DEEPER DIVES: Are You Surprised A 1970s Model Is Failing In 2025?

Good Afternoon,

First, as always, thank you for joining.

It’s getting real tough out there for smaller brands in the US and Canada.

The world of commerce is diverging quickly between those that control their outcomes and those that are only trying to survive the wave.

How you execute has never been more important.

In this edition we are getting into why even the smallest details can destroy you margins when it comes to operations.

I’ll use specific examples from real world situations, but the underlying principles can be extended to anything you are doing.

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Here’s what this issue brings:

• Canada Post can’t get its house in order. We’re going to review the recommendations made by William Kaplan. I’ll share what I agree with and why and what’s the big missing piece that’s still missing
  

• Someone had reached out to me asking about Dynamic Warehouse Slotting. It’s a great way to improve your overall warehouse efficiency and effectiveness. Here’s a 101 to the concept and how you can make it work for you
  

Headline 1

On May 15, 2025 the Industrial Inquiry Commission report related to Canada Post’s current situation was released.

It paints a pretty grim picture of the organization’s financial state, basically saying it’s "effectively insolvent" or "bankrupt".

While the union acknowledges the financial hardships, they are basically saying that results are from “bad business decisions”.

I agree … but only if you include signing collective agreements as restrictive and absurd as what are currently in place.

Don’t get me wrong.

I’m not anti-union.

But expecting labour agreements and standards that initially took hold in the 1970s to still be a viable business model in 2025 is wildly irresponsible.

I think we can all agree the world has changed.

Let’s Break Down The Current Challenges

The full report is ~160 pages.

But I’ve broken down the key buckets that we can use to lump things together to get you up to speed.

1. Finances
   The revenue model isn’t working. At the current levels of activity, there isn’t enough money coming in to offset what is going out.
   Canada Post has posted consecutive losses ($548 million in 2022; $748 million in 2023) and told the government it would run out of operating cash early-2025, including an inability to redeem a $500 million bond maturing in July 2025
   

2. Letter-Mail Collapse
   The biggest mistake that Postal organizations around the world are making is thinking that parcel is a 1:1 replacement for letter mail. It’s not. Letter mail was much more profitable on a per piece basis when you consider how many pieces a letter carrier can deliver in a day.
   Volumes have fallen from 5.5 billion pieces in 2006 to 2.2 billion in 2023, while the number of delivery points has grown past 17 million. Less volume with more points of delivery … easy to see what’s happening to the quality of revenue.
   

3. Parcel Irrelevance
   Although parcels now supply ~50 % of revenue, Canada Post’s market share has plunged from 62 % (2019) to 29 % (2023). This is from a network that is not optimized for a rapidly changing market while also not being able to leverage their advantages in infrastructure to great a valuable product offering. By competing only on cost and to the door services, they have left themselves vulnerable to private couriers and gig platforms that don’t operate with the same financial commitments.
   

4. Brutal Labour Structures
   Two massive collective agreements,~600 pages (Urban) and ~190 pages, (RSMC) limit part-time hiring, dynamic routing and even assigning extra work when employees finish early (this last part is a bit of a red herring, but I’ll address that later).
   

5. Mandated Expectations
   Imposed moratoriums have stopped both rural post-office closures and conversion of door-to-door delivery to community mailboxes, freezing high-cost infrastructure in place.
   

6. Outdated Service Requirements
   Daily door-to-door delivery everywhere, a standard judged “impossible to meet” under current economics.
   

7. Collective Bargaining Carnage
   With so much change required and the impact it will have to the employee base, Canada Post has left too much change for too long, putting the Union in an almost impossible position to accept and sell to members with so many “negative” changes from the current state

The Official Recommendations

The Real Issues That Need To be Fixed

While addressing some (or all of) the items above will help, the core issue that isn’t getting enough of the spotlight is the execution / network model.

This is the fundamental challenge that Canada Post (and USPS) face when trying to modernize a system that was built to support core communication (i.e. letters and documents) that is rapidly only finding value in commercial delivery.

Throughout my career, I’ve seen the same challenges that Canada Post is facing over and over again.

Delivery is a hard game.

And what always makes it harder is when models need to shift or productivity levels need to come up.

People inherently feel like they are being asked to do more for less, since these changes usually mean more deliveries in the same amount of time, so no additional pay for the people doing the work.

It’s why it’s so important to make sure that you can explain your model, explain the changes and be able to communicate how it’s still “fair”.

