Reverse Logistics Conference Wrap Up: Reducing Costs

Every year, more than 1,500 people from around the globe descend upon Las Vegas on Super Bowl weekend for the annual Reverse Logistics Association Conference & Expo. The audience is comprised largely of supply chain executives from the world’s best-known technology companies and consumer electronics retailers. The conference is a great forum to exchange ideas as companies improve their reverse logistics processes, identify opportunities to refine their sustainability programs, look at solutions offered by service providers supporting the industry, and reduce costs. Today I’d like to take a look at that last topic, reducing costs.

Limited product lifecycles and complex supply chains
To put it simply, the consumer electronics industry is cut throat. You are only as good as your last product, and nobody is safe from consumer backlash if a product does not “Wow!” them and deliver bottom-line results for the manufacturer. And unlike many retail products, the effective lifespan of a product and its ability to win big in the market is not just seasonal, it may have only days or weeks to perform before it is more or less obsolete. For that reason, the complexity of the supply chain required to support returns in such an industry can be accurately described as a maze littered with the remains of products that need to find a resting place at the end of their useful life. But these questions remain: where do they go?; how do they get there?; and what is the most cost-effective way to make sure they get to their final destination?

Measuring costs
Once the consumer is through with the device, the challenge becomes to identify the most optimal way to manage the flow of goods and materials. Unfortunately, many companies look at isolated areas of cost (such as transportation, for example) rather than the big picture, and are dissatisfied because they have a difficult time addressing other areas of the business where cost overruns are apparent. It is imperative to understand that any business, regardless of industry, is a delicate ecosystem that involves every area of the operation that relies on open communication among all channels. So while operations may try to save a few cents in one place, customer service may have a difficult time managing call center costs because the data required to support their environment is not necessarily provided through the ‘low cost alternative.’ As for marketing, well, if they cannot monitor consumer behavior and proactively market to them based on specific events observed through the use of the data, customer satisfaction may suffer and the business may miss critical revenue opportunities. It is enough to drive finance nuts, as the business as a whole may be headed in the wrong direction and with no clear answers as to how to go about fixing it.

The best solution for your business may not always be the least expensive. Trying to shave a few cents out of your operating costs may wind up costing you dollars in the end if you are not careful.

The future is the consumer
We have seen a complete evolution in the ways in which consumers shop. From the times of Ben Franklin (the original catalog marketer) until the 1990s, very little changed as people purchased through traditional brick & mortar outlets or through catalogs. The revolution in retailing brought on through integration of technology, customer buying preferences, and marketing is still in its infancy, as alternate retail channels accounts for less than 5 percent of total retail revenues. Whereas ‘mobile commerce’ was revolutionary a couple of years ago, we are progressing to the point of ‘social commerce’ as more and more people use alternate devices and mediums to fulfill their needs. As such, they demand that the information and services provided to them be easily accessible, have the ability to be consumed at a time when it is convenient for them, and have meaningful content.

Despite the wonderful advances that consumer electronics companies and their sales channels continue to make to offer products designed to support consumers’ lifestyles, they must also make sure their policies and the way they support the consumer after the sale supports their lifestyles as well. Trying to adapt old processes and unfriendly customer service policies in an effort to reduce costs or prevent returns may cost a company significantly in the new age of merchandising and retailing. As new thought leaders in the market emerge, it is likely that the focus will shift to service – based on a desire to build lifetime customer value rather than the idea of ‘saving’ a dollar here and there. For companies only focusing on the here and now, there may not be much to look forward to down the road.

Renewed Consumer Optimism Drives Need for Greater Awareness of Shipping Services

*Originally published in PARCEL Magazine’s January-February issue.

With the holidays behind us, the logistics industry can finally breathe a collective sigh of relief. However stressful, the past few months of peak season have also shown more signs of economic recovery. Consumers came out in record numbers, making the fourth quarter of 2010 a bright spot on what was undoubtedly a barometer for future retail trends. Some may wonder, “What does this have to do with shipping?” The answer is quite a bit, actually.

Competing in a Changing Marketplace
The days of simply focusing on the creating a positive in-store experience are long past. New technologies, combined with an increasingly perceptive consumer, force all of us to find ways to meet growing customer demands without breaking the bank. The fact that many customers no longer ‘marry’ themselves to a brand (as price is the number one purchase factor) means that merchants’ ability to drive long-term customer loyalty is dependent not only on the products that they offer, but also on the total landed cost of putting those products into their customers’ hands. This is where shipping costs play a critical role in building customer loyalty.

