Exec Guide: How Reinventing Freight Procurement Will Help Shippers Handle Today’s Market Volatility.

March 2021

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Introduction

Successful manufacturers are always on the hunt for ways to reduce cost of goods sold to help drive margin growth. The supply chain offers a smart place to start because it is one big, connected machine that impacts every part of the business. Usually when one element goes off track, consequences are felt throughout. Time and money are spent to optimize supply chain processes, mitigating risk and limiting the slowdown of goods produced and moved.

But there is one critical supply chain process that has remained unchanged and inefficient for years. Unfortunately, this process is not equipped to handle today’s extreme market volatility. Manufacturers across the US continue to use this old, rigid process because no other options exist to replace it- until now!

We are talking about the freight procurement process.

Did you know poor freight procurement practices lead to increased freight costs, poor OTD, distribution bottlenecks, and unhappy end customers?

A fully-optimized freight procurement process is necessary to navigate extreme market conditions, and flips. And 2021 is already showing unprecedented activity.

Examining the Traditional Freight Procurement Process 

The “traditional” way to procure freight is rigid and static. It fails all parties involved, except for brokers, especially when market prices swing quickly due to swift changes in supply and demand.

Loads move through a systematic waterfall until they are accepted. When capacity is tight, an inefficient process can take hours to complete. Shippers who have yet to update and optimize putting the entire supply chain at risk.

Here are tell-tale signs that a shipper’s freight procurement & logistics procurement process is not yet optimized:
  1. The process falls apart when contracted carriers reject loads. Shippers spend hours pulling together RFPs to identify contracted carriers. But even contracted freight can take advantage of market fluctuation by shopping the market prior to accepting loads to see if more lucrative freight is available. Unfortunately, the waiting game slows down the entire tender process for the shipper.
  2. Managing shipping costs is a nightmare. Contracted rates grow stale quick, because they are fixed for long periods of time and do not adjust with supply & demand. When there is excess capacity, shippers overpay to haul freight. And when there is no capacity, contracted carriers reject loads causing loads to hit brokers and spot where freight rates jump 15-30%.
  3. Brokers and spot market are used to move freight. When primary, secondary and tertiary carriers reject tenders, shippers have no other option but to turn to brokers or spot, and deal with unresponsiveness, rate hikes, lack of transparency, and poor service.
  4. Deliveries are running late. On time delivery (OTD) is one of the most important metrics to determine freight management performance. The longer a load remains in the waterfall tender process, the more at risk it becomes for late delivery.
  5. There is ZERO rate and carrier visibility. Brokers are not in business to share data, otherwise, they would be out of business. The shipper blindly pays a fee, and does not know how much the broker is paid versus the carrier. This leaves the shipper without visibility to true market cost and which carrier is hauling for them.
  6. Distribution bottlenecks occur at the docks. All manufacturers experience bottlenecks, so it’s important to know where in the chain the hold-up occurs. If goods are produced on time and ready to ship out, but there are no trucks to move the goods to the next destination, freight procurement is the key culprit.
  7. Sales orders arrive late/ SLAs are not fulfilled. Customer retention is the key to any company’s success. White-glove service is no longer a competitive advantage, but a must. Exceeding sales order demands is critical. Afterall, if a shipper can not meet a customer’s expectation and deliver goods on time, as promised, the customer will find another supplier who will.
  8. The supply chain offers no competitive advantage. Optimized freight procurement is sure to cut waste. Shippers have found millions of dollars saved in truckload cost and human capital time. These savings can be invested in other areas to help goods get to market faster and more efficiently than the competition.

 

The New Standard in Freight Procurement

This is where technology comes into play.  Technology has optimized the freight procurement process, eliminating increased costs and challenges associated with extreme market unknowns and fluctuation. Late deliveries equal OTIF penalties, as well as missed appointments & unfulfilled SLA’s to customers. Those consequences are felt up and down the supply chain; however, software now provides another option for freight procurement. Here is how software helps and differs from brokers and DFBs:

  1. Instead of transactional fees per load, OTS users pay a fixed annual licensing fee. There are no hidden margins/ markups as associated with brokers.
  2. With OTS, users control lane cost by setting rate maximums. Loads that strike at/below the maximum rates are automatically accepted. The loads are confirmed, and savings are dynamically posted back into the shipper’s TMS. OTS data is also used to level-set rates before RFPs.
  3. OTS dynamically opens capacity when needed most, as users configure its role within their TMS process. It can run after carriers reject, or in unison. Once opened, loads are shared directly with carriers who bid on-the-fly. With OTS, carriers set the rates not brokers.
  4. OTS ensures all tenders are “asset-based”, opposed to brokers who load grab without a truck in hand. Only the highest-quality carriers are allowed to bid.
  5. OTS records and shares ALL rate and carrier data on every load. Shippers know who the carrier is and what they are getting paid, unlike with a broker who hides this data. Shippers gain actionable rate data to make better, more informed freight procurement decisions.
  6. OTS leverages proprietary machine learning algorithms to match the right carrier for each load based on shipper lane attributes, resulting in higher service levels. OTS removes the broker to open up relationships to a shipper’s best carriers.

Wrap Up

The freight procurement process is the most complex and costly process within the entire supply chain. With unpredictable market volatility, every manufacturer should be committed to optimizing this critical operation. Shippers who continue to use the old, static way to procure freight will continue to place their entire supply chain at risk.