F. Curtis Barry & Company » Freight Costs

Transportation Turmoil

Bob Betke — Wed, 09 Sep 2009 18:00:52 +0000

Just when you thought things couldn’t get any worse, shipping packages becomes a little more uncertain. Certain events are adding confusion to an already unsettling situation. With outbound freight costs representing 6 – 8 % of sales and inbound another 2 – 4 % for domestic and 6 -12 % for imported product, changes to the cost of receiving and delivering product can be a critical factor in determining whether you make a profit this year.

Among the potential issues to be faced are:

The potential elimination of Saturday deliveries by the USPS. The effect on customer behavior is unknown at this point but could affect your operation to meet this change.
A potential strike by UPS aircraft mechanics. Many in the industry today do not remember the chaos of past work stoppages. The requirement to scramble to stay in business when carrier service is interrupted is no small matter and could be a life or death issue for some.
Moving FedEx from under the umbrella of the 1926 Railway Labor Act. If this results in the unionization of FedEx, can rate increases be far behind? Some sources are speculating that the increase could be as high as 30% over current costs.
Wildly fluctuating fuel costs are causing planning difficulties for everyone. Those that charge for deliveries constantly have to revise charges to stay current.
The “Employee Free Choice Act” affecting the degree of difficulty in establishing unions in companies could alter the landscape for some carriers.
Confusing combinations of package carriers that cloud rates and service level options. With all of the changes in carriers over the past few years and the increasing level of complexity required to make carrier decisions, a certain level of uncertainty surrounds carrier decisions.
Accessorial charges that may take a lawyer to accurately interpret. With over 90 different charges that can represent a significant percentage of the total cost of delivering product, a lot of time has to be spent understanding all of the potential charges that might affect your business.

With all of these issues and uncertainties facing us in the very future, we have to devote time to understanding our true freight costs and develop a strategy to control them to the point that they will not drive us out of business.

Bob Betke is vice president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in warehouse and distribution, warehouse management systems, order management systems, call center, inventory management, and benchmarking; Learn more online at: http://www.fcbco.com

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Escalate Retail Delivers Landed Cost Capabilities

Brian Barry — Thu, 30 Jul 2009 14:33:36 +0000

In a recent press release, Escalate Retail has landed a beta site for its newest release. And it’s the direction the application has taken that will really allow multi channel businesses to reach peak efficiency and profitability. Here is an excerpt and one of the most important pieces of the press release:

San Diego – July 13, 2009 — Escalate Retail today announced that Homemakers, Iowa’s largest furniture store, will launch as the Beta partner for the latest Enterprise1 version 12.1 this July. Additionally, Homemakers will upgrade its customer-facing solution by moving to the latest release of Customer1 version 4.2.

Version 12.1 of Enterprise1 provides Homemakers with functionality they can begin using immediately, including:

True landed cost tracking: Provides a breakout of all costs for freight, customs, and more for every item on a purchase order; also tracks that cost throughout the life of the item within Homemakers’ inventory until the item is sold

True landed cost is one of the most important cost aspects that a company can utilize. What is so significant about landed cost? Landed cost will allow you to understand the following:

1. It will allow you to really understand how much freight, duties, agent commission, etc. you are spending to bring in the product, and its true impact on the margin earned.

2. It also allows you to drive at the true net contribution to profit for that item.

3. A company can also utilize the landed cost to determine their buying strategy by understanding whether they can afford to bring in smaller shipments on a more frequent basis, turning the inventory faster and investing less cash in inventory.

I feel that this type of functionality will greatly improve a company’s understanding of product profitability while assisting with the development of a comprehensive inventory strategy. I encourage you to read the rest of the press release and to visit Escalate Retail online at http://www.escalateretail.com

Need help reviewing your inventory strategy, if so we offer inventory assessments for typically $6,500 – designed to be performed quickly with a high ROI and actionable recommendations – click here to learn more.

Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com.

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“SORRY FOR THE DELAY – THANK YOU FOR WAITING”

Curt Barry — Wed, 20 May 2009 15:05:54 +0000

I just had a pleasant experience with a back order from L.L. Bean. How can you have a good experience with something that’s been on backorder for 6 weeks? Well let me tell how.

