Private: Better Transportation Management: Three Factors that can have a Big Impact
For many companies, better transportation management is an area of significant savings potential. While there are dozens of ways to attack transportation cost reduction, this blog focuses on three factors that can have the biggest positive impact on a company’s ability to manage freight:
- Improved ability to source competitive rates from carriers
- Improved ability to optimize loads,
- Improved ability to more easily select the right carrier for each load
This blog will discuss these three factors and highlight areas where companies have used improved processes and enabling technology to reduce rates and improve service levels.
Carrier Contract Procurement
Managing the carrier bidding process can be a daunting proposition – so daunting that many companies do it infrequently or simply rely on spot rates. Why is rate procurement so challenging for many companies? To begin with, the sheer volume of data to be managed can be intimidating. Companies must first analyze their historical freight spend, scraping together what data they have from freight bills and their internal systems. They must then identify trends and make predictions for future business levels in various regions. Then, they must take this massive forecast and transmit it to dozens of carriers for bidding…and for many firms, the hard part hasn’t even begun yet.
When the bids are received, comparing and analyzing them all can test the limits of many data analysts’ abilities. Most companies logically strive for uniformity amongst bids – the proverbial “apples-to-apples” comparison. While a uniform comparison is vital when analyzing multiple bids, it can often stifle the carriers’ ability to offer creative discounts. When carriers offer to drop rates when certain lanes can be bundled together, or create other conditional scenarios, a shipper needs to be able to weigh these possibilities against other bids. Spreadsheets are often stretched thin when it comes to these tasks.
Many companies have found that the solution lies with bid management tools. These tools are sometimes – but not always – contained in their company’s Transportation Management Software (TMS) system. Newer TMS systems often have web-based user interfaces to manage the requesting and submitting of bids. TMS providers who offer their solution in an “on-demand” format often have access to a rich database of rates, since all of their users manage loads on the same server. Some of these TMS providers have begun offering “community bench-marking” services to help identify situations where all of the carriers may have bid high on some lanes. They can even suggest alternate carriers who may be able to offer lower rates than the core bidders.
One area where many TMS providers can lag behind however, is in the ability to offer so-called “expressive bidding” capabilities to carriers. This technology still largely falls in the domain of Online Procurement software providers. These companies offer web-based bid management tools that allow carriers to submit “if/then” statements that relate to specific conditions under which they can offer discounts; if the shipper is willing to meet the conditions, their price structure will change. Online Procurement providers also offer the ability to analyze these expressive bids side-by-side with bids from other carriers and play “what if?” When complex scenarios can be evaluated and compared with other bids, then the balance between uniformity and creativity is reached and the shipper benefits.
For many traffic departments, transportation execution means simply selecting the best carrier and effectively tendering loads. Little in the way of true dynamic load optimization takes place on a day-to-day basis. The reason? Dynamic load optimization with manual tools is only possible when shipment volumes are low enough for shipping analysts to examine each load on a case-by-case basis. High-volume optimization requires the use of a complex analytical engine usually found only in the optimization module of a Transportation Management Software system. There are four key types of load optimization that most companies contend with:
Many companies rely on basic rules of thumb such as weight cutoffs to determine when a load gets shipped via a parcel, LTL, or truckload carrier. However, while these rules may be correct eighty or ninety percent of the time, there are still a high number of instances where a sub-optimal mode gets selected. The only effective remedy is the ability to dynamically rate shop multiple modes and carriers for every load. Only then can the complexities of each carrier contract be taken into account, and regional anomalies be considered.
As shipment volumes creep up, it can become more challenging to identify and combine multiple loads which are scheduled to ship to the same destination on the same day. It can be even more difficult to identify shipments scheduled to ship on the following day to the same destination, and determine if they can be pooled while still meeting the customer service objective. A robust TMS – relying on accurate data entered in the Order Management System – can often identify these shipments and weigh the cost/service tradeoffs.
When companies have a number of suppliers in some distant region, it may make sense to pool inbound loads in a remote location and then make a full truckload shipment to their final destination. In this instance, even more complex decisions must be made as to when it makes sense from a cost and service perspective to follow this strategy. TMS systems equipped with a load optimization module can perform pool point optimization based on pre-defined business rules.
MULTI-STOP TRUCKLOAD OPTIMIZATION
This form of optimization creates loads where a single truck can leave a distribution center full, and make multiple deliveries. While multi-stop truckloads often can save money, they can be very challenging to create. How much can fit on a truck before it is full? How long will it take to make the multiple stops, and will each load arrive on time? Are the savings worth the complexity? Only an advanced optimization engine can weigh these decisions in a high volume environment. Not all TMS systems offer this functionality, and those that do must have the system fine-tuned to accommodate each company’s business rules.
Carrier Selection & Tendering
The remaining steps in a winning transportation management strategy are selecting the best carrier for each shipment and tending the load to that carrier. However, without the ability to rate-shop against multiple carriers, and to manage a tiered tendering system, companies tend to rely on rules of thumb to prioritize carriers in particular regions. The process can get complicated when the primary carrier is unable to accept a load, and secondary carriers must be used. Furthermore, the staff members responsible for selection and tendering may be influenced by outside factors – they may prefer to give loads to carriers that they have a personal relationship with, or they may avoid rating loads with multiple carriers simply due to the time required to do so.
Without the ability to easily rate loads against electronic contracts, the traffic department spends much of its time calling carriers, getting quotes, and then calling back the “winning” carrier to tender the load. The result is a traffic group mired in mundane, repetitive transactions, and unable to focus on improving efficiencies.
A TMS can rapidly rate each load against an electronic rate table and determine the first, second, and third choice carriers for each. This ranking can be based on pre-defined business rules rather than an employee’s personal affinity for a particular carrier. In this way, a company-wide transportation program can be executed against, even if there are many facilities planning loads. Additionally, more advanced criteria can be used to select carriers other than simply the lowest cost. For example, to achieve optimal rates, a shipper may have had to make certain capacity commitments to carriers in specific lanes. An advanced TMS can monitor performance against these commitments and direct loads to lanes where the shipper may be falling behind.
When it comes to load tendering, an effective TMS system can work wonders to reduce the administrative workload of the traffic department. Rather than getting bogged down in a cycle of voice mails and call backs, the TMS can be set to automatically tender loads using defined procedures. For example, the load can be tendered to the first-choice carrier, and if that carrier rejects the load, it is then tendered to the next carrier in succession and so on. Alternately, a load can be “blast tendered” to multiple carriers at once, and the first responder receives the load. When capacity is severely constrained, many TMS systems offer spot bidding capabilities, where shippers can post loads on a spot board and carriers can bid on it.
A key to making these tendering processes work is effective electronic carrier communications. A growing number of carriers are able to communicate via EDI, using direct system-to-system communication. However, for many shippers, their best rates come from smaller carriers who are unable to use EDI. For these, web portal communications can be the best way to interact. Loads are auto-tendered via email, and the carrier clicks on a link within the email to view the load and respond. Responses are keyed directly into the TMS by the carrier themselves, eliminating manual data entry and decision making by the shipper.
Other Areas to Target
In addition to the three largest areas discussed in this blog, many companies have experienced significant cost reduction by targeting other areas such as:
- Improving tracking and tracing of shipments (improving customer service levels and reducing administrative load)
- Improving visibility of inbound loads (leading to distribution optimization and improved fill rate)
- Improved ability to audit and pay freight bills (leading to reduced freight spend and administrative costs)