How to Source Transportation
Identify and prioritize sourcing of your carriers and you will contain transportation costs as well as meet customer service levels. Pete Stiles, vice president of LeanLogistics, a provider of web-native transportation management systems, offers these tips on how to design and execute a market-specific bid process to foster better relations with carriers, ensure an optimized spending program, and guarantee on-time payment.
1. Evaluate your transportation requirements. Before you issue a Request For Proposal (RFP), determine the following: your type of freight by mode; lead time with carriers; territories and lanes being served; frequency of volume in lanes; and unique requirements, such as pallet exchange or blanket wrap. A transportation management or networking modeling solution can help you gather these statistics.
2. Reduce the number of carriers you deal with. Implement a core carrier program—concentrate service to a select number of capable, high- performance carriers. Guarantee them a portion of your projected volume in return for better rates and service quality commitment. Often, your shipment volume by lane determines the parameters for potential volume commitments to carriers. Use the lane volumes first to create your RFP, then to negotiate volume-incentive contracts with carriers.
3. Perform fleet planning and rationalization. Determine if there is a cost or other justification for a separate fleet, for example, coverage in a specific geographic area, or special service to specific customers.
4. Conduct a formalized RFP process. Clearly state your requirements in your RFP. Include your requirements for bidding; for timing and response; and for the media to be used in carrier presentations. Also include schedule requirements, such as a time frame for solicitation and submission; carrier evaluation and selection; purchasing and contracting procedures; rate and terms negotiation. The RFP should also include how and when you will make carrier notifications, selections, or rejections.
5. Select carriers carefully. In this fragmented industry, identifying which carriers should receive your RFP is a challenge. Employ a rifle-shot approach. Select a group of carriers that most likely will meet your requirements. Remember, you need access to a large group, which allows you to select carriers based on a set of filters. Get shippers’ references on carriers, then call and check them. Ask for carriers’ financials and check their credit.
6. Standardize contract terms and requirements. Create a template to harmonize rate structures and accessorial charges. Insist that carriers define rates and their context in common terms—for example, rate-per-mile utilizing PCMiler shortest mileage. To prevent loss in case of carrier bankruptcy, make sure that overcharges can be netted against the current freight bill. Ensure that your carrier has adequate insurance. Ask to be named as an additional insured on the carrier’s policy and keep insurance certificates on file.
7. Clearly state your performance expectations. Determine which attributes you will measure, such as on-time performance, acceptance rate, equipment type and availability. Also, ask the carrier for current performance metrics. The carrier should have the capability to both track and report its performance. Establish incentives for performing well.
8. Outline your business process and communication methods. State whether you will use a software system or manual processes; how you will perform tendering, acceptance and timing; appointment scheduling; shipment status and the required event reporting and timing; and settlement (self billing or freight billing with match payment.) Self-billing is a recognized best practice, but requires a system to mediate. Using self-billing can result in lower rates because it removes the cost of preparing freight bills from the carriers.
9. Make capacity commitments to carriers. Measure your compliance-to-plan and enforce compliance within your organization. A common carrier complaint is that shippers contract for volumes in lanes to get lower rates, but then do not follow the contracts.
10. If you use a Transportation Management System, ensure it has the capability to allocate freight to carriers on committed volume as well as rate to ensure that the lowest-cost carrier does not get ‘over tendered’ beyond its capacity. You also can consider the use of an electronic marketplace to arrange additional capacity and coverage for seasonal promotionals or other unusual shipping volumes.