|Technology and competition put retailers in the delivery service driver`s seat
By Paul Demery
Since acquiring direct-from-grower flower retailer Calyx & Corolla two years ago, The Vermont Teddy Bear Co. has shifted the floral unit’s delivery strategy away from an exclusive focus on Fedex Corp. But now, with a new focus instead on UPS, it’s working to bring back Fedex as well as open the door to other carriers.|
If it all sounds a bit confusing, it’s because shipping for direct-to-consumer retailers is more complicated than ever. Fuel and other transportation costs are rising, competition among retailers is increasing, and consumers’ expectations for fast, inexpensive delivery are a lot higher than they were a few years ago.
“It’s amazing how expensive it is to ship nowadays,” Rick Coon, application integration manager for Vermont Teddy Bear, says. “It used to be like nothing. Now the costs can change daily. It’s crazy.”
Pressure in the delivery services market even pushed a few providers out of business earlier this year, including APX Logistics and DDU Express, which specialized in consolidating shipments and forwarding them to the U.S. Postal Service for local delivery or customer pick-up.
But there are positive developments as well. For one thing, the Postal Service has worked with UPS, Fedex Corp. and DHL to pick up the slack left by the fallen consolidators, says Jim Cochrane, manager of package services at U.S.P.S.
The combination of Internet-based shipping management technology and expanded service offerings from carriers, meanwhile, is presenting more options for retailers’ shipping managers—a reflection of the fact that competition among carriers is as strong as ever. “When you’re shipping with UPS, Fedex is always knocking at your door, and when you’re shipping with Fedex, UPS is always knocking,” Coon says. “So when one comes knocking at the door with a better deal, we want to be ready to go.”
Switching back and forth among carriers has never been easy, however. Indeed, carriers have been offering web-based shipping management tools, backed by streamlined service and priority rates, as a way to lock in retailers as shipping customers. The general understanding is that the best deals go to the steadiest shipping customers.
But Coon and Vermont Teddy Bear are trying to change that protocol with help from a third-party, web-based shipping management system and from the rival carriers themselves.
The web is putting some shippers more in the driver’s seat when it comes to haggling over carrier rates and contracts and increasing customer loyalty by providing shoppers with near real-time visibility into delivery status. And with more control and visibility, direct-to-consumer retailers can more effectively hit their targets for customer service and profit margins, experts say. “One aspect of that control with web-based systems is that retailers can pull it off with planned margins,” says Greg Aimi, logistics analyst with AMR Research Inc.
No more dial-up
When Vermont Teddy Bear acquired Calyx & Corolla about two years ago, the flower retailer’s shipping system was tied into Fedex as its main carrier, which went against Vermont Teddy Bear’s shipping policies, Coon says. “Vermont Teddy Bear has been a carrier-independent company as much as we possibly can, so the Calyx & Corolla model didn’t fit into the way we do it,” he says.
The older system had required each of Calyx & Corolla’s 19 flower growers to use modems to dial separately into the retailer’s order management system, select the orders intended for them, then build a file within their PCs that used an embedded Fedex software application to print out shipping labels. While leading technology for its time, that system was slow and labor-intensive by today’s standards, creating problems for an industry that relies on shipping fresh flowers quickly before they wilt, Coon says.
Today, Calyx & Corolla is using the Flagship shipping management system from U.K.-based Kewill Systems plc in conjunction with an Internet networking management application from Citrix Systems Inc. and an Avexxis Corp. order management system. Sitting on a Vermont Teddy Bear web server, the Flagship system is designed to manage daily volumes of 1,000 to over 300,000 parcels, says Ric Zaenglein, director of marketing for Kewill.
Now all of Calyx & Corolla’s 19 growers can use Citrix from any Internet access device to log into the Avexxis order management application, where they request all of their current orders and forward them to networked printers to produce order-picking sheets. The Avexxis application forwards the orders to the Flagship system, which lets the growers print out shipping labels and maintains records of shipping documents and costs.
