Five Biggest Pitfalls in Transport Procurement

Insights from European Market Study Can Benefit Shippers Globally

By Stan La Haye, Senior Consultant, ChemLogix Logistics

European market trends indicate that while transport volumes and rates continued to fall during the first half of 2013, market indicators suggest that rates will start rising again. Industry figures showed that as of Q3, road transport supply and demand was more balanced, with rates slightly rising. While a slight decrease in transport volumes is expected in 2013 as compared to 2012, a slight increase in transport volumes is anticipated in 2014 when transport rates are expected to simultaneously increase.

This data is supported by a CLX Logistics Transportation Benchmark Study conducted with the European logistics market.  A majority of participants indicated that rates have fallen or will continue to fall further during 2013, although they expect an increase for 2014.

To fully benefit from the current low transport rates, the time is now to tender and contract your freight rates again.   While simple in theory, many things can go wrong when executing a transport tender such as delays (delayed implementation of rates = less cost saving and a lower return on investment), high internal workloads (up to 400 man-hours for completing a tender process) and an intermittent relationship between shipper and carrier.

Research conducted among CLX Logistics customers revealed five major pitfalls when procuring transport that is indicative of any negotiation, whether domestic or global.  These include:

1.  Tender executed without establishing savings potential

2.  No reliable baseline on which to determine ROI

3.  Too little time, no expertise and not the right tools

4.  No equal opportunities for all participants

5.  Insufficient priority and long response times

Tender Execution Without Establishing Savings Potential

How do you know if there is a savings potential within your current transport spend? Do you use available industry benchmarks to determine where you stand compared to the market? Or is it a “gut feeling” that says it is time to tender?

If cost reduction is the primary goal of the tender, insight into potential savings prior to executing a full tender is of great added value. Think about all the lost time and resources if there is no cost reduction achieved after finalizing a tender.

Through a benchmark study, transport rates can be compared against similar companies and savings potential identified down to the lane level.  Using this insight, a well-founded decision can be made whether to only renegotiate a limited number of transport lanes or to execute a full tender when there is sufficient savings potential.

No Reliable Baseline

A reliable baseline is a realistic reflection of a company’s actual shipping profile and forms the basis of a tender.  In addition to providing an in-depth understanding of current transportation costs, a good baseline identifies transport lanes and criteria for setting rates.  When determining whether to execute a full tender, the baseline is used to calculate the savings and the success of the tender based on new rates.  An unreliable baseline leads to wrong tender focus and the lack of a savings indication.  Shippers must remember to use historical data over a representative period and adjust as necessary for future changes in the shipping profile.

Too Little Time, No Expertise and Not the Right Tools

Often, a tender is executed along with the daily activities of one of the logistics planners or managers. Executing a full transportation tender generates an extreme peak workload; 400 man hours (almost a full FTE!) over a period of 3 months is often required.  As a result, performing a tender is difficult to combine with daily work. In addition, sufficient in-house expertise is often not available to create good tender documentation and calculate transport scenarios based on new offers.

Lack of resources always results in a delay of the process and a lower return on investment. By partly outsourcing the procurement process, the logistics department is relieved of excessive burden and maximum financial results can be achieved in a short timeframe.  Prompt implementation of low transport rates results in more immediate savings!

No Equal Opportunities for all Participants

Objectivity in a transport tender is of great importance to find the best fit between the shipper and carriers. The best fit is a combination of compatible factors including price, corporate culture, quality and service.  Through an independent review and evaluation of all offers using an established correct assessment criteria (quantitative and qualitative), negotiations can be limited to a select number of carriers.

Insufficient Priority and Long Response Times

Balance the number of carriers, location and geographical coverage when selecting your transportation team.  While contracting many different carriers may provide higher savings, internal management may increase the pressure on organizational departments (think of number of audits, business reviews, invoices, contact points, etc.).   But don’t limit your carriers to just one or two.   A limited carrier base increases risk should no capacity be available within a required response time and a solution must be found on the spot market.

Often, one primary carrier is assigned per transport lane, but with a designated backup carrier. The backup carrier can be selected from the total pool of “primary carriers” to limit the number of contracted carriers, while still guaranteeing sufficient coverage and availability.

Summary

By estimating the potential savings prior to a tender, valuable time and resources are not wasted unnecessarily on a failed expedition. Ensure that a reliable baseline is set ​​to calculate the savings of the tender (and the success of the tender) and do not start a tender if insufficient resources and knowledge cannot sufficient support the endeavor.

Ensure current market data is available that can be used during project planning.  Supplement resources, if needed, with external specialists that can offer the process and market knowledge, as well as analysis tools, to maximize tender execution and secure optimum cost savings results.

Need help with executing a tender process?   Using CLX Logistics Benchmark services, we can identify savings potential prior to a transport tender, after which we are able to execute the tender quickly but thoroughly with our structured tender approach and analysis tools.

To learn more, contact Marc Huijgen, Vice President, CLX Logistics Europe, at huijgen@lhc.nl or +31(0)40 293 86 16 or Mike Challman, Vice President, North American Operations, at mchallman@chemlogix.com  or (215) 461-3842.

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