How to get the parcel mix right for your distribution centre?

Estimating which and how many parcels will arrive at your distribution centre’s doorstep is critical for Courier, Express, and Parcel (CEP) providers looking to design future-proof sortation systems. However, disruptive trends in global e-commerce are making it increasingly difficult to accurately predict parcel volumes and variations.

When a CEP provider is planning a new distribution centre – or redesigning an existing one – it needs to have an almost exact idea of the incoming parcels in terms of volume, sizes, shapes, and destinations. All these factors make up a hub’s parcel mix, also known as product mix.

Why it’s important to define the parcel mix

There are four dimensions to a shipped item: Width, length, depth, and weight. The parcel mix is calculated by knowing the minimum, maximum, and average sizes of the parcels arriving at the hub for processing. Most distributors have a pretty good indication of these figures based on their overall business strategy, but there’s quite often an information gap when it comes to their flow split, that is how many of the minimum, maximum, and average parcels are expected to come in. There are various ways to make estimates, which we’ll get back to later.

The parcel mix is the profile of a distribution centre and determines how it operates in several ways:

Overview image of a busy distribution centre

Parcel mix determines which sortation system is optimal

The mix determines how a distributor should design their parcel handling process and which sortation system to acquire. When designing an automated sortation system for a distributor, a system designer will look at the expected flow split of parcels as well as the volume of different size categories, i.e. small, large, and odd-size.

Parcel mix determines which customers to serve

The composition of which kinds of packages being shipped around the world is ultimately determined by the e-tailers. They are the ones deciding which packaging to use for their goods. CEP companies decide which parcels to handle at which price based on their overall strategy. When choosing distribution partners, e-tailers then go for distributors who has a matching parcel profile. It’s quite common for e-tailers to choose separate distributors for separate parcel types. As such, parcel mix often determines who CEP companies will and can do business with.

Parcel mix helps evaluate efficiency

Ultimately, the parcel mix helps distributors analyse whether their operations are efficient. The most frequently occurring parcel types should be the ones handled most effectively, that is, delegated to automated sorting. For a distribution centre’s sortation capacity to be cost-effective, it should correspond with the projected parcel mix as this affects cost per item handled - a key business indicator for CEP companies.

Disruptions are making projections difficult

Projecting parcel mix is complicated by at least three major factors:

  1. Projections are based on historical data, and since trends in e-commerce are changing so rapidly, these data are often not indicative of the future parcel mix.
  2. The emergence of more global e-tailers with different standards for how to package goods drastically changes the overall composition of items being shipped worldwide.
  3. Because of a lack of proper cross-checking, the volume and variety of parcels that CEP providers process might deviate from what’s agreed upon in their contract with e-tailers. As such, contracts in themselves are often insufficient for use in projecting the parcel mix.

Since parcel mix is a critical factor in determining the viability of their business model, CEP providers face a paradox: While it’s becoming increasingly difficult to project parcel mix, there’s never been more at stake for getting the prediction right.

How to improve parcel mix accuracy

Real-time monitoring

Most CEP operators have a complete overview of data about the parcels handled from their ‘legal for trade’ auditing software. This software allows the operator to compare the system-generated size and weight for each parcel with the actual data coming in from electronic scales and volume scanners. This type of data capture is used in monitoring the individual parcels, but it also gives you a real-time indication of the parcel mix as well seasonal changes.

Although the accuracy gained from a legal for trade system is incredibly valuable for monitoring CEP businesses, and for cross-checking the parcel mix, it’s an expensive piece of equipment. As such, it requires a certain volume of parcels to justify the investment. However, there’s an added benefit to having legal for trade software installed: The data captured by the software, including parcel size and weight as well as images of the parcel from all six sides, can be used for other purposes, for example in a claims situation where the condition of a parcel upon entering a hub must be proven.

Relying on customer agreements

If legal for trade software is not available to the operator, they will typically determine their mix from their agreements with their customers, the e-tailors. This approach is not completely accurate, but it does give you an indication of which items you’re handling.

