Transportation management includes several components, one of which is transportation procurement. But there is a need for more than a purchasing-based solution in transportation procurement.
Eight key processes
According to an Aberdeen report, the majority of best-in-class companies have invested in transportation source-to-pay technology to cover these key requirements.
The strategic actions of the best-in-class companies show their commitment to meeting these requirements, plus some additional contract performance clauses, which have certainly paid dividends in compliance to cost and service.
Aberdeen recommends adopting a TMS-based transportation source-to-pay solution that offers automation of the carrier bid process. To improve efficiency and move away from spreadsheets, the solution should also include tools for robust freight audit and pay capabilities, as well as opportunities for freight spend optimisation.
Even the most rigorously negotiated contracts with carriers will require dynamic management, as both external pressures and traffic requirements change continuously.
However, managing transportation spending doesn’t stop with the sourcing decision. Enforcement of the contracts through carrier allocation, freight audit, and payment are also key aspects to managing freight spend. Effective transportation management requires a comprehensive, holistic approach embracing the entire source-to-pay cycle:
- Analysis – Data should be gathered automatically, and rates, spend and performance analysed, both against existing cost, service and compliance criteria, and to detect areas for future improvement.
- Sourcing – The solution needs to be able to present a wide pool of carriers, pre-qualified to the user’s criteria for the particular transport task.
- Tendering – A system should automatically tender and award work to suitable sources, optimising according to rates and service levels.
- Implementation – The awarded bids need to be easily converted into contracts, including the associated rates.
- Onboarding – There will be a continuing need to replace some contractors or to bring in additional operators to meet new requirements. Processes need to be in place to ensure that these both understand in theory and comply in practice, with the firm’s requirements.
- Integration – Rate management, carrier selection and performance audit need to be part of a single process with common rulebooks and databases.
- Monitoring – Performance evaluation processes need to be established using objective score carding, KPI metrics and so on.
- Benchmarking – A continuing process should be in place to identify avenues for improvement, both in the price and service offered by carriers and in how the firm can improve by using carriers better.
Automation is critical
Also according to Aberdeen, best-in-class companies manage their transportation source-to-pay process more effectively than the competition, putting great emphasis on their technology adoption, the capabilities they have established, and the priorities placed on strategic actions.
The same report shows that the majority of best-in-class companies have invested in technology to automate the carrier bid and selection process so that rate tables are automatically updated. They have also spent in the freight audit and pay, as well as the analytics to support these processes.
Their adoption level indicates a holistic approach to transportation source-to-pay, by achieving both automation of the carrier bid and sourcing process, as well as its integration with execution and settlement activities. Automation and integration are critical components because they allow data to flow through a repeatable process from one stage to the next.
Vital capabilities for transportation source-to-pay
Aberdeen rates automated carrier selection as the crucial first capability for transportation source-to-pay. It includes the data collection and analysis related to freight rates and performance from an identified list of qualified carriers that are relevant to the business. It also provides for the automation of the bid, evaluation, and selection process, as well as automatic updates to rate tables.
Best-in-class companies are also 43% more likely to leverage their performance monitoring to influence carrier allocation at a strategic level. For companies without these capabilities, there are a lot of spreadsheets behind the process with often sub-optimal results. Without the visibility on freight spend that automation provides, companies are left in the dark and may make choices that are suboptimal.
Managing the freight spend requires tracking and monitoring to ensure charges align with the contract. This is enabled through the use of freight audit capabilities that automatically compare the total freight charges and flag exceptions. The best-in-class are more likely to automatically audit invoices against electronic rate tables, improving the efficiency of monitoring and compliance tracking. Without these capabilities, companies are left to manage these freight audits on a local or regional basis, without the big picture. The quality of the reviews will decrease due to a lack of effectiveness without the tools to perform them at the desired level.
Aberdeen found out that the best-in-class are also more likely to have a centralised transportation spend management platform in place, which solves a lot of the integration issues that could arise from multiple disparate systems, and ultimately reduces the cost of performing the analysis and auditing process. As shown by their technology adoption, the best-in-class are much more likely to leverage multiple modules with a TMS solution, which facilitates a common platform. Tying rate management, carrier selection and freight audit all under one solution is a direction that the best-in-class support by their actions and technology adoption.
"All companies should be moving away from manual and spreadsheet analysis when there are better tools available."
Strategic actions for best-in-class companies
Automation tops the list of strategic actions for the best-in-class, enabling the focus to remain on the value of the decision rather than getting bogged down managing spreadsheets and chasing data. This is where a solution that leverages expertise in the freight bidding process pays off.
Synchronising the data with carriers and partners is another critical element to fully leveraging the freight audit and pay process. Everyone is working from one set of numbers. Without this step, there is a paralysis that occurs in chasing data across multiple spreadsheets only to get an accurate view. For monitoring, tracking and analysis, this is a critical step in maintaining efficiency and accuracy.
The best-in-class demonstrate their ability to use contracts effectively in managing performance by using caps on volatile items to force better strategies at the carrier level and further control costs. This puts the onus on carrier performance, rather than auditing. Enforcing this level of adherence to the rate guides is another reason why the best-in-class see superior cost compliance performance over all others.
In support of the bid automation or spend analysis that occurs with the data synchronisation with carriers, having the ability to automate the data collection and update rate tables is a critical component to getting the job. All companies should be moving away from manual and spreadsheet analysis when there are better tools available.
Aberdeen suggests that not only do the best-in-class firms control freight costs much better – baseline unit rises of 0.56% per annum as against 1.95% for the rest – but they achieve far better levels of compliance, both on contracted costs and on customer-facing service levels. Unstated but evident is that such firms are in a much better position to move transportation from being merely a necessary business cost to being a source of genuine competitive advantage.