New shipping options are delivering savings

Guide to E-Commerce Technology

Looking over his shoulder at Amazon, Andreas Katsambas, owner and founder of online music retailer The End Records, knows how difficult it is to run a music products web site. It takes more than an attractive selection of hip CD titles and collector vinyl LPs, it takes great service, he says. “A small company like ours that operates in the same pool as Amazon has to offer as many service options as possible to be competitive,” he says.

TheEndRecords.com processes 150-200 orders a day with a staff of about 10, but until recently its fulfillment and shipment operations slowed its overall operations, cutting into customer service, marketing and the attention a small business needs to build customer relationships and grow.

But now, using a web-hosted e-commerce software suite that integrates with UPS shipping management software, The End Records saves up to two hours a day of processing shipping data and has re-allocated three employees to spend that time developing customer relationships. “In the past, we spent hours every day typing addresses, now we put more time into marketing and refining customer service procedures,” Katsambas says.

An effective shipment-management system, he has found, can mean the difference between a site that struggles to process all of its orders every day, and one that builds customer relationships and revenues. “We’ve been doubling sales in each of the last few years,” Katsambas says.

The shipping services industry, meanwhile, is offering more ways of managing shipments, as UPS and rivals FedEx Corp., DHL Express and the U.S. Postal Service compete with a broad selection of web-based tools that provide retailers more shipment options, including automated methods of printing shipping labels and packing slips, and more ways of tracking shipments. The competitive trend has evolved over the past several years as shipping companies realized they could use value-added services to build loyal customers, industry analysts say.

Free Software

Tom Ryan, transportation analyst at research and analyst firm Aberdeen Group, says carriers were first nudged to offer value-added services several years ago when independent small-parcel rate-comparison services offered shippers the ability to analyze industry shipping rates and delivery options to minimize shipping costs. A shipper based in the Midwest that was considering sending 400 packages to the West Coast via UPS or FedEx, for example, could use such a service to save money by shipping them on a less-than-truckload carrier to Los Angeles, then transferring them to UPS or FedEx for local delivery. Even though they paid UPS or FedEx the higher rate for a shorter distance, the combination of shipping methods saved money, Ryan says.

It didn’t take long for UPS and FedEx to offer clients free software that would help them choose the most cost-effective shipping routes and rates within their respective systems, successfully pushing down demand for the small-parcel shipping comparison services, Ryan says. Now UPS and FedEx, as well as DHL and the Postal Service, have extended their services strategies to offer additional shipment management tools to build customer loyalty.

Positioning for growth

A shipping market in which third-party providers as well as carriers themselves provide additional services is putting retailers in a better position to choose among providers, process orders faster, get volume shipping discounts and increase customer satisfaction that leads to repeat orders, industry experts say.

And while retailers spend less time on mundane shipping chores like re-entering shipping addresses or answering customer calls about shipment status, they’re increasing marketing and customer service. “For retailers that live by small parcels, this is an exciting opportunity to get real savings and position themselves for the next level of growth,” says David Doran, global director of transportation solutions for A.T. Kearney Procurement Solutions, a logistics services unit of consultants A.T. Kearney.

The new tools address one of the biggest headaches that online retailers face—answering questions from customers about when their order will arrive. “The most common question we got before integrating with UPS was, ‘Where’s my order?’” says Donald Cohen, managing partner of Tool King LLC. Questions about shipments used to account for 25% of Tool King’s calls from customers.

Now that customers have online access to UPS shipping information, “it eliminates me from being the middleman between customers and carriers, and it has minimized our number of canceled orders,” Cohen says.

Like The End Records, Tool King has been able to re-focus workers’ time on improving merchandising and customer service. “We were able to redirect our staff into sales-driving activities,” Cohen says. He notes that Tool King, which does 80% of its business through ToolKing.com, the rest through a 10,000-square-foot store near Denver, has been doubling sales for the past two years and is on course to grow to $100 million by 2007.

Integration costs

Reaping the benefits of online shipment management doesn’t come without a price, which can vary depending on the degree of integration a retailer deploys. While some retailers may offer customers just the option to track shipments online, others may decide to integrate shipment data from their order management systems directly into a carrier’s shipment management software, saving the retailer the trouble of re-keying shipping addresses into a shipment management system. And while some retailers may opt for third-party software to manage connections with one or multiple carriers, others, such as CompactAppliance.com, choose to build their own network connections.

