Does this sound familiar? You tackled your company's transportation spending by using strategic sourcing and aggressively applying "e" technology to maximize your leverage. Initially you felt good because you stripped out a significant chunk of cost and reduced the number of motor carriers your company uses. Despite taking those steps, though, you still can't get trucks when you need them.

That's largely because over the last two years, capacity has tightened considerably and the position of strength in the transportation market has shifted from the shipper to the carrier. Prices are going up; acceptance rates for tenders are dismal because carriers can choose more attractive options for deploying their assets; and shippers are spending too much time just trying to cover their loads.

It's time to put some teeth into your contracts to force carriers to commit the capacity that they promised, right?

Wrong. Instead, it's time to change how you think about your carrier relationships. It's time to treat transportation as a strategic category. It's time to build a solution that's not only tailored to your company's unique requirements and objectives but also taps into carriers' network capabilities in a way that helps them be more efficient. In short, it's time to provide your motor carriers with incentives, rather than penalties, to improve their performance.

Start making those changes by taking a fresh look at your choice of carriers. Revisit how your current supplier base came to be. Was it designed to promote efficiency and reduce costs in the carriers' operations, or was it intended solely to satisfy your stakeholders and reduce the prices they pay? Did you aggressively seek to provide carriers with business that made economic and operational sense for them, or did you simply auction each lane to the lowest bidder?

For many shippers, changing their approach from penalty-based to incentive-based relationships will require reopening dialogue with their carriers, but with different objectives in mind. Here are some recommendations on how to make that happen:

Thoroughly explain your business requirements. Strive for clarity and accuracy when it comes to the critical dimensions of your business, including predictability, seasonality, class mix, weight distribution, consignee profiles, accessorial services required, and so forth. Do not leave carriers guessing. Guessing will translate directly into carrier dissatisfaction, followed by reliability problems.

Collect mutually beneficial proposals. Encourage carriers to identify blocks of your business that could be converted to base loads in their networks, solve an existing imbalance, or improve their overall efficiency.

Get a realistic measure of carriers' interest. Provide a place in your request for proposal (RFP) for carriers to clearly indicate the magnitude of their interest in your business at a particular price. Ask them to explain their physical limitations, both current and future, in terms of assets and people.

Use the appropriate analytical tools. Transportation is a complex business, and pricing discussions require shippers to consider a wide range of carrier scenarios. Optimization tools have both the power and speed to generate and evaluate dozens of "what if" scenarios in the time it would take you to create and consider just one using conventional tools.

Once you've reconfigured your carrier base in accordance with those strategies, it's time to shift your attention to ongoing management. In most businesses, transportation spending is a moving target. Customers are acquired and lost, suppliers come and go, and carriers succeed and fail. Shipment volume, size, and characteristics fluctuate, and carriers rearrange their networks in response to other customers' changing business needs. Strong, consistent management is required for such a dynamic function. Some suggestions for maintaining optimal communication, service, and pricing include:

Provide up-to-date visibility into shipments past, present, and future. In order to properly manage transportation, you need to know when and how your business is changing. Being able to view not only current activity but also shipment histories and forecasts of shipment requirements (both inbound and outbound) makes this possible.

Build a fast and flexible contracting process. Maintain award pricing in a database so that it can easily be transmitted to transportation management systems (TMS), partners that perform routing services, and rate audit and payment firms. The point is to route your business to the appropriate carrier while streamlining the payment process. Even in a tough marketplace, shippers that do so often get preferential treatment from carriers when they reliably deliver shipment volumes, remove administrative inefficiencies, and pay their carriers on time. Continued...

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