Improve Your Supply Chain’s Stability During the Next Procurement Event
Q: Why is now the right time to consider a transportation procurement event?
A: The transportation industry consistently faces capacity volatility, demands for improved service, and relentless focus on cost containment. Two years ago, shippers witnessed on-time delivery fall as low as 80 percent while the spread between contracted and spot rates exceeded 25 percent. In 2015, capacity began to balance, intermodal and truckload service improved and primary carrier utilization was once again in the mid-90 percent range.
As we begin 2016, many carriers have restarted solicitation campaigns to generate additional volume while requests for price adjustments received by shippers have eased. Additionally, the amount of spot volume within the market is down over 60 percent from a year ago and the current spread between contracted and spot rates is less than 10 percent. The current "shipper friendly" cycle will transition into a turbulent capacity environment in late 2016 and 2017 as regulatory changes are realized.
Now is the right time to improve your supply chain’s stability, scalability and resiliency. Transportation providers are seeking collaboration with shippers as their networks have also experienced significant change. Both parties are focused on pending regulatory changes that will place greater tension on the industry and likely lead to a constriction of capacity similar to what was experienced in 2014.
While remaining market-competitive on price is important, we believe there is real value in working with key asset-based transportation providers to re-balance their capacity and meet shippers’ long-term needs. The objective is to have a balance triangle of cost, service and capacity over the next two years vs. the next six months.
Q: How is a bid process executed?
A: For network events, the duration can last between 14-60 days and includes numerous interaction points between the transportation provider(s) and the shipper’s procurement team. Additionally, contracting with new providers and establishing EDI also add considerable time.
There are experts with tools that allow sophisticated scenario-based analysis and optimization capability. This analysis is critical to explore options for a solution and for weighing the value of each option.
Many shippers choose to utilize a logistics provider to help guide them through the complexity of the process, mitigate risk and advise them on carrier selection. A logistics provider will provide business insight, transportation expertise and benchmarking capability through experienced professionals and proven processes and technology.
The procurement process is critical to overall supply chain integration and success. Implemented and managed effectively, it aligns an entire team around a common strategy, objectives and key deliverable targets. It also encourages dialogue and collaboration with transportation suppliers, which fosters a "shipper of choice" environment. Most importantly, it supports the long-term needs and health of a complex and dynamic network.