"Freight bidding can be a time-consuming endeavor that is disruptive to the supply chain," admits Chris Ferrell, principal with supply chain consulting firm Tompkins Associates, "but bidding is necessary to ensure that you are receiving competitive rates and quality service." Based on a recent survey conducted by the Supply Chain Consortium, Ferrell offers the following best practices for supply chain executives involved in freight bidding.
- Get a commitment from executive management. Clear expectations and a consistent message will increase the likelihood of success.
- Understand current freight costs up front. At minimum, separate fuel surcharges (FSC) and accessorials from the total spend.
- To ensure competitive rates, mix in new transportation providers and allow existing carriers to bid on markets outside their historical base.
- Standardize FSCs and accessorials to ensure an apples-to-apples comparison of rates.
Have a minimum of one year's worth of clean historical data for bid participation.
Lane Bundles Work, But Few Are Trying Them
Percentage of companies who determine lane bundles in freight bids:
Source: Supply Chain Consortium
Allowing a carrier to bundle a group of lanes that complements its current portfolio is more likely to yield a lower total bid than the sum of the individual lanes.
- Look for opportunities to decrease costs through a change of transportation mode (e.g., from less-than-truckload to truckload, or from truckload to rail). Periodically review lane potential for a more economic form of transportation.
- Use a multi-round bid process.
- Encourage carriers to take a more holistic look at your freight. Potential solutions to solicit during a bid include: freight brokering, bid-packages (shipper defined groupings), lane bundles (carrier-defined groupings; see chart), dedicated fleets, and modal integration (e.g. TL intermodal, LTL to multi-stop TL, etc.).
- Leverage volume through a relatively small group of core carriers to yield lower costs and more capacity.
- Bid freight on a regular, predetermined basis (annually, bi-annually).
- Put as much effort into implementation plans as the bid.
- Track carrier performance against commitments made on at least a quarterly basis and utilize feedback loops.