Scenario: Shipping cost optimization

IBM® Sterling Intelligent Promising allows you to optimize shipping cost. You can use the Optimization service to set optimization objectives to prioritize minimizing shipping cost. Additionally, you are provided with sourcing and fulfillment options to minimize the shipping cost and this ensures that you prioritize cost-effective order fulfillment.

Calculating shipping costs for orders involves the following steps:
  • Item Weight Calculation
    Optimizer determines the weight of each item in the order. This could be the actual weight or dimensional weight, whichever is greater. Dimensional weight is calculated based on the volume of the item and dimensional weight factor of carrier service.
  • Combination of Items
    Optimizer identifies all possible combinations of items in the order. This is important as different combinations might affect the packaging and ultimately the shipping cost.
  • Carrier Services and Rates
    Optimizer looks up the available carrier services and their respective rates. These rates are based on zones (distance between origin and destination) and weight brackets (ranges of weights).
  • Shipping Cost Calculation:
    Optimizer calculates the applicable rate by the total shipping weight for each combination of items and carrier service to determine the shipping cost.
  • Comparison and Selection
    Optimizer compares the shipping costs for each combination of items and carrier service to find the most cost-effective option.
If your business goal is cost-effective order fulfillment, then you can set the optimization profile that prioritizes minimization of shipping cost.
The following example demonstrates how Optimization service calculates shipping cost for each order and provides a sourcing and fulfillment solution with the minimum shipping cost.

Example of shipping cost optimization

In a scenario where minimizing shipping cost is prioritized and an order has two order lines that can be shipped in either one or multiple packages, Optimization service considers multiple combinations of fulfilling the order. It calculates and optimizes the shipping costs for each combination and provides a sourcing and fulfillment option with minimum shipping cost.
For example, an order has two items. The order line details are as follows.
Table 1.
Order line Weight Dimensional weight
Laptop 7 lbs 7 lbs
Smartphone 0.5 lbs 1 lbs
The shipping is offered by following carrier services:
  • UPS_Ground
  • FedEx_Ground
The carrier services and shipping rates are as follows.
UPS_Ground
  • Transit rate for zone 1: 10 USD upto10 lbs, 1 USD per lb thereafter.
  • Transit rate for zone 2: 15 USD upto10 lbs, 1.5 USD per lb thereafter.
FedEx_Ground
  • Transit rate for zone1: 12 USD upto10 lbs, 1.2 USD per lb thereafter.
  • Transit rate for zone2: 18 USD upto10 lbs, 1.8 USD per lb thereafter.
The dimensional weight of laptop is greater than smartphone so the combination of items can be as follows:
  • Laptop and smartphone as separate packages
  • Laptop and smartphone in a single package
For UPS_Ground, suppose zone1 is applicable. The rates for the possible combination are as follows:
Rates for combination1
  • Shipping cost for package 1 up to 10 lbs: 10 USD
  • Shipping cost for package 2 weight up to 10 lbs: 10 USD
The total shipping cost is 20 USD.
Rates for combination2
The shipping cost for single package up to 10 lbs costs 10 USD and the total shipping cost also becomes 10 USD.
For FedEx_Ground, suppose zone1 is applicable. The rates for the possible combination are as follows:
Rates for combination1
  • Shipping cost for package 1 up to 10 lbs: 12 USD
  • Shipping cost for package 2 weight up to 10 lbs: 12 USD
The total shipping cost is 24 USD.
Rates for combination2
The shipping cost for single package up to 10 lbs costs 12 USD and the total shipping cost also becomes 12 USD.
The UPS_Ground offers the lesser shipping cost for single package having both items that lets the selection of UPS_Ground as the most cost-effective option for this particular order.