The leading carrier services, UPS, FedEx, DHL and the Postal Service, all offer online shipping tools for several basic services, including scheduling pick-ups, viewing rates for routes and services, printing packing slips and shipping labels, automatically verifying shipping addresses, and processing returns. But UPS, FedEx and DHL provide additional services like shipment tracking and integration with third-party shipping and order management software applications. The Postal Service, which has been increasing its range of services in recent years, offers the lowest starting rates for small parcels.

UPS, FedEx and DHL also each have their traditional fortes—UPS in U.S. ground shipments, FedEx in U.S. air shipments and DHL in international shipments—but they’re all trying to match one another in offering customers a full range of shipping options.

DHL made one of the most noticeable changes in the shipping market last year, when it absorbed the ground shipment operations of Airborne Express and established a new U.S.-based web site, DHL-USA.com. Now, in addition to offering several online shipping tools, it promotes its expertise in handling international shipments, including automated figuring of cross-border duties and taxes, as well as domestic ground shipments. On the domestic front, in a deal with the Postal Service called DHL@Home, DHL lets customers schedule online pickups that DHL delivers to a Postal Service distribution center for the final leg of local deliveries; the @Home service is designed to automatically figure a route, including the most advantageously located USPS distribution center, to provide the lowest overall delivery charges, says Martin Mosley, director of small and medium-sized business for DHL Express.

DHL offers a series of web-based services for different sizes of shippers. Its smallest customers, regardless of how much they ship, can use WebShip, a service accessible through DHL-USA.com, to print out web-based shipping labels and arrange for pick-up and deliveries. Shippers can also set up an account to be billed for shipping costs, and they can maintain online customer address lists to avoid having to re-key information for repeat customers, says Bin Shih, director of external customer e-commerce for DHL Express.

Larger retailers—those that process $50,000 or more in shipment volumes per month—may opt for DHL’s SwiftShip service, which shippers can use to integrate DHL’s shipping applications over the web with their own enterprise software. The SwiftShip service coordinates with online order management to provide shippers with real-time shipment rates, shipping commitments, tracking numbers and shipping label images for printing. DHL provides the system integration, which can take up to a month, at no extra charge above shipping rates, Shih says, adding that DHL will also provide two to three hours of employee training.

The differences

UPS and FedEx, already formidable competitors, are making their own plays to expand their holds on the shipping market. UPS, for example, has more than 90 software and services partners that link order management and other business software into UPS Online Shipping Tools. FedEx has built a reputation for handling unusually large delivery products, such as when it arranged with Amazon.com Inc. to ship 250,000 Harry Potter books in a single day last year.

FedEx offers web-based shipping services through its FedEx Insight, Ship Manager and Global Trade Manager programs. Insight is a hosted application that lets shippers view the status of shipments without needing a tracking number; they just enter either a shipping account number or company name and address. Insight also provides automated alerts through e-mail, fax or wireless transactions regarding delays or missed deliveries. Ship Manager and Global Trade Manager are more complete software packages that include shipment tracking, scheduling, invoice payments, shipment label printing and information on cross-border duties and taxes.

Online retailers can also integrate Ship Manager and Global Trade Manager with their order management systems—an option that quickens the processing of shipping labels, says Russ Fleming, director of marketing for FedEx.com.

FedEx recently acquired Parcel Direct, a shipping consolidator that picks up packages from retailers and forwards them to the Postal Service for local delivery.

The Postal Service lets retail shippers schedule package pickups online as part of its Click-N-Ship service at USPS.com. A postal carrier will then pick up the packages at the scheduled time to bring to a local Post Office for shipment. Its Click-N-Ship service also lets retailers calculate shipments for individual packages, then print out shipping labels.

The Postal Service also provides alternatives for getting lower shipping rates. Under its Parcel Select program, a retailer can drop off packages for shipment at different points along the mail stream, the closer to the final delivery point, the lower the shipping rate. Locations of drop-off points can be found on USPS.com.

One? Or more?

