For most manufacturers and retailers, the supply chain has become more than just a cost center, but an extension of the company’s brand. Consumers expect top-notch service. A late delivery or an out-of-stock item often represents more than just a lost sale, but a lost customer. The pressure for reliable, affordable freight transportation is more important now than ever, and actionable cost-to-serve data will help procurement teams make important freight decisions quicker.
In 2021, a Chief Procurement Officer’s number one priority was improving operational efficiency. With disruption being the new normal, it’s critical for shippers to minimize the number of internal bottlenecks that increase risk. Overall, inefficiencies damage a brand’s relationship with customers and negatively impact the bottom line.
Though the reasons for bottlenecks vary, a common theme is missing or inaccurate data in each supply chain link. Without a single source of truth, supply chains lack visibility, central communication, and robust processes, slowing down routing and decision-making.
Procurement leaders are looking for ways to better incorporate data into their decision-making to drive efficiency in their RFPs and carrier sourcing process. However, many teams are not getting at the heart of the problem that underlies supply chain procurement: accurate and trustworthy data.
Whether it’s sourcing new capacity, running an effective routing guide, or keeping up with market trends, procurement teams simply don’t have the data they need to make the best possible decisions for their company.
Why procurement teams struggle to manage cost and performance
Procurement teams have a tough task when it comes to managing cost and performance. From pre-bid to post-bid to running a routing guide, they face major challenges across three main responsibilities.
Procurement leaders have limited data when sourcing new capacity
When vetting carriers, procurement leaders often have insufficient data, aside from linehaul pricing, accident history, and insurance information. Sourcing transportation is a risk assessment exercise. Shippers can assess risk on rates, but cannot assess risk on service. It can take a team of analysts weeks, if not months, to do extensive data collecting, cleaning, and forecasting when evaluating new capacity.
In a perfect world, procurement leaders would be able to understand carrier performance down to a lane level. However, the only concrete data point that shippers have is based on limited price information (i.e. linehaul rates). They have no way of accounting for expected penalties or accessorial fees. Due to this, shippers aren’t able to accurately assess the true landed cost when it comes to making freight allocation decisions.
Often, procurement teams make volume forecasts 12-15 months in advance, and with the high level of variability of freight allocation, forecasting data becomes meaningless. As of now, procurement teams struggle to answer important questions like: Is it worth it to spend additional money to improve my performance into Walmart?”, or “How much are rejected tenders or late shipments costing me?”, or “Who are the best carriers delivering into Target?”.
Being able to do this level of cost-to-serve analysis will help shippers make better decisions that lower risk, lower costs, and improve service.
Untrustworthy data results in ineffective RFPs
Carrier and shipper relationships are based on service and price. With inaccurate and insufficient performance data, procurement leaders are left with an incomplete picture of whether a relationship is optimized for both.
So what’s fueling this untrustworthy data? It comes down to a very manual, time-consuming workflow process. With important data siloed and stored in various systems, spreadsheets (with multiple versions), and email chains, it becomes very difficult to collaborate across stakeholders, both internal and external, and align on a single source of truth. Communication breakdown occurs, requirements are blurry, tenders are rejected, and the bottom line is impacted.
When unverified, untrustworthy, and insufficient data is used for running an RFP, it impacts the routing guide, and ultimately the transportation budget. One of the biggest challenges for procurement leaders is having access to updated, accurate information. When forecasting and planning for RFPs, procurement teams need to be able to access carrier data around lanes, geography, price, and average exposure, among other performance indicators.
By utilizing this type of data, shippers can make proactive decisions that allow them to better understand how much it costs to serve their customers, which lanes are likely to fail, and which carriers are not performing.
Poor data visibility leads to an inability to stay within market rates
The last key challenge for procurement teams is being able to align with market rates and conditions. It’s not uncommon for teams to contract freight on an annual basis, locking in rates for the entire year, leaving little flexibility if the market moves or if supply and demand changes.
With little wiggle room and disruption being the new normal, procurement teams need to be ready to adjust their strategy. Pivoting becomes difficult when teams lack performance metrics. With sufficient data, shippers can operate on a portfolio that consists of three types of procurement strategies:
Dedicated fleet: Consistent, reliable, and balanced lanes
Spot rate: Variable, irregular, and unbalanced lanes
Contract rate: In the middle of dedicated and spot
The spot rate is usually synonymous with a failed routing guide, but it has since been a strategic approach for procurement teams to help balance out their spending. Spot rates change daily, and when armed with actionable data, teams can take advantage of them wisely. In the end, rate variability will happen, whether planned or unplanned, so it’s best for shippers to utilize performance data to remain agile when conditions shift so they can stay within market rates.
The solution: Contextualized cost-to-serve data
Isometric Technologies (ISO) offers a neutral platform for shippers and carriers to measure and monitor their overall cost-to-serve performance. ISO takes TMS and ERP data and maps it to SLAs, both internal and external, to accurately show who is responsible for service level failures and the costs associated with them.
ISO allows procurement teams to answer the questions they really want to know about their supply chain network and what it takes to efficiently serve their customers. The platform acts as a single source of truth for shippers and carriers to align on their performance data, so both parties know their data is vetted, clean, and actionable. With ISO, procurement teams have the ability to make proactive decisions around freight allocation.
Overall, ISO gives procurement teams a complete picture of their total landed cost to serve their customers. Shippers can break down how lanes perform, view profitability by customer, and see which carrier has the best performing OTD, among other value add activities. Procurement leaders now have the power to make the right decisions because they have data that is clean, normalized, and contextualized.