Bid optimization and procurement are truly foundational for companies to achieve supply chain excellence and drive value. Procurement process and bid activities have a significant impact on shippers and carriers, making it critical for companies to establish good sourcing practices.
With 2016 being a record year in terms of bid activities for shippers – due to an industry-wide desire to align shipper and carrier networks in the anticipation of an uncertain 2017 – we wanted to analyze last year’s bidding market trends and identify some best practices for shippers.
2016 Recap of Procurement and Bid Activities:
Overall, 2016 was a great year for shippers to go to market. With strong market capacity, shippers saw very strong carrier participation within their bids, and met their bid goals – access to committed carrier capacity at market rates. Even as shippers were able to achieve savings, incumbent carriers were able to retain many lanes – in part due to the fact that many shippers have been willing to leave money on the table to align with core carrier partners for future capacity.
2017 Brings Bid Competition
The later part of 2017 and into 2018 has the potential to be more challenging for shippers than 2016 due to expectations of tighter capacity and increased pressures on rates. In addition to this general market shift, each vertical within the transportation industry faces its own challenges and opportunities during a competitive bid response. It is important for shippers to keep these factors in mind throughout the entire bid process and seek out proactive solutions in light of capacity fluctuations.
A few key examples of these specific industry vertical challenges are:
- Consumer Packaged Goods: Challenges range from very large spends to a mix of very high volume and low volume lanes. The end result of these bids must deliver freight on time, damage free and at a market-competitive cost to demanding customers that all have their own requirements.
- Retail: Inbound flow for retail has challenges that include many low-to-medium volume lanes.
- Manufacturing: Paper and packaging companies require different equipment types—this can span from traditional dry van to light-weight equipment. Balancing dedicated lanes and OTR lanes can be part of this challenge.
- Oil and Gas: With fracking taking a leap forward in the last few years, helping maneuver the sourcing of sand and water has seen barriers but has also had great rewards.
- Chemical: Shipping hazardous substance presents challenges in regards to regulation and safety risks.
Sourcing and Bid Strategies:
In order for shippers to proactively tackle these challenges, it is important to consider a few key sourcing strategies when engaging in bid activities:
- Shippers and their logistics and/or procurement partners should give at least a month of preparation time before going into a bid.
- Bidding the entire network is an effective strategy as it allows companies to leverage their entire freight spend and gives enhanced visibility to an entire network of carriers.
- Truckload and intermodal should be bid out together because many lanes have similar freight characteristics or could ship in either mode (depending on lead time, volumes, cost).
- The results of the bid needs to be implemented, at the most, 30 to 45 days after completion of the process. Sometimes a bid can get pushed back to the 60-day mark, but anything past this timeframe can reflect a change in capacity in the carrier’s network.
Additionally, while there are many practical bid strategies for shippers, there are also important factors that core carriers should address when facing the bidding process. Shippers negotiating with their top 5 or 6 carriers has become a more significant trend, thus removing some lanes from a specific bid process. It is also important to remember that, because of the changes within networks for both shippers and carriers, a single year contract is recommended, especially for truckload shipments (due to different environments, LTL could get pushed out to a 2-year contract).
During a bid is also a great opportunity for shippers to examine its accessorials, such as fuel surcharge, stop charges, cargo insurance, etc. While shippers want to be market competitive, it’s also important to be fair to their carrier partners, so it’s good to benchmark against industry peers. And it’s best and most efficient to do so during a bid, instead of having to negotiate with each individual carrier.
With the entire bidding process comprised of an aggregate of steps, it is important to stay up-to-date on current industry trends and strategies. Proactive, good communication between all parties involved and following best practices will help make the process smooth and increase the success for a business’s bidding scenario.
Ben Cubitt is Senior Vice President, Consulting & Engineering, at Transplace. With more than 20 years of industry and consulting experience in freight optimization, Mr. Cubitt has a deep familiarity with the freight procurement field working for consulting firms and multiple Fortune 500 companies in the consumer products, paper and automotive industries. Mr. Cubitt joined Transplace in July 2010 after four years as Vice President, Supply Chain for RockTenn Corporation. At Transplace he leads the engineering and consulting teams.
Ratna Prabhu works as the subject matter expert and lead engineer for procurement projects. He has helped shippers secure capacity for their multi-million dollar transportation spend, spread across multiple business units and modes. He has worked with a variety of customers including BASF, USG, Colgate-Palmolive, Campbell’s Soup and Huhtamaki. He has also worked on network optimization projects for both internal as well as external consulting customers. In addition, Mr. Prabhu also supports internal customers in ROI assessments and continuous improvement projects. He holds a Master of Science in Industrial Engineering from the University of Arkansas and is currently working on his Lean Six Sigma Green Belt certification.