Small Package

Freight Agreements Deconstructed

Rick Ankrum, C.P.M., A.P.P.

Email @ dot com, LLC

Copyright 2012

Introduction

Many organizations allow small package freight to go unmanaged or do not treat it as a strategic opportunity. Your suppliers probably have not taken this approach. Small package freight can impact customers as well as your suppliers. This can be a profit center or impact profits. Customer expectations can be influenced when there is a strategy in place and measure for results. Sales and marketing may be able to leverage the small package freight for to retain customers and build the customers base.

Selecting the best strategy will impact the capital investments your organization makes. Too many or too few distribution points raises shipping costs. Learning the suppliers’ coverage footprint could shed light on unrecognized sales opportunities. In one example a shipper used three distribution centers in a Midwest state that could have been reduced to one distribution point without losing next day ground delivery service level to any customers in the state. What worked in the past may not be necessary today.

Beginning the journey means taking the first step. This book will walk you through the steps to a small package freight strategy and the results from implementing the strategy. If you do not manage this cost and your competition does - the marketplace will be the judge. Your higher costs, lower services and confused execution, will become evident over time.

The story goes in the early 1990’s Kmart decided not to treat their supply chain as strategic. Around the same time the same decision point became apparent at WalMart. WalMart identified the logistics and supply chain as strategic. The results are dramatic: WalMart is one of the largest companies in the world and Kmart lost the opportunity.

Can There Be a Negotiated Agreement

Shipping volume will decide if your company can negotiate a small package freight agreement. As in many things, money counts. If your shipping dollar volume without discounts is more than $1 million the freight companies will display some interest. As your volume goes up from there the interest will increase. For shipping volumes under $1 million it will be difficult to get all of the conditions I will cover in this book.

If your company already ships packages under an agreement this will indicate that the freight companies notice you and can be approached to negotiate an agreement renewal or replacement.

The freight companies must understand that you are serious and can deliver the freight volume to warrant discounts.

Prior to my involvement, the company I was working for had an agreement but no one was actively managing it. No one understood the terms and conditions and because of the decentralized structure there was no single point of contact. Each location thought they were utilizing the agreement correctly but it turned out that no one really understood the opportunity to improve the discounts.

At my first review with the incumbent provider we were reviewing the shipping activity and I asked if all of our various locations were included. The representative thought they were but when I supplied a location list there were many not included.

Looking at the cost breakdown I noticed that address contributed a very large amount. This became a target to get a better understanding of how our ordering process worked and who managed the customer address data base.

All of these work in the favor of the freight companies and against your company to maximize the value received.

Identify the Stakeholders

If your company is shipping a large enough volume there is probably more than one stakeholder. It is your duty to determine who the stakeholders are. Once you have discovered who they are the next step will be to learn about their particular needs and wants. Is there a strategy or plan in how they utilize small package freight? A strategy might be to deliver packages to customers within a certain number of days.