First the background. On April 1^st, I ordered 5 pairs of chino pants and 1 was on backorder. The CSR told me immediately that the color would not ship until May 15, six (6) weeks later! I liked the color and the price so I let it remain on backorder.

Well guess what? The 4 other pairs came in 2 days shipped for free on my L.L. Bean card and express delivery which is standard. And the back order arrived before May 15^th much to my surprise-I’d forgotten it. Who hasn’t had nothing but disappoint with projecting back order dates arrivals?

But even as important, I found something of real interest printed on the backorder’s order/packing slip. On the line above the item was this message:

“SORRY FOR THE DELAY – THANK YOU FOR WAITING”

It struck me, how many times do we thank customer’s for their patience when we disappoint them? And better yet, how many times do we follow through with the promises we make on backorders? But then, that’s why I always use L.L. Bean as one of the standard bear’s for high customer service.

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Ways to Save Money

Curt Barry — Mon, 11 May 2009 15:30:48 +0000

The following is a brief email that we received from one of our eNewsletter readers, in response to an article we wrote about saving money in your company…

Curt:

Just received your electronic May newsletter and wanted to send you some ways we are saving money.

Cut utility usage
Drop non productive associates
Reduce fulfillment goals from 92% to 85%
Keep 15% of your OTB in your back pocket
Only mail your best customers ( we are thinking of prospecting again this summer )
Drop marginal books
Flow inventory, more smaller orders, more frequently.
Keep margins high, but salt the assortment with redlines for the illusion of markdown.
Offer free personalization instead of a mark down.

We are actually making money on a reduced sales plan.

Hank

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ACCM Tidbits and Opinions

Curt Barry — Mon, 11 May 2009 15:21:51 +0000

ACCM Attendance: The show had about 500-700 attendees from what I could tell. Like many of the shows we have attended this year the number of attendance looked to be down 50% to 80% from prior years. Penton took a bath on both NCOF and ACCM this year. There is a question in my mind about the viability of two independent shows; I know they are two different audiences.

I will say that those who attended appeared to be decision makers. In my speech on dashboards and KPIs more than 75% of the attendees were new to ACCM. Interesting mix of e-commerce and multichannel managers. If you would like a copy of my PowerPoints, e-mail me at cbarry@fcbco.com.

Companies’ Results: As someone said to me, “The new standard is to be only 10% off plan.” I met many where sales were off more than that even when plan wasn’t very aggressive. Companies with unique product offerings are doing far better than companies with stock or open market product. Jack Rosenfeld, Chairman, Potpourri Collection and Sheryl Clark, President, Boston Proper, during the Monday luncheon panel both emphasized the importance of this. And they cited that their apparel businesses were doing well because they were tuned into the customer.

I did meet a number of niche businesses that seemed to be doing better than the average. They struck me as having unique product niche’s and unique marketing approaches. One of them has grown to $200 million in sales in 2008 from being a start up in 2000! What’s interesting to me is that they aren’t catalog or category merchants. They opportunistically market products that they think will sell – they don’t try to fit it under an existing title. They also test product and don’t buy product initially. We can be critical of the customer service/inventory approach but it’s interesting in terms of sales growth and profitability.

Leisure and hobby product companies seemed to be holding their own.

While there are many companies which are losing money, there were comments about people being surprised that more haven’t shut down already.

Many people expressed increased optimism with the improved stock market of the last 5 weeks. I think it’s really important for the leadership of this industry to remain optimistic. Without hope we don’t have anything. Some days I know it’s tough.

One of the largest business to business list brokers told me that many of their clients were doing OK (meaning flat to down 5%) until this past month when business declined further. No idea why last month was out of the norm with the trend.

Prospecting: Many companies are excited about the possibilities of the USPS “summer sale” on postage. My hat’s off to American Catalog Mailer’s Association (ACMA) for the work they have done with the USPS to help them understand the effects the postage increases have negatively had on our industry. Since July 2007 the ACMA estimates catalog mail volume is down 35%. The year-to-date net loss is $2.5 billion for the USPS compared to LY’s $35 million loss. To learn more about what the ACMA is doing for catalog businesses or to join this great association, please visit ACMA’s website, www.catalogmailers.org

Holiday 2009: Companies seem to be delaying Holiday mailing plans to see a few more “economic tea leaves”. Paper and printing seems to be available. It’ll be interesting to see how circulation plans pan up.

