As most shippers traditionally conduct capacity sourcing events or RFPs, full transportation networks are sent out to bid—often leading to a regular cadence of changing carrier mixes with varying degrees of incumbents and new carrier partners. Once the bid cycle is complete, however, measuring the ongoing success of their last sourcing event through compliance management is a crucial step. Several key performance indicators that can be used to determine RFP success include spot market activity, brokerage use, and carrier consistency.
Better RFP Strategies: Why Shippers Should Measure Carrier Consistency
Of these indicators, carrier consistency serves as an important measurement of compliance that clearly indicates whether carrier contracts are aligning to plan or deviating from expectations. When consistency is low, the next step is finding the root cause of deviation. Failure to maintain a contracted load could be due to external factors like extreme weather events and evolving market dynamics. It may be due to shippers exceeding shipment expectations or production volumes, or carriers could fail to deliver the load because of their changing network. When consistency is high, shippers are reassured of their network compliance, cost expectations and can shift their focus to other strategic initiatives.
While on an ad-hoc basis, carrier consistency may indicate simple errors that lead to non-compliance, ongoing trends of diminished consistency may be indicative of more notable misalignment in a shipper-carrier network relationship. This non-compliance leads to high levels of rework on the shipper’s side, and results in unexpected incremental costs.
Carrier Consistency and Compliance Decrease After a Transportation RFP
The chart below represents a cohort of shippers representative of the Breakthrough shipper network, collectively spanning 774,900,713 miles and executing 1,834,572 shipments in 2018. We looked at their respective change in carrier consistency over a 45-week period following the establishment of a new routing guide through a sourcing event such as an RFP. The shippers used in this analysis all operate national networks and perform annual sourcing events at different times throughout the year. Each, however, has a unique execution strategy.
Carrier consistency, a key indicator of carrier and shipper compliance, decreases over time after a sourcing event. On average, carrier consistency declined approximately 5 percent after 11 weeks of new rates going live following a full network RFP. This declining trend continues as carrier consistency decreases by an average 10 percent after 23 weeks and 15 percent overall by 45 weeks.
While all seven shippers saw a varying spectrum of declining carrier consistency due to complexities in their networks, all also saw definitive results. The largest decline for a single shipper over a 45-week period was a drop of over 30 percent, whereas the smallest change in consistency was a 4 percent decline.
These results shouldn’t come as a surprise to anyone managing transportation capacity sourcing, however they do point toward an opportunity to optimize transportation strategies. Once an RFP is completed, a cyclical adjustment to non-compliance begins on both sides. While the root cause could be negligence, poor service, or capacity, they may stem from a misalignment of two unique networks that don’t fit each other’s needs. Utilizing historic data to view both shipper and carrier supply and demand dynamics can uncover carriers better suited to meet the needs of a shipper’s network, while also highlighting carriers that are already performing at a high rate of compliance. Sending full networks out to bid disrupts service for shipper and carrier relationships meeting expectations, and can be substituted for smaller, more targeted sourcing events that match the right carriers to the right lanes.
Leave Full Transportation Network Sourcing Behind to Optimize Your Strategy
In this study, the shipper with the highest carrier consistency has strayed away from annual full network sourcing events. Since completing its final annual full network RFP event, shipper 3 has adapted its strategy to perform several, targeted sourcing events when opportunities arise. This allows shippers to continuously adjust their routing guide to optimize their carrier base, explore modal conversion, achieve strategic goals, and see potential savings in their transportation supply chains.
By rethinking the industry’s status quo, shippers have an opportunity to seamlessly optimize their networks based on real data, continuously refining their approach and enabling them to reach their most optimal level of service.
For more information about Breakthrough Supply Chain services and how you can bring a more data-driven approach to your supply chain, contact us!