The silver lining in today's recession may be that shippers are seeing their buying power improve and have significant leverage with their carriers. A clear turning of the tables, as just a year ago, shippers were at the mercy of carriers, themselves struggling under the weight of rising fuel costs.
Transportation buyers are in good company. A recent survey of over 400 executives surveyed by BravoSolution revealed that worldwide, buyers are reasonably satisfied with the negotiating opportunities presented to them in the current economic climate. More than half of respondents surveyed said that opportunities far outweighed challenges in this market.
Smart buyers will wield this new-found power wisely, knowing that the tide will turn again. As the market for carriers improves, shippers expose themselves to price hikes, or worse, the poor service that often goes hand-in-hand with being a carrier's least profitable customer.
In fact, while short-term opportunities abound, we find that few organizations are taking steps to ensure the sustainability of their current leverage positions. Most buyers are negotiating savings in the form of renegotiated contracts and pricing, effectively squeezing further margins from their supplier and carrier bases. Meanwhile, less than a third of buyers are evaluating risk in the form of performance monitoring, meaning that the quality issues that often accompany price reductions may be going unseen.
These challenges are especially prevalent in the transportation market. The solution is not to avoid transportation sourcing all together. In fact, the opportunity to gain new business couldn't be more welcome to carriers when volumes are down. As one carrier explained, "We love to get business from RFP's. It's typically high spend and it requires less amendments to contracts because it is more stable, more predictable and comes from more reliable shippers.•bCrLf What carriers do fear is when a large incumbent reverts to simplistic, solely priced-focused approach that ignores collaborative cost reduction, causes immediate financial damage to the carrier, and almost guarantees a capacity shortage in the shipper's medium term future.
Stop the Madness
At the risk of sounding cliché, the solution is better collaboration between shippers and carriers. By collaborating with carriers, shippers can begin to reduce some of the extraordinary price volatility that many have faced in the past. When they are truly working collaboratively, shippers and carriers are working together continually to achieve greater network efficiency, carriers are honoring volume and load acceptance commitments, and shippers are staying loyal to their contracts.
It is one thing for shippers and carriers to talk about collaboration. It is another thing to make it happen. Before negotiating your next transportation deal, consider these 6 points to ensure your collaborative sourcing efforts are effective:
1. Make it simple for both parties to speak in their own terms:
Geographies, pricing structures, and representation of business should not require a Rosetta Stone for carriers and shippers to understand each other. Carriers are busier than ever with RFPs; one carrier indicated that he saw twice as many requests in January 2009 compared to January 2008. In this climate, RFPs that are difficult to understand, have unclear expectations, or are excessively time-consuming are less likely to see a thorough, competitive response than those that leverage technology to collect crucial information with a minimum of data entry by carriers. An up-front investment in designing an RFP that is both user-friendly to carriers and offers shippers the rich data they need for analysis will improve savings opportunities and reduce unpleasant surprises down the road.
2. Clearly communicate shipping requirements and priorities:
Uncertainty from both sides leads to hedging, which translates into inefficient pricing. When requirements are vague, carriers hedge on price to protect themselves. Understanding that new carriers are less familiar with their business, shippers are necessarily more reluctant to consider new carriers. While incumbents are always going to have that advantage, shippers can improve their understanding of new carriers' capabilities by asking the right questions. Providing the right level of information ensures shippers will get the services they require at the level they expect, and carriers will avoid hedging.
3. Allow carriers to clearly communicate their requirements and priorities:
Carriers unanimously report having a difficult time proposing their 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 communicate those sets of business that are most important to them and the volumes that 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 bids.
4. Ask the right questions:
Shippers are quick to point out the importance of evaluating factors that go beyond cost when selecting carriers. In this market, carriers want their evaluation to consider these non-cost factors just as much as the shippers, if not more so. One carrier emphasized, "We want shippers to ask us about things like transit time, on-time percentage, additional services provided, account management, and financial security.•bCrLf Carriers see this as an opportunity to differentiate themselves from the competition while maintaining margins they can live with. In order to be most effective, shippers must:
A. Understand their own business requirements, including differentiating between must-haves and nice-to-haves
B. Ask the questions that are truly relevant to these requirements and preferences
C. Know how they plan to use the information they collect and eliminate questions that won't be used in evaluation
D. Be able to accurately incorporate the answers along with their costs in the decision making process
5. Have an effective, efficient way to analyze the answers
Once shippers have gathered carriers' responses to all their questions, shippers must have a systematic way to balance both cost and non-cost factors. It is no good to ask all the right questions if there is no way to compare the answers, or if doing so takes months of tedious data manipulation. In a very real way, better analysis tools, particularly those based on optimization technology, allow shippers to ask questions more meaningfully, and that allows for better decision making.
6. Build consensus within the shippers' organization.
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 to be able to build consensus. Doing 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.
Collaborative sourcing technology identifies cost reduction opportunities through proper shipper and carrier alignment. The same technology is designed to work in markets that favor shippers and ones that favor carriers because it about communicating capabilities and interest for mutual gain.
