenario planning
Effective scenario planning involves unpacking the impact of various factors such as customer preferences, sustainability, delivery timing, and cost. By asking the right questions, you can identify opportunities to streamline operations and reduce shipping costs.
Compare to your priorities:
- Cost: Focus on the most significant cost-saving opportunities.
- Customer preference: Align your shipping strategy with what your customers value most.
- Delivery timing: Balance speed with cost to find the optimal solution.
- Sustainability: Consider environmentally friendly options that might also reduce costs.
Ready to optimize your shipping costs through effective scenario planning? Contact Loop today for more information or to get started on your journey to more efficient parcel shipping.
