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Saturday, August 2, 2014

Study Looks at What Makes Companies Transportation Procurement ‘Winners’

A new study by transportation and logistics media and research specialist American Shipper (AS) includes findings that show why some companies outperform others in transportation procurement. Simply put, the high-achieving companies, “winners” as AS calls them, generally do better than lower-performing counterparts, or “laggards,” by staying focused on goals and best practices when it comes to transport decisions.

This may seem obvious. But the temptation to go for short-term gains can override the benefits of staying with a plan, especially now, when, as noted in my previous IMT Procurement Journal postings, companies expect their procurement departments to generate revenue.

Credit: franky242 at FreeDigitalPhotos.net

Credit: franky242 at FreeDigitalPhotos.net

The AS study, conducted in May in conjunction with the Council of Supply Chain Management Professionals and the Retail Industry Leaders Association, finds that transportation costs are a growing concern. In fact, 61 percent of respondents report price to be the most important factor when assessing carrier bids, up from 58 percent last year and 48 percent in 2011. Price even outweighs performance, which 39 percent view as most important, down from 42 percent in 2012 and 49 percent the year before.

Of companies surveyed, 58 percent report higher international freight spends this year, and 55 percent see increases in domestic freight spends. International contract rates are higher for 51 percent of companies, while 45 percent cite increases in domestic contract rates.

The winners also cite price as a main concern, but at a lower rate than others, at 50 percent, which is near what it was in 2011.

Some winners rank guaranteed capacity as the most important factor in transport negotiations — perhaps a recognition that if timely product shipment isn’t assured, a sweet deal is no deal at all.

Another difference between winners and laggards is the speed with which they implement bids. The winners typically do this within two months, while just 64 percent of laggards meet this time frame.

The study cites other characteristics that distinguish the winners from the laggards. For example, winners are:

 

  • Planning procurement to coincide with the seasonality of business, and not just when resources are available to bid
  • Using a systems approach when procurement requirements become complex
  • Focusing on tactical elements of procurement in flat markets — e.g., bidding often and for shorter periods
  • Using freight payment data — benchmarking rates, best modes, and carriers within routes, etc — to analyze and improve the procurement process.

 

The study from American Shipper also examines automation of procurement. On Monday, I will look at some findings in this area.

 

 

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