The Rising Costs of Shipping
Nobody likes rate increases when it comes to shipping, especially when it can account for as much as 40 percent of an organization’s total landed operational costs. Nevertheless, there are several things to keep in mind as we negotiate contracts with carriers:

• Fuel rates are volatile and cause uncertainty in cost structures
• Investments in new technologies rise as shipping companies identify ways to reduce their carbon footprint in meeting customer demand
• In some cases, heavy fixed overhead and real estate costs associated with lower volumes must be absorbed

Because shipping is such a large factor in an organization’s budget, it is often one of the first places executives go to identify areas in which to reduce costs to remain competitive. While it’s always smart to work with your carrier to negotiate the best deal, I propose that you look even further than your rate chart for opportunities to save, which many merchants are missing out on today.

Additionally, as you look at alternative carriers, remember that your most loyal customers expect a certain level of service from you. As long as you establish customer expectations through a comprehensive policy that clearly communicates expectations, there is no harm in offering a lower-cost shipping alternative. Reducing costs may even help you attract new customers and build customer loyalty among long-time customers.

Look Inside
As carrier rates increase, one of the largest areas of opportunity is the manner in which corrugate costs are managed. Oftentimes, carriers face the challenge of reducing costs while merchants have not looked at their own shipping practices costs.  Some questions to ask are:

• Am I minimizing the cube required to ship an item?
• Do I have a standardized set of products that allow me to reduce and/or eliminate the number of boxes that I need to keep on hand to meet organizational needs?
• Am I sourcing products locally when at all possible, allowing me to control my total costs and meet the needs of my customer?

There are many questions that can be asked, and my experience is that while many companies take the right approach to managing their business, there are an equal number that truly do not get everything they can out of the existing resources they have at their disposal.

Conclusion
In order to continue serving customers profitably, merchants must ensure that they’re doing everything possible to improve the level of service they receive from existing service providers, or be willing to utilize the services of others when their needs aren’t being met. And rather than placing the entire burden of cost reduction on service providers, businesses must also look to ways to reduce their own costs while meeting customers’ expectations. In an increasingly competitive market, your customers are not the only ones looking to you to deliver a better value – your shareholders are as well.

Three Things Every Shipper Should Know About Auditing Shipping Expenses

Now that the dust has settled from the peak shipping season and daily operations have returned to normal, you likely have a stack of vendor services invoices waiting for your staff to audit and pay, and few are more critical than the invoice received from your shipping service provider(s). Not only is it critical because of the importance of your carrier in your overall business strategy, but also because of how tedious these invoices can be to reconcile and audit. So whether your invoices are delivered electronically or are shipped to you in a box, big or small, here are a few things to consider as you dive into those numbers.

Depending on the carriers you elect to use, auditing may be a relatively simple task or may be one of the most difficult duties your transportation department performs. In fact, it can be so difficult that there are companies who do nothing but audit and pay carrier invoices for their clients. Regardless of the manner in which you handle your carrier invoices, look at the following items first:

1. Reconcile – It sounds simple, but if you receive one invoice for basic transportation services and another for “value-added services” (i.e., accessorial fees), putting the data together on a per shipment basis can be very tedious, if not seemingly impossible. Until you reconcile your bills this way, you will never really have a firm grasp on what your true cost of service is – and in some cases, a carrier may hope you never really figure out what those costs truly are because of the impact those fees have on their bottom line.
   
2. Identifying Enhancement Opportunities – Carriers, regardless of who they are, do their absolute best to deliver on their commitments to you and your customers. Your invoice likely provides detail indicating how well a carrier performed in terms of hitting delivery windows, fees assessed for additional services, and any number of other pieces of information that are valuable to your business in evaluating these services. This is especially the case for expedited and guaranteed products where you pay a premium for service based on your customers’ expectations to receive a product within a given period of time.
3. Managing Claims – Claims are available as a way to protect merchants and their customers. There are a couple of things that need to be considered when making claims or negotiating carrier contracts based on past performance. The first step is to document, which may require you provide proof of a customer complaint relative to a service failure. And while it should not have to be that difficult, some carriers make it absolutely impossible to file a claim for a damaged or lost shipment so come to the table armed with all the details surrounding the shipment and the reason the claim was filed. The second thing to consider is how hard you want to push claims when renegotiating contracts. This is not to say that you should let things slide during a negotiating session, but exercise caution. Some people will say you should hit the carrier for every single fee or error in an audited invoice when looking at a new service agreement, and you are well within your right to do so, but the carrier may decide in turn to not be as kind when negotiating the total costs of service. You simply have to choose your battles.

At the end of the day, putting merchandise into the hands of your customers is the lifeblood of your business, and the manner in which you execute your shipping strategy can pay huge dividends to your business or can create significant problems for your customer and your bottom line. If your current process is too difficult, whether it is in the manner in which you manage and reconcile invoices, handle claims for shipping issues, negotiate terms and conditions of your carrier service agreement, or anything else, look at alternatives. Introducing new ideas and service providers into the mix may not only keep current providers on their toes, but you may also identify alternatives that will provide greater long-term benefit to you and your customers.