The AOP Category Cost Drivers Series is a new content offering created in partnership with ProcurementIQ.
Today we will uncover the primary cost drivers impacting small parcel services.
The Numbers
The top cost driver in delivering small parcel services are wages (39.7%), which includes both distribution center employees and drivers. Employers of all sizes and in all industries are currently struggling to fill open positions. Add to that the fact that the holidays usually bring a surge in temporary hiring, and procurement is likely to find themselves standing alongside consumers wondering where the drivers and their packages are.
With tough competition for labor, wages may rise somewhat, but the small parcel companies are unlikely to be able to raise wages enough to attract all of the workers they need. In addition to negotiating competitive rates, companies will want to pay close attention to service level agreements, both for the impact they may have on rates and for the ability to ensure deliveries arrive on time.
How to Use this Information
Although the prices paid by procurement are affected by general supply and demand, supplier cost drivers are an important data source. They not only provide procurement with insight into how large or small the savings opportunity is likely to be, they also illustrate the relative efficiency of each prospective supplier’s operation. Procurement can request this information in an RFP and benchmark against their responses, as well as using it as a point of discussion in subsequent negotiations. Once a contract is in place, procurement can track the underlying input costs to support cost reduction negotiations or to understand the validity of supplier cost increase requests and respond appropriately.
Dig Deeper
We have partnered with ProcurementIQ to dig into their treasure trove category intelligence reports, with new insights every Friday. To dig deeper into the small parcel services category, and over 1,000 other indirect spend categories, visit procurementiq.com.
