Monthly Archives: September 2011

Six Secrets of Successful Freight Tenders

A recent article over on Canadian Transportation and Logistics on “the five secrets of successful freight tenders” had some really great tips for getting the best bang for your buck that makes the article a must read. However, it missed one very important tip, which is probably why it claims that Freight RFPs are analytically challenging. (This used to be true, but it’s not anymore. If it’s still true in your organization, then your organization is stuck in the middle ages and it’s time to at least step up to the industrial age.)

Before we get to the tip it missed, let’s start with the tips it provided because at least one of these is overlooked on many a project.

  • Sell your freight.
    Provide as much information as possible about your freight requirements. For each product, include transport, storage, volume, and frequency requirements. The more accurate and complete the RFx, the better quote the carrier can give you. Without detailed information, carriers will build in a “risk premium” so they don’t end up with “bad freight” and both parties lose.
  • Provide enough time.
    Without enough time to analyze your requirements and consider the fit, you’ll get a rough bid that won’t be the carrier’s best proposal. Remember that, depending on the time of year, it will likely sit on someone’s desk for a week, then in pricing for another week, before someone gets to it in the third week. If detailed analysis is required by the “number cruncher”, it could take a month to get the best bid.
  • Standardize the accessorial program.
    Variety and complexity of programs can make the analysis of bid responses unnecessarily complex, as you will be trying to compare apples to oranges to potatoes. And while maybe you can force fit compare the first two, the third poses quite a challenge. Create one program with one uniform set of charges that applies to all carriers.
  • Fully analyze rate proposals across the board.
    Typically carriers will give you aggressive discounts on major lanes to lure your business, but keep discounts to minor lanes minimal, or non-existent. As a result, you may pay more for freight overall if you end up shipping more on secondary lanes.
  • Benchmark results
    Freight patterns can change, and the net result is that a new freight schedule expected to save you money costs you more in the end. “Shadow rate” your current shipments using at least your last rates (if not your last two rates) to get a feel for what freight profiles give you the best deal overall.

But most importantly:

  • Use a sourcing package that can handle freight optimization and multi-level freight bids.
    A good strategic sourcing decision optimization platform (as provided by Algorhythm, BravoSolution, CombineNet, Emptoris, Iasta, or Trade Extensions) will not only allow for full analysis of the entire freight bid, but allow for the easy import of multi-level freight bids from excel spreadsheets. More specifically, these modern packages allow a carrier to define (inter)national rates by weight, volume, or distance, and then override these by region, and then by lane. This will allow a carrier to quickly define standard bids for low-volume lanes or lanes that they are not interested in and focus in on the lanes that fit their network and that they want to aggressively bid on. A carrier can bid on a 10,000 lane global sourcing project in a couple of hours. This decreases response time and increases bid quality.

Does Your 3PL Have the CCSF Designation?

If you want quick transport by air, maybe it should.

As per this article on “tsa finalizes airfreight screening ruling” in Air Cargo World, the US Transportation Security Administration has executed its interim final rule (IFR) on airfreight security and enabled entities other than airlines to screen cargo transported on passenger planes.

Before the TSAs certified cargo screening program (CSSP) that was introduced in September 2009, only the TSA or airlines were authorized to screen belly-hold cargo. But now that the IFR has been implemented, airfreight entities can now apply to become certified cargo screening facilities, provided they adhere to a stringent chain-of-custody requirement and implement a multi-layered security program that includes appointing security coordinators, strict access controls and vetting of key personnel.

Given that the TSA is aiming to achieve 100-percent cargo screening on all U.S.-bound flights by the end of the year, there’s a good chance that any shipper relying on the TSA or the airline to screen their cargo could experience a backlog delay during the holiday rush season. However, those who use a 3PL with CCSF status will see their cargo clear immediately.

Cost Control – Hwong Style

Those who know Henry, who, before taking on a VP role at Rearden Commerce, held senior roles at Ariba, Provade, Elance, PeopleSoft, and Moai, know that he’s on the ball when it comes to Sourcing and Procurement. Thus, I was very interested to see what his prescription for Cost Control was as he was relatively quiet during his time at Ariba where he took on a more internally focussed role.

But, as per this recent article over on CPO Agenda on “How to Control Costs”, he’s back in the spotlight and eager to share his wisdom with the world.

According to Henry, the secret to cost reduction is not to put more spend under procurement’s control (which is hailed as the holy grail by at least one analyst firm), not to enable enterprise-wide visibility (which is hailed as the holy grail by providers of spend visibility software), and not to put an end to off-contract purchasing (which is hailed as the holy grail by consulting firms a-plenty). While each can reduce costs, the real sercet is to moving towards a more holistic approach to managing the entire lifecycle of a purchase. This is because a platform model that supports the entire procure-to-pay process (and as many categories as possible), gives procurement chiefs the one common driver behind all of the strategies reflected in the survey responses: control.

What a CPO really needs to reduce costs is control over those costs, and, more specifically, control over the processes that drive those costs. Some categories should be purchased centrally, others should be decentralized. Some should be purchased on multi-year contracts. Others should be purchased on a spot-buy every day, week, quarter, or month. Some categories should only be bought on contract. Some should never be bought on contract. The CPO needs the control to ensure that the right policy is followed for every buy. That is the ultimate key to cost control.

In addition, if you really want to control cost, instead of consolidating the supply base, which is the first instinct in 3 out of 5 procurement professionals, you instead expand the supply base. As Henry says, while consolidation presents you with fewer throats to choke, it also increases your exposure to disruption if one of those suppliers fails or has a quality / delivery issue. Plus, when you give users fewer choices, the immediate impact will be an increase in off-contract buying. Thus, if you want to make an impact, you expand the supply base since working with more suppliers can actually increase compliance and interestingly enough reduce costs, as the procurement team has more leverage to work with when negotiating terms.

