Benefits and drawbacks of various transportation procurement approaches

  • July 28, 2023
Seesaw with king and pawn chess pieces

Regardless of operational size or geographic scope, most shippers worldwide want to procure the best freight rates from their core carriers While maintaining current levels of service. Transportation procurement teams answer this complex logistics question in a variety of ways.

Many use a “bidding process” with their core carriers often with mixed results. Some simply want to make sure they don’t exceed their annual transportation procurement budgets. Most invest in some level of research and freight market monitoring to navigate this space with more confidence. Others, leveraging published research, work with their carriers to adjust rates strategically, based on economic swings. Still others involve external transportation consultants and benchmarking providers to support their market analyses. The question then becomes: How much is too much?

At the end of the day, many shippers are left to ponder the same questions:

  • How can we continuously secure the best freight rates and service levels from our carriers?
  • How can we be confident that we’re not leaving money on the table when procuring freight rates?
  • How do we choose the best mix of transportation procurement approaches to meet our business requirements today and in the future?

The freight market is complex and fragmented, with constantly changing regulations. To secure optimal freight rates and services efficiently, you must pick an optimal mix of transportation procurement approaches.

Assessing your transportation procurement options
Shippers consistently take similar approaches to try to solve their transportation procurement puzzle. Each approach has its benefits and drawbacks:

Transportation Procurement

Relying on internal analytics

  • Today, most shippers employ dedicated transportation analysts to review historical performance, forecasts and budgets. The information provides the organization with an idea of its transportation demand and supply trends and costs. Unfortunately, delays in this analysis can often reach weeks or even months, depending on the number of available resources and bandwidth.
  • The downside to this approach is that it doesn't provide a holistic view of the freight market in a broader context.

Conducting a transportation bid

  • No matter how well you plan, preparing for a bid can take the lion’s share of your transportation and procurement department’s time and resources. You’ll get a good market reality check as carriers respond with tailored information to meet your business needs. But these bid-specific freight rates and capacity estimates are only a cross-section of all available freight rates. They only reflect your supply chain network’s volumes and needs at that point in time. In other words, bidding doesn't guarantee you’ll secure the best possible freight rates or adequate service levels. Nor does it help you adapt to changes in your network or requirements over time.
  • Still, annual transportation bids are a good thing. But what if you could go out to bid when the market is soft? You may be able to save some time and stress associated with regular bidding, not to mention taking advantage of market opportunities. But this approach requires that you know when the market is soft or will soften. Not so sure of your crystal-ball reading capabilities? Then the real question to ask yourself regarding bidding is, 'How can I be proactive and not just reactive?' How do you prepare for changes early enough to reduce bid-related costs while extracting maximum value for my operations?

Use research and consulting services to gain a holistic perspective
Using external analytical services may help you augment or bypass internal analysts’ capabilities. However, this transportation procurement approach may or may not give you access to information beyond your company history. For example, many agencies and companies provide access to bidding databases and “average market rates.” But ongoing use of these services can be expensive, especially if you want to maintain the effect over time. The answers you get today will be less relevant tomorrow. They’ll be even less relevant in three years. So, you may be looking at a series of expensive ongoing engagements. Likewise, you’ve no way of knowing whether these services provide valid rate estimates for your specific needs. Are they 100% applicable to your operations? Does the applied analytical technique make sense and lead to clear and actionable insights?

At NTT DATA, we find that a hybrid approach helps most companies thrive over time. An approach that analyzes your service requirements and carrier performance with a broader freight market view using credible, competitive business intelligence tools. We leverage exclusive access to freight market intelligence. These sources offer external benchmarking based on regular and timely econometric modeling of transactional freight rates markets and their underlying components. This intel reveals the cost drivers that influence carrier rates. Such sophisticated transportation benchmarking services are available to transportation teams across multiple modes and numerous international markets.

In the 21st century, transportation procurement teams don't just answer the simple questions surrounding how to get from A to B. Instead, they solve complex business problems every day, employing the right mix of transportation procurement approaches that deliver for their organizations.

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