The following memo was dispersed recently at one of our nation's best known clothing manufacturers:
To: All Employees
From: Florence, in Sourcing
Subject: Missing samples
We are looking for a package of bra samples from Hong Kong. It arrived in our mailroom last week, but no one can find it now. We needed it "yesterday!" Please look around your offices and call ASAP when found. Thanks.
This situation occurs everyday, in every business. Clothing samples are often worth $1,000 or more, and the time to replace them is four to six weeks. Even worse, valuable manufacturing and marketing time is also lost in this highly competitive industry.
Time = $$$$
As the speed of business has accelerated, and with the use of overnight deliveries steadily increasing, the problem of misplaced parcels, mail, faxes, and files is more critical than ever. Just ask the mail services manager in a New York law firm, where one critical document couldn't be located to close an initial public offering (IPO) scheduled for a Friday morning. Bombings in the Middle East over the weekend caused the stock market to plummet, and the IPO was put on hold. The cash dependent, though highly promising, high technology firm, finally went public one month later at 20% below the original planned offering price.
This is not an unusual scenario, and it doesn't stop at the mailroom or reception desk. Every day, banks scramble to get deposits into the Federal Reserve before deadlines when interest rates drop, and before the 4 PM cutoff for same day credit. Delayed deposits cost banks their customers' goodwill, and sometimes, interest which is paid to placate them. When investment companies receive client's checks, sometimes for $1 million or more, they must be deposited immediately or interest income is lost. Misplaced and delayed documents often keep funds out of play. One stockbroker tells about a frustrating situation when funds in a large trust were locked out of a bull market for several weeks because one key document had been misplaced.
How often is delivery of parcels and documents significantly delayed in-house, after they are signed-off by receptionists and mailroom personnel? A study conducted by bar code research firm, Data Capture Institute, concludes that companies receiving 100 or more parcels and overnight packets per day will misplace or experience in-house delivery delays with 2.5% of them. (In smaller companies that number decreases to 2%. When companies of any size are located at multiple sites, the number increases to 3%.) In other words, if your company receives 500 parcels per week, on average, or 26,000 per year, 650 of them will be delayed or misplaced long enough to cause concern plus cost in personnel time. If we assume that 50% of those parcels are of little consequence, it still leaves 325 that are of great value in terms of lost opportunity time and real dollars.
Below are some of the items respondents to the study reported missing for a day or longer:
Hard vs. Soft Dollars
- Checks, letters of credit, money transfers
- Insurance premiums, applications, and medical reports
- Contracts, financial filing documents, time-sensitive documents requiring signature, closing documents, records and data output
- Computer equipment, supplies, printed materials, meeting materials, airline tickets, audio-visual equipment
- Irreplacable contract valued at $1 million misplaced for six months
- Super Bowl tickets
Not all losses associated with misplaced parcels and documents are hard dollars. In the hospitality industry, for example, customer goodwill is on the line with every box of meeting materials not located in time for a meeting or presentation. When a hotel embarrasses a customer in front of his customers, the hotel's soft cost is a bad reputation, while the hard cost is the meeting revenue which is often written-off in an attempt to recoup goodwill.
In the insurance industry, timely processing of applications, which may consist of five seperate documents arriving from various locations, is a key to customer service, especially with group applications where the inability to provide summary plan descriptions in a timely manner may result in the loss of a lucrative account. One insurance agent tells of his "horror show" experience when the 401K kits which he had shipped ahead to his client's offices, for distribution to a large corporate group, had slipped into "no-man's land" in that office and couldn't be located on the morning of the meeting. Dozens of executives who had blocked out the morning had to be rescheduled.
Roughly 15% of all radiology X-ray film is lost or misplaced in hospitals each year. Seventy percent of all diagnoses using radiology images are X-ray, and some are extremely time-sensitive. When surgery is scheduled and X-rays cannot be immediately located, they must be redone. Third-party payors and hospitals must bear the cost.
How are most companies currently keeping track of parcels, files and documents? Fifty of the 60 Fortune 500 companies in the study, with a daily inbounding of 50-800 parcels, and as many as 32 sites, are using the paper and clipboard method. Seven are working from a shipping manifest. Three of the 60 utilize a full-blown tracking system.
High Cost Of Inefficiency
The cost of inefficiency is easiest to measure as time lost while searching for misplaced documents and parcels and the laborious task of logging inbounding parcels. Let's go back to the study. Of the 325 delayed and misplaced parcels, we'll estimate that a minimum of one hour, on average, is spent searching for each. (According to the study, this is a conservative figure.) The search is conducted by mailroom personnel who are often joined
by secretarial staff. Both must interrupt their regular duties. In addition, respondents to the study indicated that it takes two people approximately two hours each day to log-in 100 parcels.
