Towards the end of a recent presentation at a prospective customer, the Chief Procurement Officer, asked me his “Million Dollar” question:
“So what type of money can we expect to save each year, by using your transportation RFP software?”
It was a very natural question, and one which is asked often by customers considering any software solution. I offered him the following honest, but unexpected response:
“The biggest factor in the cost of the transportation services you procure through an RFP are the prevailing market conditions and attractiveness of the loads you are bidding out.
No transport RFP tool can guarantee lower rates year over year, or each time you run a procurement exercise. Regardless of how many carriers you invite to participate, or how many rounds you run, carrier pricing is still ultimately dictated by market conditions such as fuel costs, capacity, driver compensation, and the positioning of a carrier’s assets (vehicles, driver etc.) in relation to the lanes and load characteristics you are offering.”
“If that’s the case,” the CPO replied, “why should we even be looking at spending money on an IT solution to run and manage my RFPs?”
Indeed, this question requires us all to revisit and recalibrate our understanding of the value propositions of transportation and sourcing software solutions.
At the very least, if you are contemplating a transportation sourcing and procurement exercise, you can reduce cost by automating the process of identifying and sourcing potential suppliers, distributing the RFP, collecting the responses and analyzing the results. If you can reduce the manual effort required to perform an RFP exercise, it will also enable and empower you to run the RFQ as frequently as you feel necessary and as quickly as your internal business drivers or external market conditions demand. Automation will empower you to run multiple rounds, providing feedback to carriers at the end of each, and encouraging better offers based on the feedback and their competitive standing. A “self-service” tool that enables quick launching of a transport bid, and concise response and award cycle, can provide you the agility to secure the best possible pricing before market conditions adversely impact your leverage and purchasing power.
Most transport procurement solutions allow shippers to provide greater details about the volume and nature of their transport moves, to carriers participating in an RFP. This enables providers to better ascertain the “fit” and value of your loads to their network and promote more courageous bids by them on those lanes that they want most or service best. One of the best ways to neutralize, and even maximize, the market conditions impacting freight costs is to provide participating carriers better transparency to the actual business that you are offering them, so that they can assess their opportunity and weigh it against their cost. Transparency of cost enables carriers to better mitigate risk, and make you their best offers.
RFP platforms, dedicated to transportation and logistics, offer an array of tools to compare and analyze bid responses, and help make better decisions that consider additional factors other than price. Such tools should have built-in analytics that allow you to incorporate your historical load data, and service components (lead time, time in transit, capacity etc.) by lane from each responding provider, and model transport costs on various scenarios. For example:
- What would your transport spend be if you awarded lanes based on shortest lead time? Would the extra cost be offset by reducing the lead time?
- What is the difference in your transport spend if you awarded loads based on best bids for each lane vs. awarding loads to your incumbent carrier in each lane? Would the savings of a new, less expensive provider be significant enough to offset the safety and assurance of the known provider currently supporting these lanes?
Analytics should allow you to apply actual cost per shipment, rather than average cost per shipment, to your analysis. It would also enable you to better consider and analyze subtleties of carrier bid pricing such as the impact of breakpoint optimization / deficit rating opportunities on LTL shipments based on previous year’s data. Shippers already using TMS solutions should have this data readily available to maximize these analytics.
While an RFP solution can’t guarantee lower transportation costs, it can provide assurance to your management teams that you are procuring the best rates and service levels under the prevailing conditions at the time. You’ll be able to point to the fact that you reached out to the right amount of providers, and were able to objectively compare offers, model scenarios and analyze results. In the end, you will be confident that you have the best possible results at the end of the exercise, and that you will be awarding your transport business in a manner that reflects your organization’s best logistics practices and cost / quality of service objectives.
In summary, if market conditions stay the same or improve for carriers, those shippers taking advantage of today’s transportation sourcing procurement software solutions should realize significant savings. Should market conditions worsen, an RFP software solution should, at the very least, help you contain transportation cost, so that you can gain competitive advantages and maintain profitability.
Elie has been Director of Sales & Marketing, North America for Transwide since 2011, and been with Transwide since 2010. Prior to joining Transwide, Elie spent 6 years at Kewill, and 11 years at Neopost in various roles, including Vice President of its Logistics Systems division. In all, Elie brings extensive knowledge and 25+ years of experience in logistics, transportation management and IT solutions, spanning the TMS planning and execution, parcel manifesting and global trade management solution sectors.
Esteban Rivas says
You nailed it on every single point.
Thanks for writing this article.
Elie Hiller says
Thanks for the kind words Esteban
Kristian O'Meara says
Elie, very well written article. I would add one additional comment based on what we often encounter at BravoSolution (http://bravosolution.us/solutions/industry/transportation/). As a solution provider of Transportation RFP Sourcing software we often see prospects subdivide their transportation sourcing into small sub-optimal bids because that is the only method they can manually review and analyze in their offline\Excel based approaches. It is important to provider carriers full transparency to get the most complete and aggressive bids and take each mode out to market in its entirety.