Today we continue to highlight and expand upon the key elements of the “Checklist for Transportation Spend Management” created by Transwide and Supply Chain Media. In today’s post we highlight checklist items three, four and five.
Checklist Item #3 – “Carrier Bid and Selection is an Automated Process and Rates are Automatically Updated.”
This point is an interesting and extremely important one because in many company’s bid processes, the final carrier selection is based solely on the lowest cost respondent. That single selection criteria process is not always the best choice, and in fact often times is the worst choice for the shipper. In any carrier bid process, the key element is making sure that all carriers who are invited to bid are in fact “all created equal.” If not, then selecting the least cost carrier may, and often does backfire because the lowest bidder may provide the lowest level of service.
To work with a bid process that is automated and where the carrier rates are updated automatically, is a very powerful tool for any shipper to utilize. Automating processes in conjunction with the carriers’ processes only strengthens the working relationship between both parties, creating true and hopefully long lasting relationships.
Checklist Item #4 – “Almost all of our Carriers are Meeting their Service Level and Routing Compliance Requirements, as a Percentage of the Shipments They Handle.”
The key words in the above checklist point is “almost” and “as a percentage of the shipments they handle.” First and foremost, we all understand that no transportation service provider will provide 100% on-time, damage free deliveries, 100% of the time. Having said that, every company must establish their own metrics for what they feel is a reasonable “fail rate”, because that is exactly what it is, a failure of the carrier to meet its service obligations as outlined by the shipper. If a carrier continually falls below that failure rate, the shipper must have a defined plan to replace that carrier immediately and perhaps even more important, is the need to get that change order message out to its suppliers, customers and other company employees involved in the process without any interruption in service.
Checklist Item #5 – “We Collaborate and Synchronize data with Carriers, Suppliers and Trading Partners, and we Only Need to Concern Ourselves with Invoice Exception handling.”
Collaboration is such a critical part of any business relationship, especially between shippers and carriers. But we are continually amazed at how often these relationships are thought of as vendor/customer relationships and not business partnerships. This is a fatal mistake and is usually made by the shippers who feel that they own the freight and they pay the bills so they are the ones that are in control…NOT!
The old adage “it takes two to Tango” is still true today. Yes, the carrier needs the shipper’s freight but equally as important is the fact that the shipper needs the carrier to get its goods delivered. Sounds simple enough and it is, but putting the proper tone on these relationships at the outset is critical for long term business success FOR BOTH PARTIES!
The issue of invoice accuracy is another critical aspect of any carrier/shipper relationship. If the rates and charges are agreed to by both parties, the rates and charges would be loaded into the freight carriers billing system and therefore each and every invoice it issues SHOULD be 100% accurate. That’s in a perfect world which none of us live in. Again, metrics are critical here as well. What percentage of invoice inaccuracies is acceptable? What happens if the carrier exceeds that percentage? There is a cost associated with the shipper’s need to audit and properly pay all of the carriers invoices in a timely fashion. So the more invoicing errors there are, the more cost the shipper bears. That is another recipe for failure that is often overlooked in the bidding process.
One final point that both shippers and carriers should always strive for. If the carrier and shipper agree to the rates and there is a total collaborative process in place between the shipper and the carrier, the shipper could “Pre-Rate” every shipment it makes based on the agreed upon rates and charges. That would allow the shipper to send payment to the carrier without ever having to receive an invoice from the carrier – How’s that for a collaborative and synchronized business operations process.