Executive Briefings

2010 Transportation Procurement Benchmark Study: Leveraging Automation to Manage Market Volatility

American Shipper, in partnership with the Retail Industry Leaders Association (RILA), surveyed about 200 transportation buyers and sellers on their procurement practices, processes, technologies and results. Qualified respondents include freight buyers, including manufacturers, retailers and third-party logistics providers.

Winners
Each American Shipper benchmark study seeks to highlight best practices by parsing companies which are delivering excellent results - "winners" - from the average and subpar performers.

The market has experienced extreme volatility in the past 12 months and even winners have not been spared from steadily rising transportation freight rates and other dynamic market conditions. To accommodate for the "new normal" the 2010 winners criteria are as follows:

1.    Keep contract freight rate increases in check, with less than 10 percent increases over 2009 levels.

2.    Effectively measure price, service and risk associated with carrier bids.

3.    Implement awarded contracts within two months.

By applying this multifaceted measure, we determined that about 15 percent of the total study population qualified as winners. This year's class of winners includes many retailers (39 percent) and 3PLs (44 percent).

Adoption Rates Increase
In 2009, about 60 percent of respondents reported that they manually manage transportation procurement, making it one of the key themes of that year's report. Twelve months later the trend has shifted noticeably.

Close to 40 percent of buyers manage procurement manually, while 30 percent leverage a procurement application of some kind. Twenty-eight percent use a mix or hybrid model, which probably varies by mode or geography. Only 4 percent of respondents outsource this function. Seventy percent of winners automate their transportation procurement function.

Centralized Procurement Delivers
There is clearly a correlation between centralized buying practices and a company's ability to keep contract freight rate increases in check. Regional buyers are twice as likely to have seen 2010 rates increase by more than 10 percent year over year.

Procurement practices vary across industry segment, but it's clear that winners overwhelmingly adhere to a central procurement policy.

Evaluating Value - Not Price
Automated buyers demonstrate a more balanced approach to considering all aspects of a carrier's bid. Forty-seven percent of automated buyers rank price as their largest concern, while service levels register a close second with 42 percent of the population. The spread is far larger for manual buyers with 40 percent more favoring price.

The risk of aligning with a carrier that cannot follow through on its bid registered in this year's study. In 2009, none of the respondents cited risk as the number one concern.

Functionality Changes with the Times
When forced to choose the most critical functionalities their systems offer survey respondents tend to stick to those that are most readily available. Baseline pricing remains number one followed by bid optimization and volume coverage/commitment.

It is notable that winners have a very different list of priorities with bid optimization as the clear top concern. Baseline pricing is noticeably less important, suggesting the group is focused less on price and more on service in this marketplace.

A free copy of the report is available from the American Shipper and RILA websites.

Source: American Shipper, RILA

American Shipper, in partnership with the Retail Industry Leaders Association (RILA), surveyed about 200 transportation buyers and sellers on their procurement practices, processes, technologies and results. Qualified respondents include freight buyers, including manufacturers, retailers and third-party logistics providers.

Winners
Each American Shipper benchmark study seeks to highlight best practices by parsing companies which are delivering excellent results - "winners" - from the average and subpar performers.

The market has experienced extreme volatility in the past 12 months and even winners have not been spared from steadily rising transportation freight rates and other dynamic market conditions. To accommodate for the "new normal" the 2010 winners criteria are as follows:

1.    Keep contract freight rate increases in check, with less than 10 percent increases over 2009 levels.

2.    Effectively measure price, service and risk associated with carrier bids.

3.    Implement awarded contracts within two months.

By applying this multifaceted measure, we determined that about 15 percent of the total study population qualified as winners. This year's class of winners includes many retailers (39 percent) and 3PLs (44 percent).

Adoption Rates Increase
In 2009, about 60 percent of respondents reported that they manually manage transportation procurement, making it one of the key themes of that year's report. Twelve months later the trend has shifted noticeably.

Close to 40 percent of buyers manage procurement manually, while 30 percent leverage a procurement application of some kind. Twenty-eight percent use a mix or hybrid model, which probably varies by mode or geography. Only 4 percent of respondents outsource this function. Seventy percent of winners automate their transportation procurement function.

Centralized Procurement Delivers
There is clearly a correlation between centralized buying practices and a company's ability to keep contract freight rate increases in check. Regional buyers are twice as likely to have seen 2010 rates increase by more than 10 percent year over year.

Procurement practices vary across industry segment, but it's clear that winners overwhelmingly adhere to a central procurement policy.

Evaluating Value - Not Price
Automated buyers demonstrate a more balanced approach to considering all aspects of a carrier's bid. Forty-seven percent of automated buyers rank price as their largest concern, while service levels register a close second with 42 percent of the population. The spread is far larger for manual buyers with 40 percent more favoring price.

The risk of aligning with a carrier that cannot follow through on its bid registered in this year's study. In 2009, none of the respondents cited risk as the number one concern.

Functionality Changes with the Times
When forced to choose the most critical functionalities their systems offer survey respondents tend to stick to those that are most readily available. Baseline pricing remains number one followed by bid optimization and volume coverage/commitment.

It is notable that winners have a very different list of priorities with bid optimization as the clear top concern. Baseline pricing is noticeably less important, suggesting the group is focused less on price and more on service in this marketplace.

A free copy of the report is available from the American Shipper and RILA websites.

Source: American Shipper, RILA