Chandler Hall is VP of Collaborative Sourcing at BravoSolution US, a leading global supply management solutions provider. Chandler has worked with the Collaborative Sourcing team since its inception, delivering solutions to manage complex, strategic sourcing categories for dozens of Fortune 2000 businesses. His expertise in managing complex transportation networks has helped to drive innovation and cost savings for businesses around the world. www.bravosolution.com/cms/us
Transportation buyers are in good company. A recent survey of over 400 executives surveyed by BravoSolution revealed that worldwide, buyers are reasonably satisfied with the negotiating opportunities presented to them in the current economic climate. More than half of respondents surveyed said that opportunities far outweighed challenges in this market.
Smart buyers will wield this new-found power wisely, knowing that the tide will turn again. As the market for carriers improves, shippers expose themselves to price hikes, or worse, the poor service that often goes hand-in-hand with being a carrier's least profitable customer.
In fact, while short-term opportunities abound, we find that few organizations are taking steps to ensure the sustainability of their current leverage positions. Most buyers are negotiating savings in the form of renegotiated contracts and pricing, effectively squeezing further margins from their supplier and carrier bases. Meanwhile, less than a third of buyers are evaluating risk in the form of performance monitoring, meaning that the quality issues that often accompany price reductions may be going unseen.
These challenges are especially prevalent in the transportation market. The solution is not to avoid transportation sourcing all together. In fact, the opportunity to gain new business couldn't be more welcome to carriers when volumes are down. As one carrier explained, "We love to get business from RFP's. It's typically high spend and it requires less amendments to contracts because it is more stable, more predictable and comes from more reliable shippers.•bCrLf What carriers do fear is when a large incumbent reverts to simplistic, solely priced-focused approach that ignores collaborative cost reduction, causes immediate financial damage to the carrier, and almost guarantees a capacity shortage in the shipper's medium term future.
Stop the Madness
At the risk of sounding cliché, the solution is better collaboration between shippers and carriers. By collaborating with carriers, shippers can begin to reduce some of the extraordinary price volatility that many have faced in the past. When they are truly working collaboratively, shippers and carriers are working together continually to achieve greater network efficiency, carriers are honoring volume and load acceptance commitments, and shippers are staying loyal to their contracts.
It is one thing for shippers and carriers to talk about collaboration. It is another thing to make it happen. Before negotiating your next transportation deal, consider these 6 points to ensure your collaborative sourcing efforts are effective:
1. Make it simple for both parties to speak in their own terms:
Geographies, pricing structures, and representation of business should not require a Rosetta Stone for carriers and shippers to understand each other. Carriers are busier than ever with RFPs; one carrier indicated that he saw twice as many requests in January 2009 compared to January 2008. In this climate, RFPs that are difficult to understand, have unclear expectations, or are excessively time-consuming are less likely to see a thorough, competitive response than those that leverage technology to collect crucial information with a minimum of data entry by carriers. An up-front investment in designing an RFP that is both user-friendly to carriers and offers shippers the rich data they need for analysis will improve savings opportunities and reduce unpleasant surprises down the road.
2. Clearly communicate shipping requirements and priorities:
Uncertainty from both sides leads to hedging, which translates into inefficient pricing. When requirements are vague, carriers hedge on price to protect themselves. Understanding that new carriers are less familiar with their business, shippers are necessarily more reluctant to consider new carriers. While incumbents are always going to have that advantage, shippers can improve their understanding of new carriers' capabilities by asking the right questions. Providing the right level of information ensures shippers will get the services they require at the level they expect, and carriers will avoid hedging.
3. Allow carriers to clearly communicate their requirements and priorities:
Carriers unanimously report having a difficult time proposing their 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 communicate those sets of business that are most important to them and the volumes that 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 bids.
4. Ask the right questions:
Shippers are quick to point out the importance of evaluating factors that go beyond cost when selecting carriers. In this market, carriers want their evaluation to consider these non-cost factors just as much as the shippers, if not more so. One carrier emphasized, "We want shippers to ask us about things like transit time, on-time percentage, additional services provided, account management, and financial security.•bCrLf Carriers see this as an opportunity to differentiate themselves from the competition while maintaining margins they can live with. In order to be most effective, shippers must:
A. Understand their own business requirements, including differentiating between must-haves and nice-to-haves
B. Ask the questions that are truly relevant to these requirements and preferences
C. Know how they plan to use the information they collect and eliminate questions that won't be used in evaluation
D. Be able to accurately incorporate the answers along with their costs in the decision making process
5. Have an effective, efficient way to analyze the answers
Once shippers have gathered carriers' responses to all their questions, shippers must have a systematic way to balance both cost and non-cost factors. It is no good to ask all the right questions if there is no way to compare the answers, or if doing so takes months of tedious data manipulation. In a very real way, better analysis tools, particularly those based on optimization technology, allow shippers to ask questions more meaningfully, and that allows for better decision making.
6. Build consensus within the shippers' organization.
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 to be able to build consensus. Doing 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.
Collaborative sourcing technology identifies cost reduction opportunities through proper shipper and carrier alignment. The same technology is designed to work in markets that favor shippers and ones that favor carriers because it about communicating capabilities and interest for mutual gain.
Chandler Hall is VP of Collaborative Sourcing at BravoSolution US, a leading global supply management solutions provider. Chandler has worked with the Collaborative Sourcing team since its inception, delivering solutions to manage complex, strategic sourcing categories for dozens of Fortune 2000 businesses. His expertise in managing complex transportation networks has helped to drive innovation and cost savings for businesses around the world. www.bravosolution.com/cms/us
