5 transportation Procurement & Benchmarking Trends to Keep Costs Down

The year 2018 was challenging for shippers in all industries, including chemical, due to capacity constraints in the marketplace that inflated costs. The convergence of high costs, limited capacity, emphasis on timely delivery and demand for greater supply chain visibility, made it a problematic year for shippers and carriers alike. So, what happens after a year like that?

Better ways to manage transport operations emerge, from how we plan and strategize, to how we ultimately execute and drive continuous improvement. For companies willing to embrace opportunities for improvement across the entire supply chain, here’s a look at the top transportation procurement and benchmarking trends.  

1.Taking an Integrated Approach to Transportation

At the highest level, shippers are taking a more integrated approach to the supply chain. Shippers are no longer thinking about just inbound or outbound transport, ocean and rail versus over-the-road, or one business unit over another, but rather, are looking holistically and completely across their transportation operation to finds smarter ways to procure, manage, and work with carriers.Through this holistic look, shippers can create a more accurate baseline before going out to bid by collecting and analyzing data across their entire transportation network and all modes. Most companies are already using a Transportation Management System (TMS) to do the heavy lifting of storing data from these categories, but now it’s time to take that data to the next level by bringing it all together to truly and accurately understand costs, services, performance and so on. The good news is, shippers have more access to data than ever before, which brings us to trend number two.

2. Embracing Digital Transformation through AI and BI

Through your TMS and application program interfaces (APIs), which provides the ability to electronically communicate with carriers and 3PLs, you can bring all of your knowledge sources together to analyze and identify opportunities – enhanced by artificial intelligence (AI) and business intelligence (BI) tools — to positively impact cost and service. Digital transformation is streamlining the flow of information and making it easier to aggregate and analyze. In contrast, consider it a red flag if a carrier or 3PL still relies on paper-based processes, spreadsheets and emails to share information. The technology component is becoming increasingly important in all aspects of logistics management, including procurement and benchmarking.

3. Hiring Data Scientists or Third-Parties to Analyze Data

Even with the latest and greatest technology, data is only as powerful as how it’s interpreted, and analyzing and extracting actionable insights from large datasets requires strong analytical skills combined with a full understanding of supply chain logistics and the market. The role of the “Data Scientist” is emerging inside logistics operations and at 3PL companies to interpret information and develop insightful action plans for shippers to drive continuous improvement. One area where 3PL companies have an advantage is gleaning how shippers are doing compared to others in the market. Because 3PLs have data from many shippers across a large number of lanes, they can provide a broader perspective and direct performance comparison.

4. Looking at Benchmarking as a Continuous Business Process

In 2018, most shippers had contracted rates with carriers, but those rates became stale relative to where the market ended up. So rather than analyzing the market just once a year, shippers are looking at benchmarking as a continuous business process in 2019. External variables, like natural disasters, strikes and governance, are always a risk that can cause rates to rise. Just as changes in your facilities, customer base or geography, can cause your transportation needs to change. With so many variables at play that are typically out of your control, approaching benchmarking as a continuous process will ensure that you have the most up-to-date understanding of the market and your performance, and help you uncover continuous improvement opportunities to reduce costs and improve service. Additionally, keeping a pulse on rates and service performance in a particular region or lane, or if a carrier’s tender acceptance rate is going down, may influence you to do more targeted bids in certain regions to address issues in a more timely manner.

5. Evening the Playing Field Between Shippers and Carriers

While the market is stabilizing and capacity is opening up, we’re moving away from a “feast or famine” mentality where shippers are either thriving or failing, to an informed, balanced and strategic mindset that prioritizes long-term shipper-carrier relationships. With each party coming to the table with comprehensive datasets now, shippers and carriers can openly demonstrate their costs, and how they’re losing or making money and why. These candid conversations are the basis for long-term, mutually beneficial relationships focused on partnerships, not just transactions. Historically, shippers held all the cards with access to carrier scorecards. Now, carriers have their own optimization solutions that allow them to go to the negotiation table with more insights and information. The idea is not for each party to hold benchmark metrics over each other’s heads, but rather to take a realistic approach to what each needs to be successful. In the chemical industry for example, safety is of the utmost concern. So, creating a mutually beneficial, long-term shipper-carrier partnership, can mean that a shipper who contracts a higher rate should expect superior safety, impeccable delivery, responsiveness and service.

The name of the game in 2019 is “collaboration,” no matter how you slice and dice it. Taking an integrated approach? You need collaboration from all departments. Embracing digital transformation? You need collaboration from all knowledge sources. Hiring data scientists? You need collaboration from analytical and industry experts. Continuously benchmarking and fine-tuning your operations? You need to collaborate with carriers. Evening the playing field between shippers and carriers? You get the picture.

Not every company, however, is ready to embrace collaboration. It takes a strong foundation, and the right mix of people, processes and technology to collaborate effectively. If you haven’t achieved the right mix yet, make that your 2019 priority. If you have the structure, take action sooner than later.

Are you interested in learning about our Freight Procurement – Transportation Bids and Benchmark services? Contact CLX Logistics today.

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