Does Your Company Have A Solid Transportation Procurement Strategy?

Picture1The logistics marketplace is dynamic and demands attention to truly optimize and enable strategic advantage.  Supply Chain professionals have a tremendous amount of demands and pressures to be aware of and transportation procurement is one of those pressures.  There is a need, a growing need to drive better performance and outcomes from sourcing events.

Let’s consider some constraints.  What is preventing your organization from evaluating the current market for logistics services and challenging your existing carrier base to enhance their performance on a more regular basis?   Is it a concern that rates will actually be higher with new market pricing or, maybe an unwillingness to make a change to your carrier base?  Although valid concerns, better rates and service can often be just one well-executed RFP away.

An effective RFP starts with a clear objective in mind and is structured to gather the right information to benefit your organization. Smarter decisions can now be made on needs such as transit time, handling requirements, and special services that might be unique to your business. RFPs that return low rates from carriers regardless of the fact that they cannot perform the services actually required (e.g. has a great per mile rate, but never any equipment in your area when you need it) only wastes time for your operations and will undermine the value of an entire RFP event.

Why don’t companies hold regular RFP events with suppliers for their logistics service requirements?  Here are a few reasons:

  • Concern that the current market rates are actually higher than the rates you have in place now
  • Discomfort with trying out new vendors
  • Fear of decreased service levels because the new supplier will not understand your real business requirements
  • Lack of any technology beyond spreadsheets to manage the RFP process
  • Technology that operates at too general of a level forcing you to treat purchasing transportation like any other commodity

So given all the reasons shippers may be hesitant to run RFP events… what are the options to take?

Do Nothing:
Is this really an option?  With the many “fires” Logistics Managers find themselves facing, many are often too busy to take a step back and figure out comprehensive sourcing strategy. When, how, and with whom to go to market is always a difficult decision.  However, when the bottom line is on the line, taking steps and actions to shift the dynamic are mission critical.  Doing nothing is not a viable or sustainable business option to combat the ever growing complexity of sourcing transportation.

Spreadsheets:
Excel is a great tool, loaded with functionality to help with many types of calculations. However, running transportation RFPs with spreadsheets is a complicated and time-consuming task that makes a simple logistical pairing nearly impossible.

Challenges using a spreadsheet include the following:

  • Difficult to apply submitted rates to real-time shipment data
  • Keeping carrier responses in a consistent format that allows comparison between vendors
  • Tracking changes, and reasons for changes in logistics costs over time
  • Additional data points beyond just cost

Spreadsheets make a lot of things easier, but they are not an effective tool for managing a logistics RFP.

General sourcing tools:
These platforms can include “proprietary” systems that are built in-house or from larger 3rd party software providers. Procurement of any item, from office supplies to transportation, became possible with the new electronic bid/online auction platforms. Unfortunately, these general sourcing tools were never developed to tackle the intricate sourcing needs of transportation. Without the necessary algorithms, industry terminology and appropriate customer service these tools become somewhat of a higher functioning spreadsheet with little added value in terms of crafting a true transportation procurement strategy.

Outsourcing / 3PLs:
There are many professional companies in the marketplace who not only operate the logistics on behalf of their clients, but also negotiate transportation rates with their carriers. For the shipper this is the sensible way to operate if the company has decided that logistics is not its core competency.

Before outsourcing logistics to a 3PL every shipper should ask themselves “what exactly are we outsourcing and what is the real impact on our visibility and the business?” If that question cannot be answered thoroughly, then outsourcing will end up costing a shipper more money and time than anticipated.

TMS:
Many shippers are negotiating freight contracts via their TMS system. Most likely that applies to daily load tendering but not to annual and complex transportation RFPs. TMS systems are developed for managing the day-to-day coordination of transportation. They should also facilitate in performing strategic sourcing including advanced analyses and decision support.

Specialized e-Sourcing:
The key to a supply chain that is optimized for cost and service may be a specialized e-sourcing tool that gives your company the ability to create targeted RFP events while enabling simulations and advanced analysis.

What to look for with a Specialized Logistics E-sourcing Tool:

  • Experience: Find out the types of customers (size, industry, modes) using the system to ensure there have been other businesses with similar characteristics to yours who are successfully using the platform.
  • Neutrality: There should be no connection between the e-sourcing tool and the carriers that bid. The platform is just that – a neutral tool to facilitate the RFP process.
  • Flexibility: The platform should be scalable to handle, small or large, simple or complex, RFP events should be accomplished with ease.
  • Reach: An efficient e-sourcing tool should allow you to work with your suppliers, but also empower you with access to carriers in other areas of the country or world right at your fingertips.
  • Support: For a bid to be effective, you need your sourcing platform to provide a high level of customer service to you and your carriers. If you operate globally, phone and system support with a local presence in North America, Europe, and Asia should be included.

Transporean RFP

Summary
Be a supply chain leader and ensure that your company is at the forefront of the best service and lowest cost equation. By taking the time to evaluate, consider and action a true transportation procurement strategy, you will not only shift your strategic advantage, you will enable innovation through-out your entire Supply Chain. Do not accept inaction, spreadsheets or tools that do not provide strategic advantage.  What action will you choose?

By closing the loop from procure to pay, top performers delivered a 3.1% reduction in baseline transportation costs year over year.  Learn more:  http://bit.ly/1P4jaih

Florian Dussler is responsible for the US business of TRANSPOREON GROUP as CEO Americas, based in Philadelphia. Florian has an extensive background in Transportation Procurement, Operational Improvement and Change Management. He holds a Master of Science degree in Information Management from Stuttgart Media University, Germany.

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