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At a glance
- Shipping rules of thumb like “default to standard ground” work most of the time; the orders they get wrong overspend quietly, and no report shows it.
- Rithum Delivery Solutions rate-shops every dropship order across a retailer’s available carriers and methods, then sends the optimal recommendation with the order so the supplier ships what it says.
- According to Rithum data, retailers using Shipping Optimization save an average of 10% on third-party shipping costs, on top of negotiated carrier discounts.
Most retailers use a shipping solution to optimize the shipping of orders for their 1P business, where the products are owned by them and shipped from their distribution centers or stores. Optimizing shipping is much more difficult when leveraging suppliers for dropshipping. Across the supplier base there are many warehouses with ever-changing inventory. Most retailers do not have the ability to maintain accurate inventory information for each supplier warehouse and sometimes they do not even know where all the warehouses are located. Further, each supplier may package orders in a myriad of box sizes.
Without insight into this additional data, it is difficult for rate-shopping software to make accurate recommendations. Retailers may therefore defer the decision to the supplier with prescribed rules of thumb like “default to standard ground” or “use economical ground under a set weight.” For suppliers this is complicated by each retailer having different rules and having to manage the complexity of complying with the directives under the pressures to ship faster and facing penalties for non-compliance.
Retailers rely on rules of thumb for three reasons, and all three are inaccurate.
Assumption 1: “It works most of the time”
Rules of thumb do work a good percentage of the time. They just don’t work all the time. Destination, delivery distance, destination characteristics (like a commercial or residential address, or a rural delivery), delivery due date, parcel size and weight, and dimensional weight affect the cost of every shipment. Each of these change from one order to the next. One rule can’t be optimal across all of them at once, guaranteeing that some shipments will use a method that is overpriced for their delivery.
There is savings from identifying each instance where the rule of thumb is wrong and making a better decision.
Assumption 2: “It is the simplest way for our suppliers”
While a rule of thumb seems like a good compromise between the retailer and supplier when making shipping decisions, it lacks precision and results in overspending and a punitive relationship between retailer and supplier. For suppliers with broad assortments, it provides an easy way to decide how to ship. Suppliers with one product type rely on the assumption that every box should ship identically.
However, suppliers do not ship for just one retailer. Balancing the different shipping requirements and rules for each retailer is complex, leading to frequent shipping non-compliance. Retailers then spend precious time identifying shipping non-compliance while suppliers spend time defending their shipping decisions. When penalties are assessed, it is frustrating for both sides and erodes the relationship.
Assumption 3: “There isn’t much savings left to find”
This is the most expensive assumption of the three. Potential savings stay invisible precisely because no one evaluates orders individually. In practice, the rule gets it right on some orders and overspends on the rest. No report shows it, so no one goes looking for it.
But overspend is measurable. Pull a month of orders and compare what each shipment cost against the cheapest option that could have met the delivery date. Total the gap between the actual and optimal shipment method for each order, and you will see the rule’s real price.
Why retailers can’t fix this alone
Retailers can’t fix what they can’t see. They lack the visibility needed to accurately determine all of the components that will affect a shipments price and/or the ability to prescribe order-by-order instructions. Instead, they rely on the rule of thumb, allowing the supplier to choose how an order ships. Suppliers must follow the rule of thumb or face penalties, and they do, even when a cheaper method is sitting right there. The retailer pays for every one of those orders.
Retailers do audit shipments to compare costs and reduce the costs of shipping focused on orders that have triggered carrier penalties or whose price seems unusually high. The retailers verify if the supplier has followed the rule of thumb but has no visibility if it was the least expensive method.
Switching or adding carriers does not easily solve this issue either. Retailers must negotiate rates with each new carrier and ensure suppliers can support the new shipping method.
Send the recommendation with the order
Rithum Delivery Solutions can do the analysis to provide an optimal recommendation on every order. The recommendation travels with the order, and the supplier ships what it says.
That one change solves three problems at once.
Cross-carrier savings. Rithum rate-shops every order across all available carriers and methods for a retailer and finds savings a supplier-led decision can’t. Each order gets the lowest-cost option from the carrier best positioned to meet the customer commitment, based on real-time delivery and cost estimates leveraging the actual retailer negotiated rates. Because the decision is based on obtaining actual package shipment estimates, not just shipment weight, the analysis can be used within a single carrier’s shipping methods or across carriers and shipping methods. That’s a multi-carrier shipping strategy applied order-by-order instead of a single carrier strategy using a rule based on generalities. And because shipping decisions can also take delivery estimates into consideration, reducing cost doesn’t come at the customer’s expense.
Reduced supplier burden. Applying the optimal method directly on the order before it is sent to suppliers eliminates the suppliers decisioning step. Suppliers no longer need to weigh each order to decide how to ship because they can trust the order to have the correct method already determined.
Compliance built in. Rithum captures the recommended, supplier-reported, and carrier-actual ship methods with every order, allowing retailers to evaluate supplier compliance more easily and on multiple metrics such as ship method compliance, ship-from warehouse alignment, and processing time. Using Rithum’s built-in tools, retailers can assess compliance for more than just expensive outliers, and work with suppliers to achieve savings using straightforward order-by-order data.
Rate shopping compounds retailer negotiated rates
Negotiated discount with carriers reduce shipping costs and it applies to every order. But a discount only lowers the price of whatever shipping method the supplier uses. It can’t get the supplier to use a cheaper one but a order specific recommendation can. The savings add up on every order. According to Rithum data, retailers using Shipping Optimization save an average of 10% on their third-party shipping costs.
Rules of thumb made sense when order-level decisions weren’t possible. They are now.
Ready to see what your orders would save? Talk to our team.
Shipping cost is only one side of dropship delivery; the promise date shoppers see before they buy is the other. Rithum’s Delivery Promise, another part of the Delivery Solutions product set, uses predictive machine learning to sharpen those delivery dates, with a measured conversion lift of up to 18% for each day removed from the promise date. Read how AI improves Delivery Promise accuracy.
