Zone Skipping 101: Sortation to Shrink Shipping Costs
Zone skipping has emerged as a logistics strategy with great potential for e-commerce operations, for its ability to reduce shipping costs and increase delivery speed. But how exactly does it generate these returns?
The first step in building a successful zone skipping operation is understanding the fundamentals. This initial installment of a three-part blog series on zone skipping introduces the basics of the strategy and how it drives benefit for e-commerce fulfillment operations.
What is zone skipping?
Zone skipping is a sortation strategy that involves the retailer or e-commerce fulfillment operation taking on sortation steps traditionally reserved for the parcel carrier. Packages are pre-sorted at the fulfillment center rather than by carriers. In a traditional workflow, all shipments are picked up by a carrier, sorted at a local facility, again at a regional hub and once more at the destination facility before final delivery. Zone skipping effectively "skips" several stops between the fulfillment center and delivery to the customer. It involves pre-sorting orders at the fulfillment center, thus avoiding sortation steps by parcel carriers; routing orders directly to a later phase in the shipping process for final delivery to the customer.
How is it a competitive asset for e-commerce operations?
Shipping operations are complex, so why would retailers want to get involved? Simply put, efficient delivery plays such a critical role in meeting customer service expectations and protecting margins that any efficiency gains are very much worth the effort. According to the 2016 UPS Pulse of the Online Shopper study, of the more than 90 percent of buyers who reported abandoning shopping carts, at least half cited unexpectedly high shipping costs as the reason for doing so. Further confirmation that in today's demanding e-commerce climate, speed and low shipping costs are critical to success.
Therefore, every supply chain process must be conducted as efficiently as possible. Otherwise, they cost businesses time and money. Much of the cost savings driven by zone skipping come thanks to reduced transportation costs, as the pre-sorting enables orders to bypass parcel carrier sortation and the associated transportation between carrier hubs. As operations face dimensional weight (DIM) and other pricing pressures, finding ways to reduce dependence on parcel carriers can help keep shipping costs in check.
Zone skipping also saves time, simply by reducing the number of steps required to move an order from the fulfillment center to the final destination. As Amazon, Walmart and other giants battle it out over free two-day shipping and consumers become accustomed to fast and free delivery, cost-effectively saving time is critical to keeping up and protecting margins.
ROI: How do the savings add up?
Operations can expect a savings range of 25-75 percent per parcel with zone skipping. Of course, no two operations are the same, so exact ROI figures vary but a company can completely recoup $1 million spent on a sortation system in less than a year. Assuming a conservative savings estimate of $0.20 per item in shipping costs, multiplied by 200,000 to 500,000 order per week, operations can generate between $40,000 and $100,000 in weekly savings. Furthermore, the benefits of zone skipping extend beyond shipping costs. Faster shipping times can improve customer retention and even help win new online business as consumers comparison shop for the best combination of speed and total cost.
For tips on getting a successful zone skipping operation off the ground, stay tuned for part two of the blog series that will cover implementation. In the meantime, check out the Intelligrated white paper, Zone skipping strategies to reduce e-commerce shipping costs.