Logistics Sourcing and Collaboration: How it Works

In my first post Logistics Sourcing: Collaboration Key to Solving Complexity in this series on complex sourcing, I laid out the argument that collaboration in transportation sourcing can deliver positive outcomes for all and improve supply chain performance.

Of course, it’s one thing to say that shippers and carriers need to collaborate; in this post I provide concrete insight into what’s required to make it happen.

In talking with both shippers and carriers, I’ve found five points that define a collaborative sourcing model that is effective and sustainable:

1. Speak a common language. Geographies, pricing structures, and representation of business should not require a Rosetta Stone. With constrained resources, RFPs that are difficult to understand, have unclear expectations, or are excessively time-consuming and prone to mistakes will not get the same attention and aggressive pricing as those that are designed to take advantage of technology in order to minimize response effort.

Investing up-front to design RFPs that are user-friendly to carriers and give shippers the rich data needed for sound decision making improves savings opportunities and reduces unpleasant surprises down the road.

2. Shippers clearly communicate requirements and priorities. There are two distinct advantages to presenting what’s needed in clear, concise and concrete terms:

a) Eliminating uncertainty eliminates hedging and inefficient pricing
b) Opening the field to new carriers who are no longer at a disadvantage based on less knowledge about the business

The right level of information ensures that shippers get the services they require at the level they expect, and carriers will avoid hedging. This requires understanding:

• what data is important to share
• what level of detail to share
• how best to communicate it
• how to streamline access and understanding, without diminishing the value of the information

3. Carriers clearly communicate their requirements and priorities. Carriers unanimously report that it’s difficult to propose best rates when they are uncertain what volumes and what lanes they might be awarded. Carriers can only put their best foot forward if they have a platform to share with the prospect which sets of business are most important to them and what volumes are necessary for them to achieve the efficiencies required for their best rates. A cookie-cutter approach to volume and other discounts virtually ensures that some carriers will not be able to submit their most attractive pricing.

Carriers say they are eager to work with shippers to find deeper efficiencies, but a top priority is protecting themselves from further cuts to operating margins. Consider the case of fuel surcharges:

• Shippers really have two options in this area: they can allow the surcharge to be a realistic reflection of the cost of fuel over time, or they can drive surcharges so low that they are forced to build the cost into rates.

• In 2008, shippers who chose the latter approach ultimately only hurt themselves when the cost of fuel fell; many were locked into line-haul rates with a higher price that didn’t come down with fuel indices. And when the fuel costs are far enough out of sync, shippers who drive surcharges down the hardest will be first to see service affected adversely.

4. Price is only the beginning. Shippers are quick to point out the importance of evaluating factors that go beyond cost when selecting carriers. In this market, carriers want the evaluation to consider non-cost factors just as much as the shippers, if not more so. Carriers see this as an opportunity to differentiate themselves from their competition while maintaining margins they can live with.

5. Consensus within the shippers’ organization is a cornerstone to success. Collaborative sourcing does not just mean collaboration between the shipper and the carrier; it also requires collaboration between internal stakeholders. In a large organization, it is important build consensus. This means listening to varied sets of needs and wishes, incorporating them into analysis, and objectively evaluating the costs and benefits of all decisions. Accomplishing buy-in through thoughtful consideration of all key stakeholders, and having a clear-cut, unbiased way to evaluate alternatives is critical to the ultimate success of any collaborative sourcing effort.

In my final post of this series, I’ll address how companies can use technology to automate and streamline the collaborative process.

Paul Martyn

Want to learn more about how BravoSolution can help your organization source collaboratively? Check out BravoSolution’s collaborative sourcing tool here.

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