After several successful transport projects with 10 – 15% cost reduction p.a. plus often a strong improvement of service quality and reliability, one pattern became apparent: The root causes for unnecessary high freight costs are often similar as they come down to freight procurement by tender:
1. Excellent data quality
Data is easily produced but often relevant parts are missing in a call for bids. Many freight RFP (“Request For Proposals”) contain either incomplete data or they lack vital data components, such as specific volume indicators, INCO terms etc. Why is that? Most freight data is sourced from the incumbent freight forwarder. So, the incumbent might hold back some key data in order to have an edge over competition, during the quotation phase. If you don`t pay careful attention to your data quality, you are weakening “honest” competition from the outset and leave money on the table
2. Different approach to cost comparison
There are thousands off freight forwarder out there, so surely, they are a commodity and differ only by price…WRONG! A strong freight forwarder can make or break your supply chain, offer you capacity when others can`t & many other things – their impact on your customer satisfaction at the receiving end is significant. Ideally, your forwarder should become your strategic planning partner, especially in volatile times like today.
There are several IT tools around to source and compare pricing. Trouble is, often the shortlist and even final choice of forwarder is primarily done on pricing.
Those IT tools can rarely take into consideration indirect cost drivers such as excess capacities in peaks, T & C`s (each forwarder will attach them to the quote) etc. The knock-on effects of those “hidden” costs cannot only erode the savings on paper but even make the whole transport bill more expensive. Plus, in many cases you have cost items applicable per unit mixed with cost items applicable on a per shipment basis.
3. Applying the 80/20 rule
I bet that of your total freight lanes, only 20% or less account for 80% or more of your volume! Contrary, 80% of your lanes attract only 20% of your volume.
So why not focusing only on the top 20% volume lanes to start with?
This has several advantages for both parties:
First, you save time for both parties completing and evaluating the freight. Secondly, you instantly increase the attraction of your tender on the freight market because it is much less work to complete your bid. I have seen tender with several thousand of lanes with most of them just in there because sales anticipated volume as small as one shipment. Finally, you are in a far better position to secure a better rate because the forwarder and carriers (shipping lines or airlines) love consistent business.