Note that current contracts do not necessarily help you predict the inflow of parcels that’s going to happen after the time period covered by the given contract. To do this, distributors need to:

  • Talk with their customers about which kind of items they expect to be shipping in the future
  • Ensure they have the proper agreement with customers
  • Be on the look-out for emerging trend

Image of several moving parcels on a sortation system

How to design sortation based on parcel mix

It’s enticing to imagine a single automated sortation system which can handle every item and varying parcel mixes. And while it’s possible to design such a system, the more common options, in practice, are for distributors to either go for a single system that can sort the majority of the projected parcels, or a combination of two systems handling different parcel profiles. In any case, the objective is to keep the workload of manual handling to a minimum.

With a two-system setup, you can achieve nearly 100 per cent automated sortation. However, having separate systems for e.g. small and large parcels, respectively, require a certain volume of both types to justify the investment.

Read more: “Small parcels or large letters? How distribution centres can handle rest mail”.

As we’ve established, it’s very difficult to predict parcel volumes with certainty, and as a result, distributors often operate with different possible scenarios and opt to have their core sortation system designed to have built-in flexibility and responsiveness. This way, the sortation system can operate with different scenarios with the possibility of expanding and contracting certain designs to accommodate for market changes.

Read more: “How to prepare your distribution centre for e-commerce peak seasons”.

In case your parcel split doesn't justify a two system setup, you will need to design your distribution system based on a single-system setup that can handle a wide range of parcels.

Read more: “How to improve work environment at distribution centres with ergonomic design”.

From a technical perspective, though, single-system sortation for multiple parcel types poses a challenge. For example, if a system needs to be able to handle maximum parcels with a size of 120 x 80 x 60 cm and a weight of 35 kg as well as minimum parcels that are flat, 10 x 10 cm in size and weigh just 50 grams, then it will be close to operating at the limits of what’s physically possible.

Specifying the features of an automated system for future sortation is one of the reasons why it’s so important to have accurate parcel statistics, whether by using legal for trade software, consulting customer agreements, cross-checking data, or a combination of the three. Using inaccurate data can result in an automated handling system with either excess or insufficient capacity.

Using inaccurate data can result in an automated handling system with either excess or insufficient capacity.

 

For example, if you think you need a system that can handle parcel lengths up to 120 cm, but it turns out that there’s never been a parcel larger than 100 cm at your distribution centre, then you might have to reconsider your system requirements.

Get the full overview: Read our guide to e-commerce logistics for parcel distributors.

Image of a parcel being weighed and scanned

Conclusion

Getting the parcel mix right in terms of planning your sortation is critical to profitable parcel handling. At the end of the day, the cost per item is a key business indicator, and the parcel mix is ultimately what decides if you have a cost-effective automation.

Our advice is to be very attentive to the details of your parcel mix data. Even a small batch of unexpected, non-machinable parcels can put your sortation capacity at risk if you insist on feeding them into an automated system.

Read more: “How to deal with no-read parcels?”

When designing a sortation system based on projected parcel mix, CEP operators need to take into account the uncertainties outlined in this article. Then, operators should consider the following: Would a simple setup, which can handle most item types, make do, or would you need a more optimised solution with built-in flexibility and responsiveness to accommodate for market changes?

For a smaller parcel distributor, a single system that can handle more or less all types of items might make perfect sense as it will still be a more effective solution compared to manual handling – and will come with equal or higher sortation quality and data capture.

5 things to consider for your automated sortation system

Emerging trends in global e-commerce make it increasingly difficult to know which is the right solution for automated parcel sortation. 

To get started, download our guide for e-commerce parcel distributors: “5 things to consider for your automated sortation system”.

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Meet the expert

Bjarne Johansen, Senior Systems Manager

Bjarne has 40+ years of experience in the design of material handling systems. He has seen more or less all types of systems within courier, express, parcel, and warehouse distribution services, and has served as advisor and designer for systems handling all kinds of goods, including fashion, groceries, and frozen food. When finding the right design solution with customers, Bjarne relies on his unmatched understanding of value chains and business models in logistics.

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