What is a DIM Factor?

July 5, 2010

Every shipping department and mailroom needs a measuring tape and a scale. The reason is that in order to calculate the correct postage or shipping charges, you have to know the DIM factor.

A DIM Factor is an acronym for Dimensional Weight Factor. It is a mathematical factor for calculating the dimensional weight of a package. UPS, FedEx, DHL, the US Post Office, and some regional carriers use dimensions as a factor in determining the cost to send a package. For example, the USPS has a DIM factor of 1 cubic foot or 12″ x 12″ x 12″. If a package exceeds a cubic foot in volume, instead of the weight of the package, they use the volume of the package to rate it.

Here are the steps for a 12 ” x 12″ x 13″ package:

  1. Multiply 12 x 12 x 13 = 1,872.
  2. Next, divide the total by 194. 1,872/194=9.65.
  3. Round up the result to the next whole number to get the dimensional weight of the package. 9.65 = 10 pounds.
  4. If the dimension exceeds the actual weight, you would use this number to calculate the shipping charges. So, in this case, even if you had a 5 pound box, (which is what happened to me) you will be charged for a 10 pound box.

For more information on how USPS calculates dimensional rate, click http://www.usps.com/prices/USPS_prices_dw_pop.html

For UPS, click http://www.ups.com/content/us/en/resources/prepare/dim_weight.html#How+To+Measure+the+Cubic+Size+of+Your+Package

For the FedEx dimensional weight calculator, click http://fedex.com/be/tools/dimweight.html

For the DHL dimensional weight calculator, click http://www.dhl-usa.com/IntlSvcs/dimweight/dimweight.asp?nav=Inttools/DimWeiCal

The USPS has a different factor than UPS and FedEx for domestic packages. You should compare rates between carriers based on package dimensions. For USPS, if the result exceeds 1,728 inches, you must use the dimensional weight. For UPS and FedEx, if the result exceeds 5,184 inches, you pay the dimensional weight.

Domestic is different than International. Here are the current factors:

  • Domestic you divide by 194
  • International you divide by 166

CEO Wakeup Call! What You Don’t Know About Shipping Can Be Costing You.

March 30, 2010

I know how hard it is to be a CEO; I ran my own company for 20 years. There are so many balls in the air and too little time. It is difficult, if not impossible to take a deep dive in any area. There is a hidden cost that if you don’t know about, will cost your company significantly. It is the cost of shipping. Shipping can be easily masqueraded from your view.

I recently had a CEO tell me that she felt guilty because she was overcharging her customers on shipping. When I took a close look at what was happening in her company and showed her, she was shocked to learn that she was losing $100,000 a year.

Here is what happened.

Many businesses bill their customers for shipping; some even add shipping and handling charges. Most companies will invoice the UPS and FedEx published rates and believe that they are making a profit on shipping because their logistics manager has negotiated a discount with the carrier. This was her case and why she believed she was making a profit.

We looked at her financial statements–the go to place where a CEO judges how the company is doing. On her income statement, there was a revenue line for shipping and it was named, shipping (recouped). The $200,000 listed looked very positive. CEOs love the top line.

I inquired what about this and she told me that it was the profit that they made on shipping. On further examination, we discovered that it was the total amount of revenue (not profit) for shipping that was invoiced. So, when a customer is invoiced for the goods, they also invoiced their customer for shipping and kept track of that amount in their chart of accounts. (This is a good practice; some companies don’t keep track of it separately and it is hidden from inspection.)

We then looked at where the payments to UPS were showing up on her income statement. Those costs were buried in the Cost of Goods Sold.

The total–$300,000.

“How is that possible?” she exclaimed.

She was losing over $100,000 a year on shipping and had no idea.

Stay tuned and you can learn what we discovered.

Nobody Beats My Shipping Rates

February 27, 2010

“I have got the best UPS rates in Manhattan.”

“My FedEx rates are better than anyone in my industry.”

“Nobody can get better DHL international rates than I can.”

“The Vice President of FedEx came to our warehouse and said he couldn’t compete with the rates we are getting from UPS.”

“I saw General Motor’s rates and ours were better.”

“I hired a professional parcel negotiator and he couldn’t do any better. In fact, he asked me if I would negotiate rates for his customers.”

“My UPS rates are better than the Federal Government.”

The above statements are ones that I have heard. The people stating them honestly believe them. Do you?

I don’t.

Over the past 30+ years in this industry, I have made friends with many former FedEx and UPS sales people, pricing managers, and executives.

Here is a secret.

The carrier sales people are trained in negotiation strategies and one tactic is to get you to believe that you already have the best rates.

I found an interesting site where I learned about various negotiation tactics, one of them is called Flattery.