Measuring E-commerce promotional response: As we work with clients on our co-developed dashboard and analytical software product (with Taurus Software, Manage Metrix, managemetrix.com), we don’t see companies being very analytical about measuring E-commerce promotional breakeven. Companies are not measuring the profitability of the promotions. I asked this question in a number of ACCM sessions. No one seems to have been motivated to doing this. In my opinion, this should be a priority given that e-commerce marketing is 2% to 15% in our client companies on top of the catalog marketing costs of 25% to 35% of net sales.

That’s my take on ACCM 2009. Did you go? What’s happening in your world?

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15 Ways to Reduce Warehouse Expenses

Jeff Barry — Wed, 08 Apr 2009 14:11:49 +0000

As it appeared in Catalog Success Magazine written by Paul Miller

At the recent NCOF, Curt Barry, president of Richmond, VA-based multichannel operations & fulfillment consultancy F. Curtis Barry & Company, presented “15 Ways to Reduce Warehouse Expenses.” Here is a summary:

Efficient receiving. Inventory accuracy and product flow through the warehouse all start with receiving. The single biggest improvement companies can often make is to develop and implement vendor compliance policies.
Reduce inbound and outbound freight. Outbound freight now exceeds direct labor in many centers. Don’t be too proud to ask consultants to help negotiate new contracts, even if it’s on a gain share basis. Too many dollars are at stake.
Put away. Look to reduce warehouse back orders and “can not finds” which may cost anywhere from 20 to 60 minutes to resolve.
Slotting. Efficiency techniques include “hot pick areas” for fast selling products. The old 80/20 rule holds for product sales.
Order Picking. Reduce the picking time—which is 70% of picking time is walk time in the warehouse—by using the proper approach to fit your business (e.g. singles, cart/bin, batch pick and sort, zone pick, etc.). In many businesses, singles are more then 50% of the pick volume.
Reduce number of replenishments. Hold the equivalent of a week’s unit volume in the forward pick.
Packing. Picking and packing amount to more than 50% of direct labor costs in the warehouse. Put packing supplies adjacent to the stations, and ensure you have the proper number of insert compartments, sufficient table top square footage, and adjustable length stations.
Returns processing. Returns cost more than orders. Eliminate the controllable reasons for returns (e.g. picking errors, copy and art errors, etc.). Streamline the receiving process to get returns processed efficiently and refunds back to the customer quickly.
Inventory Control. Inventory is the largest balance sheet asset in most businesses. Without accurate inventory you can’t have sales or move orders efficiently in the DC. Use aisle mapping (proper location of product without counting) frequently.
Bar code scanning. May be the most underutilized technology in our industry. Maximize its use from dock receiving, to put away, to picking, pack confirmation, shipping, returns processing, inventory control and cycle counting. Speed product and order flow through the center. Increase inventory accuracy to 99.9%.
Effective warehouse layout. Look to increase capacity within the same facility and streamline product and order flow.
Work standards and measurement. You can’t improve that which you haven’t measured. Apply benchmarking principles to set up internal benchmarks. Use external benchmarking to understand what other companies achieve, and for best practice ideas.
Management of labor. Labor is more than 50% of the cost per order for call center and warehouse.
Developing a world-class team. There are 11 key issues you need to resolve, including staff empowerment, delegation, hiring competent people, recruiting and training the person who will take your place eventually, etc.
Use 3rd party logistics. Barry’s clients have used 3PL more in the last two years than in the prior 10. Internal costs have increased to the point where, for many companies, on a total cost per order basis it’s cheaper to use 3PL. Additionally, they avoid having to invest in infrastructure such as warehouses and systems, and have reduced management of fulfillment, call center and IT. They can instead concentrate on the critical areas of marketing and merchandising.

Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and warehouse consulting company. Helping you understand inventory cost savings and warehouse management are just a few of the ways we can help your multichannel business. Please visit FCBCO.com for more information.

