With the explosion of e-commerce during the pandemic that turned online shopping into the new normal, parcel is no longer the overlooked mode of transportation management. It’s now a critical consideration for both retailers and manufacturers, especially since last-mile distribution plays such an important role in helping companies to compete on customer experience. What are the key trends companies need to consider as they develop their plans and strategies for the second half of 2022 and beyond? What are the challenges ahead, and how can technology and 3PL partners help companies overcome these challenges? Those are the main questions I discussed with Ken Fleming from e2open in a recent episode of Talking Logistics.
Industry Trends and Challenges
In the sweltering heat of summer, it’s hard to think about the challenges lying ahead for the peak holiday season. Nevertheless, I began our discussion by asking Ken what key trends and challenges he sees for the upcoming season.
Ken notes that for the past few years the supply chain has been defined by disruptions. He includes the pandemic, labor shortages, and the war in Ukraine as the top disruptions on the minds of supply chain executives today. As a result, companies are focusing on versatility. On the supply side this means companies are looking at multiple sources of supply and near-sourcing. On the distribution side, versatility means having options to meet the demands of the market.
Specifically, as it relates to last-mile delivery, Ken points out that labor shortages and the high price of fuel are driving up the costs for carriers. “High levels of demand are combining with labor shortage and high fuel costs to create the perfect storm of challenges for shippers and carriers,” Ken says. “Unlike before the pandemic, parcel carriers have capacity constraints and are limiting the volume they can take on. During peak season we’ve seen capacity sold out between all major carriers leaving shippers to scramble for other options.
“Where in the past shippers would shop for and negotiate the best rates, that’s all changed,” continues Ken. “Now they are trying to hold on to what they have and seek to augment capacity well in advance of peak season. Planning for capacity is what companies must do now. Finding carriers to handle local delivery, same-day, or even 1-hour deliveries are initiatives being driven by e-commerce. Add on the ‘Amazon effect’ and you have the perfect storm for parcel delivery.”
How can companies overcome these challenges? Ken focuses on two key initiatives for shippers to address. First, Ken says to work on right-sizing capacity contracts with carriers so you’re not falling short on your volumes and potentially incurring penalties, and you’re not requiring more than contract capacity and left scrambling to fill shortfalls. This includes understanding industry capacity across carriers and balancing capacity across your network.
Ken also points out that balancing capacity requires collaboration internally between those generating the demand and those responsible for distribution management.
The second initiative Ken discusses is multi-carrier parcel distribution. “Gone are the days when you have a single strategic carrier who handles all of your parcel shipments,” he states. “You have to have plans in place with other carriers to handle excess capacity when your primary partner can’t. For example, with USPS. They’ll always be there.
“From a timing standpoint, it’s August and we’re at the start of peak season. If you don’t have alternative capacity agreements in place now, you’ll likely run into sold-out situations.”
This is where multi-carrier shipping solutions come into play. “The concept behind these solutions is simple,” explains Ken. “You integrate once, so your systems are talking to the shipping solution, and the solution interfaces with all the different carriers, so you can add and subtract carriers depending on what you’re trying to do.”
Can 3PLs Help?
Ken explains that 3PLs can be another capacity source within your multi-carrier distribution strategy. “But they have their own capacity agreements and constraints with their carriers, so make sure they have their plans in place as well.”
Ken also points out that while e-commerce may previously have been 5%-10% of a company’s revenue, now it is often 30% to 40%. This makes accurate demand forecasting a critical part of the demand / distribution capacity planning issue. However, e-commerce demand is very volatile and hard to predict. “This is why versatility is so important,” says Ken. “Strong integration of order management, inventory management and distribution planning will help foster versatility.”
With so much current focus on capacity, does cost still matter? Ken says yes, but outlines many other factors that are now critical as well, including avoiding unnecessary costs. In addition, Ken talks about ways technology can help optimize service and profitability. For all of Ken’s insights and advice on those topics and more, I recommend that you watch the full episode. Then keep the conversation going by posting a comment and sharing your own insights and advice.