I am short on time this morning, so I’ll just get right to the point: transportation procurement is hot right now. In every conference that I’ve attended so far this year, I’ve spoken to many shippers who have put their freight out to bid over the past 6-9 months. And this trend is confirmed by TMS vendors, consultants, and logistics service providers.
Yesterday, at the Manhattan Associates’ Momentum 2009 conference, I attended a very informative session titled “Leveraging Transportation Procurement in a Challenging Economy.” The presenters were Barb Pitroski, VP Carrier and Freight Solutions at GENCO Supply Chain Solutions, and David Meyer, Corporate Logistics Manager at Wausau Paper.
Ms. Pitroski kicked things off, highlighting many of the trends and challenges facing the industry, including ongoing fuel price volatility, the growing role of politics (e.g., infrastructure, taxes, free trade, Employee Free Choice Act), and ‘green’ initiatives (e.g., 2010 engine regulations, SmartWay, and cap-and-trade). The bottom line of her message, which echoed much of what I’ve been saying for months too, is that shippers need to stay informed of these trends and fine tune their transportation strategies and networks accordingly.
Mr. Meyer gave a brief overview of Wausau Paper ($1.2 billion in sales in 2008, 8 production facilities in 5 states, more than 63,000 shipments in 2008, 4 distribution centers, and distinctly different supply chains for each of its business segments). The company has about 100 carriers in its database, but they use about 50 for most of their volume.
Since 2005, the company has conducted three transportation procurement engagements. The first one was driven by a need to consolidate its carrier base (the company had been using hundreds of carriers), the second was driven by mode conversion, and the latest one by market conditions. In each of the three bids, Wausau saved at least $2 million in freight spend.
GENCO managed the last two bids for Wausau. According to Meyer, GENCO provides them with the industry knowledge and expertise to successfully manage a procurement engagement. GENCO also provides valuable input to their near- and long-term transportation strategy by proposing and analyzing various “what if” scenarios.
The one piece that GENCO lacked prior to this last procurement engagement was a good technology solution. GENCO had been using an internally-developed procurement application, but it wasn’t flexible enough. Anytime Wausau wanted to evaluate a different scenario, the analysis would take a day or more. In short, Wausau encouraged GENCO to find a best-of-breed transportation procurement application and it ultimately selected Manhattan’s Transportation Procurement solution. Among the benefits: During this last procurement engagement, Wausau and GENCO were able to analyze many different scenarios in a single day.
Meyer shared a lot of good information, but here are the points that I found most interesting:
- Wausau wants to be a leader in ‘green’ transportation. The company is involved with SmartWay, and 100 percent of its carriers are SmartWay certified. Not all of the carriers were certified when they were selected, but Wausau set the expectation that they needed to become certified within 6 months, and the company helped many of them achieve certification.
- Educating employees (including upper management), customers, and other stakeholders about transportation is another key objective. The more everyone knows about the different factors influencing transportation costs, service levels, and mode options, the more buy-in and support is achieved from everyone.
- In line with the previous two points, mode conversion (specifically, using more rail and intermodal, especially in serving new markets) remains a priority for Wausau. As I’ve written about in the past, many shippers are looking to get away from “one-way” truck freight, knowing that capacity will get extremely tight again (much worse than 2005) when the economy recovers. Wausau has been working with several of its customers, including Staples, to convert more shipments to rail and intermodal. This shift typically adds a day of lead time, but the cost and ‘green’ benefits are usually worth it. Before approaching customers, however, you need to educate your internal sales team on why mode conversion is beneficial and get their buy-in. Meyer uses the results of the procurement engagement to make his case. He shows them what transportation would cost sticking with the status quo versus scenarios that use more rail and intermodal. The numbers speak for themselves. And with the help of JB Hunt, Wausau’s primary intermodal partner, the company calculates its transportation carbon footprint under different scenarios, which also helps in getting buy-in from the sales team and customers.
The bottom line: if you haven’t conducted a transportation procurement engagement in the past year, you’re probably missing out on cost savings. But Ms. Pitroski and Mr. Meyer also warned about the dangers of taking a short-term, non-strategic approach, a point that I also raised back in January in “Transportation Statistics Point to Continued Economic Woes.” Here is what I said then that still applies today: Can shippers “strong arm” their carriers into getting lower rates in this environment? Absolutely, but it’s a poor strategy from a long-term perspective. Smart shippers understand that maintaining “carrier-friendly” practices at this time is the best approach. It may take a few years, but fuel prices will climb over $100 a barrel again and there will be a severe shortage of capacity once the economy improves. Shippers that establish “strategic” relationships with their core carriers today will be in the best position to weather these future challenges.