There is a significant amount of angst in the transportation marketplace lately in regards to freight spend forecasts. No matter your preference of publication, the message is likely to be the same for the 2017 outlook: Between the FSMA legislation, ELD implementation, impending driver shortages and common economic predictions, capacity will likely be down and costs will likely be up, at least compared to the market shippers have enjoyed over the past 18 months or so. Given these conditions, all stakeholders in an efficient supply chain must have appropriate levels of visibility to costs as quickly as possible.
Practically speaking, to achieve the best performance, people responsible for carrier assignment need to have clear expectations regarding cost controls. In other words, if a planner receives multiple spot quotes for a load, the best he or she can do is a comparative analysis between the quotes without a benchmark. The only way to know objectively if the best rate is an acceptable one is comparing each one to a goal or threshold. Leveraging a technology-based solution to apply a meaningful baseline to each individual load at the time of tender is an important best practice, especially for any violate or sporadic freight in your network.
Technology vs. Manual Benchmarking Approach
The benchmark itself in this instance could be reflective of two different approaches. The first tactic is to set the point of reference as the average spend in the industry on similar freight. This creates viable leverage to negotiate with a preferred carrier to reduce the quoted rate, as opposed to an ill-informed request to sharpen his or her pencil. Access to this type of information is not something that a shipper would normally have internally, but partnering with an external resource can provide them with visibility to the average cost for a particular lane and equipment type.
An alternative method to establish a benchmark is to consider the transportation budget itself. To oversimplify, establishing a budget can be as reductive as applying the expected increase over the base on the bottom line aggregate freight spend. However, the most effective technique is to evaluate actual average costs by each lane in the network. This level of granularity in a shipper’s baseline data creates the opportunity to consider a myriad of factors when creating the budget. Knowledge of regional market variation, changes to the distribution, storage or fulfillment of product, and additions/subtractions in product mix can all be taken into account. This data enables a planner to know the exact impact when a primary carrier does not execute all of the awarded volume on a lane.
Real Time Information for Better Business Decisions
Regardless of whether benchmark rates are based on industry averages or projections from a shipper’s own baseline, the benefits extend beyond real time visibility to a responsible planner. A planner is often going to use a benchmark rate to determine his or her next action in executing individual loads. But a transportation manager’s next action involves determining which lanes are underperforming, and developing a strategy to address that network segment through activities like an RFP, carrier change, negotiations, or sourcing decisions.
To achieve that goal, the manager accountable for meeting budget can glean important insights through targeted reporting. This could take a variety of forms. One possibility is to report on all loads above a certain threshold beyond the benchmark that were tendered the previous business day. The primary value here is to create visibility to his or her team’s potentially questionable choices, and instruct them on expectations. An alternative to the daily load-based report is a weekly lane summary. In this case, all the lanes that were above the benchmark could be displayed and include actual total spend, the total allocated benchmark spend, and the cost impact associated with each lane. This eliminates the need for investigative, information gathering. The opportunity is immediately available to determine next steps.
It is a best practice to leverage benchmark rates independently of whether a shipper chooses to use an industry standard or budget average to build the benchmark or even if the primary audience for the data is an operator or manager. The proper use of benchmark rates can provide real-time feedback about the cost of a decision. That information creates agility and responsiveness to market conditions that a shipper would not have otherwise. Given the uncertainty in the market, this edge could be a difference maker to stay ahead of the competition.
Brett Minner is an Account Manager at LeanLogistics in its managed transportation services department. He has more than 11 years of experience working in the supply chain industry. Prior to working for LeanLogistics, he served as an operations supervisor at UPS.