Service Level Optimization Is What Happens When You Target Profit

Luke Kupersmith

March 21, 2019


Service Level Optimization Defined

Service level optimization is a powerful tool for a business that relies on shipping. There are a few opportunities that a lot of businesses who are shipping often have the opportunity to do. In particular, to reduce their shipping costs. To do this, they must approach service level optimization on a tactical level. By that, I mean look at these services:

  • Next day services
  • Second day services
  • Three day services

You are using these within your operation to get your packages to your customers. You must ask yourself the question: "what is the time of transit?" And in particular, what is the number of days in transit that these shipments need to get my customer? Their product makes them happy and fulfills your obligations to that customer.

Helping Businesses Improve their Bottom Line

We find a lot in the hundreds and hundreds of businesses that we work with. And we help on this front and other fronts. Many companies will use next day, two day, three-day services offered by the carriers. They often do this without considering some of the other alternatives. Other ground services can guarantee the same number of days in transit but at a much lesser cost.

Say the carrier has labeled or named a service level as a next day service. That does not mean that it is the only service that can get the package there in one day. Take a look at UPS and FedEx. You will find that they have three service levels within the next day category. You have an early AM, a normal AM, and then a PM delivery time for each of those service levels. Ground will guarantee the next day by the end of the day. So if it's important that a shipment arrived in the early AM, then you do need to pay the premium for that.

If it does need to arrive before noon, you do need to pay the premium for that service. If it needs to arrive by 3 PM or 2 PM, you do need to pay for that. Also, there are shipments that are going via those next day services. As long as it would be fine to arrive by the end of tomorrow and the customer would be completely satisfied. The operation or the business wouldn't be paying a $30, $40, $50, $100 charge for an AM next day service. And otherwise, they could be paying a fraction of that by using their ground service.

Service Level Optimization and Zone Shipping

Not all zone 2 shipments are in fact guaranteed by both UPS and FedEx for next day delivery with their ground service. I'm working through those next day service levels. Then I'm looking at those shipments, asking how many was the true rule for these shipments. I'm looking at your two-day services. They guarantee zones 2 and 3 to arrive within two days. That sometimes means faster than two days with ground service.

Then we are looking at our three days shipments. Currently going by a carrier three-day service, we decide whether the ground service makes sense. It reaches zones 2, 3, and 4 in three days. This happens at a much lesser cost with ground service. It can be a tedious exercise sometimes to go through the data.

Deeper Analysis Required

When doing the analysis, there are lots of tools out there. Lots of companies are out there, Lojistic being one that can help work through an exercise like that. But this depends upon what kind of service level utilization you have right now. It depends on how heavy your current usage of air services is at present. The more you're currently using it, the more opportunity you may have. You can move some of those shipments to ground service. That will get the package there as quick in some cases, even quicker in others. And always at a lesser cost.

First, its problem is identification. It's identifying those shipments that are currently tending to go via air or an express service. They otherwise could arrive in the same number of days or less using ground service. So it's identifying the problem, and then the solution is building a process. Then you can make sure that in the future, those shipments are in fact utilizing a ground service. In particular, when it guarantees the same number of days in transit. That's first about building a process around that.

Then there is the most effective way to manage that business process. That means not depending upon people, the users, to remember to make the right choice. Instead, leveraging shipping software. And there's lots of shipping software out there. It is both carrier-provided as well as third-party software. Lojistic has a solution on that front as well. We make sure that the best decision is a low-cost decision. The fact that it meets the time and transit rule is selected every time.

Facebook Icon Youtube Icon Linkedin Icon Lock Icon Arrow Symbol Arrow Symbol