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How to Make Vendor Compliance Programs Work For You

Curt Barry — Mon, 02 Mar 2009 08:10:16 +0000

Of all the strategies for reducing costs in your catalog business, vendor compliance programs may be the most underdeveloped. A well-thought-out, formal vendor compliance policy can reduce warehousing and freight costs, speed up order processing, and lead directly to increased customer satisfaction. In order to achieve this it must spell out your requirements and the charge-backs for vendors’ non-compliance.

Without a formal vendor compliance policy, the warehouse has no recourse but to absorb both direct and hidden costs for noncompliance. Without compliance it is impossible for a merchant to implement advanced supply chain systems, ASNs, just-in-time inventory, source marking and ticketing, or RFID programs. A good vendor compliance policy will not only avoid pitfalls but will reduce the time spent dealing with vendor disputes, claims, and charge-backs.

Merchants are sometimes leery that more comprehensive accounting and charge-back policies may upset vendor relationships they’ve worked long and hard to develop. Besides weighing that possibility against the probability that improved vendor compliance will reduce costs and improve customer service over time, you need to consider that a well-defined document in which requirements, expectations and penalties are spelled out will ultimately remove ambiguities, end misunderstandings and result in even better vendor relationships. Anyway, if your vendors are dealing with large retail companies, they are already used to compliance policies.

To Read Full Article

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Free shipping strategies: Merchants weigh in

Curt Barry — Tue, 17 Feb 2009 19:40:59 +0000

Multichannel marketers consider their free shipping offers to be highly strategic and competitive. So when operations consultancy F. Curtis Barry & Company interviewed dozens of direct merchants about their free shipping strategies used this past fall/holiday 2008, few wanted to be quoted directly.

But catalogers and Web retailers have plenty to say on the hot topic of free S&H. Here are some of the observations they shared with F. Curtis Barry & Company about what shipping offers they tried—and how they worked—this past year.

Apparel cataloger (men’s): We use free shipping once or twice per season for our house file rather than for prospecting. It is still effective, but not as much as it once was.

Apparel cataloger (women’s): Our early results in November with free shipping look okay, but not stunning.

Book publisher and gift company: Our company, because of our exclusive merchandise, is looking to raise merchandise prices to be able to afford free shipping.

Gift cataloger: We have traditionally seen a 12%-15% lift vs. a control on free S&H. The September and October drops had no lift. Average order value held. We traditionally ask for a higher AOV to qualify for free S&H. Obviously, this kills profitability. No explanation yet for the results; waiting on accounting to research.

Home decor merchant: We do some free shipping on selected items only. All our tests show a discount of 20% off the merchandise gets us the lift better than free shipping.

Multititle catalog company: We definitely use free shipping. It is a powerful tool, but we saw a dramatic falloff in September and October to our traditional lift in response with free shipping. This is a new phenomenon! We have not had a full accounting of the results yet.

Nonprofit cataloger: We did offer free shipping in September. Results were good, considering the financial climate.

Nonprofit cataloger: We offered a free shipping banner on the front over for all of our catalog drops this year, valid through Dec. 24 and redeemable only via our Website. We also offered free shipping via e-mail blasts, and it is our Web orders that are really below plan. So while I’m sure the free shipping offers secured some of our sales, I question how much it has motivated a new sale—it’s become a commonplace promotion. What I’m afraid of is if you condition the customer to free shipping can you ever stop it without hurting sales? We could not get a reasonable response to our e-mail promotions without a free shipping offer.

This was a snippet from the full article, “Solving the Free Shipping Puzzle”, that is on our website.

Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at www.fcbco.com

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Free Shipping: A Database Marketing Perspective

Curt Barry — Mon, 16 Feb 2009 20:45:23 +0000

Virtually every bit of advertising and promotional material produced by multichannel companies during the holiday season has contained a common phrase: FREE SHIPPING. In preparation for an article that will appear in the February issue of Multichannel Merchant, we tracked hundreds of promotions that arrived in our postal and e-mail mailboxes from August through December, and polled dozens of multichannel businesses on their free shipping strategies. What we found was an unbelievable array of opinions, conditions, restrictions and timetables. What we didn’t find was any kind of consensus on whether free shipping is a strategy that works.

