Managing Small Parcel Spend Through Efficient Label Usage
Shipping and transportation can be the biggest costs for third-party logistics (3PL) providers outside of labor. If the average cost of a shipment is $20, 1000 orders a day would amount to almost half a million dollars a month in shipping costs, and this doesn’t include mis-ships and chargebacks. Furthermore, the landscape of carriers has been changing dramatically over the past couple of years. News reports are emerging of carriers raising rates, increasing surcharges, and even firing smaller shipping volume customers. To fill this gap, many new niche providers of labels and carrier resellers are emerging in the market.
I sat down with Ryan McPhee, Product Manager of Small Parcel Suite and resident label expert, to discuss the challenges presented by one of the most expensive and challenging aspects of a 3PL’s business–labels. In addition, he’ll discuss the features and developments of the Small Parcel Suite Product team that are designed to help our warehouse management system (WMS) software customers navigate this dynamically changing and complex industry.
What is the greatest challenge 3PLs are facing today when it comes to labels?
Ryan: Yeah, it's a great question. I would like to lead off by dealing with the general complexity of carriers. This market changes quite often, it's highly dynamic. At the end of the day, 3PLs have service level agreements (SLAs) with their customers. Being able to print their labels very quickly and accurately is just critical. There's a lot of complexity when it comes to the niche services and the requirements. I would say the number one biggest challenge is just the complexity and falling out of that. I think 3PLs care about performance, being able to do large batches, being able to quickly print hundreds, if not thousands of labels, and they need it to be reliable. If they're getting a lot of error messages or it's timing out, that's a big problem. Again, it's all about finding the right workflow and setup so that they can meet these SLAs for their end-customers.
Speaking of label providers, do you have any advice when choosing a label provider?
Ryan: From the 3PL’s perspective, what they want in a label provider is coverage. Brands may have specific carriers that they have a relationship with. Having the right coverage is going to make it very turnkey for the 3PL, but that's also why for our Parcel API (Application Programming Interface), we've realized relying on a single label provider is just not a good strategy because they all have holes in their coverage. So, my advice is less about picking this one for Scenario A or B but more so, making sure you have options so that you can meet the complexity of demands from your customers. That is why we've created our Parcel API.
Do you want to just talk a little bit more about Parcel API and what it is in simple, straightforward terms?
Ryan: The Parcel API is really, in the simplest terms, our new API architecture. Think of it as giving you multiple tools to accomplish the job of meeting the SLAs for your customers. An analogy I would use is: if you're gardening, there isn't a single tool that will give you a beautiful garden, right? You need a shovel, you need a rake, you need good fertilizer. You need a good hose system, sprinkler system. If you think of each of those tools as a label provider, before we were saying, “oh, you want a beautiful garden; here's a shovel.” Now we're giving you a shed with all the tools that you would need. We need to think about the Parcel API as a toolkit. Whereas before we only had a single set of capabilities, now we have multiple capabilities to help you meet the demands of your customers for carrier fulfillment.
Do you have any label management dos and don’ts?
Ryan: Don’t rush changes to your carrier mix into your process. You really want to give yourself ideally a couple of weeks, but even in the worst case, a couple of days to test and validate that what you're trying to do can be accomplished. I've talked to so many customers who are trying to add at the last minute, say, UPS Mail Innovations for a customer. Then, when they're trying to run live orders, they realize there are limitations to what they can get from a label perspective. It's important to have a plan and have a strong onboarding process for new carriers and for new customers so that you can validate the full set of requirements versus just jumping in willy-nilly.
Do talk to these label providers to see if there are more benefits you can get out of these partnerships that we've brought into the mix. Some of our partners have a lot of deep experience where they can save you money, but also save you time as part of your process, whether it's on the inbound side and the way you're tagging orders and your shopping carts or the way you're getting your rates from the carriers. Currently, they've got a lot of expertise that can be a value-add above and beyond just the technical capabilities.
