The Capacity Procurement Process is Broken: Here’s How to Fix It
January 22, 2021
Simply stating that “the transportation supply chain is complex” can feel redundant, even underwhelming. Is “complex” contextual enough to illustrate the challenges shippers face on a daily basis? But the fact of the matter is that our society continues to demand more goods faster. As the pandemic expedites the shift towards technology-enabled eCommerce consumer habits, this statement will continue to ring true for practitioners at every level of an organization.
Although 2020 has dramatically proven supply chain complexity exists, these conditions and their corresponding shipping challenges have always been prevalent. Despite new spot market and digital brokerage technology, track and trace visibility, and an increased focus on data-enabled management, transportation procurement hasn’t changed much over the last few decades.
Shippers have freight, they need carriers, they conduct RFPs using any number of these technologies to build their routing guide, take it live, and then use the spot market to fill in the gaps.
Read how shippers are returning to foundational procurement principles in 2021 to navigate transportation challenges, here.
But the reality is, the traditional freight procurement process has never truly served the needs of shippers operating in a volatile marketplace.
The Problem: We are Using Static Solutions for a Dynamic Equation
The RFP has been the primary medium that shippers use to find carrier capacity for the year. But the single, most limiting problem with an annual RFP approach is that shippers are using a single, static analysis event based on historical data to build a plan for a marketplace challenged with constant change.
Challenge #1: Market Dynamics Shift: As the economic environment ebbs and flows, so does the movement of freight. Today’s market conditions may not have the same influence as those a month from now, or beyond.
Challenge #2: Shipper Needs Evolve: Consumer demands change, and freight must follow suit. Unexpected changes in volume can cause shippers to deviate from the plan made with carriers during the RFP.
Challenge #3: Carrier Networks Change: Carrier networks are dynamic. With so many moving pieces, they can easily shift away from plan. This could leave a shipper’s freight without contracted capacity where it is needed.
No amount of strategic analysis or forecasting can predict the future, and Breakthrough network data shows that shipper routing guides degrade by as much as 30% over the course of the year. For every shipment not catered to via the original routing guide, shippers incur a premium to move their freight in the spot market. This process is time consuming, costly, and does not forge an enduring strategy that shippers can build off of for tomorrow.
The Solution: Targeted, Responsive Contract Freight Strategies
The industry is changing, read why it is time for a change in the way we think about transportation as a fundamental aspect of the supply chain moving forward in this blog.
Shippers need a procurement process that is as agile and flexible as the market in which they operate.
Breakthrough has already seen shippers forego their annual RFPs because they recognized the freight market in 2020 would be impossible to plan for. A better approach to carrier procurement involves targeted sourcing events paired with ongoing management. Procurement needs can range from full-network renovation to regional adjustments, and could even be performed on a lane-by-lane basis depending on each network’s characteristics. Once a carrier is selected, that partnership should be closely monitored, and if compliance or price deviates outside of a custom range agreed upon by both parties within a given time period, the lane should be re-contracted accordingly.
Stop playing catch-up in the spot market and build your procurement strategy to evolve with the market from the get-go.