Service providers react in many different ways to transportation procurement events. Applauding is not often one of them. In general, carriers don’t particularly like procurement events for reasons that have little to do with adding value for shippers.
While this observation is unlikely to bruise your ego, it’s still worth thinking about. The reasons why procurement events represent something of a downer for carriers underscore why they are a good idea for shippers.
In fact, there are some solid pluses for providers as well, but we’ll get to that in the next post.
First, let’s take a look at the features of procurement events that tend to be viewed as party poopers on the carrier side of the bidding table.
- Competition. When providers compete with each other for loads, shippers tend to do better on rates.
- Big picture view A. During bids shippers get a chance to evaluate the value that services providers deliver in broad terms. Compare this to the one-off, single-lane pricing discussions that are more usual. Such impromptu reviews often take the line of least resistance – the status quo with a slight increase for the incumbent carrier. In other words, there is no market discovery in these narrow conversations.
- Big picture view B. Service providers would rather deal with an operational buyer who is more worried about coverage than the tradeoff between coverage and price, than a big-picture customer. The more blinkered buyer may not have the wider perspective needed to leverage the overall relationship with the service provider. And that often means a higher market rate for the carrier.
- The scepter of change. When situations change there is risk, which is generally unwelcome.
- The opportunity to prep. Shippers embarking on a procurement event should have done their homework about market pricing trends. As such, this is a more educated buyer than one who simply adjusts pricing on an ad hoc basis. The informed shipper is like a car buyer who knows the dealer’s costs and incentives packages – not just the manufacturer’s recommended retail price for a vehicle – before entering the showroom.
- The lack of hiding places. Lanes or service providers with inferior service levels tend to be spotlighted in procurement events, particularly when constraint-based bidding tools are used. Also, temporary deals with above-market rates that have somehow become permanent fixtures are difficult to conceal in a procurement event.
- Pricing visibility. During these events it’s tough for providers to sell purely on the basis of the relationship they have with the buyer; pricing is just as important in winning the business.
- Timeliness. In the freight business no news is not necessarily good news. Networks change as do market rates, and contracts with service providers have a limited shelf life. A rate in use because of routing guide substitution that is in favor of the provider is likely to remain that way until a procurement event forces a correction.
Shippers that are aware of these biases are in a better position to create an effective transportation procurement strategy, and to stage procurement events that meet their performance objectives. And although this may not seem obvious, providers can also benefit from this enlightened view of the procurement process.
We’ll look at these more positive factors in my next post.