I spoke recently with a transportation manager at a manufacturing company about a strategic transportation procurement event his company had conducted. What impressed me the most about the results was how little slippage the company has experienced in its projected savings.
This manufacturer had not conducted a network-wide transportation procurement event for some time. Before beginning the procurement event, the company decided to conduct a lane benchmarking exercise to discover which lanes it was getting very good, average, or poor rates on. The company worked with Transplace (a Logistics Viewpoints sponsor) on this exercise. Transplace is a non-asset, North America-based third party logistics (3PL) provider that offers a SaaS transportation management system (TMS) and managed services. These services include a project-based approach to benchmarking lane rates and freight procurement consulting.
When Transplace briefed me on its lane benchmarking service, the company made the point that it is very important to put benchmark data in context. When should a shipper expect to get an aggressive rate versus a market rate? If a shipper is paying 7 percent above the market rate on a particular lane, there may be good reasons why this is so. If they are paying 5 percent below market rate on another lane, this may indicate that the shipper will have a hard time securing a similar rate in the next procurement engagement.
This manager was certainly very happy with the benchmarking exercise. He said, “Every transportation manager I’ve ever talked to says they have good rates. They can’t all be right.” His company decided to take the next step and have Transplace help manage the strategic procurement event.
Once the last round of bids came back, the company found that it had the opportunity to save about 10-15 percent on its overall freight spend. But this shipper valued its incumbent carriers, who had given them good service, and they have a sustainability initiative in place, so they also put a premium on working with SmartWay certified carriers. Based on these constraints, the company ended up awarding business in a manner that would lead to about 4 to 6 percent in projected freight savings.
For me, this is where the story got interesting. I said to the manager, “But you did not actually achieve 4 to 6 percent in savings, did you? I’d expect that on some lanes, your preferred carriers rarely respond to your tenders. I’m guessing you’ve actually gotten 3 to 4 percent in savings.”
The manager responded, “No, we have achieved 5 percent in savings; carriers rarely refuse a tender.”
He went on to explain their vetting process for helping to avoid procurement savings slippage. The company outlines its general requirements in the request for proposal. Upon reading the requirements, carriers may decide to opt out at that time. Then carriers are tentatively awarded contracts on certain lanes. However, before a carrier can sign a contract, it needs to come to one of this manufacturer’s warehouses, talk to this company about its supply chain strategy, see the actual freight it will be moving, understand how the products are wrapped and banded prior to shipping, and truly understand just what it is getting into.
This manager views part of his job as being an advocate for the carrier. In order for a carrier to take proper care of the freight, a shipper also needs to understand what it needs to do to help the carrier.
What is the rather obvious moral to this story? If you want good partners, you also need to be a good partner.