Time required to look for misplaced documents & parcels:
225 hours @ $10/hr. (mailroom personnel) $2,250
100 hours @ $16/hr. (secretarial personnel) $1,600
Time to log-in parcels:
20 hrs/week x $10 x 52 weeks $10,400
Time saved per week with tracking system:
12.5 hours search time
17.5 hours for log-in*
Total time saved each week 30 hours
* This assumes that at 100 parcels per day, the time to inbound the parcels is reduced to 30 minutes.
Many respondents to the study cited the huge increase in overnight deliveries as necessitating the hiring of additional mail services staff. With the gain of the 17.5 hours required for log-in, as well as time gained from search interruptions, at least one additional employee won't need to be hired as deliveries increase.
Additional employee $20,000 + benefits
Total cost savings for more efficient operation $34,250
Other costs of inefficiency due to misplaced documents and parcels are more difficult to calculate but are no less real. These costs, which were alluded to earlier, fall roughly into two categories: hard costs and lost opportunity costs. Each company must calculate these costs independently, as they vary depending upon the type of business and the in-house tracking methods currently in place.
Lost Opportunity Costs
Client goodwill and customer service
Decreased interest earnings
Delays in operations due to misplaced equipment, supplies, forms, etc.
Time, to manufacture, sell, service, implement, etc.
Delays in shipping and invoicing
Revenue written off for goodwill
Interest paid out to clients
Penalties and late charges incurred
Checks covered for missing Federal Reserve deadline
Replacement of software, hardware, and other supplies
Rescheduling of airline reservations
Reprinting of time-sensitive meeting materials
Covering Their Tracks
Another type of cost is the failure to recognize the slow trickle or pattern of lost opportunity which, over time, creates a deterioration in a company's reputation as well as its bottom line. One respondent to the study was a managing partner of a prestigeous Boston law firm. His response to the telephone interview was to state emphatically that nothing is ever misplaced at his firm. "I can count on one hand the number of times things have been misplaced in the thirity-five years I've been here," he said. Yet a call to the head of his mailroom presented quite a different picture: "We get about 25 calls a day from people looking for packages, and then the hunt is on. It's very time consuming. We've had to hire extra people just to keep up with it."
The law firm story illustrates a consistent finding from the study. Mail services personnel are extremely adept at scrambling to make sure upper management has what they need, when they need it. Upper management often doesn't know the high cost of the system's inefficiency.
This is not to say that management doesn't invest in obvious efficiencies quite the contrary. Some large banks use helicopters to ensure the timely transport of data and deposits. Others rely on a courier staff, inter-bank pouches, and a fleet of trucks. To completely eliminate inefficiency, however, a bar code control system must be in place to track the movement of critical documents through the entire processing chain. If a pouch is delivered to the wrong location and not immediately found, lost opportunity costs begin to mount, followed soon by hard costs.
With the ability to track parcels and documents internally through a system that utilizes signature capture and regular data downloading and reporting, the trickle of lost costs, both hard and soft, begins to reverse. An excellent example of this are the savvy companies who use the time stamp feature on reports to prove late arrival of guaranteed early-delivery parcels. They also use a customized field to note damaged parcels. Delivery companies such as UPS and FedEx applaud this strategy as a safeguard against false claims.
Tracking System Requirements
Specific requirements are necessary in order to reap the benefits of an in-house parcel and document tracking system.
- The first of these is to determine the important materials which need to be tracked. Ask which are high value, which are time-sensitive, and which make your company most vulnerable to penalties and customer dissatisfaction. If there is no way to differentiate between the materials, the simple rule is to track everything.
- All these important items must bear a bar code. Most incoming parcels have a bar code already in place; others are readily available.
- The bar code must be scanned into the system.
- The principles of bar code tracking must be applied:
1) Scanning occurs when location changes.
2) Scanning and signature capture occur when ownership changes.
3) Scanning occurs when value changes.
4) Downloading to the control system occurs at regular intervals.
- Digital signature capture is an excellent feature to establish proof of delivery.
It is important that the in-house tracking system be dedicated only to the purpose of tracking parcels, mail, documents, faxes, etc. It could be a simple, stand-alone system or utilized across a network. Finally, the tracking system should be intuitive and easy to use and administer, with a minimum of training and set-up time required for implementation. As one Minneapolis operations manager pointed out, "We sometimes lose 70% or more of our mailroom staff after a snowstorm. The world doesn't stand still just because we've had a snowstorm. We expect 100% accuracy from 30% of our staff."
It's true that catastropic events due to delayed or misplaced parcels and documents don't occur often. Like a lightening strike, however, they do occur unexpectly and often with costly consequences. Business leaders need to realize that when they implement an internal tracking system, they are purchasing insurance against that lightening strike. They are also purchasing a competitive advantage by assuring their customers' peace of mind.
Peter M. Collins