A new collaborative bid process offers a clear illustration of how information is transforming trucking
I had an interesting experience last month. I sat in a room as some of the country's largest shippers and a wide range of carriers talked about their future relationships.
The meeting was sponsored by The Sabre Group, a software company that provides load optimization tools for truckload and LTL carriers. Recently, the group has been working with some major shippers to develop a transportation bid management system. The purpose of the joint shipper/carrier meeting was to explain the potential benefits of such a system to both parties and to help fleets understand how to use the bid process to their own advantage.
After years of talk, manufacturers are finally getting serious about managing the entire supply chain as they push for ever-increasing levels of productivity. They are looking at their businesses as a single operation that stretches from raw material suppliers through manufacturing, wholesale distribution, retail distribution, and finally reaches the ultimate user or consumer of their products. Transportation touches that process at each step, so any gains in transportation efficiency are multiplied by a factor of four or five. In fact, Sabre estimates that transportation represents 40 to 60% of a supply chain's logistic costs.
Since trucking moves about 80% of the freight in this country, companies that are serious about supply chain management are going to take a hard look at any fleet relationships they might have, whether they be private, dedicated, truckload, LTL, or some combination of all four.
Current bidding practices aren't going to help remove inefficiencies in Sabre's view because they put an undue emphasis on price, give carriers too little information to respond accurately, and prevent carriers from making creative proposals. Managing transportation as a simple point-to-point commodity doesn't serve shippers well, either. As one shipper told the group, "It costs too much to chase the lowest rates all the time."
The solution proposed by Sabre is a decision support tool that attempts to transform the old confrontational bid process into a collaborative effort that lowers the shipper's cost and improves service, while also helping carriers strengthen profitability.
Although the execution requires a high level of computing power and sophistication, the concept is simple enough. A shipper identifies all of its transportation requirements and presents them to any interested carrier in a standardized format. Carriers (which in at least one case include the company's own large private fleet operation) can then bid on any portion of the company's trucking needs.
While a fleet could bid on a single lane or some portion of it, the real gains from both shipper and carrier come from development of "package bids" based on understanding the shipper's entire trucking requirements. Essentially, a fleet could offer lower rates for a bundle of traffic lanes that would bring efficiencies to its operations. In theory, at least, the result is lower rates and better service for the shipper and higher productivity and profitability for the fleet -- even though it is the low-cost provider for that particular combination of lanes.
Procter & Gamble, the shipper that helped Sabre develop this advanced bidding tool, says it works. As part of an effort to re-engineer its entire transportation operation, the new collaborative bidding process has cut costs and reduced its number of core carriers, while also improving service and reliability, according to the company. One of the carriers that participated in the new bid process agreed that seeing all of the shipper's business at once does lead to "global, or optimal, solutions for both sides."
Whether or not collaborative bidding becomes the industry norm, the lesson here is the power of information to reshape and strengthen the trucking industry. Sabre's bidding tool changes nothing but the amount and quality of data traded between the fleet and its customers. It may be the first clear demonstration of how that exchange changes everything in this business, but it's only the start of trucking's long-anticipated Information Age as it finally begins grappling with supply chain logistics.