Freight’s Enough

I just got around to reviewing an Aberdeen study Winning Strategies for Transportation Procurement & Payment which was published in February. In it, there are many concepts regarding transportation sourcing which are interesting. Based on this study’s findings, companies seeking to improve their transportation procurement and payment processes should:

  • Centralize their freight procurement operations and evolve beyond manual processes and spreadsheets.
  • Implement a formal spend management process and encourage more innovation in their carriers’ bid responses.
  • Mine spend management data to improve cross-functional business decisions.

Additionally, respondents were 1.5X as likely to manage procurement centrally and 1.4X as likely to use a procurement application for their carrier selection process rather than spreadsheets or manual processes.

In 2007, with freight rates starting to soften for some transportation modes, companies believe this is a great time to review procurement and freight audit & payment practices. Companies believe they can save an average of 8.8% on their overall freight budget with a more sophisticated procurement or payment/audit system.

Regarding procurement technology, Aberdeen adds:

Procurement technology helps companies improve staff productivity, negotiate more effectively with a larger carrier pool, and make better business decisions on which bids to accept.

  • A pharmaceutical manufacturer needed to control $25 million in air and ocean freight spend. The company shipped across 900 lanes via three freight forwarders. It asked the three incumbents to give their best price to avoid an open RFP, and the forwarders came back with a total of $600,000 savings. The company decided to offer a wider bid and invite 10 firms to participate. The company let providers bundle and unbundle lanes and suggest alternate routings. After using the bid optimization tool to analyze the results, the company ended up selecting two of the incumbents but this time saved $6 million.

Bid optimization tools are also being prioritized by companies, especially those with large freight spends. These tools can manage the complexity that comes with multiple lanes and letting carriers bundle and unbundle lanes in their bid responses. Companies are realizing the benefits of competitive bidding cycles that encourage bid innovation.

The previous example is further defined in a case study from the Aberdeen Advanced Negotiation Benchmark which highlighted an Iasta client that performed a complex ocean freight bid, available here.

From this February report, one can easily conclude that procurement applications come in various forms, such as logistics specific or eSourcing applications which support bid optimization. We have found optimization to be widely applicable for all sorts of categories. Although a transportation specific tool is very valuable, most companies can benefit across more categories than freight which makes a uber-optimization tool much more useful. Not only can analysis be run to allocate awards and save significant amounts of time but sourcing professionals can also use optimization as a “sanity check” to verify that the pending decisions do not have gaping logical holes in them. Any organization that has delivery zones, items and suppliers should be thinking about how to implement sourcing optimization.

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