This tactic involves making you look good by telling you how clever and intelligent you are. For example, what a great negotiator you are. It makes you feel good about yourself and puts you in a position where you will want to be a friend with them.

I have heard those lines too.

“My UPS rep is my friend; I couldn’t possibly ask him for more.”

“My FedEx rep is the greatest and really went to bat for me.”

You may indeed be friends with your carrier representatives but are you really getting the best rates possible?

How do you know?

Are you 100% confident that you couldn’t do any better?

And, if you could, let’s say even reduce your shipping costs by 10%, what impact would that have on your organization?

Could you compete more effectively?

Increase profits?

UPS did last quarter; they tripled to their profits and reported a fourth-quarter net income of $757 million dollars.

How did you do in comparison?

If You Ship Items Worth Over $100; This Secret Can Save You Big!

January 31, 2010

Do you ship items worth over $100?

What happens if that item is not delivered and your customer complains?

If you are an Amazon seller, you are bound by Amazon.com’s A-to-Z Guarantee and the money is automatically refunded to the customer. Most likely, you will refund the customer or ship another item, but you lose your profit and bear the costs of your product and the shipping costs.

The US Post Office, UPS, FedEx, and DHL all offer various forms of insurance if your package is lost or damaged. With these carriers a shipment is automatically protected up to $100 for loss or damage, but if you require more protection than you need to declare a higher value for protection. FedEx and UPS call it “Declared Value”. DHL calls theirs “Shipment Value Protection. The US Post Office offers insurance as well.

The formula works pretty much the same even though the rates are different if you have a retail or commercial account.

For example, for customers with Retail Rates, UPS charges $0.90 for each $100.00 (or portion of $100.00) of the total value declared, with a minimum charge of $1.80. If you had a package that was worth $500, you would subtract the $100 that is included and have $400 or 4 units x $0.90 for a cost of $3.60.

If you shipped 10 packages a month of this value, you would be paying $36 just for insurance!

FedEx charges $.70 per $100 of value with a minimum charge of $2.10.

The USPS starts with the first dollar that you declare, has a minimum of $1.75. For $100 package, the cost is $2.25.

Now here is a secret that many eBay sellers and online merchants don’t know. There are third party insurance companies that will insure your packages for 50% less than the carriers charge.

Here are the rates from one third-party insurance provider: (Full Disclosure—I would receive a small referral fee if you use this service)

  • UPS/FedEx Ground $.30 per $100
  • USPS Priority Mail with Delivery Confirmation $.50 per $100

This is a HUGE savings. For a $200 package with FedEx, the cost would be $.60 instead of $2.10—a savings of 71%!

For USPS, that $100 package is only $.50 instead of $2.25, a savings of 78%!

5 Challenges Third Party Logistics (3PL) Companies Face Shipping Parcels

September 30, 2009

Many businesses today have decided to focus on their core competencies. According to Jim Collins, in his book, Good to Great: Why Some Companies Make the Leap… and Others Don’t, companies that are good-to-great companies employ the “Hedgehog Concept” which is based on an understanding of the following:

  • What are you deeply passionate about?
  • What can you be the best in the world at?
  • What drives your economic engine?

If each of the above were circles, the Hedgehog Concept would be at the intersection.

If we bring this concept to warehousing product, fulfillment, and shipping, how many companies could claim to be the best in the world at it? Certainly, a few, like amazon.com or Zappos, are world class; however, many companies choose to outsource this function to a third party logistics company (3PL). A 3PL normally performs all the functions of our warehouse shipper but has some unique requirements. Imagine a warehouse on steroids. 3PL’s often ship thousands of packages a day for many different clients. Some have their warehouses divided for a dedicated section for each client with a separate shipping system in each area, like a mini-storage facility. Others have conveyor belts throughout the warehouse brining the packages to a central shipping area. Almost all of them have multiple shipping stations. Here are few of the problems they face:

  1. Since 3PL’s are shipping packages to their customer’s customers, they often charge the freight to their customers account numbers. A 3PL could have hundreds of different account numbers and they need to make sure that packages are shipped correctly. Some do this by having business rules that receive data from the 3PL information technology system to insure that the correct account number is charged.
  2. Because 3PL’s ship for a wide variety of clients, they receive their shipping files in a wide variety of formats. They may get an excel spreadsheet or a file with addresses to ship to or they may get an entire order file with line items to pick. They need a shipping system that can import orders in many formats. They could be flat files, xml, ODBC, or other formats. Flexibility is critical.
  3. I once spoke to the owner of a 3PL that had over 40 free carrier provided systems. I asked him why he was willing to invest in technology when he had free systems. He told me that it was nearly impossible to keep track of all the data for shipping. Imagine running a $100 million corporation and having to ask your vendors for the data to create a monthly financial statement. He had to ask his carriers how much he was spending and try to compile all the data. He wanted consolidated reporting that would provide him with the information he needed to run his business.
  4. Everything that a 3PL does is tracked so that they can bill their customers, so every shipment needs a job number. And there is no room for errors, so job numbers have to be validated.
  5. Speed is critical; the fewer keystrokes the better. 3PLs want automation so they can process parcels as quickly as possible.

