Groupon says its focus is on the bottom line, rather than top-line growth.
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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.
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.”