Have you ever wondered about the logic behind carrier service standards? At times distribution managers scratching their heads at what seems to be irrational standard setting by the carriers. Why do parcels often arrive earlier than the standard days published by the carrier? Well, let’s consider the facts.
First of all, UPS and FedEx Ground each have their own measure of how long it should take to move a parcel from point A to point B. A common misconception is that both carriers have identical standard service. That simply isn’t the case. Standard service does differ between the two carriers. Both use their own discretion in establishing their standards.
Secondly, it is critical to understand the difference between standard and scheduled service. If you thought these two were the same, as the carriers would like you to believe, you are in for another surprise. Standard service is what the carriers publish and are willing to guarantee. Scheduled service is the real world. Scheduled service is how they plan their operation.
It is not uncommon for a parcel to be delivered ‘early’ when compared to standard service when it actually arrived on-time based on the carrier’s operational plan. For example, a carrier plans their operation so it will deliver a parcel from point A to point B in three days, yet they only promise their customers a four-day standard. We are all familiar with that padded approach in the commercial airline industry. Did you ever wonder how a plane can take off thirty minutes late and still arrive “on time”? They arrive on time by building extra time into their service standard. Well, your parcel carriers employ the same strategy of building in slack time when establishing their service matrix. Not bad, if you can get away with it.
Clearly, the ground commercial service guarantee causes carriers to be less aggressive when setting standards. The trend continues, as standards remain much more lenient than scheduled service. Bottom line, neither carrier likes to report poor on time service performance or refund money for parcels delivered late. And why should they? So their solution is to build a “cushion” into some of their published standards. But the inconsistencies cause confusion for many of their customers.
So what’s the big deal? Who cares if the carriers bend the rules a little in their favor? Well, if your company (or your customer) uses a Just-In-Time inventory system, the extra day of slack becomes a big issue when you are trying to fine tune your business model. Consider that nearly 20% of all parcels are scheduled one day earlier than standard. This certainly causes confusion when carrier standard transit times are plugged into high priced, sophisticated supply chain planning software. Is it any wonder companies struggle with planned versus actual inventory variance?
The best way to analyze your situation is to request an outbound ‘lane by lane’ on-time service report from your carrier. Be sure to ask for the report that shows not only the on time percentage, but also the ‘actual versus standard’ number of days by ZIP code(s). ith this information, you can identify the ZIP Codes that are scheduled differently than standard and adjust your planning accordingly. For example, if actual transit time for a particular ZIP code is 3.2 days and the standard is 4 days, then most of the parcels are arriving in 3 days. So plan accordingly.
Another benefit of knowing your carriers detailed actual versus standard service is to provide a comparison between carriers. There is a disparity between UPS and FedEx Ground standard transit times. This is because UPS has a larger distribution network. UPS operates several hundred hubs while FedEx Ground has a little over thirty. If one were to analyze cities where UPS has a hub and FedEx Ground does not, the differences in standard transit times would be more pronounced especially for short-haul lanes. It is safe to say that UPS has tighter standards than FedEx Ground. However, if the comparison were done on scheduled service, the difference would not be as great.
It is high time carriers come clean with their customers and change their standards to reflect scheduled performance. Sure there will be some pain in the process as each carrier works to improve their on-time performance. But if the carriers are serious about their role in the supply chain equation, the time has come for them to accept the operational challenges and back-up their rhetoric by publishing more reliable standards. Come on, UPS and FedEx Ground, give your customers standards that they can take to the bank.
Joe Loughran
Joe Loughran is President of Parcel Rate Solutions and an expert in the parcel industry. Parcel Rate Solutions is a transportation consulting company offering services in Carrier Rate Analysis and Carrier Agreement Analysis. Joe can be reached by phone at (724) 934-0626 or email: loughran@parcelratesolutions.com.