16 Types of Warehouses that Ship Small Parcels with UPS, FedEx, and Other Carriers

September 19, 2009

Warehouses that ship small parcels are different than the other types of shippers that I have discussed so far. They ship a much higher volume of packages, from hundreds to thousands of parcels a day. They can be manufacturers, distributors, or third-party logistics companies (3PL). A 3PL is a company that provides outsourced logistics services (more about 3PL’s in a future post).

Small parcels are packages that weigh less than 150 pounds and are typically shipped with UPS, FedEx, DHL, Regional Carriers ( Lone Star Overnight, Eastern Connection, OnTrac,), and the US Post Office. Parcel shippers may also be Less-Than-Truckload (LTL) shippers or full truckload shippers. The way parcels are processed is very different than LTL shipments. Each parcel has a separate tracking number and label. A LTL shipment is usually a pallet with many boxes and shrink-wrapped. The pallet is shipped as a single unit.

Companies that ship small packages send them directly to consumers (business to consumer or B2C) or to businesses (B2B).

Examples of B2C shippers include the following:

  • books (Amazon.com)
  • apparel and accessories(LandsEnd, Zappos)
  • gift baskets and mail order (Harry and David)
  • sporting goods (Callaway, TaylorMade)
  • electronics (Best Buy)
  • medical supplies (Liberty Medical)
  • computers (Dell, Apple)
  • drugs, vitamins (CVS,GNC)

Examples of B2B include the following:

  • industrial supplies (Grainger)
  • pharmaceuticals (Merk)
  • automotive supplies (Michelin)
  • office supplies (Staples)
  • fasteners, bolts, rivets (Fastenal)
  • electrical components (Westinghouse, Allied)
  • industrial valves (Asco, Kingston)
  • industrial chemicals (Dow, BASF)

Because of the sheer volume of packages that a typical warehouse sends, these shippers tend to be very sophisticated. Throughput and accuracy are the most important attributes that they look for in processing. Features that warehouse shippers look for include the following:

  • Speed
  • Multiple user processing
  • Integration with Enterprise Resource Planning (ERP) or Warehouse Management Systems (WMS)
  • Business rules
  • Error checking
  • Mode optimization
  • Integration with material handling systems, such as conveyors, scales, label printers
  • International processing capabilities
  • Reports

I will be discussing many of these software features in future posts, so stay tuned.

7 Best Practices for Saving Money on Shipping in the Mailroom

September 9, 2009

Corporate mailrooms are not only responsible for incoming and outgoing mail, but FedEx, UPS, USPS, DHL, and couriers. Shipping is very different in a mail center than it is in a warehouse. Shipping managers ship products in cartons or on pallets and the charges are passed on to the customers, so, generally, they don’t worry about budgets. Managers of mailing operations are often frustrated regarding their capacity to control the budget for shipping and mailing expenditures. They are often asked, especially in these economic times, to reduce costs; yet the people that make decisions about how to send an express envelope or choose the service level are not under their control. One of my readers is John Sikorski of Princeton University; he shared 7 of his best practices to save money on shipping in the mailroom. Thank you John!

  1. Education the staff in departments to know which way packages should be sent by holding a shipping seminar for anybody who deals with shipping out packages.
  2. Every time that the university signs a contract with the vendors we do a cost study to see the difference in prices between FedEx, UPS and the USPS.
  3. Establish a cost calculator where staff can go to see which vendor cost less.  We have done this for Federal Express and UPS.  The cost calculator has options that will be true for most of the departments most of time such as Next Day Morning and Afternoon, Second Day Service and Ground Service.  We do mostly commercial address and domestic packages so the shipping calculator is only for the United States.  Within the cost calculator we also put the fuel surcharge that one of the vendors charges the university.
  4. Talk to the vendors to see if there is any new programs that could save money for the university such as flat boxes or envelopes.
  5. Keep informed most vendors have newsletters that are free by e-mail.  I also look for magazine that you can get online they will give you some ideas from other companies and universities.
  6. Join the Postal Customer Council in your area and attend some of meetings that they have during the year to keep up with the changes that occur within the postal service and also networking with the other members at the PCC meet.
  7. Combine all shipments that are going to the same university or college when using UPS in order to save on the shipping cost.