By Kevin Zweier | Vice President, Transportation, Chainalytics|
From a procurement perspective, truckload transportation is an interesting market. Some may try to treat it as a commodity, but shippers who buy transportation aren’t just buying a pure commodity; they’re buying a service from carriers that often directly touches their customers. Yet, that service often has very little true commitment behind it other than a general agreement (i.e. handshake) that the carrier will take the loads when tendered and the shipper will tender the loads to the carrier. So any truckload procurement event is a relationship management process as much as it is a pricing event.
We’ve been involved with many collaborative procurement events across numerous transportation modes. Collaborative truckload bid events aren’t about “economies of scale”; they’re designed to develop successful relationships and outcomes for participating shippers and carriers. And there are special challenges in a particularly large or complex collaborative procurement event with many moving parts.
Take for example a recent Pan-European domestic and international road transportation event, which had a staggering amount of complexity: It incorporated 20+ shippers and invited 1,600+ carriers (900 participated) and ranged across truckload, intermodal, short-sea, barge, rail, (incorporating over 4,000 lanes/lots); varying unit types (pallets vs. loads vs. metric tons); 20 different currencies; and 70 equipment types supported–many with different restrictions. Our goal was to:
- Provide greater visibility for all shippers in fragmented markets, both to and within the EU, Turkey, Russia, the Ukraine and the Caucasus, and tap into broader supplier/carrier bases
- Give carriers an opportunity for one-stop shopping for a large volume of freight
- Drive synergies across shipper participants’ freight by finding backhaul to make participating carriers more efficient (rates are an excellent proxy for how much value the carrier thinks they can drive in this network–if it fits well, you get good pricing)
- Develop a data clearinghouse to meet EU confidentiality and anti-competitive edicts
What We Learned
Simpler, less-involved collaborative procurement events rely on communication. But large, complex events like this one–which crossed sovereign and cultural borders–put even more pressure on communication and require:
- Similar Shipper Synergies & Philosophies: Shipper participants need to be able to work together on the most basic levels, have networks that make sense to bring together, be able to compromise and agree on how they go to market and structure the event and have similar philosophies to make the bid work.
- Communication with Carriers: With more parties involved, it’s critical to keep carriers abreast of timelines across all shippers.
- Network & Requirements Transparency: If carriers are going to successfully build continuous moves or synergies across multiple shipper participants, they need transparency about shippers’ networks and requirements–all of which demands coordination and cooperation.
- Good Market Intelligence: In a large event like this, good market intelligence from sources like the Freight Market Intelligence Consortium helps shippers understand current market rates throughout the vastly dispersed bid.
- Transportation Bid Optimization Tools: These tools help with analysis of complex rules, constraints and what-if scenarios–all of which are even more important in a large event like this.
What are my parting pearls of wisdom for successfully managing a large, complex collaborative procurement event?
As these events get larger–with more shippers and constraints–they can overwhelm carriers. The trick is to constantly balance, to keep it simple for carriers to do their analysis and for shippers to find the best providers. This all boils down to Don’t over-engineer it. Strive for simplicity. But understand the event is complex and you’ll need an analytical framework to balance the extremes–and of course a consultant who knows what they are doing.
Kevin Zweier, vice president of Chainalytics Transportation competency, has the exceptional ability to communicate challenging analytical concepts across diverse groups of internal and external stakeholders. He brings deep expertise in the development and use of mathematical models that evaluate tradeoffs and address complex business problems involving large datasets and competing objectives.