Parcel spend management: 4 tips to increase profits

Managing your parcel spend means having full control over where you allocate each dollar. Whether you are a B2C or B2B shipper or distributor, the challenge is gaining network-wide visibility. You need in-depth data that allows you to drill down to the SKU-level cost and roll it up into a standardized big-picture view.

Carrier dashboards provide some insight, but they often use different codes or structures. More often than not, you end up with a cluttered and unreadable set of data.

For example, you may have 10 different FedEx carriers listed because of service level and naming differences. Having a tiered structure from Carrier → Service Level allows you to sort, group and filter data in a way to manage performance. Is my ground network hitting my target transit days? Are our next day air shipments really getting to the customer on time?

For messy parcel data to be useful, it needs to be cleaned and organized. It’s only with centralized data that you’ll gain a holistic view of your parcel spend to unlock huge savings. Use it to make the most of every dollar spent.

Here, we’ll look at how you can take a data-driven approach to optimizing your parcel spend management.

What is parcel spend management?

Parcel spend management is the process from procurement → negotiation → selection → exception management → invoice → payment → recovery. It goes beyond allocation or any singular step. With parcel as a mode growing so significantly globally, the emergence of this category is a critical piece of your performance.

Parcel spend management requires the organization, control, and optimization across multiple workflows. Such as cost allocation, negotiating accessorial fees and activity based surcharges, to optimizing which carrier to apply to which lane. With high complexity and high volume, parcel spend management is here to stay.

To get an accurate understanding of your parcel spend, you need a big-picture view of your entire network. It needs to include every cost, from when the consumer orders on the front end to when the package lands on their doorstep.

Parcel spend management is an ongoing effort – you’re always looking for ways to save money. Sudden industry disruptions like carrier bankruptcy or rate hikes will increase your costs. Good spend management entails having a core data set to back up your decisions when these interruptions occur. You’re prepared to quickly pivot without causing network or financial setbacks.

Pro tip: A common mistake is not using enough data. Shippers should review at least one year’s worth of data when assessing parcel spending. If you ship seasonally, look at several years’ worth.

What are the biggest mistakes in parcel spend management?

Proactively managing parcel spend is complicated. That said, you should know the biggest mistakes of optimizing spend:

• You’re using incomplete data that impacts decision-making. Without comprehensive data, you’re attempting to optimize transportation spend based on data that is generalized at best. But worst case, it’s inaccurate.
• You are relying on overly complex and manual workflows. First, you must check that you have the data to audit your invoice and review line item costs. Then, you have to associate each cost down to a SKU level to properly allocate costs and price products. .
• You don’t actively negotiate for the best discounts. Industry, carrier, and demand changes can all impact pricing. Most sophisticated carriers have great data. That means you also need to be ready with great data so you can negotiate for the best deals possible.
• You don’t ensure the entire organization makes great decisions. If you have insight into each individual business unit’s needs, you can consolidate them to get the contract best rates.  You need modern audits to do it, whether it’s adhering to your shipping guides (picking the lowest-cost carrier with the right service) or using your negotiated discount.  
• You’re not paying invoices at term. Each carrier has different terms. You want to pay each carrier at term to maximize working capital and maintain good carrier relationships.

You can resolve these common mistakes by optimizing your parcel spend. With support from the right tools and insight into your network, you’re equipped to proactively manage your spend.

4 tips to improve parcel spend management

1. Build a central repository for parcel spend data

A central repository for all your parcel spend data ensures you have a comprehensive view of your shipping network. There is no more toggling between multiple data sources. Instead, you can confidently refer to your repository to inform your parcel spend decisions.

So, what does that central repository with standardized data do for you?

• It allows you to look at your costs per line item and aggregate across carriers. This lets you see how much you’re spending on residential surcharges, for example, across all carriers.
• It’s accessible to everyone across your organization.
• It allows you to monitor your internal team’s performance to ensure they’re making good decisions.
• It establishes a reliable data-driven foundation to guide strategic decisions.
• It creates repetition and great habits within your organization

Once you have this clean and centralized data, you can use it to find opportunities for cost savings.

2. Modernize payment processes

An increasing number of carriers are encouraging people to avoid sending paper checks through the mail. Not only does it increase the risk of fraud, it also delays payment.

The easiest way to simplify the payment process is through digitization. Software that automates payments helps to ensure financial security and reduces operational inefficiencies.

Digital payments offer greater control over your spend by optimizing when you pay. You can avoid paying out invoices too early or late. As a result, you no longer have to worry about late-payment fees and you’ll keep more working capital on hand.

3. Optimize your shipping patterns

How do you know if your current network is optimal?

Without data, it’s a shot in the dark. You’re trying to assess a sweeping network of carrier contracts and shipping routes without clear insight. But with the knowledge data provides, you unlock insights trapped in your supply chain.

This level of visibility allows you to drill down to SKU level to uncover opportunities for better shipping lane optimization. For example, is there a specific place or time of day when congestion is bad, therefore delaying delivery? Is there a route that avoids tolls?

You probably use regional carriers for most major metropolitan areas because they offer cheaper prices. Likewise, you likely lean on bigger carriers for rural areas where regional carriers don’t deliver. Optimizing your shipping lane means selecting the right carrier for the right lane to keep costs low.

Take it further by using the data to understand when to switch lanes or carriers. These insights grant you more flexibility if there is a sudden supply chain disruption. You’re already familiar with the options available, so you can easily adjust to avoid major interruptions to your network.  

And here’s why carrier diversification is crucial. It grants you increased flexibility and leverage when such disruptions occur.

4. Effectively manage your carrier network

Proactively managing your carrier network is a transportation manager’s most challenging and important task. Let’s look at three categories for how solid parcel data helps you save money.

Carrier contract management

With your centralized data set, you have more insight into carrier performance. You know percentages of on-time deliveries or if they often charge lumper accessorial fees. This data gives you leverage for favorable contract negotiation.

Pro tip: Consolidate contracts to get organization-wide carrier discounts. Then, you can ensure information is accessible to everyone and audit invoices to ensure compliance. Centralized data allows everyone at your company to take advantage of those discounts.

Say you find your primary carrier only delivers on time 80% of the time. Use that percentage to get better discounts for that shipping lane.

Diversifying your network

Part of effective network management is ensuring resiliency. Diversifying your carrier network establishes your safety net to navigate supply chain disruptions or rate hikes.

If you have strong relationships with multiple carriers, you have greater freedom to walk away from a contract if the carrier won’t match your terms. You can better mitigate risk if a carrier strike, for example, impacts the supply chain.

Scenario planning

Intelligent scenario planning ensures you have the right carriers and discounts for the right lane, volume, and service type. Great analytics allows you to test different network scenarios to uncover cost savings. Perhaps if you swapped 20% of your volume from UPS to FedEx, you would unlock more discounts and reduce your average cost per package.

Good parcel spend management boils down to having visibility into your network. This insight allows you to control costs and stretch each dollar as far as possible.

Loop centralizes the data to boost your parcel spend management

Data provides the necessary visibility to unlock insights that increase your working capital and prepare for future scenarios. It’s the backbone of your parcel spend management. The data you collect from all your carriers and your parcel audits shines a spotlight on where you can be more efficient in process and performance.

Loop distills complex data into insights and savings opportunities. Centralize the data, automate audits, and gain control over your profits. Contact Loop today.