To get a database marketing perspective on free shipping, I interviewed db marketing consultant, Kevin Hillstrom. Hillstrom is president of MineThatData, a consultancy that helps CEOs understand the complex relationship between customers, advertising, products, brands, and channels through a methodology he developed while VP of Database Marketing at Nordstrom, director of Circulation at Eddie Bauer, and manager of Analytical Services at Lands’ End.

Curt Barry: I’ve spoken to dozens of executives from different companies, and they say results of free shipping are all over the place. What’s your experience?

Kevin Hillstrom: Results are all over the place, and are completely dependent upon the customer that the business caters to. Businesses that are trusted get less benefit from free shipping than businesses that are trusted less. Free shipping means more to an online startup that nobody has heard of than it means to L.L. Bean.

CB: What kind of lift do you need for it to be worthwhile?

KH: Free shipping seems to give a 5% to 35% bump in productivity. Depending upon each element of the profit/loss statement, you’ll probably need a 10% to 20% increase in sales in order to make free shipping profitable; and a key point: low gross margin businesses need a much bigger bump in performance to make free shipping work. If you’re running margins in the 15% to 40% range, you need a big bump in performance; if margins are in the 50s or 60s, you don’t need as big a bump. Coming up with pro-forma estimates and measuring actuals is key.

CB: Is there sufficient testing being done to know whether it’s working? What kind of testing?

KH: Not many folks are doing testing. The folks that are doing testing tell me that their business becomes “spikey” when they do on/off free shipping promotions. In other words, in test/control groups, you see that free shipping gives you a +20% when the promo is on, then gives you a -10% when it is not being offered, then goes +20% and -10% again as it is put on/off over and over and over. We train the customer to only buy when free shipping is offered—and therefore, we increase the number of free shipping promotions, further causing these positive/negative spikes. If the test/control group is done over a six or twelve month period of time, we don’t see much of a total increase; in other words, the negative spikes offset the positive ones, yielding little long-term benefit.

Some companies are building shipping/handling into product costs and then offering free shipping. One retailer went from the standard $14.95 shipping to $5 shipping in 2005 and saw a 2-3 month bump, but then, business basically flattened out; that $5 shipping gave a bump in performance that didn’t really hold up over time. One of their competitors increases the price of comparable items $3, then offers free shipping—so when you buy two items, shipping at either company is essentially the same.

CB: Are we conditioning customers to wait for free shipping?

KH: I believe we have conditioned customers to expect promotions. Long-term, I believe the model that offers the most benefit is either free shipping with increased prices, or cheap shipping coupled with free shipping over a certain level. I believe we’ve taken the focus off of merchandise, and that is a really bad thing long-term for catalog/online brands.

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Catalogers Get Small Postal Increase!

Curt Barry — Mon, 16 Feb 2009 15:05:11 +0000

Who do catalogers have to thank for the relatively slight postal rate increase announced yesterday? The American Catalog Mailers Association (ACMA), Hamilton Davidson, ACMA’s Executive Director and their Board of Directors.

Davidson’s initial assessment is that catalogs got a 1% lower increase than levied on other mailers. The average increase in Standard Mail Flat’s is 2.3% while the average rate hike for carrier route flats is 4.3%. What a huge victory compared to the 20% to 40% catalog mailers suffered before!

You know the difference? It was ACMA working with postal management and regulators to:
•   Help them understand the catalog industry
•   Show how absolutely dependent catalogs are on the USPS
•   Understand the need for catalogers to prospect to grow the business
•   Explain how postal increases negatively affect USPS’ volume which is down considerably in the last two years
•   Bring catalog business owners to postal hearings to discuss the effects of postal changes

While Davidson appreciates the pricing news, he points out, “It isn’t curative.” And I’ll add there can be “no free lunch” forever for non-members of ACMA. ACMA is seriously under budgeted for what they need to do in the future with not only postal increases which now can go up annually by CPI and catalog choice type movements. I hope many other catalogs will join ACMA to fund the work of Hamilton Davidson and ACMA. Thanks to everyone that had a hand in this victory!

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F. Curtis Barry & Company » Freight Costs

Transportation Turmoil

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