Balancing Speed and Costs

This article on delivery originally appeared in Response Magazine – May 2014

The days of “allow 4-6 weeks for delivery” are gone. Unless you have been living in a cave or stuck on a deserted island for the past five years you already know this. The bar of consumer expectations continues to rise until one day we will find packages on our doorsteps that we didn’t order yet. But since we really need the product we are happy it came. Well, until this day comes, we will settle for a healthy balance between speed and the cost that consumers are willing to pay.

Marketers control three critical components affecting this balance. Where their product is warehoused, how quickly it is fulfilled and by what shipping method it is sent to meet customers’ expectations. While nearly everyone agrees that 4-6 weeks for delivery is not acceptable in today’s world, philosophies on speed of delivery still vary widely from marketer to marketer.

Not all product is created equal. From the marketer’s point of view it’s easy to understand that the relationship between speed and cost can and should first be assessed by considering the product being sold. Consumers will have a higher tolerance to wait for a non-essential, low valued item than they will be for an item of more critical importance and higher value. Marketers with product in the latter category are wise to look carefully at their process and ensure that their methods meet their customers’ expectations.

But again, in this world of instant gratification, consumers are growing less patient every day. Does the consumer really understand and care that the value of the sale is low? Does this fact make them more willing to wait longer to receive their order? Likely not.

So how does the marketer satisfy the consumer by balancing acceptable speed while also keeping costs in check? There are several ways.

1. Ship close. The easiest way to increase speed to the customer is to be as close as possible. Place your goods and fulfillment nearby the largest number of customers. This can be done with multiple warehouses or even just one. Thoughtful geographical placement will pay off.
Cost containment is the other benefit of shipping close to the customer. As most freight is charged by a combination of weight and zone (distance-based tiers), the closer you are to your customer the less expensive. Shipping close is win-win!

2. Speedy Fulfillment. This one is a no-brainer. Tool your operation to ship quickly, same day if possible. If you cannot do this in-house or your fulfillment provider is not set up to accomplish this, find a partner that can. Any time left on the table here is unnecessarily prohibiting you from accomplishing the goal.

3. Choose the right shipping method. Here’s where it gets more complicated. There are many ways to ship. Let’s start with a view from 30,000 feet. Traditional options are best summed up with the three big carriers: UPS, FedEx and USPS. These carriers offer standard, expedited and express services. The more you pay the faster the package travels. Most of these offerings have day-definite guarantees, meaning the carrier is committing to delivering on a specific day or the shipper can file a claim (UPS and FedEx). These methods are great options when you need the assurance of day-definite delivery.

Not surprisingly, these services cost more than other options and also have additional surcharges associated with them. UPS and FedEx assess additional fees for residential deliveries ($2.90-$3.35) plus delivery area surcharges ($2.85-$3.65) for remote addresses. Charges can add up quickly.

There are other options. The biggest rage in residential shipping is often referred to as economy or hybrid models, such as UPS Surepost and FedEx SmartPost. With these models, the carriers pickup and transport the packages through their networks but later hand them off to the USPS for actual delivery to the residence. This model was borne out of the realization that the USPS delivers to every mailbox, six days a week. UPS and FedEx do not. Therefore, it is much more efficient for the private carriers to outsource the delivery to the USPS. The USPS is equally benefitting from the model as they now have increased volume at very little cost.

These economy methods are lower cost than the traditional services and also do not have nearly the same level of surcharges. For example, there are no residential fees and the Delivery Area Surcharges are a mere fraction ($0.25-$0.30) of their traditional counterparts.

But even these hybrid models are not created equal. There are differences in how they are processed that may affect speed and cost. FedEx, for example, is a consolation model. It uses a separate, dedicated network of hubs solely for their hybrid service, called SmartPost. Packages are consolidated at hubs, transported to other hubs and are eventually inducted into the postal system at various entry points (mostly DDU’s, which is the customer’s local post office, but sometimes further upstream – further from the consumer).

UPS’s SurePost model uses the same network as that of UPS Ground, their day-definite service. The difference is that the packages are then handed over to the DDU’s for final mile delivery. Some exceptions are made. If UPS’s brown truck happens to be delivering a traditional package (Ground, Express, etc.) to the consumer that day (or in the near proximity of that residence) the Surepost package will likely bypass the hand-off to the USPS altogether, and in this scenario, the customer has received their package in the same time as the more expensive, traditional Ground offering.

4. Ship smart. Finally, use logic-based technology to help determine how to ship in order to accomplish your goals. Incorporate software that calculates the transit time to the customer via various shipping methods. If you want to deliver in 2 days, based on your location (another reason #1 is so important) you may be able to ship via the Economy/Hybrid model. This is far better than simply setting your shipment method to 2-day air and overpaying.

Marketers have significant control over the balance of speed and cost in shipping to their customers. Careful analysis of the options may result in significant improvements in speed and reductions in cost. Work with an experienced fulfillment center to understand the choices and make your decisions.

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