Transportation Procurement: Building a Foundation for Success

When you think about the overall transportation management lifecycle, procurement is one of the most critical components because it plays a role in planning, execution, benchmarking, carrier relationship management, and so much more. If you don’t get procurement right, the rest of the process suffers. So, what are some leading practices in getting transportation procurement right? How are companies using technology like transportation management systems (TMS) to enable this process? How can third-party partners help companies plan and execute procurement engagements? Those are some of the questions I asked Gregg Lanyard, Director of Product Management at Manhattan Associates, and Bob Jarvis, a Director in Manhattan’s Professional Services organization, during an episode of Talking Logistics (recorded prior to the coronavirus outbreak).

Changes in the transportation market

With so much happening in the transportation market over the past two years, I began by asking Gregg to talk about the changes and their impact. Gregg says, “The volume and frequency of change is impacting how companies think about how to plan, execute and collaborate with trading partners. There have been regulatory changes, such as with ELDs, capacity and rate instability, carrier bankruptcies, and new global trade tariffs. All of these things are impacting how we’re able to move freight and for how much. 

“Also, with distribution moving closer to customers, we’re seeing supply chain networks of old being replaced with more links, more nodes, and more frequent and smaller shipments. These changes impacting shipping lanes and volumes and other things that impact shipper-carrier collaboration. So having the right procurement strategy can certainly help, and streamlining the procurement process is a necessity today. You can’t have 4-6 month projects to get new rates collected and filed. It just doesn’t work in today’s world. All of this is changing how and when you do procurement. One bid per year is no longer the norm.”

Gregg also adds that “supply chain visibility is giving us much better information on carrier performance to factor into the procurement process.”

Best practices in procurement

With all of the changes in transportation, I asked Bob what best practices for procurement might be today. Bob points out that it all starts with understanding your network, which is much harder to do today because of all the changes. He says, “Think about your lanes and your network as an opportunity for carriers and how you want to present that opportunity to them. With so much more data available, it allows you to better present your lane requirements to carriers so they can come back with realistic and executable bids. Also, presenting the opportunities in carrier-centric terms — such as details about payment terms, whether it is a live load or drop load, or single pickup/single drop —  will lead to lower line haul rates and more executable solutions.”

Four requirements for procurement technology

Technology is a key enabler of modern bid procurement. Gregg notes there are four key steps in the bid process. The first is bid preparation—gathering all of the historical data on lanes, rates, pricing and service requirements. The second is execution and monitoring of the bid process, including feedback between rounds. Third is the optimization of the bid results and awarding of contracts. The final step is activation of the new rates in the TMS. A single platform solution can help with all of this.

Gregg adds that flexibility is a critical factor when it comes to executing different bid strategies. “You can have different modes, different number of rounds you might want to perform, different lane requirements you want to share with carriers, and so on. You need to have the flexibility to support these different approaches.”

“The biggest area of innovation we see in procurement is in strategic modeling,” continues Gregg. “The ability to run simulations and evaluate the impact of changes on future transportation spend is critical to procurement success.”

The knowledge benefit

Successful bids require more than technology. I asked Bob how a third-party partner can help companies navigate the procurement process. Bob says, “The knowledge and experience we have garnered in many years of helping customers with bid engagements is a benefit we provide. Customers always want to know how the other guys did it and we can share that experience. We can also help them understand rates and we can collaborate with them on lane presentation – understanding how carriers will use the data to create executable bids. If multiple rounds of bids are used, we can help them understand and evaluate the carrier responses by round.”

Bob goes on to point out that the biggest mistake shippers can make is trying to beat the carriers up on rates because it often results in unrealistic bids that are not executable. “When you go to execute, you’ll find the capacity and service won’t be what you thought you were going to get. It becomes a transactional relationship and you’ll find you won’t have the capacity when you need it. It should be a win-win proposition.”

What additional advice do Bob and Gregg have for shippers? How do mini-bids fit into the process? And what will separate the leaders from the laggards in procurement? I recommend that you watch the full episode for all of Gregg’s and Bob’s insights and advice on those questions and more. Then keep the conversation going by posting a comment and sharing your insights and advice about transportation procurement.