Merging Forward Contracting with a Dynamic RFP

Published April 7, 2020

I have preached for years about leveraging Advanced Sourcing Optimization technology as a collaboration tool rather than a way to simply beat down your carriers/suppliers. But still today, these extremely powerful tools are largely being used to drive the same competitive,” I Win, You Lose” behavior. Too frequently, sourcing technology in transportation has been used solely to conduct the annual “mega-bid RFP”; a massive event spanning several months consisting of all known lanes with the goal of resetting the playing field in hopes of a year of peaceful and flawless execution.

There are two fundamental weaknesses in this approach. First, the sourcing event culminates in the distribution of awards that are non-binding; largely a head nod and handshake. Some shippers say they have “contracts,” but in reality, these are nothing more than rate agreements and they are far from reliable and certainly not binding. Second, the market is too dynamic for a loose agreement to stand up and it has become standard practice to maintain a deep routing guide knowing that the preferred carrier cannot be expected to be in perfect position to execute when every load that is tendered is treated like a complete surprise. This dilemma can be solved by leveraging two solutions which are not mutually exclusive.

The first solution relies on a principle I adopted 30 some years ago when my job was planning the upstream supply chain. “If it can be planned, it should be planned.” Why do so many of the logistics operations I see get surprised by every shipment? I had a customer with 13 inbound shipments from a vendor to their store a week, zero planned … all surprises. Every load was, “Hey, I need a truck” followed by a high-touch scramble. And guess what, that vendor never makes 13 trucks worth of stuff on Thursday night. They produce a pretty even schedule all week long … by design.

I worked with another customer who said their outbound to their customer was all over the map because there was no way to control when the customer placed their orders. Three weeks later and with just a little digging, I learned that the shipper was actually doing VMI and was completely in control of the timing of inventory replenishments.

Now granted, not every lane or every shipment can be put on a perfect schedule. This is why I am proposing two complementary solutions. But if you are sitting there thinking that none of your business is plannable and predictable, you are simply not trying hard enough.

Another story… I presented a shipment pattern on a lane with an average of 6.5 shipments per day (1,690 shipment per year) on a product with barely any seasonality. There was NO detectable, plannable pattern. A guy in the audience stood up and said, “Hey, that is statistically impossible” to which I laughed and responded, “yeah, it is like you are trying to surprise your carriers every day,” and then we sat down to fix the problem.

The second solution suggests that advanced sourcing optimization technology could be used in a more dynamic fashion. I used to call this “leaving the window open.” Recognize that any carrier’s network is constantly in a state of flux: they are bidding on and winning new business every day. They are also losing business every day, growing in some markets, and shrinking in others. When you sent out your “mega-bid RFP,” they were dying for a few of your lanes and couldn’t care less about others. But, two months later the reality of their business may be completely different. So why are you asking them their needs once a year and hoping their answer will be valid for the whole year? Or worse, why are you demanding that they service your business for the whole year when you know their needs have probably changed? What was good business for them at the time of your bid, may not be so good now.

Sourcing optimization provider, Jaggaer, LLC recognizes the execution benefits of Leaf’s proposition and can incorporate the approach into their advanced Sourcing Optimizer RFP scenarios. “We are excited to be working with Leaf and their forward planning capability to bring stability and economic benefit to both our shipper customers and their selected logistics partners. Our customers can leverage Sourcing Optimizer to zero in on where a volume commitment to the day is a clear game-changer,” says Rick Long, Vice President of JAGGAER’s Consumer Goods and Retail practice.

To this point, “leaving the window open” means leveraging your proposal collection tool to collect bids all year long. Collaboration means finding a win-win approach and letting carriers tell you if there is business that they can no longer run efficiently for you and letting other carriers tell you where they have new interests. Using advanced sourcing optimization solutions, you can run sophisticated award scenarios in seconds to realign your awards periodically and collaboratively. Periodically may mean quarterly for starters because you don’t want to just create noise and work. And collaboratively means creating solutions that benefit you and your carriers and help to make your company a shipper of choice; one who earns the carrier’s trust and access to their capacity even in the tightest markets.

And now back to the non-mutually exclusive comment. Wanna do something new? Speak to Leaf about having your shipment history analyzed to see where there are great opportunities to dramatically improve your capacity reliability and rate volatility. Speak to Jaggaer to learn how to redesign your RFP, understand the economic benefit of better scheduling your freight and making a commitment where it makes sense, and then how to use your RFP technology more dynamically.

About Leaf: Leaf is changing the way B2B transportation is bought and sold. We use data and technology to develop a forward-looking view of transportation capacity and rates, allowing buyers and sellers plan and schedule transportation with higher predictability and at lower costs. After a year of solidifying partnerships — and having just closed a $20M Series A raise — Leaf has demonstrated the market is ready to operate the future model for over the road transportation. For more information contact: jeff.ryan@leaflogistics.com or visit: https://leaflogistics.com/

About JAGGAER: JAGGAER is the world’s largest independent spend management company and has pioneered sourcing/procurement solutions for over two decades, including their award-winning Sourcing Optimizer, part of the end-to-end JAGGAER One Source-to-Pay suite. JAGGAER continues to lead the innovation curve by listening to customers’ real-world problems and providing innovative solutions that help companies drive cost savings and preserve cash. JAGGAER holds 37 patents–more than any other spend management company. For more information, contact: RLong@Jaggaer.com or visit JAGGAER.com.

Tags:

RFP