As we have argued a number times in past posts (see Avoiding the Two-Year Carrier Pitfall, by Kevin McCarthy, September 2nd, 2010, for example), taking a strategic approach to truckload procurement reaps competitive dividends for both shippers and service providers. We make no apologies for emphasizing the arguments again, particularly at a time when market capacity is tightening and it becomes increasingly difficult to resist the temptation to slip into knee-jerk buying practices.
Hopefully most readers will be familiar with the symptoms of non-strategic procurement. These include a strong tendency to dwell on the lowest freight rates and associated carriers, an obsessive need to lock in low rates in the belief that this will deliver consistent savings, and a general lack of attention to provider issues.
Here is a ten-point check list that will help you to maintain a healthy truckload procurement strategy.
Don’t try to time the market. By all means pursue the most competitive freight rates, but “timers” who try to nail down rates at the lowest point in the market cycle are chasing fool’s gold.
Benchmark broadly. In addition to comparing last year’s transportation rates with current figures, draw comparisons between today’s rates and the overall market.
Be consistent. Conducting a procurement exercise at the same time of year, every year, helps you to maintain alignment with your providers and sustains pricing levels. Also, in these uncertain times bringing some predictability to the procurement process helps the participants to plan ahead.
Honesty really is the best policy. Dressing up your freight business to make it appear better than it really is might win you a great deal today, but eventually you will be found out and the consequences could be costly.
Leverage the web. Strategic procurement exercises that involve multiple service providers require a lot of computing power. You can lighten the load by using the web-based tools and cloud computing solutions offered by leading edge technology such as Managed TMS.
Constraint based bidding tools help as well. These tools provide a richer and ultimately more profitable analysis of your transportation spend than basic, tactical solutions. Constraint based bids often reveal that the lowest cost carriers in the routing guide provide less and less capacity over time, for example.
Consider an expert. Done properly a truckload procurement exercise can be highly demanding. Hiring an expert to run the show not only eases the burden, he or she can provide a fresh perspective on the effectiveness of your buying strategy.
Use a transportation management system (TMS). Quite simply, there is no substitute for TMS tools once a procurement exercise is complete and a freight plan is in place. Carrier and client scorecards, savings analyses, a neutral source of performance data, and historical comparisons, are some of the deliverables available from a robust TMS.
Loyalty is not a sign of weakness. While some carriers will come and go try to stick with the same set of core providers from year to year. In this case familiarity does not breed contempt; it helps to keep your networks in synch and builds the kind of stable relationships that tend to yield long term efficiencies.
Have a plan for dealing with market ups and downs. Fluctuations in capacity and freight rates come with the truckload territory. Rather than reacting to every twist and turn, develop a plan for monitoring key indicators and communicating important changes to your providers.
Following this ten-point guide will not make you immune to short-sighted truckload procurement actions. But it will help you to build a robust buying strategy that delivers on your business objectives even in a tight market.
This post is based on the white paper 10 Tips to Prepare for a Tight Capacity Market available from C. H. Robinson Worldwide for download at http://www.chrobinson.com/en/us/Resources/White-Papers/. More information on developing sound truckload procurement strategies can also be found in the new Explores… report published by the Council of Supply Chain Management Professionals (CSCMP) and authored by Kevin McCarthy and Chris Brady from C. H. Robinson Worldwide. For more information on the Deriving Strategic Advantage from Truckload Procurement Explores report please visit http://cscmp.org/