Partnerships. For years, shippers and carriers have talked about forming "true partnerships" as a way to cut logistics costs and increase efficiencies. All too often, though, both parties find that those relationships are constructed on little more than lip service and sales spin.

Logistics managers at Best Buy Co. Inc. believe that their partnership with UPS just may break that mold.

The Minneapolis-based retailer had been giving its parcel business to several carriers. "Not that long ago, we did an insignificant volume with UPS and we did an insignificant volume with other competing carriers," says Wayne Bourne, Best Buy's vice president of transportation. "Then we sat down with UPS and discussed how we could mutually grow our business relationship."

What prompted those discussions was Best Buy's incursion into online retailing. The company's initial experience with serving online customers prompted its logistics managers to re-examine their approach to parcel shipping. They concluded that a single-source program with one carrier would improve efficiency and cut the retailer's distribution costs.

For Best Buy, which ships more than 320,000 parcels per month, the sole-provider arrangement has also improved customer service in these tight-fisted times. "We probably aren't shipping more volume," says Chuck Dow, Best Buy's director of logistics. "We're just shipping it more efficiently and economically."

This sole-provider program has worked out so well for Best Buy that it's earned the retailer the 2004 Shipper of the Year Award from Logistics Management magazine and NASSTRAC, the national organization of shippers of less-than-truckload (LTL) and parcel shipments. This award is presented annually to a NASSTRAC member for best practices achievements in transportation and distribution. Eric Morley, Best Buy's director of carrier relations, accepted the award last month at NASSTRAC's annual Fall Conference.

Best Buy sells consumer electronics, personal computers, software, and appliances through a network of 750 stores in the United States and Canada. In addition to in-store sales, the company also sells merchandise through four different Web sites, including its best-known site, BestBuy.com.

The retailer operates eight distribution centers nationwide and fulfills online orders from three of those facilities. Best Buy spends the lion's share—about 80 percent—of its corporate transportation dollars on truckload movements from the distribution centers to the stores. Another 10 percent of that budget goes for less-than-truckload (LTL) carriage, mostly for inbound shipments from suppliers to the DCs. The remaining 10 percent is spent on expedited freight and small package shipments.

Although online sales are growing, they still only account for about 20 percent of the retailer's parcel volume. The balance typically are inbound shipments destined for the distribution centers, or returned goods heading from the DCs back to the vendors.

At first the specialty retailer relied on a third party for order fulfillment and shipped packages with several major parcel carriers. "Those were the days before BestBuy.com really fired up," says Eric Morley. "Back then we were busy focusing on truckload and big shipments."

As online sales became a strategic part of its business, the retailer shifted responsibility for online fulfillment to its own distribution centers. That prompted the logistics department to take a hard look at its expedited freight and small package shipping practices.

Best Buy's logistics managers reevaluated those practices in light of the company's twin goals of better customer service at a lower cost. "At Best Buy right now, we have a real focus on customer-centricity. How we apply that in logistics is to be more customer-focused and reach out to the customer," says Morley. "At the same time, we want to be more lean and efficient as an organization. That's the path we're marching down."

In 2001, Morley and his colleagues concluded that "one-stop shopping" would be the optimal way for the huge retailer to achieve both goals. "It makes it so much simpler when you're talking about a company [like Best Buy] that has nearly 100,000 employees. You know who you're going to use and who's going to show up at your door," he says. "It drives a lot of efficiency."

Three years later, every employee at Best Buy's stores and distribution centers knows that they may only use UPS for small package shipments—a crucial point in imposing a shipping discipline that helps rein in expenses.

Best Buy uses proprietary software supplied by UPS, which analyzes the origin and destination ZIP code pairs to determine the most economical routing that meets the delivery commitment. For example, if a store manager wanted to ship a package from Chicago to Minneapolis and selected two-day air service, the shipping system would automatically choose ground service because it could meet the two-day delivery requirement at a lower cost. In most cases, Bourne notes, an expedited shipment will automatically default to second-day p.m. delivery unless there are special circumstances that require faster service.

In addition to deliveries to online customers and movements between some vendors and the DCs, UPS handles Best Buy's repair shipments. When a customer brings an item to a Best Buy retail outlet for repairs, the parcel carrier brings the product in need of fixing to the appropriate repair center, and often delivers the refurbished product to the customer's home.

Using a single carrier for parcel movements has done more for Best Buy than simply cut its transportation costs. For one thing, it has made rate auditing more efficient and accurate, says Chuck Dow. "We have a third-party audit firm that looks at freight invoices by mapping them to rate structures," he explains. "It helps us with billing accuracy [because] when we apply costs across the enterprise, they are correct and accurate... and we can track package costs down to the SKU level worldwide."

It's also led to some creative problem solving by UPS employees and their Best Buy counterparts. Bourne says that during early discussions, Best Buy emphasized the need for UPS to assign someone to manage the relationship full time. Today, a UPS employee works side by side in the corporate office with Best Buy's logistics staff to run what Bourne calls the "what-if department." "We would come up with a need and we would ask this person, 'Is there any way UPS could contribute to a solution?'" he explains.

One initiative that came out of that collaboration allows Best Buy's field technicians to take advantage of the UPS Store network of shipping centers. When the technicians, who handle in-home repairs, have to ship a defective product back to Best Buy, they simply visit a UPS Store and drop off the item. "It's like having 5,000 mini distribution and receiving centers," Morley says.

The parcel giant also helps ensure that Best Buy meets its commitments for photo processing. When a customer brings in a camera disk to a Best Buy store in the United States, it's sent out to a photo-processing lab in Canada on a one-day turnaround. To make that possible, UPS has set up an import team on the U.S. side of the border to handle customs clearance of the photos and delivery to the appropriate stores.

Finally, the arrangement has provided the retailer with a single database for tracing and tracking its parcel shipments as well as regular management reports on its parcel expenditures. "Our productivity has been enhanced because of information availability," says Bourne.

Although Best Buy's logistics managers acknowledge that the retailer does benefit from the volume discounts it receives as a result of its sole-provider arrangement with UPS, they emphasize that the special relationship between shipper and carrier is about a lot more than just saving money.

The efficiency, consistency, convenience, and speed of shipping and deliveries have all improved in the three years the arrangement has been in place. The partnership also means that Best Buy now has greater visibility of both inbound and outbound parcel shipments.

That enhanced visibility, in turn, results in product availability that translates into customer loyalty and repeat business. "If you're concerned about the customer experience, you're concerned about being out of stock," says Bourne. "You have to have the right product at the right place at the right time in the right quantity at the right price." The close working relationship Best Buy has forged with its one and only parcel carrier, he believes, is one reason the retailer has been so successful in achieving that objective in all of its stores.