Delivering benchmarks

We aren’t quite sure when the shipping and delivery departments left their modest lodgings in the recesses of the warehouse and entered the boardroom. But we suspect it may have been during the dot-com era, when all of a sudden the consequences of botched order fulfillment became apparent. The rest, as they say, is history: Legions of direct-to-customer businesses reengineered their distribution operations, consulted supply chain pundits, embraced “customer-centric” thinking, installed up-to-the-minute shipping systems, and shopped around for carriers that could actually follow through on promised delivery schedules. In other words, shipping morphed from a simple business function into a strategy offering serious competitive advantages.

This brought about new dilemmas for direct marketers, themselves transformed from single-channel merchants into purveyors of merchandise online, through paper catalogs, in physical stores, on TV, and in various combinations thereof. How were you supposed to treat the impatient, online-savvy customer? Who truly needed the product in 24 hours and who didn’t? How could you provide premium delivery services, satisfy your best customers, and keep your suppliers happy — all without running up shipping costs?

In our in-depth survey of shipping practices, we asked those questions of Multichannel Merchant readers. Their answers confirmed some of our expectations and contradicted others. It is obvious from the respondent profile, for instance, that shipping is now a function controlled at the highest level: More than half (52%) of our respondents are in corporate management. The types of businesses and sales channels they manage are less clear-cut than they used to be. Catalogers, retailers, and e-merchants abound, but so do manufacturers, distributors, wholesalers, consultants, and third-party logistics service providers. As might be expected, the majority of respondents focus on fulfilling orders placed through the Big Three channels — brick-and-mortar stores, Websites, and catalogs — but a significant portion also venture into venues such as events, field sales, jobbers, and online auctions.


Variety, however, doesn’t correlate with company size. Surprisingly, 52% of our respondents worked at companies with less than $10 million in annual sales. Midsize companies are scantily represented: Only 4% of the sample, for instance, reported annual sales of $30 million-$49.9 million. But respondents also clustered at the other end of the spectrum, with 27% going past the $50 million mark.

Given that smaller companies dominate the survey results, we might expect the average annual number of packages shipped to be low, but a full 41% of our respondents shipped more than 50,000 packages a year. Only 16% shipped fewer than 2,500 packages a year. Twenty-five percent of the respondents were spread across a vast range of groups from 5,000 to 49,999 packages annually, and 7% didn’t know or weren’t sure what their annual shipments were, indicating that more accurate measures might be helpful in this area.

The same observation applies to other metrics: 7% of the respondents weren’t sure what the square footage of their distribution center was; 8% didn’t know the average number of SKUs that their operation handled annually; and 14% didn’t know their company’s total annual budget for shipping and shipping-related services.


The data we did obtain show that the average fulfillment center measured 61,898 sq. ft., although more than a third (35%) of the respondents operated DCs smaller than 10,000 sq. ft. On average, 34 full-time and 35 part-time employees worked in the shipping department, which posted a 44-hour workweek on average. The typical shipping operation managed 8,340 SKUs a year; again, however, the numbers skewed toward extremes, with 39% of the respondents handling fewer than 2,500 SKUs annually and 17% managing at least 25,000.

The average annual budget for shipping came in at $1.27 million, but the median figure of $133,333 was probably closer to the actual number, as 40% of the respondents spent less than $150,000 a year on shipping and related functions. More than half (55%) of those surveyed passed shipping and handling costs on to the customer, but an unusually large number (29%) picked up the tab themselves.


Merchandise return rates were low by direct marketing standards. Nearly 80%of the respondents said that fewer than 10% of their orders were returned. For 42% of the total sample, merchandise returns accounted for fewer than 2% of shipments; 21% reported return rates of 2%-3.9%. A mere fraction of the respondents, 6.5%, experienced return rates of 10% or more.

Since the majority of our respondents ran sizable direct-to-customer operations, it came as no surprise that 74% used ground parcel carriers as their primary shipping method. Fewer than 5% of the companies we surveyed shipped via less-than-truckload (LTL), the same percentage that used air express carriers, and just 5% shipped by truckload (TL). The typical fulfillment center used a mix of carriers: United Parcel Service for 42% of packages, the U.S. Postal Service for nearly 26%, FedEx for 22%, DHL for 4%, and other shipping services such as consolidators, local and regional carriers, vendor-supplied shippers, and international carriers for 6.3%.