(“Fair” by the way is the most dangerous word in last mile delivery)

Canada Post, like many last mile providers, builds routes based on an accepted set of standards and assumptions.

In their case however, routes and delivery expectations are managed through the Letter Carrier Route Measurement System (LCRMS).

The LCRMS is an engineered-standards manual (now embedded in a Canada-Post database) that defines, in second-by-second detail, every inside and outside task a letter carrier performs.

The Urban collective agreement for example, says all urban routes must be designed with these rules, and any change to the manual or its time values needs union consent or arbitration.

Here’s an example of the flow how a route is built in the current model:

This process is slow slow and cumbersome and way too exposed to challenge. Amazon doesn’t allow this level of resistance and no new regional or upstart carrier every has to deal with this level of rigidity.

The other massive issue facing Canada Post is an 8 hour base delivery shift that has lunch and breaks included in the total time (effectively maxing out a delivery person’s day at just over 7 hours).

What ends up happening is that the network gets trapped in a position where it’s barely getting out of the red, and when it does it’s only pushing into the yellow buffer zone (where you aren’t necessarily losing money, but you aren’t hitting those levels of profit that you need to sustain your business).

What most people don’t understand about last mile is that no matter what you charge per package, you are making 0% profit until your costs are covered.

That’s why density is so important for EVERY network.

Your goal is to have enough volume per route to cover your costs, cross your buffer zone and then complete the small amount of deliveries that actually then fall to your profit margin.

Canada Post has fallen into the trap that so many legacy providers have.

They have go themselves locked into an overly complex (their routing manual and guides is over 1,000 pages of standards) model that only has the opportunity to be wrong more than it will ever be right.

And because of this, you end up having to plan for inefficiency and errors in order to avoid conflicts - lowering your network effectiveness.

When I do this kind of modeling, it’s an art to know how far to push with specific standards and things that you add (or remove time for).

You want to be able to account for enough things while also not creating a situation where every single step is challenged.

Instead of focusing on things like trying to add back activity to couriers that have finished ahead of the standard, Canada Post needs to fundamentally change the way that base volumes are attributed to a route and what the productivity standards are.

As the world continues to move more into a parcel only solution, the density models of letter mail will only get more and more out of sync.

They will never get better.

Unlocking Warehouse Efficiency: A Look at Dynamic Slotting

Warehouses are the heart of commerce.

More than just a storage, a modern warehouse is really a system where efficiency is paramount.

How quickly and accurately products can be stored, found, and shipped out the door directly impacts customer satisfaction (and everyone’s bottom line).

One key strategy that significantly streamlines your operations is how you assign your space to each item in the warehouse.

Where you put your stuff is referred to as "slotting".

While the term itself might not be common an everyday logistics discussions, the principles are vital for smooth and efficient warehouse operations.

The simplest way to think of slotting is that it’s about placing products in the best locations to make the entire process of handling goods more effective.

Imagine a warehouse where the most frequently sold items are put all the way in the back corners, or items often shipped together are stored on opposite sides of the building.

The wasted time and effort would be massive.

Slotting aims to prevent exactly this by continuously adjusting product locations based on how often they are picked and their current demand. This continuous adjustment is what makes the process "dynamic."

The Upsides of Strategic Placement

The benefits of implementing strong slotting principles are numerous and can touch almost every aspect of warehouse operations.

The most obvious advantage is reduced travel time and distance for warehouse staff.

It’s a simple but powerful idea. Place fast-moving products closer to shipping areas and items frequently ordered together near each other.

Considering that travel can consume up to half of a picker's time, minimizing this movement directly translates to productivity gains.

A well-slotted warehouse has a natural flow, making the path of a product from receiving to shipping as smooth as possible.

Remember though, this isn't a one-time setup. You need to be reviewing the layout needs regularly to maintain its effectiveness as product demands change.

With less time spent walking or driving forklifts, staff can achieve better productivity. Finding items efficiently means more orders can be processed in the same amount of time.

In some situations, dedicating specific zones for small groups of products that complete many orders can lead to productivity increases of two to five times compared to general warehouse areas (think zone picking for beauty products).

Strategic slotting also leads to increased space utilization.

By understanding how much activity a product has, you can determine the right amount of space to allocate and the best place to store it.

Dynamic systems (usually supported by a Warehouse Management System - WMS), can make better use of available storage by assigning locations based on activity or pick wave.

This allows for maximizing the use of the warehouse's cubic space. With a better use of space, you can do more with current assets before needing to expand your facility or move to a new one.

