This is not another piece on the impending capacity shortage. We have read a lot about that already. What this article is about, however, is transportation procurement events, and the most direct and effective way to deal with them. Procurement events are not new; neither are the professionals and technology to manage this process. What is new is the transportation procurement landscape. Carriers have gotten more sophisticated and emboldened in their pricing approach. Without the right people and tools to go head-to-head with the carriers, disastrous things could happen.
But you don’t have to do it alone or rely on a procurement generalist (buying office furniture does not qualify as expertise in transportation procurement). Seek knowledge. Seek guidance. Seek experience. Seek expertise. Use tools that were made for the job. Consider a transportation procurement expert to identify data and decision points that will drive your carrier selection, mix, and strategy to lower your transportation spend and contract capacity to improve your capabilities to deliver.
When To Procure.
- When outsourcing transportation, a procurement event should be the first step.
- When anticipating dramatic volume spikes or declines.
- When your business adds new products, customers or acquisitions.
- When you need to respond to carrier rate increases or network changes.
- When it has been more than 18 months since the last evaluation of your overall transportation solution.
The transportation market is dynamic, to say the least. Fuel costs, driver shortages, regulations, economic events, out-of-cycle rate adjustments, and before you know it these changes add up, and not in your favor. There are opportunities to rebalance lanes, re-evaluate modes, and reduce or increase carriers to generate sizeable savings and/or improved service or capacity levels.
Manual spreadsheet analysis tends to focus only on rate comparisons. A transportation analysis tool, and a review by unbiased transportation experts, will provide you the knowledge to unscramble the chaos and help you make better decisions beyond simple rate comparisons.
Transportation procurement software enables the shipper to leverage data across multiple modes, carriers, and rate structures. Greater visibility into true costs can be applied to segmented strategies with the best fit of carriers for a shipper’s unique business and distribution network.
Changing Carrier Contracts.
- If your current transportation solution, with carrier rates and agreements, are meeting all of your capacity and service needs at or below market rates.
- If you have not incurred any significant changes in your company’s structure, product line, customer mix, or service commitments in the last 12 months.
Congratulations—you have managed to stay clear of the chaos of today’s fast-paced and risky economy. You are not likely to find yourself in the comfort zone for long. Keep alert, review the data, and balance risk and opportunity to be nimble when disruptions occur.
Keys To Success. According to the Transportation Procurement Benchmark Study, published by American Shipper in April, 58 percent of shippers use some level of automation or outsource to logistics specialists when preparing for carrier negotiations. Why are an estimated 42 percent of shippers not seeking the benefits of an in-depth analysis of their transportation strategy? The report indicates because it is not within budget, and 40 percent of those surveyed do not expect funding to be available soon.
When funding is not available, there is an alternative. Outsourcing to unbiased transportation procurement experts will provide improved results in your procurement event without the need to invest in new, specialized systems.
Whether in-house or outsourced, consider the following for your next transportation procurement event:
- Leverage technology to analyze your shipping history, service-level performance, capacity and rates by lane, carriers, and evaluate special service requirements.
- Take a holistic look at the past, present and future demands for transportation. Are there anticipated new products, network changes, expanded service areas, or new customers?
- Evaluate customer requirements and shipment characteristics in relation to your load planning, capacity, service, and costs. Use this analysis to build goals and strategies.
- Know your business strategy and make sure the bid event is in alignment. Is one-day service critical? Will cost drive all of your decisions? What logistics services will improve your market position?
- Plan your procurement event, gather data, evaluate expectations for award criteria, load timing, seasonality, product characteristics, appointment requirements, fuel surcharges, freight class/product density, and all the criteria critical to your business’ success. Be specific in your desired outcome, as carriers will hedge their rates if all of the freight characteristics are not clear.
- Seek credible advice from experts that are shipper advocates, not aligned with specific carriers or customers. Are they familiar with your industry requirements and network constraints? Do they have the experience to anticipate carriers’ objectives to meet rising costs and asset optimization? Are they using up-to-date technology to provide you with best-in-class recommendations?
The industry and most supply chains are changing faster than ever. While a procurement event may not seem like the most direct and effective way to deal with this change, it is a fundamental building block upon which supply chains respond to such challenges.
Nightingale is president of GENCO Transportation Logistics and can be reached by email.
This column was published in the December 2014 issue of American Shipper.