There are countless ways in which relationships between shippers and carriers can be thrown off track, so not have having a formal program for managing such partnerships seems almost like inviting disaster.
The first blog in this two-part series (see the Get an Start Early on Carrier Management blog) looked at how shippers need to start creating these programs when they are selecting the carriers they want to do business with. This second blog considers the ongoing challenges shippers face when they are working with the carriers that captured their business.
A common pitfall is assuming that dealing with carriers is a one-way street; that demands flow in one direction and that is towards the trucking company that profits from moving your loads. True partnerships are based on a healthy cross-flow of ideas, and a two-way dialogue between the parties. Make sure that the carrier is in the loop when important changes are coming down the pike such as new products, sales promotions and shifts in volume forecasts. If the trucking company finds out after the fact the likelihood of a glitch is far greater.
While you know exactly what to expect from the carrier, it is often a good idea to hold a mirror up to your own operations to gain an appreciation of what it takes for the carrier to meet those expectations. For example, are your shipping patterns and lead times unreasonably irregular given the nature of the business? In many ways it is incumbent on you, the shipper, to make it easy for carriers to partner with your organization.
Keep in mind that carriers have a choice over what freight they haul – particularly in capacity-constrained markets – and gaining a reputation as a preferred shipper gives you an important competitive advantage. That means building multi-dimensional relationships that are not bound by rate discussions.
Transportation management systems (TMS) provide capabilities that differentiate your organization in this way. For example, facilitating information flows through electronic data interchange (EDI) and providing a reliable, transparent freight management platform are ways in which TMS technology distinguishes you as a trading partner.
Making an effort to smooth the way for productive working relationships is not altruistic. The easier it is to transact business the more likely it is that both partners will meet their goals for lowering total cost and maximizing revenues. If the carrier needs to assign five people just to keep track of your billing processes, or has to deal with constantly changing lead times, the resultant inefficiencies ultimately impact both companies.
An unbalanced view of how shippers and carriers relate to each other can be particularly damaging in a just-in-time environment. In order to meet the exacting delivery requirements of JIT, it is essential that the shipper works with a core set of carriers that operate as an extension to its business. However, in practice what often happens is that transportation is tacked on to the end of what is regarded as a manufacturing play. It is assumed that the carriers will automatically pick up and deliver as needed.
Think about the way in which service changes are presented while being as transparent as possible. For example, sometimes it is necessary to tier relationships. A company that you have designated as a primary carrier in a lane because of its history and commercial needs might have to be bumped down to secondary status if the volumes exceed what it can handle. Acknowledging that the shift might result in a higher cost per mile rate, and that you need the carrier to be flexible, helps to avoid misunderstandings. The of use methods such as percentage- based tendering, where it is predetermined that a certain number of loads will go to primary and secondary carriers, also brings clarity and helps to keep relationships on an even keel. Such methods are embedded in good transportation management programs.
Another important piece in the carrier management puzzle is using metrics to make sure that you are achieving what both parties set out to do. You are basically measuring service requirements such as tender depth to ensure that carriers have been allocated the appropriate lanes, and what loads are being rejected and why.
Pay particular attention to ensuring that these metrics are aligned with your strategic goals. Many shippers make the mistake of using carrier scorecards because this is accepted industry practice. Scorecards can be a powerful way to measure performance, but are largely symbolic if they are not attuned to your strategy and prioritized accordingly.
Continuously set the direction of the relationship through a daily monitoring routine, and use weekly or monthly updates to keep an eye on your operational and tactical targets. More strategic goals can be perused in quarterly and/or annual reviews of metrics and other performance data. Risk mitigation strategies can also be part of these macro reviews, for instance in connection with the solvency of carriers. Establishing a rhythm to these various reviews helps you to develop a monitoring discipline that keeps the relationship on track. Such a discipline also fosters the rigor you need to achieve continuous process improvement.
Measuring and monitoring operations establishes a framework for managing the partnership, but you need to tie these efforts together with an incentive scheme such as a carrier of the year program. Rewarding success adds color to the relationship, and provides a reminder that there is a significant business upside to superior performance. To achieve this incentive schemes should not be token gestures. High performance levels can be reflected in the way you allocate volumes to the carriers that go the extra mile when annual and/or bi-annual RFPs are issued.
The overarching goal is to achieve the lowest costs across the entire network and not just lane by lane. To meet that goal you need a thorough understanding of your network, and to ensure that every carrier understands the importance of the relationship and the investments that both parties need to make in order to make it successful.