Industry week recently ran a good article by Chris Ferrell of Tompkins Associates on Best Practices in Freight Bidding that had a number of good suggesstions. The article offered up the following 12 best practices:
- Obtain commitment from executive management.
This is always a good idea, no matter what project you are undertaking.
- Benchmark current freight costs.
Also, separate out fuel surcharges from basic freight spend.
This is critical. After all, how can you do better if you don’t even know how well you’re doing now?
- Include new transportation providers in the bid process and allow carriers to bid on different markets.
This should be obvious, but I’m afraid it isn’t. If you always have the same carriers bidding on the same lanes, they’re going to figure this out eventually and keep their rates in sync to maximize their profit, which is akin to minimizing your savings.
- Standardize bid formats to ensure apples-to-apples comparisons.
This should be a no-brainer.
- Have a minimum of one year’s worth of clean historical data.
Not sure I understand this one. You should have good projections of what your freight requirements are going to be, by market and lane, for the next year and these should be based off of solid demand projections that use at least a year’s worth of good, clean, data and preferably two or three years!
- Look for opportunities to decrease cost by changing transportation modes.
Never assume your current transportation network and strategy is optimal. For instance, just because ocean looks cheaper, doesn’t mean it is. Consider laptops. Their value depreciates weekly. If you can make them light enough, and pack them tight enough, air freight will be more profitable.
- Use a multi-round bid process.
You should definitely use a multi-round RFX, to qualify potential award recipients, but not necessarily a multi-round bid. Depending on the market conditions, the number of potential carriers, your needs, and how clearly you can specify those needs up front, a well-defined auction that takes into account all costs and factors, appropriately weighted, might be your best bet.
- Encourage carriers to take a more holistic look at your freight.
Good carriers will know their networks and how to optimize them much better than you will know yours. It’s their job. They might be able to come up with alternative bundles, modes, or schedules that could save you a significant amount of money.
- Leverage volume through a relatively small group of core carriers.
This is a basic tenet of sourcing, period. Just make sure that you split demand through a small group, and not a single carrier – because this would introduce a significant risk into your supply chain.
- Bid freight on a regular, predetermined basis.
Like any other bid, it shouldn’t be done ad-hoc. It should be by major sourcing project or at regular intervals.
- Put as much effort into implementation plans as you do the bid.
Remember that negotiated savings are just that – negotiated savings. To realize them, you need to be ready to do what it takes.
- Track carrier performance against commitments and utilize feedback loops.
You should not only track performance, but verify invoices using m-way matching and analyze historical performance using spend analysis to find overpayments and secure the credits or refunds before the contract expires.
Although the doctor is an expert in transportation network modeling, and well versed in freight, there are other bloggers out there who are experts in freight bids and freight auctions, a few of whom run projects on a (very) regular basis. He knows at least a few of them check this blog from time to time. Maybe they’ll chime in with a few tips of their own.