Everyone knows that Neil Armstrong recognized his first small step on the moon as “a giant leap for mankind.” But when Adrian Dalsey, Larry Hillblom and Robert Lynn launched DHL a few months later, did they have any idea that their “leap” into the world of air express would spur enormous global economic growth, allow medical goods to be delivered more safely, and bring education to the most remote areas of the world, just to name a few?
As the world’s leading logistics company, DHL delivers more than 1,164,000,000 (yes, billion!) parcels a year to more than 220 countries. As business grew to this volume, scope and complexity, it became increasingly difficult to understand costing and profitability. Why? Manual systems and processes were disjointed, and standard costing relied on things like very old time and motion studies. Adding to the complexity, regions, and even countries, did things differently. People couldn’t agree on cost or customer profitability numbers let alone take meaningful action on them. Enter the desire for financial transformation. No small initiative for this global shipping giant.
In a recent conversation, Graeme Aitkin, VP of Business Controlling, talked about the steps DHL Express took. He says, “The reason we rebuilt or redesigned our costing system was simply to bring it into the—well first, the 20th century—and then the 21st century to actually create live links to real operational data. If you think about what DHL does, we move a shipment from A to B, and every step along the way, that shipment gets a scan. The courier scans it when they pick it up. When it goes through any facility, it gets a scan. It goes through hubs. It goes on planes. We deliver it. We probably collect about 150 pieces of information as the shipment moves through our network, and that’s what we wanted to use for costing. But we couldn’t do it the old way.”
That’s why DHL Express created INSIGHT—an advanced costing system that captures the operational data from all those package scans and links it to revenue information such as what the customer was charged and for what kind of service. The data is then linked to cost information to produce a very accurate picture of cost, revenue, and profitability for every shipment. That kind of granular detail gives DHL Express knowledge to make decisions that will improve business outcomes in multiple areas!
DHL Express decided on a big bang approach. As Graeme explains, “The key thing was that we had the trust of the boards. The CEO believes in the project, the CFO believes in the project, and we had the money to continue. ... The original plan was that we would do this country by country and we’d build up to the whole world, but we actually did it the other way. … we did a big bang deployment, we got every country on Day 1.”
That decision has really paid off. According to Graeme, “What we've done with INSIGHT is that we've become pretty brilliant at explaining the recent past. We understand very granular costing and profitability of every shipment, and because it's at the level of the shipment, we can aggregate it up to trade lanes, countries, products, customers, and then we can start to take action on pricing, revenue management, capacity management, and so on. If we have a problem with profit, if we have a problem with cost, we can really be very specific about how we fix it.”
So, what’s possible?
1. Reducing “Failed” Deliveries
Unlike other carriers, DHL Express does not drop packages without a signature to prove delivery. That means some packages—as many as 25% in certain countries—cannot be delivered on the first try. That’s bad for the sender, bad for the recipient, and terrible for DHL who must invest more time, money, and resources with every additional attempt. INSIGHT has allowed the company to work with both shippers and recipients to increase the number of first-time deliveries.
“... We have a service called on-demand delivery. What we now do is if you have a shipment coming, we’ll send you a text message the day before or an e-mail and give you a link to a website where you can tell us what to do with it. So, if you know you won’t be at home tomorrow, you can either tell us to leave it, you can say, ‘Leave with neighbor,’ you can say, ‘Hold it,’ you can say, ‘Deliver it to my office, change the delivery address, on vacation, keep it for week’. So, we just send you a link, and if you respond, we can actually influence what we do with our shipments.” —Graeme Aitken, VP of Business Controlling.
2. Managing Yield
With yield management capability, DHL Express can adjust prices where they have little capacity and offer lower prices when there is more, resulting in a balanced pricing proposition. This allows the company to pass knowledge and cost savings to the customer to save them money while improving service and increasing profitability. The carrier can even recommend another service from within the DHL family when it makes good sense.
“If we have a customer sending very heavy or very odd shape shipments, it can cause big problems on the aircraft. If a customer sends, for example, a shipment which is very long, like say it’s a four-meter long pipe or something, that’s going to take up a huge amount of space on a plane that we cannot use properly because we can’t stack things on top of the pipe. We can’t put normal containers on. So, it could mean that other customers’ business gets less [space] because we’ve got to carry this pipe. So, we can either tell the customer we literally don’t want this anymore, or you’re going to have to pay more, or we can transfer it to another division of DHL. We can keep the business in the family, but we can give it to the division it should be carried in.” —Graeme Aitken, VP of Business Controlling.
3. Forecasting with Confidence
With multiple years of data in the Teradata environment, DHL Express can now begin to make predictions with third-party data. Whether the economy is up or down, the company is now forecasting with better accuracy. They can look at historical data and add in economic indicators and strategic priorities to better manage their budget and revenue/profit plan.
“We have a brilliant view of the past. So, if you extrapolate the past to the future, we should get a pretty accurate indication of where we're going. So, if you build in variables like inflation rates, Brexit, whatever else is happening in the global economy, we should be able to forecast more accurately using the very detailed costing data that we have currently.” Graeme Aitken, VP of Business Controlling.
4. Step by Step
Back in 1969, the entire world knew about Neil Armstrong’s giant leap on the moon. But who knew that at the same time three other men were taking their own giant leaps to invent international shipping—a business that now routinely connects people and businesses across our own globe in ways never before possible