What’s Clouding Your LTL Procurement?
Dick’s Sporting Goods Shares Tip For Transparent Communications
When the head of logistics for Dick’s Sporting Goods Inc. looks to hit a proverbial grand slam with the burgeoning retailer’s supply chain, he focuses upon honest communications with carriers bidding for the company’s transportation business.
“It really is critical that you know what you look like as a shipper from a carrier perspective,” says Joshua J. Dolan, senior director of logistics for Coraopolis, Pa.-based Dick’s, the largest U.S. sporting goods retailer. “I’m either good to the market or I’m bad to the market.”
Through thorough and realistic communications with carriers, shippers not only can predictably get the best price but, just as importantly, can realize overall logistical improvements, according to Dolan.
For companies such as Dick’s—a Fortune 500 company with 2013 sales of $6.2 billion and plans to double its footprint to some 1,100 stores over the next several years—it is becoming increasingly essential to implement procurement practices that result in the most productive and sustainable carrier partnerships.
“There are certain things we have to do just because we’re growing at such a rapid pace,” says Dolan, who, prior to joining Dick’s in April 2012, held executive positions with Pep Boys, IKEA, Reebok International Ltd. and UPS Supply Chain Solutions unit Fritz Companies.
From the outset, Dolan says, shippers must, quite simply, make sure carriers know what their freight looks like.
“Carriers are very thirsty for that information and having a conversation about what the freight really does look like and how it fits in with their network,” Dolan says.
That view is shared by Paul J. Dugent, vice president of pricing for Richmond, Va.-based Estes Express Lines, the largest privately held U.S. Less-than-truckload (LTL) company, who recently held a “mini-workshop” with Dolan and several of his Dick’s colleagues to aid in “demystifying” the LTL pricing process.
“We’d like to see that we get better information so that we can respond with bids that we know are sustainable,” says Dugent, adding that Estes has begun to ignore bid-seeking shippers that do not provide complete information.
“The worst thing we can do is to have made a guess and then have to come back and renegotiate the deal,” Dugent says. “The more assumptions we have to make, the more conservative we get with our prices. And we don’t like to make guesses.
“If we don’t have good information, we make a lot of assumptions,” he continues. “We’re going to cover ourselves. We may not get the business, but we try to avoid making a mistake and having to renegotiate the deal, because we know what kind of disturbance that causes for the customer.
“There seems to be a large knowledge gap between what shippers believe an LTL motor carrier needs to develop an accurate pricing proposal and what carriers require,” Dugent says.
“If you can understand each other and collaborate on the distribution characteristics of your freight and LTL economics, if we can collaborate, we can take a lot of cost out of the supply chain,” he continues. “I think we need to do more of that, not so much necessarily looking for rate increases all the time, but let’s look at ways to take costs out of the system.”
Shippers should look beyond price, according to Art Nourot, vice president of carrier procurement for Unyson Logistics, the third-party logistics (3PL) unit of Oak Brook, Ill.-based Hub Group Inc., North America’s largest intermodal marketing company.
Shippers often look to a 3PL to assist in bid development and execution, as well as implementation and compliance.
“From a 3PL perspective, lowest price is not always the best solution,” says Nourot, who is based at Unyson’s special services center in Apple Valley, Minn. “You need to be focused on the best combination of cost and service to bring the best value to your client, and then be able to support their operations going forward, giving them the best intelligence that they need.
“Your ability to understand your customer’s network, getting all those pieces as clearly documented as possible to the carrier base, is going to help you retain your customer after the bid and for the long term,” Nourot says.
The reality, according to Nourot, is that prices may go up no matter how much information and collaboration is present: “On the LTL side and for transportation in general, cost is under a lot of pressure. Capacity is getting tighter. The truckload market is driving a lot of that, with the lack of drivers trailing into LTL. Costs are increasing.”
Dick’s Sporting Goods’ Dolan says that, whether working with a 3PL or dealing directly with bidding carriers, a shipper must ensure rates are valid, relevant and fair.
“If you go into your procurement process and expect a 20 percent reduction in your cost, that’s probably unrealistic,” Dolan says.
A better approach than concentrating just on price is establishing goals and strategies based upon a number of objectives. As Dolan says:
“What does the business require? Are we looking for cost reductions? Are we looking for changes in speed and performance? Are we looking for consolidation opportunities relative to our carrier base to drive efficiencies within our distribution network around the ‘drop-and-hook’ program, because we realize there’s value to that on the carrier side in terms of reducing their cost, therefore reducing our cost?”
Trucking industry leaders have referred to the “drop-and-hook” process as every driver’s dream. It entails taking a loaded trailer to a shipper or receiver location, dropping the trailer and then hooking up to, and leaving with, another loaded trailer. Most drivers prefer this because there’s no waiting for a trailer to get unloaded or loaded, which can sometimes take hours.
Whether it is implementing a drop-and-hook program or any number of other initiatives, partnering with carriers and other stakeholders is crucial, Dolan says.
“You want to make sure all carriers have a firm understanding of what’s happening today and what your expectations are,” he says.
“We want to be really open with our carriers,” Dolan explains. “The last thing we want to do is put ourselves in a position where we really think that we’re pulling one over on them, and then they come back in six months and say that they need to take a 50 percent price increase, after you’ve already set your budget for the following year.”
Since Dolan joined Dick’s, the company has begun a benchmarking process for LTL performance—a process that benefits shipper and carrier alike.
“Carrier-performance management is something we take very, very seriously,” Dolan says. “We provide scorecarding to all our carriers so they have an active understanding of where they are. It’s critical at the onset, as you can imagine, because carriers are making commitments to us based on price. And, if there’s a challenge, we want to make sure that a carrier is aware of that, rather than just saying to a carrier, ‘We have to push you out of our network because you’re not meeting expectations.’ So providing feedback is critical.”
The winning formula, according to Dolan, is this: “Partner with the people you’re doing business with, because, a lot of times, they know a lot more about our business than we do.” n
Dolan, Dugent and Nourot each made presentations during the Jan. 22 closing session of SMC3’s Jump Start 2014 conference in Atlanta. The session, “LTL Procurement Best Practices,” was moderated by this article’s author.
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