DHL Express is revamping, costing engine to catch up with e-commerce
E-commerce has changed operational, cost, and profit equations for air carriers in recent years. Consider a few ways delivering air freight has changed as a result of the explosion in online purchasing.
Many e-commerce purchases are directed to residences and the typical delivery involves just one shipment. Traditional business-to-business deliveries made by DHL Express typically involve anywhere from six to 50 shipments, which provides cost advantages to the carrier thanks to economies of scale.
The rate of failed deliveries to residential addresses is high and that costs carriers’ lots of time and money. People are typically not home during the day while businesses are usually open all day.
Insight on Insight
The proliferation of data and the capabilities developed to process that data and gain business intelligence from them is one reason DHL Express embarked on developing a global costing engine called Insight—built on the Teradata analytics platform—back in 2009. In an effort to improve the system and to account for the realities of e-commerce, DHL Express is currently updating Insight, a process which will culminate in early 2019.
Insight gathers cost and revenue information about every shipment DHL Express delivers, allowing profitability to be calculated. The system consolidates this data in one place—which is important for deriving actionable information from big data sets—and provides a single version of the truth to everyone in the company that makes use of this type of data.
“Business-to-consumer deliveries involves a different cost algorithm as compared to B2B deliveries,” Graeme Aitken, vice president for business controlling at DHL Express, told an audience at a Teradata conference in Anaheim, California, in October. “B2C involves higher costs and lower revenues yet customers expect fast and free delivery.”
DHL Express has implemented a number of new practices in an effort to better serve e-commerce customers. As a first step, it engineered a data project last year to make sure that it knew if the delivery address was residential or business. (See sidebar.)
Another project the company initiated is called in-demand delivery. “In the case of home deliveries,” Aitken explained, “we send a text or an email and give the customer options.” The first, of course, is to deliver to the residence if the customer is there. The consignee can also sign for the delivery online and have the package left, ask it to be held, or direct it to a neighbor’s house.
DHL Express has made a significant investment in lock boxes that may be located in post offices or supermarkets, where customers can enter a code to retrieve the goods held inside. That’s a trend that’s caught on in Europe, less so in the United States. “But the culture is changing,” said Aitken.
Drive to - Delivery to Autos
In Germany, DHL Express is pioneering consumer deliveries to automobiles. In that case, the company ascertains the location of the vehicle and the DHL driver receives a one-time code that allows him to pop the trunk and place the delivery inside.
“We don’t charge for these services,” noted Aitken. “It benefits us and the customer. We become more efficient and we are able to cut down on delivery failures.” DHL Express’ original Insight effort started in 2009 in an effort to consolidated its fragmented costing systems. Back then each of the 150 countries in the world the company served had a different system, and that included paper systems, Excel spreadsheets, and other software programs. “Insight was our first global comprehensive costing system,” said Aitken. “We were able to switch off an entire suite of legacy apps and achieved downstream savings.”
But the point of the Insight project was less to get rid of legacy systems and more to get at the data that supports pricing and cost management. “More than sunsetting legacy apps,” said Aitken, “we knew that the data was where the value would be coming from.”
Since Insight was inaugurated seven years ago, the number of shipments being handled by DHL Express doubled, straining the processing power of the original system. The company could have decided to add more fire power but decided to go in a different direction.
“We didn’t want to keep throwing processing power on a ten-year old app,” said Aitken. “Instead we took the lessons learned and decided to strip down, redesign, and rebuild the system.”
The new system is being designed to use 70% less data, 50% fewer activities, and 50% less effort. “That’s going to make the new system faster and better,” said Aitken.
Data will be cut down by moving all relevant data into a single global data warehouse, something that would have been impossible seven years ago. The cutback in activities comes from learning the lessons of the older system.
“In 2009 we developed a comprehensive list of activities we thought would be useful,” said Airken. “Since then we realize that some have not been used at all and some activities can be merged.”
The ease of effort comes from completely replacing what proved to be a very clunky third-part user interface in the old system. “If the user experience is bad you tend to lose interest and that impacts data quality,” said Aitken.
Data in the new system will be available on a monthly basis in half the time it took in the old. The new system will also get rid of data—such as for special delivery situations—that do not recur. The new system will also deploy modular algorithms, so that changes made in one area will not have to recalculated for each aspect of the system.
The new system will also be scalable. “That way,” said Aitken, “when our shipments double again, there will no problem with system capacity.”
Ultimately, DHL Express wants to move from reporting about the past to predicting the future. “We want more insight into the impact on the company in light of changes in schedules, pricing, and costs,” said Aitken. “If we are considering a network change, we want to make sure we are making the right investments. If are planning to open a new facility, we want to make sure the business is there to support it.
“Data on shipment costs and profit will enable us to do all sorts of analytics on the company and that data will help us grow the company,” Aitken concluded. “The company that makes the best use of data will be the most successful.”