January 2007 | How-To | Ten Tips

Creating an Inbound Routing Guide

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Used properly, inbound routing guides can streamline operations, reduce costs, and enhance trading partner relationships. Pete Stiles, vice president of strategy and marketing, LeanLogistics, offers these tips for creating a routing guide that your vendors will comply to.

1. Understand what a routing guide is and clearly define its parameters. Routing guides contain routing instructions and the rules of engagement for shipping products from suppliers and to customers. They include modes and carriers to use in specific lanes. They can also contain rates and service requirements. Routing guides help operations staff and trading partners interpret and process the routing instructions and ensure compliance. Clearly define all relevant information and provide clear directions for selecting carriers and solving problems.

2. Use the web. Forget paper manuals. Web-based routing guides empower users with real-time information to make efficient decisions that reduce transportation costs. As variables change—prices go up, carriers go out of business—web-based routing guides can change easily, quickly, and efficiently, ensuring all users have the most current information.

3. Reflect both major routing variables. Cost and time are the two big variables. Identify and chart the price and service capabilities—and limitations—of each carrier, consistent with your desired service and cost levels. Set up routing guides that allow you to conduct rate and service comparisons.

4. Centralize maintenance and control. Put one organizational entity in charge of establishing and updating the routing guide. This entity is responsible for ensuring that routing guides reflect contractual volume commitments to carriers; rates are complete and correct; and rate and service hierarchies are established.

5. Benchmark standard rates. When establishing the routing guide's rate component, review your carriers' rates to get the best price. Benchmark the rates in lanes—not only between carriers, but also network-wide—to determine rate reasonability and conformance with other carriers.

6. Apply routing guides automatically. This ensures standard practices and policies are upheld and forces compliance. It eliminates rogue spending and use of non-authorized carriers. It also ensures compliance with incentive contracts by managing capacity allocation. Capacity allocations employ cost-competitive carriers who may have limited capacity.

7. Consider a marketplace. On lanes where it is difficult to obtain carrier coverage, consider a private transportation marketplace to broadcast your need to a wider carrier community.

8. Establish an invoice-quality rate at tender time. This industry best-practice allows for self-billing at settlement time.

9. Measure and audit compliance-to-plan at payment time. Benchmark compliance—carrier and rate usage, and performance—against the routing guide. Audit shipper compliance—carrier and mode used, and actual rate compared to the standard—and carrier compliance to capacity commitments and delivery performance. Establish non-compliance policies and penalties.

10. Employ all available economies. Set up routing guides that allow you to "rate shop" or compare carriers' total cost, including accessorials and fuel surcharges, as opposed to just line haul rates. Identify consolidation opportunities, establish round-trip rates with carriers, and take advantage of continuous moves whenever possible.

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