Strengthening your supply chain one link at a time.
The previous version of this blog series focused specifically on some common themes in procurement of parcel freight. Let’s turn our attention to the truckload market:
It. Does. Not. Matter. I have heard from shippers and third-party logistics providers alike that managing more spend in the truckload space is directly causal to lower rates. Again, this is categorically false. There are hundreds of thousands of truckload carriers in the United States alone, with over 99% of them operating under 100 power units (according to the American Trucking Association). This is a highly fragmented market, so aggregate spending does little to nothing to support carriers with lowering costs that they can pass onto shippers.
Without a doubt, procurement-specific applications help with the administrative components of a procurement event (i.e. managing the communications with the bid participants throughout the procurement process). The math to generate multiple scenarios, set up the constraints within those scenarios then calculate solutions is no different than what other tools utilize. For instance, supply chain optimization software applications utilize the same modeling principles as procurement applications. In the end software can be helpful, but it’s value must be weighed against is cost and a serious evaluation of the total effort it saves. Executed properly, you will realize the same pricing with our without procurement software, but perhaps software will save effort in the process.
I have made this mistake too many times!! It is both easy to generate and tempting to report, but there is hardly ever an instance where the lowest cost bid scenario is an implementable solution. Since this scenario generates the “highest possible savings”, it is the one that Finance and other senior executives never forget. My advice to those facilitating truckload procurement events – run the scenario if you want, but be extremely cautious in embracing it!! Validated it, test it, and ensure that the savings aren’t so inexorably tied to the ‘best case scenario’ as to be highly unlikely to be achievable.
Many years ago when procurement tools were in their infancy, carriers were offered the chance to submit “bundled” pricing. This means if a shipper had volume from A to B as well as B to A, the carriers could bid on each lane individually or provide a reduced price if awarded both lanes. That capability is not seen in bids anymore for one main reason – consistent availability of freight in both directions didn’t happen consistently enough in the real world.
The final installment of this series will focus on the LTL piece of the transportation puzzle, smaller shipments don’t necessarily mean smaller challenges, or opportunities!
—Brian Fish, St. Onge Company
