Transportation Procurement Benchmark Study

Transportation Procurement Benchmark Study Executive Summary

      Over the past five years or so transportation buyers have made a lot of buzz by automating the procurement process for international and domestic services. Today a considerable amount of freight capacity is bought and sold in an automated environment. But, as our study shows, it is more remarkable how prevalent manual processes remain.    This raises many questions about the value of automating in terms of cost savings, efficiencies and the ability to buy more effectively.
      During the first quarter of 2009, American Shipper surveyed 200 transportation buyers, including discrete and process manufacturers, retailers, wholesalers, third-party logistics providers (3PLs) and forwarders. Their responses to a 26-question survey have allowed for a quantitative analysis of transportation procurement processes, practices and the technology enablers. The following report is designed to provide actionable evidence of how best-in-class buyers ' or 'winners' ' manage procurement of freight services from the request for proposal (RFQ) through the contracting process.


And The Winners Are '    For the purposes of this report American Shipper defines 'winners' as freight transportation buyers whose survey responses meet three criteria:
      '    Report a decrease in contracted freight rates when compared to last year (57 percent of survey respondents met this measure).
      '    Express a high level of confidence in their ability to evaluate and balance bids based on risk and service levels in addition to price (64 percent of the survey respondents agreed or strongly agreed they were capable).
      '    Demonstrate the ability to implement the results of their contract negotiations within one month from completion (41 percent reported a relatively quick implementation).
      Winners represent about 10 percent of the study's total response base ' these are the 'A's and 'A-pluses' on the bell curve. This group includes a handful of manufacturers (16 percent). But the retail/wholesale (21 percent) and 3PL/forwarding segments (47 percent) are more heavily represented. Predictably winners tend to be the higher end of the mid-market ($100 million to $1 billion in annual sales) and large companies (more than $1 billion). Likewise, winners tend to buy large amounts of transportation services, with 63 percent reporting their transportation spend exceeds $100 million per annum.


Microsoft Excel.    Many procurement technology vendors will say that they don't compete against one another; rather they compete against Microsoft Excel. This might sound like a catch phrase, but our study clearly shows spreadsheet-based, manual processes abound.
      Sixty percent of respondents describe their transportation procurement platform as manual or spreadsheet based. A surprising 47 percent of the winners report the same, making them only slightly more likely to be automated.
      When asked which vendors would be considered for future procurement initiatives, buyers show some interest in automating, but about half will continue with the status quo.


Centralized vs. Regionalized Buying.    The notion that regionalized buyers leave a significant percentage of transportation savings on the table is commonly accepted. Our study shows 73 percent buying in a centralized manner subscribe to this best practice.
      But contrary to conventional wisdom centralized buyers fare only marginally better than those buying on a regional basis when compared by direction of contracted rates, ability to weigh risk, service and price, and speed to implementation.


Who Cares About Risk?    An overwhelming 62 percent of respondents report that price is the most important aspect of a carrier's bid, while 27 percent are more concerned with service- level guarantees. A mere 2 percent of buyers express an interest in the risk of doing business with a particular carrier. Winners are only slightly different. expressing a keener interest in service levels (37 percent) and less focus on price (53 percent). Not one winner selected risk as the priority, however several express they can't choose just one and point out all three are important.
      This seems baffling in the context of the current economic climate. Clearly price is always an important factor in any buying decision and it's not surprising that service levels come in behind. However, in a time marked by economic uncertainty that's crushed global trade growth, it is shocking that the fear of aligning with a carrier on the brink has not crept to the top of everyone's priority list.


Functionality.    As expected baseline pricing, bid optimization and historical cost visibility functions are the most commonly used and rank as the most important by study respondents.
      Volume coverage/commitment functionality, which requires carriers to commit the projected volumes in an 'all-or-nothing' scenario, is available to 39 percent of the respondents. It is remarkable that nearly twice as many winners (72 percent) report having this functionality. Similarly, winners show a strong interest in line-item awarding functionality, with two-thirds having access and one-third ranking the function as one of the three most important.


The Case for Automation. In short, American Shipper's Transportation Procurement Benchmark Study uncovers three key benefits for automating the procurement process:
      '    Increased satisfaction ' More than 80 percent of automated buyers report a good or very good rating compared with about half of manual buyers.
      '    Lower rates ' 44 percent of respondents who automate or outsource the procurement process recognize a dramatic decrease in contracted freight rates (greater than 5 percent), which is considerably more than the 31 percent of buyers who manage this process manually.
      '    Better decision making ' 70 percent of automated buyers state they agree or strongly agree that their processes and technologies allow them to effectively measure bids in a multidimensional way.