Once you have the new pricing from the carriers, you need to define a review process. Letting the carrier know the process of defining the chosen carriers is important. Define the time frame for choosing the carriers that will be in your carrier mix. Prior to the review process, you must make sure the tariff is in place and effective. If you give a load to a carrier, have you awarded them the contract? Or are you testing them because you need to evaluate a load to determine their service, delivery, and reliability? However, if they don't have competitive pricing up front, it is not worth tendering a load to make the determination. They must have competitive pricing in order for you to tender a few loads for evaluation. This is your obligation to follow through and evaluate them on service, delivery, and reliability, as defined earlier.
Audit your freight bills, both inbound and outbound. Review incentives in the tariff versus the invoice. It is at this point you may find thousands and thousands of dollars you can save just by taking a few minutes to review the invoice against your tariff. This is the reliability in billing accuracy in the carrier evaluation. Make sure you are not being charged for freight-collect shipments. Errors do happen in billings, and it is your obligation to audit your bills no matter how few or how many there are.
REAL-WORLD EXAMPLES Company "A"
OEM, wholesaler, $40 MM sales, and 151 employees.
Strategy: Internal logistics purchasing negotiates and third-party software used internally to rate and route. Freight rated and routed based on rules (clerical). Preferred carrier list based on (1st) service, delivery, reliability and (2nd) cost. We audit and pay freight bills in accounts payable. Own volume generates clout for discounts. Request for LTL published pricing (a one-shot-deal bid).
What's in it for them (carriers): Freight characteristics were collected and presented to carriers for their first look at total freight available. Inbound freight broken down by state weight, total weight of 2.7 MM #'s. Outbound freight broken down by state weight by NMFC class to each state, total orders to each state, average order weight to each state, average freight class to each state and total weight to all states of 7.3 MM #'s.
Results: We saved big bucks! Carriers responded! Refer to figure 2 for discount incentive changes for both company A and company B. These were received after formal executed transportation plans were developed and negotiated.
Company B's strategy focused on using the services of a TPLP. We began using the TPLP simply to audit and pay our freight bills. In doing so, we began to collect historical freight data, which we would eventually use in our freight negotiations.
After one year, we reviewed the data. We were using 13 different carriers for our inbound freight. Our suppliers were using the carriers with whom they had a relationship. Discounts averaged 35 to 40 percent.
With the help of our TPLP, we reduced the number of carriers to four. We then sat down with each of the four and negotiated new discounts (average discounts were now 50 to 55 percent). We also published a supplier routing guide. This guide specifies which carriers all suppliers should use by state and defines a penalty for nonconformance. Large truckload shipments are routed per our TPLP recommendations
In succeeding years, our business (and our freight) increased. We reduced the number of designated LTL carriers to two (one regional and one long-haul carrier), which has enabled us to increase our freight discounts (now average 62 to 68 percent). Negotiations with carriers have shifted back in-house, although bill consolidation and auditing is still through TPLP. Refer to figure 4 for an analysis of the success both company A and company B have achieved.
The plans were different, but freight as a percentage of COGS has dramatically been reduced in both companies. These results are the new benchmarks for future transportation plans.
The objective to provide small businesses the opportunity to see real-world results from two different companies' successful transportation plans was guided by the desire to help other companies learn from our experiences. We encourage you to develop a strategy for negotiating your freight and formulate a plan that will directly improve your company's profitability through transportation management.
Transportation truly is a hidden gold mine for companies to discover and manage. We ask you to step up to the challenge and unearth the hidden profits available to those that develop, negotiate, implement, and monitor their transportation.
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