Do have a strong carrier mix in your service portfolio. So don't rely on one carrier. You should have multiple, and really you should be constantly assessing the costs that you're getting from these carriers. Because it changes so much, whether it's looking at your negotiated rates with FedEx or looking at spinning up a DHL eCommerce account to see if that can satisfy your SLAs and save you a little bit of money.
How can rate shopping within the Small Parcel Suite help 3PLs become more competitive?
Ryan: In the simplest terms, you can save money on any potential order when your customer is not dictating a specific service level. Sometimes they'll be forced to say, “okay, you're going to ship this via FedEx Ground.” But if there's no SLA on the delivery time, then why not look at the mix of coverage and see what the cheapest rate is? We can show them in real time, from the carriers, an estimate for shipping their order, and it will really depend on where it's being shipped to. Particularly when you get outside of the 48 states that are here in North America—if you're shipping to islands or Hawaii or an international country—there's very, very big differences in terms of the rates between the carriers. By getting a real-time snapshot, you're going to be choosing the most cost-effective option.
At the end of the day, it's all about getting these packages out and delivered on time. But if you have four services that will deliver it in the same amount of time and you can pick the one that's cheapest, you can incrementally save 10-to-15% per order. I've seen a lot of customers who just default to the big service, like using FedEx ground or Priority Mail from the post office, which tend to be cheaper options. But in particular, I think some of the last-mile services like DHL Max are a great example. That saves a lot of money. So again, by having a strong mix of carriers, giving yourself options, you can then rate shop to educate yourself in terms of where you can save some dollars on a per order basis.
Even if it's $1 or $2 an order, if you're doing a couple hundred or even a thousand orders a day, that really adds up quickly. The thing that excites me the most is just that we have this new toolkit that we can build and expand upon. Before, again, we only had one tool and so we had to figure out how to use that tool in every situation. Whereas now we're going to learn for certain workflows that there might be better providers. There might be better carriers. We're going to be adding more carriers into the mix. And so, from a macro perspective, working with more than a thousand warehouses in our product, we're going to learn a lot of things and we're going to be able to share a lot of that knowledge with our customers. We’re really excited about these new partners. They've got a lot of great capabilities, but I think proving it over the test of time is going to be the biggest value to our customers because we'll be able to start to point them to say, if you really need performance and you want to do high-volume processing like 5,000 labels at a time, this provider is showing the lowest latency and the best performance. We're stress testing a lot of that in that specific instance ourselves.
But a lot of it depends on what carrier and everything else behind the scenes. So really by having this new ecosystem, we're going to just evolve into a better and better place over time. But beyond that, I can give my customers a lot more options now, too. Not just in that performance example, but if they have special relationships or custom software or things that they're working with, we now at least have a path to get them integrated. That might not always be free or turnkey because it might require some work on our end. But before our only answer was, if you're working for X regional carrier, they must integrate through our Rest API. It's not native in the software; it's a bad user experience and it would still cost extra money. Whereas now I can at least look at connecting them through our new Parcel API to get them fully integrated.
So that excites me a lot. If I really want to nerd out, we have completely upgraded our logging. So being able to troubleshoot, a lot of it is carrier specific, and these things change. People hear me talk a lot about when DHL upgraded their APIs to V4 last year; there were just a lot of little things we were seeing going wrong and we couldn't fully tell with our current logging what the issue was. So we rewrote under the cover all our ability to catch and troubleshoot and diagnose API issues because it can be crazy with all these carriers in every service and every little thing. Having that stronger reporting is going to really help us too.
How do you see Parcel API evolving over time? What's the long-term vision?
Ryan: I think we're going to continue to build the most robust marketplace of coverage and carriers in the industry. We don't have everything yet. This is just our first generation. We're going to be adding more into the mix. We're going to learn, like I said earlier, as we go, and we're going to capture as much capability as we can for our customers. It's that aggregate volume that really gives us an advantage and makes us quite attractive. There's a lot of partners that want to be on our Parcel API that we're going to phase in over time. And so, evolution is going to be broader, wider coverage, and then, again, overlaid with capabilities and specific strengths.
To learn more about how Small Parcel Suite can help your operation become an efficient, paperless warehouse, schedule a demo today.