Get your “House in Order” Before Conducting a Freight Bid

One of the most frequent complaints I hear from carriers, in person, on social media, or at conferences, is about the number and quality of freight bids that they receive. Carriers complain about the poor quality of the data, the number of carriers in the bid, and about the lack of professionalism in the bid process. They also assert that if the shipper would just meet with them face to face, rather than through a bid process, the result would be more successful for both parties and would take a lot less time, money and effort.

My company has designed and executed many successful bids over the past fourteen years. We have learned that for many shippers, success comes from getting “your house in order” before executing the bid. This is what is involved.

Many shippers have been moving the same freight, to the same consignees, using the same processes, for several years. In their haste to put their freight out for bid, they overlook certain aspects of their business.

A company's product portfolio evolves over time.  New products are introduced as old ones are retired. Miniaturization and packaging changes can have significant impacts on freight densities, and as a by-product, freight rates.  It is essential for shippers to obtain precise calculations of updated product densities before launching a bid exercise.

Businesses change over time. New divisions are added while others may be closed or sold. This may alter freight flows.  Some companies overlook the opportunity to merge their freight with their new sister or acquired divisions to improve their negotiating leverage. In other cases, new pool or consolidation points may evolve.

We sometimes find companies that experience a deterioration in their business volumes. Poor economic or competitive conditions may reduce shipping volumes and leverage. This can necessitate combining volumes with competitive shippers, forming industry associations or taking other creative approaches to make their freight more attractive to carriers.

Shippers should also look at their order fulfillment processes and cycle times. Some consignees may be able to provide more lead time on their orders if you ask them. This can allow for combining daily LTL orders into larger shipment sizes and moving them on designated days.

In other cases, intermodal transportation, in some areas, may be an effective option to over the road service, at a significant savings.  For certain Canadian-based companies, they may be able to arrange direct shipping of their products from their US vendors to their Canadian consignees, by-passing their Canadian warehouses in some instances, and reducing cross-docking, re-handling, and line haul costs.

It is critical to identify and implement these efficiencies before conducting a bid. These operational changes will translate into even bigger savings after the bid has been conducted. If necessary, delay the launch of the bid until these changes are made. Keep in mind that your carriers’ rates are tied to freight volumes on specific corridors. If you make these changes after the bid, you run the risk that the carriers will come back and ask for a renegotiation of the rates.

Shippers also need to get their data in order before conducting bid. It is essential that the carriers in the bid be supplied with accurate data upon which they can base their rates. The data should be cleansed to remove errors in weights; the volumes in certain lanes should be corrected to reflect new customers added during the year and the loss of some old ones.

Two other areas to look at are production and inventory management processes. For some shippers, these may be delicate issues to raise with their supply chain partners. Nevertheless, if there are problems with production processes such that the company is required to make excessive use of expedited services, or if cramped warehouses force the company to move suboptimal shipment sizes, these translate into higher than necessary freight costs. Again, these items should be addressed, if possible, before executing the bid.

By making ongoing changes to a company’s supply chain, this ensures that the business is operating as efficiently as possible. By combining these changes with a well organized FRP process, shippers can maximize their savings. For more information on how to conduct a professional freight bid, check out my series of blogs on this topic (http://www.dantranscon.com/index.php/blog/entry/freight-bid-tip-1-obtain-buy-in-and-participation-from-the-operating-divisions ).

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