By Mike Hane | Director, Transportation Consulting
Technology has come a long way in recent years to improve the transportation bid experience. There are many viable solutions on the market, for context, think CombineNet or Logistics Procurement from JDA. But technology alone will not transform your bids into well-oiled, cost-saving endeavors.
After years of managing bids and talking to hundreds of companies about their transportation procurement processes, Chainalytics has compiled it’s ‘not-top’ list of things you’re doing wrong in transportation procurement, and suggestions on what you can do about it.
1. You don’t bid. Many shippers still do not perform centralized transportation procurement events, where all/most of the freight for a mode is put out in a RFP for carriers and brokers respond to. Performing regular bids allows both the shipper and service provider to align their needs and capabilities in a more elegant fashion. Those shippers that don’t have a regular bid strategy find themselves in constant rate discussions with their providers, usually where the carriers have more accurate information on market rates than the shipper.
We hear from shippers all the time: “The carriers will get mad if I do a bid and will refuse to haul my freight when capacity tightens.” Data to back that hypothesis is hard to find. Chainalytics has shown over multiple studies in our Freight Market Intelligence Consortium (FMIC) that regular bidders do get lower rates than non-bidders, or solely opportunistic-bidders.
Regular bidding takes emotion out of the equation. Carriers understand that annual or bi-annual bids are just part of the process; not that you are trying to time the market and lock in rates while low then hide your phones when the market rises.
The fix: Start regularly scheduled bidding events.
2. You keep information from the carriers. Too often shippers will not include all necessary information to carriers about expectations on service or about the freight itself. You may even put your current carriers into an “Incumbent’s Curse” situation, where the incumbent rates are higher than new suppliers simply because they understand your needs from having hauled for you – not because of information in the RFP. When new carriers are brought on-board without the full picture, shippers can be put in a tough spot when those new carriers start refusing to haul for the awarded price after servicing the lane for a short period of time. This churn in the network also creates extra work for the transportation managers and dispatchers trying to cover loads as you move down your routing guide . Worst of all, the savings you had promised management can quickly disappear.
The fix: Start sharing critical information with your carriers.
3. You use the wrong technology. As central procurement teams expand their reach into the transportation departments they bring standard, general procurement tools with them. Many of these tools are not capable of handling the intricacies of transportation procurement. The most successful procurement events have detailed optimization capabilities which allow the shipper to overlay constraints that keep real business issues part of the awarding process. Ensuring the bid will be successful before you finalize the award. For example, shippers may choose to minimize the churn of carriers – say allow only two new carriers at any facility. That will help your operations team manage the on-boarding process and not get overwhelmed with changes. Other constraints may include limiting the amount of freight any one carrier is awarded on a lane, or across the network, and maybe most importantly – allowing carriers to provide capacity limits by lane/region/network. So shippers don’t over-award any carriers with volumes they are not set up to handle. Having a technology that can mimic how relationships are constructed in the real world can greatly help with bid compliance and keep bid savings from eroding.
The fix: Use tools designed for transportation procurement, not general procurement .
4. You don’t understand the market dynamics on your lanes. The vast majority of shippers rely on year-over-year and some bottom-up costing analyses to determine if they are getting a good deal on their rates. This process misses the overall market dynamics that affect rates over time. Don’t forget that carriers will incorporate your culture, policies, inefficiencies, and special needs into their pricing. Matt Harding, Principal at Chainalytics wrote on the subject in his blog from August 2013, “Procurement, Meet Freight Market Intelligence.” Harding posits that only through detailed analyses on large amounts of freight data from outside sources (showing ranges of rates – not just an average) can a company truly know not just if their costs are going up or down, but if their rates are any good.
The fix: Up your data access and analytics.
5. You don’t manage your compliance to the bid closely. Once the bid is completed and the new routing guide and contracts are loaded into your TMS many shippers don’t go the extra step to track how they are executing to the promised savings from the bid. Chainalytics has helped shippers implement detailed compliance tracking programs, which focus not just on the cost being the same as in the bid, but also on executing the network in the fashion you expected – utilizing the correct modes on lanes (IM vs TL), utilizing preferred carriers, calling out-of-stock transfers and expedited loads. By aggressively managing to the new plan we’ve seen shippers keep “bid leakage” to about 1% from plan vs. double digit leakage when shippers institute little oversight.
The fix: Implement a measurable savings delivery program.
Hopefully many reading this are thinking to yourself that your company already manages regular bids using best practices – but we know many who don’t.
Do you agree/disagree? Let us know. Send comments to firstname.lastname@example.org