Economies of scale. Strength in numbers. Volume-based discounts. All of these notions can fuel desire to initiate a collaborative transportation procurement event, but there is much more at stake than simply striking the best deal. That’s because the transportation industry is based on relationships, and it should not be treated like a generic commodity that can be purchased at the lowest possible price.
The point of joining forces with other companies is to secure the best value for transporting goods; but the nature of the transportation industry almost always favors the shippers that carriers want to do business with. It is all too easy for carriers to refuse transport to shippers after rates have been negotiated, so the shipper that gets the cheapest rate does not necessarily win. A dirt cheap contract for a load that nobody will pick-up is useless.
The true goal of collaborative transportation procurement is to develop successful relationships between shippers and carriers. Proof of that success is seen in mutually beneficial contracts that are executed smoothly. Getting to that point can be quite complicated, especially in large events where there can be thousands of stakeholders and hundreds of millions of dollars at stake. Regardless of size, there are a few tips you can follow to make sure your collaborative procurement event is one where everybody wins.
Align shipper synergies and philosophies
Some degree of standardization among shippers is required before carriers can be asked to reasonably bid for contracts. The most important similarity to share is networks that make sense to bring together. For example, if a procurement event for dry van contracts is planned, inviting shippers that need to procure liquid bulk or flatbed transportation will introduce an unnecessary layer of complexity. There should also be similarities in the lanes needed; a shipper who deals mostly with transportation within Turkey would not have much to gain from an event centered upon pan-European lanes.
Shipper participants should also share goals and philosophies to make the event successful. The most important goal is the desire to secure real contracts—shippers that only participate so they can get many bids to benchmark the market but have no intent to award business are destructive and should not be invited. All attending companies should also have the authority to make and honor transportation agreements without approval from other offices that may never come.
Open lines of communication are key
Since collaborative events take place during a set time, they are very much deadline driven environments. Only shippers that can reliably communicate time lines and needs before the event takes place add value to the process. This is a project management function of the event organizer and requires diligent organization among shipper participants. Communication is much easier with carriers because they are typically able to use a central web site for their end of the process.
Communication remains a vital part of the process after the event has concluded as information flows back to shippers. Careful discretion must be employed to ensure that each shipper has access only to the data that is relevant to their lanes and information intended for other shippers is secure. It is crucial to engage with technology and consultative partners that are equipped to protect returned data.
Network & requirements transparency
Before shippers can get value from collaborative procurement, they must have—and share—visibility into their networks and needs. A detailed understanding of geographies (both points of origin and destinations) as well as specific requirements for each lane are bare necessities of obtaining meaningful bids. This can be trickier than it sounds when all the requirements like equipment and time in transit restrictions are considered.
Additional layers of complexity come into play in regions like Europe where geopolitical issues and local regulations become factors. Even something as simple as ensuring that a driver speak the correct language must be conveyed to carriers to ensure that accurate rates can be negotiated and honored. Collaborative procurement depends on full transparency from shippers regarding all relevant network information, without getting mired down by details that are irrelevant to the bid and can be worked closer to actual ship dates.
Sound market intelligence for decision making
If the fair market value of an item is the price someone is willing to pay for it, then it would seem that there is no better benchmark for market rates than analyzing multiple bids. The problem lies in the lack of commitment behind bids to actually fulfill contracts. Carriers will sometimes submit very low bids for lanes they do not service often on the hope that perhaps if they do have capacity on that lane in the future, they will service it for a low rate. This is unhelpful for shippers that require reliable service.
A historical understanding of market rates for lanes using fulfilled contracts sets a realistic benchmark that gives shippers the intelligence they need to filter out “paper rates” from carriers that are unlikely to be able to honor them. Not all bids are of equal value, and market intelligence is the tool to weed out unrealistic ones. It also helps shippers understand which lanes are tight and experience little variation versus lanes where they have leverage to negotiate from stronger positions.
Tools of the trade – optimization software
There are many sourcing optimization software tools available on the market, and the most important consideration when selecting one is the quality of its optimization capabilities. The sheer volume of carriers, bids, business rules and constraints make identifying the optimal mix of carriers quite circuitous and a high quality optimization engine is important to get the best result.
It is equally important to ensure that someone with the adequate background in analytics and transportation interpret the data. Perhaps most important is to make sure whoever operates the event has significant experience. While many supply chain professionals have the necessary analytic capabilities to work with this complex data, specific experience in the intricacies of collaborative bidding and procurement will help avoid mistakes and achieve the best outcome.
Collaborative transportation procurement is gaining popularity for good reason — done right, it is beneficial for shippers and carriers alike. The right partners and analytic vigor will help make sure your event is successful and the volume of stakeholders involved acts as a multiplier for the importance of getting every step done correctly.
Kevin Zweier is vice president of transportation at Chainalytics.