February 28, 2008, 12:00 AM

Ship Shape

Retailers are turning to web-enabled systems to help sort through the best options for delivery speed and cost.

With some 4 million packages shipped yearly, online, TV and direct-mail mass merchant ShopNBC routinely chooses from an endless number of shipping options to keep inventory turning, fulfillment costs at a minimum and customers satisfied. “We’re always striving to balance shipping speed with cost efficiency,” says Michael Murray, vice president of operations.

In the process, ShopNBC, a unit of ValueVision Media Inc., is dealing with the challenges facing all direct-to-consumer retailers that must handle a large number of individual orders with varying sizes and destinations. Not only must direct retailers choose the right carrier for the best combination of delivery speed and shipping rates, they also must factor in how each carrier will handle individual orders based on package dimensions and weight.

“The U.S. Postal Service is great and the least costly for most residential packages, but if you’re shipping a 12-by-12 box that weighs ten pounds, you may be better off shipping through another carrier,” says Mark Taylor, chief logistics officer at RedRoller.com, a start-up company that provides an Internet-based application for choosing among multiple carriers based on particular shipping needs.

Last year the Postal Service imposed new dimension-weight pricing for Priority Mail shipping on parcels 1 cubic foot or larger. Other carriers also charge dimension-weight pricing but starting on larger parcels.

As a result of these factors and surcharges to cover the rising cost of fuel along with annual rate increases from major carriers of about 5%, retailers are turning more to web-enabled systems to help them sort through the best options for delivery speed and cost.

Shipping matrix

ShopNBC’s shipping staff constantly monitors an online matrix of shipping options that match each order’s size and delivery time needs with available shipping schedules and rates from multiple carriers. The matrix is part of its web-enabled shipping management system from Kewill Systems Plc that has helped ShopNBC cut the average cost of shipping packages by a matter of cents to a dollar or more, Murray says.

More effective selection of carrier services connected through web services into the Kewill Flagship application along with online visibility into shipment status has resulted in a drop of about 10% in the number of calls into ShopNBC’s contact center. “By making sure we get packages to customers in the same time regardless of whether they live close or far,” Murray says, “we have seen improvements in the number of calls into our contact center asking, ‘Where’s my order?’” That, in turn, has also led to savings in contact center operations as well as more productivity in fulfillment operations, he adds.

Before ShopNBC deployed the shipping management system, managers gathered information from carriers on shipping rates and delivery times and combined them in a spreadsheet matrix with ShopNBC’s own information on product categories, including each category’s average package size, weight and value. The retailer then would decide how to ship different categories based on the best combination of shipping terms for delivery zones matched with the delivery service levels and profit margins for each category.

Micromanaging shipments

But that process offered relatively few shipping options, Murray says. The spreadsheet matrix, based on product and shipping data entered by ShopNBC managers, accommodated only general information on product categories. And it matched product category data against shipping terms available mostly from only two carriers, the U.S. Postal Service and FedEx Corp.’s ground and express services.

“Before Kewill, we could make only broad shipping decisions by global product families,” Murray says. “So we’d have all jewelry ship this way, and all watches ship another way.” In cases where it needed to expedite deliveries to meet customer demand, it typically had to resort to the highest-cost first-class shipping, he adds.

The Kewill system, based on service-oriented architecture that uses web services technology to integrate across multiple databases, is designed to pull information in minute detail from ShopNBC’s databases as well as detailed shipping terms from multiple carriers. The retailer’s new shipping matrix, therefore, provides a larger number of cells for matching particular products against more shipping options.

“We need a system that has a lot of flexibility, and this lets us work with micro-level product data,” Murray says. “For example, jewelry comes in a series of weights, and now we can match a specific weight and package dimensions with a specific delivery zone and choose the best combination of shipping rate and delivery time available from multiple carriers. So an order can get to a customer in the same time but at a lower rate. We couldn’t make those micro-decisions before.”

After negotiating shipping terms with carriers-the Kewill system integrates with the U.S. Postal Service, FedEx, UPS and DHL-ShopNBC worked with Kewill to set up business rules for targeted service levels and shipping costs. As orders come in to ShopNBC.com and a customer chooses standard or expedited shipping, the shipping management system automatically chooses a carrier by matching the best available combination of shipping rates and times for the customer’s delivery zone.

Kewill Flagship starts out at about $25,000 installed on a retailer’s network, though that can rise to $100,000 or more based on a shipper’s number of shipping centers, Kewill says. In ShopNBC’s case, the system was deployed in about three months on its corporate intranet. A typical implementation also involves about a week or more of training for shipping managers. Although ShopNBC says it has realized multiple cost and operating benefits since deploying the Kewill system in 2004, it declines to comment directly on its return on investment. “It has brought significant savings to our shipping bottom line,” Murray says.

In-house approach

While ShopNBC licenses software to manage shipping options, some retailers build in-house systems they can customize to their specific needs, and others choose to concentrate on a single carrier.

CD Universe, a web-only retailer that ships 120,000 small parcels every month, designed a web-enabled shipping management system it routinely updates with new information on carriers’ standard shipping rates as well special rates for remote destinations and fuel surcharges.

“We can always choose among the best shipping options based on updated data,” says Matt Monteleone, chief operating officer.

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