Effective Sourcing Processes for Logistics Service Providers Executive Seminar September, 2005

Transportation Sourcing Foundation questions for the transportation sourcing discussion … Is this a bad time to be sourcing truck or ocean transportation? Is it a sellers market? What is your goal for reducing transportation costs as a percent of revenue or cost of goods sold over the next 2 to 3 years? When sourcing transportation, what is your most important issue other than cost? Capacity availability? On time performance? Transit times?

Truckload Satisfaction Ratings Are the current sourcing programs yielding good results?

LTL Satisfaction Ratings The results for LTL carriers are different, but the overall score is still not great.

All Mode Comparison Ratings do not always correlate to performance. The key factor seems to be in setting and meeting expectations.

Truck – Finding Capacity Peak Shipping Months Retailers have a pronounced peak season which places a premium on capacity availability. Despite a large number of available carriers, retailers tend to focus their demand on a relatively small number.

Truck – Building Bid Packages Freight segregation in bid packages can miss potential efficiencies.

Additional Bid Parameter Categories Truck - Bid Parameters Additional Bid Parameter Categories Capacity Parameters Schedule and Routing Parameters - Pickup Schedule and Routing Parameters - Transit Schedule and Routing Parameters - Delivery Schedule and Routing Parameters - Mode Shift Equipment Parameters Historical Performance Parameters (Incumbent Carriers) General Parameters

Truck - Techniques Optimal bid results depend in part on allowing carriers to take an active part in matching their network to your requirements.

Truck – Sourcing Tools 32% of participants indicated they use an automated tool in the sourcing process. After eliminating the Excel and Access solutions, the remaining tools (truckload only) include: Optibid Combinet Verticalnet Manugistics i2 Ariba based eRFX One Network FreeMarkets (in combination with Optibid) Bid Pro In reality, few shippers are using sophisticated tools for RFP requests, bid collection and optimized solution analysis.

Enabling Tools Many companies have under invested in tools that offer significant potential savings.

Ocean Carrier Contracts The majority of ocean contracts start in April or May. Is there an advantage to negotiating off peak (sooner)?

Ocean Capacity – Carrier Commitments What commitments or assurances do carriers make to shippers that adequate capacity will be provided?

Ocean Capacity – Shipper Commitments What commitments or assurances do shippers make to carriers in return for capacity commitments?

Ocean – Building Bid Packages Is there an optimal grouping of freight for bid packages? Does the grouping of freight exclude some opportunities?

Ocean – Bid Invitations How many carrier participants in a bid event is enough? Too many?

Ocean – Services When “ocean” freight is being bid, what services are likely to be in the package?

Ocean – Bid Parameters Do you always know the cost of the services being required? Can you balance the value of a requirement with its cost?

Ocean – Interactive Bidding The best outcomes result from allowing carriers some flexibility in responding to requirements.

Ocean – Trend The forecast is for rates to go up with the biggest changes on trans-Pacific routes.

Ocean -- Perceptions The perception is that the current sourcing process is producing better than average rates which likely discourages significant process change. The reality is likely different. Only two shippers are using an automated sourcing tool for ocean transport other than Excel. For small ocean shippers this approach is likely best practice, but for large shippers more sophisticated tools would seem appropriate.

Transportation Sourcing – Learning’s Capacity as well as cost can be an issue, particularly with the impact of new hours-of-service rules – best practice considerations include contract terms, load acceptance policies, freight brokers, dedicated fleets, core carrier programs, auctions, and alternate modes and routings. Bid package development – the grouping of available freight into bid packages and the data requested can pre-determine your potential for success. Service requirements – set requirements that are important to you. Be prepared to assess the cost of discretionary requirements. Bid evaluation – use methodologies that allow carriers to offer solutions that best fit their capabilities (e.g. lane bundles, partial lane volumes, multiple bid iterations, discounting, tailored service, etc.) Process and tools – an investment in the right skills, process and tools is always worthwhile.

Questions?