At a recent industry conference, a shipper asked me many questions about transportation procurement, such as, “How do you best determine how long and how often to have transportation sourcing events?” It’s a question many shippers are asking today as they try to figure out how to best navigate this ever-changing market. The good news is that companies now have greater access to real-time benchmarking data and market intelligence.
I began our discussion with a simple question: Why do companies benchmark as a first step for successful procurement?
Kyle states that, “Companies want to know how they bought against the market in the past; what the market is doing today, both for spot and contract; whether they want to extend existing rates on lanes or use the spot market on certain lanes; and how long should I go to bid? It gives you good leading indicators of how to run your procurement event and the strategy you want to use.”
Benchmarking for Annual vs. More Frequent Bids
There is a lot of conversation these days about moving away from annual bids to doing more frequent, shorter-term bids. How does benchmarking tie into this?
“The tools that allow you to do short-term bids are as important as the data that drive the decisions to do short-term bids,” Kyle explains. “Benchmarking data, as well as looking at your historical behavior on lanes, are important. If you have consistent lanes throughout the year, then put those lanes in an annual bid. However, if you have a 4th of July peak period, for example, it doesn’t make sense to put that in an annual bid because carriers are not going to see that for several months.”
It all comes down to understanding your lanes and what strategies make most sense for each. For example, Kyle notes other factors such as warehouse capacity or how utilizing trailer pools can impact the strategies and flexibility companies have in changing carrier contracts.
Gaining Data Access
Most companies have ready access to their own internal historical data for benchmarking, but access to external data has been challenging. I asked Kyle if that is changing and why?
Kyle notes that while there are more providers of benchmarking data, what is more important is that the quality of the data has greatly improved. “The data is much more granular, you can filter out things like assessorials, and separate spot rates from contract rates,” says Kyle. “And the connectedness of today’s systems provides higher quality data in real-time, so the value of benchmarking has greatly improved over the past few years.”
Following up on Kyle’s comments about data quality, I asked him how companies can determine whether the data they are receiving is accurate and trustworthy?
Kyle explains that the volume of data a provider has is important, and you want to see consistency in the data year over year. He adds that “shippers shouldn’t just look at the benchmark rates they get; they should also look at how they have bought against those benchmarks historically because I might be 5% under the benchmark today, but I was 10% below a year ago. Understanding not just the benchmark but how you stack up against them historically is important.”
“Every shipper is different and understanding those differences and building it into how you think about the benchmarking data you’re using is incredibly important,” says Kyle. He also notes that understanding the context of how the data is used and analyzing its relation to economic trends is also important.
The Biggest Hurdle
As with so many areas in business, the biggest hurdle to adopting new practices and technologies is “we’ve always done it that way.” I asked Kyle how companies can get over this hurdle in their freight procurement process. I recommend you watch the full episode for his insights and advice on that question and more. Then keep the conversation going by posting a comment and sharing your own perspective and experience on this topic.