Other surveys supported our research indicating that the trend toward using an array of carriers, particularly for expedited shipping, is a fast-growing one. For instance, The Colography Group, a transportation consulting firm based in Atlanta, recently reassessed data from its own surveys and reported that between 2000 and 2004, the number of shippers relying on a single carrier declined significantly. In particular, the percentage of ground-parcel-only shippers who used just one carrier dropped from 79% to 69% during that period. Among shippers using two modes of transport, air and ground parcel, reliance on one carrier fell to less than 53% last year from 59% in 2000. Alongside these trends, a reverse pattern is noticeable: The number of ground-parcel-only shippers that use two carriers has been increasing steadily, climbing from 18% of The Colography Group sample in 2000 to 27% in 2004. Predictably enough, air service usage has diversified as well, although more slowly. In 2000, 19% of air-only users relied on two carriers, but in 2004 that number was 22%. During the same four-year period, the number of shippers using air and ground parcel and employing two or more carriers went from nearly 30% to 35%.


The lesson to be learned from this, notes Colography Group president/CEO Ted Scherck, is that the “bundling” of air, surface, and other services that carriers often present as a lure is no longer as attractive as it used to be. Rather than settle for a less-than-optimal package deal, shippers are opting to obtain competitive prices and the precise services they require from a team of providers.

The shipping systems our respondents used were a combination of proprietary (37%), carrier-provided (36%), and off-the-shelf applications (28%), with some modified and cobbled-together elements thrown in. Technology ran the gamut from basic to sophisticated, although only 5% of the sample used state-of-the-art RFID shipping tags. The most common technologies in use were bar coders and scanners (50%) and manifesting systems (40%), followed by returns processing applications (26%), cubing and weighing systems (21%), and transportation management systems (14%).

As might be expected, the level of technological sophistication depended on company size and shipment volume. For example, among respondents whose companies shipped 50,000 or more packages a year, 84% used bar coders and scanners, 68% used manifesting systems, and 30% had installed transportation management systems. In the same group, 22% used high-volume sortation software, compared with only 6% of respondents at companies shipping fewer than 50,000 packages a year.

Although the shipping department may be newly glamorous, it continues to grapple with its share of problems. Only a minuscule 12% of respondents could boast of an error-free order shipment rate of 90% or higher. Order turn — the period between receipt of an order and its shipment — still takes a while: Just 20% of our respondents shipped orders the same day; 37% got them out the next day; and nearly 16% took two days for shipment. Nine percent of respondents admitted to a turn time of four days or more. And there’s more in the problems department. Overall respondents cited cost reduction, deadlines, and accuracy as their top three challenges, way ahead of issues such as cargo theft, terrorism, and equipment accidents.

Staffing and incentives showed up as a prominent challenge (listed as the third largest by shippers with annual package volume of 50,000 or more), hardly a surprise, since wages for shipping staff have barely crept upward in the past few years. According to data on warehousing salaries and wages compiled by the Warehousing Education and Research Council, the median hourly wage for a shipping/receiving clerk has risen only 4.3% a year since 2002, to $12.35 an hour currently, compared with an increase of more than double that for supervisory positions.

On July 28, 2005, Primedia Business Marketing Research e-mailed invitations to participate in a 19-question survey to 6,847 subscribers of Multichannel Merchant selected from the job function categories of corporate/general management (including finance) and operations management (including fulfillment, call center, and customer service). A link was included on the invitation to send respondents directly to the questionnaire. Respondents were offered a chance to be entered into a drawing for one of four $50 gift certificates. A second e-mail was sent on Aug. 3 and a third on Aug. 10 to the same group. By Aug. 17, 155 usable surveys were received, for a response rate of 2.6%, a statistically significant result because of the specialized nature of the sample.

Means and medians were calculated according to standard statistical practices. Results were reported in three categories: companies with annual sales of less than $10 million, of $10 million-$49.9 million, and of $50 million or more. Of the responding companies, 51.6% had revenue of less than $10 million a year; 21.3%, $10 million-$49.9 million; and 27.1%, $50 million or more. Of the survey respondents, 51.6% were in corporate management; 16.1% were in operations management; 7.1% were warehouse managers; and 5.2% were fulfillment managers. The remaining respondents included executives who managed customer service, IT, e-commerce, inventory, and sales. To purchase a copy of the complete study, visit

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