Some shippers believe that once all the bids are in, the routing guide has been prepared, and the carriers have been notified of their awards, the freight bid exercise has been completed. This explains why many manufacturers that conduct these projects are disappointed with the results they achieve. Success does not take place automatically. There are several activities that are required, at this stage in the process, to solidify the expected improvements in service and costs.
- Routing Guide Compliance
The projected cost savings can only be achieved through consistent routing guide compliance management. A company’s transportation management team must track and monitor compliance daily. If a company has a TMS system, non-compliance can be identified via a daily exception report. Any exceptions must be investigated and when necessary, corrective action taken.
Several years ago, we conducted a freight bid for a large multi-plant truckload shipper. A few months after a bid was completed, I received a call from the Transportation Manager. He advised me that one of his plants was not experiencing the level of savings that had been projected. He asked me to investigate and report back to him.
We found that the plant was not achieving the expected results since it was using a truckload carrier that did not rank in the top ten carriers in their routing guide. Upon investigation, we learned that the dispatcher and the carrier’s driver were friends. Their sons played on the same hockey team. The dispatcher was not following the routing guide on certain lanes of business.
Directing the dispatcher to follow the routing guide, and a more careful monitoring of the daily exception report, fixed the problem. Quality data, timely reporting and daily monitoring are required maintain routing guide compliance. Senior management participation is also essential.
- Carrier Management
In addition to the internal controls specified above, the carriers receiving bid awards must be carefully and consistently managed. There are several elements to consider.
a) Tender Acceptance Management
At the end of a bid exercise, shippers will typically award specific load volumes to carriers in designated geographic areas. The projected service improvements and cost savings are dependent on the carriers in the routing guide accepting the loads tendered to them. There will be times when a carrier will experience driver turnover or equipment breakdowns and not be able to cover their loads each week. If the problem become chronic and ongoing, this needs to be investigated and resolved.
Trucking is a dynamic business. Carriers are gaining and losing business on an ongoing basis. If a carrier secures a new piece of business in a specific area, it may be at a higher revenue per mile than the rate the shipper that conducted the bid is paying on the same lane. Similarly, a carrier may lose a quality backhaul account and must replace it with a lower paying broker load. These types of situations will make the bid award less attractive to the carrier. Instead of taking their 3, 5 or 10 loads a week, the carrier may test the shipper to see if they will accept a high number of load refusals.
It is not easy for a shipper to determine what are the true underlying reasons for the lower load acceptance rates. It is important for each shipper to try to establish open, honest communication with their core carriers. The manufacturer can then weigh their options (e.g. accept the situation, offer more loads to backup carriers, replace the carrier, conduct a “mini bid” to reallocate their loads on specific lanes).
b) Carrier Performance Management
In addition to the tender acceptance process, there is the issue of carrier performance in terms of on-time service, claims, billing accuracy and other key metrics. Poor carrier performance can result in lost customers. Each shipper-carrier contract should contain a section on Progressive Discipline (e.g. verbal warnings, written warnings, carrier replacement). Managing carrier performance requires a set of KPIs that should be in the contract and scheduled carrier meetings to discuss performance, and corrective action, when required, to maintain service standards.
Summary
Manufacturers invest in freight bid exercises to accomplish specific goals. Achieving these goals takes work. We encourage our clients to implement specific initiatives to track and manage routing guide compliance and to monitor and manage carrier performance. These measures will ensure that there is a satisfactory return on this investment.
To stay up to date on Best Practices in Freight Management, follow me on X (formerly Twitter) @DanGoodwill and join the Freight Management Best Practices group on LinkedIn. If you are looking for ways to improve the effectiveness of your freight management processes or to save money on freight, contact me at dan@dantranscon.com.