Finally, if you’re really serious about cost control, you tackle the biggest obstacle of them all — the cultural obstacle. Procurement teams are often not involved in strategic planning decisions and are brought in after major decisions are made and after much of the costs have been locked in. Even having the information that procurement can provide about supplier choices and costs … could play an important role in keeping costs low in the long-run.

It’s a great article that provides great insight into the real drivers of cost — cultural, control, and consternation (about having too many throats to choke). It also provides some great advice on strategies an organization can use to combat wild price changes in dynamic commodities and some insights on where Henry thinks the challenges in Procurement lie. Check it out.

Energy Buying Is Definitely Not For Those Looking for a Quiet — or Easy — Life

A recent article over on the CPO Agenda on how “energy buying is not for those looking for a quiet life” made some great points. As the article notes:

  • there is continuing political unrest in many oil-producing nations (and 20%+ of available oil goes to international shipping alone [Source])
  • the recent Japanese disaster has cause a renewed apprehension to nuclear energy production (and Germany is going to decommission its nuclear plants that supply 25% of the country’s electricity)
  • in most countries, renewable sources still account for less than 5% of electricity production
  • demand for fossil fuels is still rising, and the rapid rise of China and India which, combined, hold over 1/3 of the planet’s population combined, isn’t helping

Plus:

  • significantly increasing energy production from renewable sources, while now a technical feasibility, will cost many (many) Trillions of dollars which have to come from somewhere (as a side note, 2010 saw a record level of investment of over 240 Billion — but we probably need at least 10 times that for a rapid increase in the production of renewable power)
  • deregulated energy markets, which will soon account for a majority of state markets in the US, allow money grubbing financial types to play hedge games (and we know what eventually happens to hedge markets when Wall Street types get involved)

And:

  • energy cost models can be complex: costs of generation, transmission, storage, distribution over third party networks, and taxation, each with their own cost models, need to be taken into account

All-in-all, you are dealing with a very complex, and very volatile, commodity whose price performance can be almost impossible to predict even in the short term. And even if you manage to lock in a mid-term contract at great rates, what happens if prices spike and your provider goes bankrupt because it predicted downward performance and signed too many deals at the start of what was actually an upward trend? Or if you decide to generate your own electricity and your fuel supplier all of a sudden stops delivering? There will be sleepless nights. Unless you thrive on them, beware of energy buying. It’s not for the faint of heart.

Collaborate, Collaborate, Collaborate, Collaborate … NOT!

Over on the HBR Blogs, Andrew Campbell recently wrote a post on how “Collaboration is Misunderstood and Overused” that was awesome. I don’t necessarily agree with it, but it’s thought-provoking and contrarian and almost ranting in its tone … and I love it!

As you may have guessed by the increase in the number of rants the doctor has written lately, he’s getting fed up of the bland, thoughtless drivel that is becoming common on many “leading” news and blog sites these days. In his view, if you can’t find something new, exciting, and innovative to write about, then, unless you can find something exciting and undiscovered in the same-old-sh*t that you’ve been writing about for years, don’t write anything at all. Stuff gets old and stale very fast on the internet. And those who are leaders, and not laggards, get tired of stale bread very quickly. But I digress.

In his post, Mr. Campbell, who is a director of the Ashridge Strategic Management Centre, notes that collaboration, which often fails because it’s a risky, time-consuming endeavour with hard-to-resolve competing objectives, is often confused with teamwork and that’s the big issue.

In his mind, teamwork is performed by a team that is created when people need to work closely together to achieve a joint objective. And in this team, someone is given the authority to resolve disputes, ensure coordinated action, and remove disruptive or incompetent team members. As a result, even teams at odds can succeed with a good leader.

In contrast, collaboration occurs when either two more individuals (departments, or other entities) identify shared goals and decide to work together to achieve those goals, or, more likely, when a senior executive creates an initiative that spans intra or inter organizational boundaries. But, unlike a team, there is no leader and no guaranteed way to ensure progress. And if the collaboration was mandated, the collaborators can’t walk away when they disagree. As a result, it’s easy for collaboration to come to an unresolvable standstill.

These are good points. If a dispute cannot be (forcefully) resolved (if necessary) and if the participants can just walk away at any time, there is no guarantee of a result — and no way to show collaboration ever took place. As a result, as the author points out, success depends on whether:

  • the participants are committed to work together
  • the participants have high respect for each other and each other’s competencies
  • the participants have the skills to creatively bargain with each other

and, most importantly, at least in the doctor‘s view,

  • the participants can swallow their pride and their ego and admit when someone else has a better way (which can be very hard for Type A’s and PhDs).

Based on this, the author suggest that you should only set up a collaborative relationship when you cannot use a team or a customer-supplier relationship and when some form of interaction is absolutely necessary. And even then, it shouldn’t be a permanent solution.

I’m not sure this is the right view. And I’m probably the most cynical of all the supply chain bloggers (because I know almost all marketers lie, that many, for lack of a better word, “analysts” in the space don’t really know squat about the fundamentals of technology, and that the current state of technology in an average enterprise organization is pretty dismal compared to what it could be)! Yes it often fails, but it’s usually the people and not the process. If you want to work together, you’ll work together. If you don’t, you won’t. Team, customer-supplier, or collaboration. Doesn’t matter. Collaboration can work just as well, even though, in reality, the odds of success might be less. Or maybe I’m just an optimistic cynic.