The choice to use one or more shipping providers varies by retailer. The End Records uses a hosted e-commerce software suite from NetSuite Inc. that integrates its order management application directly with shipping software running on UPS servers. When customers enter their shipping addresses on TheEndRecords.com, their information is automatically entered into UPS’s shipment management software. That not only saves Katsambas’ staff from spending hours re-entering shipping addresses and other information into a shipping application, but it also provides for more accurate data, cutting down on the need to find misplaced orders or to correct inaccurate invoices.

After customers click a button to choose their preferred delivery option, The End Records is able to print out packing slips and shipping labels simultaneously on single sheets. The forms, printed with the exact address information entered by customers and accurate shipping and product prices, are designed to let employees easily separate the shipping label portion for applying to the outside of a package, while the remaining packing slip, or customer invoice, is placed inside the package. “The system lets us process orders faster, so we can do more per day and get better volume discounts that we pass on to customers,” Katsambas says.

The NetSuite shipping application, UPS Shipping Integration operates with NetSuite’s e-commerce software platform. The annual subscription to NetSuite ranges from $1,200 to $10,000. In a new version of the shipping module, retailers will be able to enter account numbers for multiple warehouses, so that online orders will automatically configure shipping labels for the most appropriate warehouse based on a customer’s requested product and ship-to location, says NetSuite senior product manager Baruch Goldwasser. NetSuite expects to develop similar modules to integrate with other carrier services, he adds.

Tying to Drop Shippers

While The End Records uses a turnkey system from NetSuite and UPS, the larger Tool King opted to use its IT department to modify a $200,000 Microsoft Great Plains e-commerce software platform to integrate its order management application with UPS and several vendors who provide drop-shipping to online customers. The drop-shippers, who also use UPS, have access to Tool King’s online orders and integrated UPS shipping rate and routing information.

As customers place online orders, their information is integrated with UPS shipping rate data and automatically forwarded to drop-shippers as well as to Tool King’s own fulfillment center, saving Tool King the trouble of e-mailing, calling or faxing web orders to UPS and its suppliers. Customers, in turn, receive automated e-mail order confirmations and, once their order is shipped, e-mail shipment notices with a link for tracking the shipment through UPS.

Cohen says that Tool King, which began using online connections with UPS in June, expects to save 20% of its freight costs over the long term and earn back the cost of integrating with UPS within 18 months. “It has led to higher customer satisfaction, which leads to increased business,” Cohen says.

Beyond price

Cohen notes that the services offered by shipping companies have persuaded him to go beyond looking for the lowest shipping rates to see how a carrier can help him better operate his business. “A lot of shippers get too enamored by rates, but that’s not the most significant issue,” he says. “What’s more important is the overall relationship with a carrier and their value-added services.”

Tool King has benefited from on-site visits from UPS managers, for example, who advise on how to better pack shipments to get maximum protection at the lowest weight, and the carrier has provided equipment at no extra charge to increase automation during fulfillment. Shipping computers, for instance, used to require Tool King workers to weigh a ready-to-ship package, then physically enter the weight information into a UPS software application to produce an invoice and shipping label.

Now Tool King uses a scale provided by UPS at no charge that integrates with Tool King’s order management software and a UPS rate calculator sitting on Tool King’s server. The system forwards the order over the web to UPS and generates a packing slip and shipping label that Tool King workers can print out from a web-connected computer in the fulfillment center.

Tool King is also relying on UPS, with its automated figuring of international duties and taxes, for handling international shipments to 14 European countries and markets in Africa and Asia, Cohen says.

As Tool King moves toward its target of $100 million in sales by 2007, it will also be doubling over the next six months its number of online SKUs to 14,000 from 7,000 today, Cohen says. To handle that rapid growth, Tool King will shift more fulfillment and shipping management operations to its outsourcing relationship with UPS, Cohen says. Tool King currently hands over about 10% of its online orders to the outsourcing service, which fulfills orders and ships from UPS warehouses.

Because all parties to shipment operations—suppliers, carriers, retailers and consumers—stand to gain from increased visibility and efficiency, getting all parties to cooperate is not difficult with web technology tying everyone together, says Cohen. “The Internet is a great distribution channel,” he says, “but you’re limited by what you pay for things and what you sell them for. So in the middle is how efficient you can operate to show a profit. Being more efficient with shipping and spending less can help everybody be more competitive.”

paul@verticalwebmedia.com