By Chris Lange, Mark McCalla, Nathan Cory
Over the years of managing hundreds of carrier negotiations across various modes, geographies, and industries, Impendi has found time and time again that value capture in logistics and transportation is not just determined by size of spend. In addition to pure spend volume, there is also the sourcing and operational processes employed within it. This article will focus on the how these operational processes are driving logistics and transportation savings agnostic to spend magnitude.
Capturing Size-Agnostic Savings
Traditional commoditized sourcing convention suggests that the larger the spend, the better the price. Most assume this convention applies to purchasing transportation services. If a company’s procurement team is not simultaneously utilizing leading sourcing processes while leveraging volume, then nothing could be further from the truth.
Amount of spend leveraged in a procurement action, though helpful, is only a partial picture of what drives actual value within Logistics and Transportation spend. Perspectives in root cause analysis, customer demand patterns, total cost of ownership determination, and best in class commercial delivery models all underscore the importance of thinking beyond spend tallies. Don’t believe us? Consider the following examples:
- A transportation executive was unable to identify root cause of warranted price increases temporarily due to an unplanned plant shutdown, hence chasing a savings opportunities that never existed in the first place and unintentionally dropping service levels
- A major regional business division successfully identified a customer demand requirement for 2-day vice overnight delivery of product and reduced cost without impact on overall business volume.
- A client identified increases in cost per mile through sub-optimal truck loading and eventually lowered the cost per mile and overall profitability without performance impact by addressing such issues in a subsequent RFP.
We have seen countless examples where companies with a small spend are able to negotiate better outcomes than companies with a much larger spend. So how do you determine which non-volume tactics matter the most? Read below for our playbook on determining them.
Eight Steps to Cost Savings in Logistics and Transportation
Whether actively planning a Logistics and Transportation sourcing event, or simply proactively determining an opportunity, here are Impendi’s suggested steps for discovering non-volume value levers:
Step 1: Secure NDAs to start discussions. Facilitating confident and transparent communication with existing and potential commercial providers is the first step of any good sourcing process. Whether it be data sharing or simple conversation, aligning NDAs with vendors early ensures that an open and trusted dialogue facilitates the best dialogue (and proposed solutions)
Step 2: Cast the net broadly. The goal is to find carriers with whom you may not have worked with historically. For example, within surface segment there are over one million trucking companies in the North America with authority to operate in the U.S, not leveraging that level of breadth and competition is a lost opportunity.
Step 3: Use a Request for Information (RFI). A well-structured RFI will help businesses articulate their specific customer needs to their vendor base. This will help narrow the list of suitors and find carriers who meet well-defined needs and requirements. Vendors that reply to a well scripted RFI will be better able to propose an accurate response, approach, and price to your potential needs as a customer. Lastly, RFIs allow a vendor to propose creative solutions perhaps not being actively considered.
Step 4: Educate your prospective carriers. Provide carriers with shipment-level details so they understand the size, frequency and flows of your shipments. Be sure to include seasonality, power lanes, etc. as applicable.
*PRO TIP*: Do not be selective when choosing what data to provide each carrier; share it all! Selectively sharing data will create an uneven playing field, which may not allow some supplier to truly show their capabilities. They often have creative solutions they can’t propose if you limit what you share!
Step 5: Use supplemental technology to help collect, manage and optimize vendor response. Run as many scenarios as necessary to ensure stakeholders are bought in to the solution. Don’t be afraid to allow multiple rounds of discussions with carriers to find the right solutions.
Step 6: Run test pilots with the new carriers. This will allow all users and stakeholders to get comfortable with new service providers, performance levels and their impact on customer service. This “pilot run” strategy can help drive better stakeholder buy-in and possibly prevent unintended mishaps before engaging in full scale change.
Step 7: Become a ‘shipper of choice” to carriers. Preferred customers receive preferred treatment. This usually means being easy to do business with – e.g., clean, no touch freight, quick in and out at facilities, fast invoice payment, etc.
Step 8: Monitor performance. Agree to KPIs for managing the vendor relationship and publish scorecards. Meet regularly to ensure compliance and areas that need to be addressed
Best practice Technique Earns Cost Savings in Logistics
The proof of the above concepts lies within the results. We recently used these best-practice techniques to reduce a client’s costs by the following amounts: 23% a large parcel shipper, 19% reduction for “white glove” shipper and 15% for a large flatbed shipper.
There is no one-size-fits-all for each situation. The examples provided above are only a snapshot of the many different scenarios Impendi has faced and solutioned over the years with our clients.
Reach out to Impendi to learn more about the leading transportation sourcing practices. We’ll find the right solution for you!