Executive Summary: Transportation Procurement Report

Analog strategies in an omnichannel world.    Freight transportation decisions are often walled off from other parts of a company’s supply chain, a reality transportation and logistics practitioners face every day. But it’s also true that for many shippers, global transportation procurement occurs in a silo away from other transportation decisions. Procurement is a periodic, episodic process that is often influenced as much by circumstantial or relationship-based dynamics as by systematic or data-driven ones.
   In a world where every retailer, manufacturer, and logistics services provider must grapple with the demands of omnichannel consumption, that ad-hoc treatment of freight procurement is obsolete. Of course, not every shipper or LSP has to worry about end consumers and demand coming from new channels, but the lessons are still clear: avoiding the use of technology in procurement and a failure to use data to inform forward procurement cycles comes at a cost.
   This year, American Shipper asked some pointed questions about how transportation procurement fits within companies’ broader omnichannel and inventory strategies, and the results show a gap between what those companies think they need to be doing, and what they are doing. Chalk it up to the lag between the demands being placed on freight transportation networks and companies’ abilities to react to those demands.

Procurement’s Role in Strategic Initiatives. Nearly two-thirds of retailers believe transportation plays a critical part in their companies’ omnichannel strategy. Just short of half of manufacturers think likewise. That difference is likely due to the fact that retailers are largely ahead of manufacturers in processing the impact of omnichannel since they are more typically on the front lines of meeting omnichannel demands from customers.
   But only 41 percent of retailers surveyed say their transportation procurement is closely tied to their company’s inventory strategy. Inventory strategy is a foundational part of a company’s omnichannel strategy. The gap between those retailers who say transportation is critical to omnichannel strategy (64 percent) and the 41 percent who closely tie their freight procurement to inventory shows there is a lack of emphasis on meeting this demand.
   Thirty-three percent of manufacturers this year said ocean freight procurement is more technology-driven, compared to 24 percent last year, while 65 percent said air freight is more technology-driven compared to 49 percent in 2015. The proportion of retailers who said air freight procurement is more technology-driven also rose markedly from 2015, though it declined marginally in terms of ocean freight.


   The overall numbers suggest that ocean freight and trucking procurement are still largely relationship-based, while air freight buyers are more split down the middle on the question. It will be interesting to see next year whether this trend continues, and whether a technology-led mindset pervades ocean freight procurement even more.

The State of Procurement Technology. Despite a broader understanding of the power of procurement tools, shippers have still not flocked en masse to freight sourcing technology. In fact, 2016 saw an uptick in the percentage of respondents using a manual or spreadsheet-based approach to transportation procurement. What’s more fewer than 10 percent of shippers use a freight-specific procurement tool for all transportation buying activity (though roughly an equivalent number use the procurement module of their transportation management system). The most common method of procuring freight is a mixed approach. That suggests companies have a very decentralized process for procuring freight across their modes and geographies.
   Only 5 percent of respondents called existing procurement tools “very good” at aiding the sourcing of global modes. About a quarter characterized the existing market as “good,” while more than half surveyed were neutral or didn’t know. This suggests that the market is either unaware or uninformed about the global capability of freight procurement technology providers.
   Around two-thirds of freight buyers in all categories are doing so—or at least believe they are doing so. This is encouraging. A successful transportation procurement process should start with the idea that historical data must inform decisions. A key point going forward, and one which is ripe for exploration in next year’s study, is whether procurement organizations.