A few years ago ARC studied the ROI associated with buying and implementing a transportation management system (TMS). The main reason companies implement a TMS is to reduce freight spend. A TMS does this in several ways. But one freight savings bucket is based upon better procurement negotiations. Most commonly, shippers can mine their TMS data to achieve savings of 2 to 4 percent, but in some cases shippers were reporting savings of 8 to 10 percent. Shippers can also work with providers of managed transportation services or consultants to improve their savings from the strategic carrier bid process.
There are three steps in the truckload bid event – the upfront development of bid strategy, the execution of the bid, and the use of scenario management tools to drive final bid assignments.
Ben Cubitt, Senior Vice President of Consulting and Engineering, and Cindy Bosecker, Director of Procurement, both of Transplace, wrote an article in which they gave some suggestions for classifying lanes and carriers to assist in preparing for the bid event.
They point out that there are two types of lane classifications need to be considered.
“The first classification involves overall lane requirements and freight characteristics. These include lane requirements like live load or drop trailer, typical order lead time (e.g., less than 24 hours, 24 to 48 hours, greater than 48 hours, etc.), and equipment required.”
The second classification segments lanes into sourcing groups that align with the shipper’s business requirements. This includes:
- Evaluating how lanes are segmented based on how the shipper tenders. For example, is this inbound or outbound? Does the shipper tender by site, by lane, or by product family? In other words, how does the shipper look at the network?
- Classifying lanes based on service expectations. They make the point that a shipper needs to think about “which of your customers are low risk or high risk from both a service perspective and a penalty perspective.” From a service viewpoint, classifying lanes as “internal replenishment lanes, customer delivery with flexibility lanes, or critical tight time window lanes” can be helpful. “These classifications help a shipper evaluate scenarios where more aggressively priced carriers or higher service profile carriers should or should not be favored.”
Carriers are inundated with bid requests. Proper classification of lanes can make it easier for carriers to prepare the bid, and thus more likely they will choose to participate in the bid event.
Carriers also need to be classified:
- Are the carriers asset-based or brokers? Does the shipper seek to work with a certain number of minority owned carriers? Do deliveries to certain customers require customer approved carriers? Does the shipper seek to work with a certain proportion of SmartWay certified carriers?
- Segment carriers based on historical performance. This is one place the historical data in a TMS is so helpful. “You may be comfortable using some carriers anywhere, but others may be restricted to certain areas of the business.” Further, performance should not be restricted to on-time pick-ups and deliveries. Metrics such as tender acceptance rate or demurrage fees as a percentage of total fees also need to be considered.
The authors suggest that once the carriers have been evaluated, a shipper should set tiers (like Tier 1, 2, or 3) within the program for carriers that you want to target to grow, maintain, or reduce. The bid awards are the mechanism for executing the amount of business desired by carrier.
The bottom line? “If you need to drive a higher level of performance from your truckload bid event, your success will increasingly be driven by your upfront bid design. The time spent segmenting your lanes and classifying your carriers makes the final bid scenario review more efficient and impactful.”
