How to cost-effectively navigate the tightening logistics market

The logistics industry is being affected by two divergent trends: a driver shortage and growth in the U.S. economy. The confluence of factors has greatly reduced capacity, leaving shippers with the uncomfortable choice to either take an expensive option or to have their materials sit.

“Shippers of all types are feeling the effects of these trends in increased freight rates,” says Matthew Fink, vice president of transportation at AMWARE Companies. “However, there are tactics that can save companies from absorbing the additional freight expenses or having to pass them along to their customers.”

Smart Business spoke with Fink about strategies to cost-effectively navigate today’s shipping challenges.

What is a shipper of choice?
Shipper of choice is a term that delineates companies that build quality relationships with their logistics suppliers. It can make a company’s freight more likely to be hauled quicker and at reasonable pricing, something that’s important as logistics capacity tightens.

Most of the components of a good shipper of choice program are fairly inexpensive to implement, and in some cases are free — paying invoices early or consistently on time, treating drivers well. What remains can be difficult, but follow best-in-class sourcing and procurement activities.

For years, trucking has been treated like a commodity, and shippers did not develop durable relationships with their transportation suppliers. Transportation companies have to be treated like any other material supplier. Preferential treatment regarding capacity, commitments and payment terms, however, requires a partnership.

What are dedicated solutions in logistics?
Dedicated solutions can vary in depth, scope and formality. At a basic level, there can be a noncontracted commitment to scheduled movements where a carrier dedicates a specific amount of capacity to a customer.

More formal arrangements can include service-level agreements, performance incentives and the sharing of risk for damaged or late materials.

The misperception is that only big companies can install an effective, dedicated program, or that dedicated programs are inflexible and more expensive than a traditional network design. Rather, when proper care is used in scoping the needs and determining the value of a dedicated program, companies can realize value without having enormous volumes or signing an unfair agreement.

What should companies look for in a request for quotation from logistics companies?
Extreme care should be used when crafting a request for quotation (RFQ). Too many constraints will dissuade carriers from participating, and too loose of a program won’t ensure supplier accountability.

The keys to a great sourcing event are to ensure the data returned is comparable and doesn’t require reassembly to make an apples-to-apples comparison. That could affect the integrity of the data and assumptions can be made that result in future billings not matching expectations.

While consistency is helpful, companies should allow suppliers to present alternative and creative solutions. Ask respondents to adhere to the RFQ template, but give them room to put their expertise on display.

How can companies leverage their logistics provider to drive value in their supply chain?
The right logistics partner will be able to leverage all aspects of its network to optimize and provide efficient and flexible solutions. Ideally, your logistics partner will be able to provide a balanced solution as both an asset-based provider and leveraging a robust 3PL network.

The work companies put into their logistics network can be shared with their customers. That transparency and collaboration from order to cash will enable all stakeholders to reap the benefits of network optimization.

Supply chains are maturing at an incredibly rapid pace. The proper resources and business plans have to be installed to stay in front of the competition. Embrace the value in the supply chain, leverage the expertise of partners and work in a collaborative fashion with customers and suppliers.

Shippers are not at the mercy of the market. There are levers they can pull to optimize and protect their business.

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