Other ways to cut costs
UPS, with its UPS Ready program, has been the most aggressive at providing connections between its server and Kewill’s Flagship server, so UPS tends to be the first carrier accessed by Flagship users, Zaenglein says. Kewill and Vermont Teddy Bear are currently working with Fedex to also connect its shipping management system server to Flagship, and Coon says Vermont Teddy Bear expects to also build connections with carrier DHL.
As the additional carriers are connected to Flagship, Coon says, the Calyx & Corolla growers will then be able to engage in rate shopping.
But rate shopping isn’t the only way to cut overall shipping costs through web-based shipping management systems. Calyx & Corolla is already saving operating costs in several areas, Coon says. It no longer has to maintain a costly system of dedicated PCs and modems at each flower grower to support the old Fedex system, and the Flagship application can be set up with business rules supported by web-technology integration that automatically routes deliveries to the best mix of speed and cost.
Calyx & Corolla prefers to send all orders via “next-day air saver” schedules, which offer a better combination of delivery times and rates than the faster and more costly next-day air schedules. But schedules change, and next-day air saver deliveries are not always available. So under its old system, the flower retailer relied more often on the pricier next-day air to assure expedient deliveries, Coon says.
Now, with the benefit of web-integration technology that can automatically pull information from address and shipment databases, the Flagship system lets the retailer process virtually all orders for “saver” shipments, and automatically re-send them through the higher-priced delivery method only when it detects that the ZIP code of the intended destination is not scheduled for a “saver” air delivery service.
“Using next-day air saver instead of next-day air is a huge cost savings for both us and customers,” Coon says.
Vermont Teddy Bear, which had $41 million in 2005 sales, didn’t reveal the cost of its Kewill Flagship system. But the Flagship’s cost generally starts at a licensing fee of about $25,000 and can go as high as $250,000 based on the shipper’s number of distribution centers and carriers and its global reach of deliveries, Zaenglein says.
Although the Flagship system has been considered ideal for Calyx & Corolla and its fresh flowers, Vermont Teddy Bear plans to roll it out for all of its operating units, including VermonTeddyBear.com, Tastygram.com and Pajamagram.com, Coon says. “Our vision is that every line of business will use Flagship to support shipping,” he says. “One of the objectives is not to be tied to any carrier. If Fedex offers us a better level of service on any day, we want to be ready to go with them.”
Delivering for small retailers
While larger retailers can streamline their shipping management with web-enabled systems from providers like Kewill and Pitney Bowes, which offers the web-based Ascent Multi-Carrier Package Management application, there are lower-cost options for retailers looking to benefit from streamlined shipping management without all the bells and whistles of rate-shopping and other features. Toy retailer Kazoo & Co., for instance, has realized a 99% accuracy rate in shipments, up from about 95%, since implementing the World Ship shipping management system from UPS over a year ago, says president and owner Diana Nelson.
Kazoo, which operates one store at its base in Denver, does most of its sales through KazooToys.com, which sits on a Yahoo Stores platform and does under $5 million a year in sales. Specializing in selling items not typically found in toy stores, Kazoo has been growing at an annual rate of over 200% for the past few years, but, like many small retailers, it has struggled with the chore of re-keying customer data from its order management system into its shipping system, resulting in extra labor costs and order inaccuracies, Nelson says.
The World Ship system is directly integrated with the Yahoo Stores platform, which lets Kazoo electronically transfer its online customer orders within seconds directly into World Ship, Nelson says. “We don’t have to re-enter names and addresses, and it saves us a lot of time,” she says. Customer testimonials linked from KazooToys.com’s home page applaud the retailer’s delivery service.
Kazoo formerly handled shipping duties with a shipping manager and three shift crews of 5-6 employees each, but since deploying the UPS World Ship system early last year has been able to cut the size of its crews to only 2-3 employees, Nelson says.