As supply chains have become increasingly complex and technology advances, there is more data available than ever before. Additionally, the industry is experiencing an extremely volatile freight market due to volume fluctuations, increased regulations, and continued driver shortages. This highlights the need for a professional freight management company to holistically evaluate how you buy transportation and examine your capacity strategy.
Historically, 3PLs have been measured by how much freight they “manage.” However, evolving supply chain technology now enables 3PLs to incorporate real-time market indexing into their daily operations to drive procurement decisions. 3PLs are now evaluated by their understanding of price, their effectiveness at buying at the current market rate, and how much live market intelligence they have visibility into when executing.
For example, most 3PLs have pivoted to spot buys, or one-time buys, versus a contracted rate approach since the spot market is currently about 25% lower, saving customers money while still delivering the same level of service. By utilizing benchmarking at a very granular level, typically at the lane level, 3PLs monitor these rates to determine if it makes more sense to spot buy or contract buy.
The Need for Benchmarking
Shippers need benchmarking to know that they are buying at the market rate and to see how their rates compare as the market swings, given that paying above the market drives excessive costs. Rates below market lead to decreased tender acceptance from their core carriers as they will select other loads. As volumes continue to fluctuate, it is more important to be able to benchmark your rate position by acquiring available technology or partnering with a logistics company who specializes in this service. Negotiations have become intelligence-based versus volume-based, and there is now an ability to provide operators with visibility into the market with real-time information.
Moving Beyond Tactics
To successfully manage costs and respond to the market, it is important to proactively focus on continuous improvement activities and leverage the power of partnerships to stay ahead. To be more strategic you should consider the following:
Taking a proactive approach
While many organizations are in a reactive “firefighting” mode to try to remedy daily customer pain points, it is important to adopt a more strategic approach. A 3PL helps organizations become more proactive by evaluating areas for improvement either from a cost position or supply chain performance perspective.
A partner can also assist in instituting a formal continuous improvement plan through an active project list. Through 3PLs business intelligence tools which are integrated into their TMS, shippers can quantify internal policies such as customer allowances, back orders strategies, and minimum order quantities.
3PLs examine the costs associated with executing your business as well as the decision points and policies that are influencing organizational expenses. By reaching farther up the supply chain to understand the implications of customer service, sales, inventory, and manufacturing processes, 3PLs can itemize the supply chain costs that are the by-products of your environment. This involves looking at elements like end of month surges and order change policies that drive costs, quantifying them to provide shippers with visibility into the costs of their policies, and evaluating the opportunity for changes.
Responding to the market
Strategic partners provide technology and management of higher-level processes rather than performing just tactical tasks like managing labor. 3PLs report on what they are seeing in the market to keep shippers ahead in terms of capacity and service and make recommendations for action when appropriate. For example, in response to customers’ demands for increased shipping visibility, 3PL partners are acquiring technology and integrating real-time visibility tools into their execution platform along with powerful business intelligence applications to enable network engineering.
Aligning With Partners
Benchmarking is complex and finding the right partner whose core competency is selecting and mastering supply chain technology with professional procurement and planning resources can help your organization navigate this unstable freight climate. When searching for a partner, consider the following:
Selecting a partner with confidence
Trust is at the forefront of a successful partnership, and it is important to determine if a logistics company understands your common goals and if you can trust them to meet those objectives. You must evaluate if a potential partner is big enough to be relevant, yet small enough to care about you as a customer.
Focusing on core competencies
In the selection process, look for a 3PL that has the right business model to meet your goals. Often, shippers fall into partnering with a capacity provider and end up outsourcing transportation to a company that is very good at delivering capacity. However, a capacity provider’s core competency is not in managing a transportation network, which requires a very different skillset.
A capacity provider will have great technology to monitor inward facing processes like the operating ratio on each truck they are running or equipment maintenance. Whereas 3PLs have a different business model, designing carrier-agnostic network solutions which create value for the shipper.
With consumer expectations for speedy deliveries only growing, it is more important than ever to ensure your supply chain can meet the standards for velocity. Outsourcing can make it easier to increase delivery speeds at a lower cost. 3PLs already have operating locations, eliminating the need to create and manage your own warehouse networks. An outsourced partner also has the business intelligence to leverage your data to make optimal inventory decisions and has experience with future-focused technology implementations. While the need for speed cannot be ignored, companies that take a calculated approach to velocity will find the most success without overextending their budgets.