Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing

CHAPTER NINETEEN

Getting the Best Small Package Rates

SMALL PACKAGE, small parcel, letters, overnight, expedited—while referred to by many names, it is a common spend category present in almost every type of business. On the surface, small-parcel shipments do not appear to be a very complex category to source, primarily because there is a limited number of suppliers. FedEx and United Parcel Service (UPS) ship the majority of expedited packages, while the U.S. Postal Service, couriers, and smaller regional players serve the rest of the market.

The limited supply base creates several challenges when sourcing this category. First, purchasing and logistics managers often view the Big Two as being equal in terms of service and price, thereby oversimplifying proposal analysis and overlooking large segments of cost and quality improvement opportunities. Second, in such a small market, carriers know exactly what their competitors can and do offer, and know how to tailor their proposals to appear advantageous in comparison to the competition. Third, limited competition makes negotiations and achieving cost reductions difficult. The Big Two have nearly identical playbooks when it comes to negotiations, including shifting the focus of discussion onto service while downplaying the importance of price, stalling or delaying discussions to get the pressure of time on their side, and utilizing their chains of command to delay and add confusion to cost discussions.

This chapter provides an overview ...