Cutting LTL Costs
Saving money on less-than-truckload (LTL) procurement is a laudable goal—except when operational problems eclipse savings gains. Shippers who prioritize securing the lowest price from carriers may actually end up paying more because of costs embedded in carrier expenses—resulting in problems such as service degradation and supply chain disruption. Danny Slaton, executive vice president of supply chain technology provider SMC³, offers these tips for more effective request for pricing (RFP) bidding.
1. Develop clear bid objectives, mandates, and supply chain change requirements. Pre-bid supply chain and customer analysis helps LTL shippers define strategic bid objectives, such as reducing costs or number of carriers, delivering goods to market more quickly, and addressing freight challenges within certain geographic areas.
2. Carefully select RFP questions. Shippers structure a successful RFP when they align themselves with carriers that fit their shipping profile. Shippers should collect information on carriers' financial performance, customer service, IT quality/capabilities, exact fleet size, type of equipment used, and even CSA scores.
3. Gather quality shipment data reflecting all LTL movements for the past 12 months. Data entry errors do occur, so pre-bid data cleansing and accurate commodity descriptions are critical for successful LTL bids.
4. Select carriers based on pre-defined objectives and requirements. Shippers with too many carriers in their mix risk creating carrier management problems—and often can't leverage their volumes effectively.
5. Set reasonable RFP deadlines. Carriers need a clear review period and realistic deadlines to assess their own capabilities, post questions, and provide detailed, effective RFP responses. Snap decisions can be costly to all parties.
6. Analyze bids for optimal pricing and service scenarios. Due diligence is a shipper's most important step in successful bid analysis. By drawing both hard and soft data, shippers can establish service-level agreements, conduct sensitivity analyses, and perform reference checks on prospective carrier partners.
7. Conduct face-to-face negotiations with contending carriers. In-person meetings with a director of pricing or pricing analyst let shippers see the carrier's level of commitment, professionalism, and interest; discuss the service map; and explore detailed carrier capabilities prior to competitive rebidding.
8. Supply well-written, universally adopted corporate routing guides. Routing guides optimize freight lanes and remove excess shipping costs. Best practices mean incorporating electronic shipment-level detail from all carriers and routing guide rules into a central database; treating the guide as a company-wide shipping mandate; employing weekly or daily shipment data imports; and cross-referencing shipment data against routing guide rules for reporting.
9. Meet with senior operations personnel at each contracted carrier. These meetings establish solid working relationships and facilitate implementation planning, routing guide review, and contract signing.
10. Agree on criteria and measurements for performance evaluation. Create a methodology and metrics explicitly stating your expectations, measuring effective carrier performance, and alerting both carriers and shippers if carriers are underperforming.