Furthermore, getting operators to the right location more easily contributes to improved accuracy in picking orders (and everyone loves talking about SLAs!).

Less errors mean happier customers and lower costs associated with returns and re-shipments.

The advantages continue with faster order cycle times and dock-to-stock times.

Since slotting drives key warehouse performance indicators, it naturally helps speed up how quickly orders are fulfilled and new inventory is put away.

Speed of picking is a vital component of customer service.

Ultimately, all these improvements contribute to better resource utilization. Space, equipment, and labour are all used more effectively when products are slotted the right way.

Finally, a proper slotting understanding makes it easier to adopt automation and other advanced systems in the future.

Where Does Dynamic Slotting Really Kill It?

• In general warehouse operations, any time products are stored and retrieved, analyzing their demand and movement (often through methods like activity-based-cost analysis, which categorizes items based on their importance) can guide better placement decisions.
  

• It's fundamental to organizing for flow, ensuring a logical progression of goods through the warehouse.
  

• Random or temporary location systems, often controlled by a WMS, use algorithms based on product velocity and popularity to assign storage spots, effectively implementing dynamic slotting.
  

• It plays a key role in pick face allocation, determining how many and what size of picking locations are needed for each product to prevent bottlenecks, especially for fast-moving items. It also helps identify small groups of products that frequently complete orders, allowing them to be grouped in highly efficient "order-completion zones."
  

• The concept of "golden zones" (placing the fastest-moving items in the most accessible locations) is a direct application of slotting.
  

• Automated systems, such as AS/RS inherently use dynamic slotting logic to manage product placement and retrieval efficiently.
  

• It is particularly valuable in environments with changing activity profiles, such as businesses with seasonal products (like apparel or holiday themed sales) or those that run frequent promotions, as product demand can shift a lot.
  

• Slotting information is essential for layout planning and redesign. When planning a new warehouse or re-configuring an existing one, data on item and order profiles forms the basis for effective slotting strategies.

Navigating Challenges

While the benefits are clear, implementing and maintaining an effective dynamic slotting strategy is not always easy.

Data accuracy and analysis capabilities are must haves.

Slotting relies heavily on precise historical demand data, information on your SKUs, stock levels, and order profiles. Collecting and then analyzing what can be large quantities of data is a significant task, and inaccurate data can render any analysis useless.

(The last large slotting analysis I did had over 3 million transactions to review by SKU)

The need for regular updates is another challenge.

Product activity profiles (and your customer base) can change a lot over time. To maintain the benefits, slotting must be an ongoing process of review and adjustment.

While a Warehouse Management System (WMS) can be a powerful tool, its complexity can also be a challenge.

Setting up the correct algorithms (or rules) for random and temporary location based on velocity and popularity requires careful management input and isn't an automatic fix.

Defining re-slotting rules is also key.

3PLs (or internal warehouse operations teams) need to establish clear criteria for when an item should be moved, balancing the potential cost savings from a better location against the cost of actually moving the item. Deciding on the timing for a general warehouse reslotting effort can also be difficult.

You also need to be able to manage competing objectives.

For example, the “want” for quick access to items might conflict with the goal of maximizing space utilization.

The best approach is one that meets current needs while remaining flexible and scalable for future growth and evolving order patterns.

Finally, dealing with zombie inventory is important. Non-moving or outdated SKUs have to be identified and removed.

The Financial and Productivity Payoff

The impact of adopting dynamic slotting principles is substantial, both financially and in terms of productivity.

By optimizing your labour and making better use of the space you have, strategic slotting directly contributes to reduced operating costs.

Since travel time is a major component of labour costs, reducing it has an immediate positive effect on the bottom line.

Many warehouses may be spending 10% to 30% more than necessary each year due to inefficient slotting.

This translates to significant cost savings in both labour and space.

Projects focused on optimizing slotting have demonstrated considerable annual savings and reductions in overall storage costs.

Slotting is a key driver of increased productivity. Improving travel time and ensuring items are located efficiently directly boosts the output of warehouse pickers.

The creation of specialized order-completion zones can boost even further these gains.

While the term "dynamic slotting" might not be part of everyday 3PL vocabulary, the principles behind it (strategically and continuously adjusting where products are stored based on their activity) are a cornerstone of efficient and effective warehouse operations.

By understanding its benefits, best applications, and challenges, businesses can unlock significant improvements in productivity, cost savings, and overall operational excellence.

That’s it for this week. Thanks for being here.