METRICS THAT MATTER | eBook 3

Becoming a Shipper of Choice: How to Thrive as a Shipper in the Capacity Crunch

A FINAL CAUTIONARY TALE*

Creating an effective transportation strategy requires deep knowledge of your supply chain, your partners, and your organization. It should include making a strong case for necessary changes for being a Shipper of Choice.

A transportation team was reviewing Tender Acceptance for one of their DCs and noticed that the rate of acceptance had begun to fall. After looking into the data and validating it with the entire team, they reached out to their carriers for input. The carriers responded that since the warehouse was off the beaten path and the hours to get loaded were so strict, this location was one that the carriers preferred to avoid.

The team studied which levers they could pull to improve coverage of load at this facility by carriers. Moving the warehouse was too costly, and the location was situated within optimal distance from its customers. But they could change their dock hours to improve flexibility for loading or unloading times that would drive a higher rate of Tender Acceptance. The team put together some meager cost savings associated with shifting the dock hours and presented this to the C-Suite.

The Chief Supply Chain Officer told them to look for improvements somewhere else.

It turns out that the transportation team hadn’t evaluated its carrier partnerships for many years, and the rest of the supply chain was being negatively impacted by poor carrier performance. Tender Acceptance was the focus, but there were other issues such as poor customer service, product delays, and payment discrepancies. The transportation team was missing the forest through the trees. A single metric does not tell a whole story of performance.

Metrics are good. Make sure you’re looking in the right place and have a strong argument on why change is needed.

*For other cautionary tales, read our first two eBooks available at www.leanlogistics.com

Section 1 | MEASURE

Section 1 | Measure

1. Payment Metrics

Payment (cash flow) is top-of-mind for carriers. Here are the two payment metrics

that desirable business partners (a.k.a. “shippers of choice”) pay attention to:

Days to Pay

Once you’ve determined your contracted payment terms with your carrier partners,

measure your performance. Whether your terms are net 30 or net 45, or if you

accept options such as quick pay 1% discount at 15 days–abide by them.

Be clear on when the clock starts and stops:

From day of shipment?

From day of delivery?

From date of invoice?

The day of “mailing”?

The day of check receipt?

At time of deposit (if ACH)?

When does the clock start? When does the clock stop?

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Payment Cycle Time

Cash flow is important to carriers. Have fair payment terms on your freight

invoices and investigate freight payment systems that can measure and enable

you to consistently pay your carriers on time.

Carrier Rate Accuracy

Dealing with rate discrepancies is a

burden on both carriers and shippers.

Look to implement technology where rates

are uploaded into your rating systems,

rather than being manually keyed.

This allows you to quickly and accurately

pay previously negotiated rates.

Section 1 | Measure

2. Dock & Yard Metrics

Carriers say that “real” shipper partners are those who drive waste and

inefficiencies out of the process at the dock or yard. Those could be things like

detentions during loading or unloading, high reefer run times, or days on lot.

Here are two areas to review:

Detention and Dwell Time: Detention is a hot topic for carriers because they will

never recover their lost revenue through accessorial rates. Carriers are looking for shippers to improve business practices at their pick-up/drop-off points that reduce

or eliminate the occurrence of detention. They will also be attracted to freight

that loads and unloads quickly, thereby minimizing dwell time even if

detention is not incurred.

Trailer Storage: When your distribution centers are holding trailers

beyond the contracted times, the daily fees can get big fast.

Carriers view this as cost in their operations because to them that

equipment is more valuable moving than parked in a shipper’s lot.

As mentioned above, reefer run times and cost can be directly

impacted by longer trailer storage policies.

Section 1 | Measure

3. Carrier Metrics

Evaluate carrier partners against historical, expected, and industry benchmarks.

Here are several key metrics that can serve as a starting point for your team:

• Tender Acceptance This is one of the critical metrics from a budget standpoint, since most budgets

are based on primary carrier acceptance with only a little leeway to account for

secondary acceptance and the higher associated rates. Costs often climb as a

tender falls further down the routing guide. Keep in mind that this metric can

help you identify other underlying problems (like those identified in the

opening “Tale of Caution”).

DON’T FORGET: Tender acceptance is the

key indicator of your carriers fulfilling their

commitment to you.

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• On-Time Performance As costs are going up, what’s happening to your on-time performance?

Though counterintuitive, a general rule of thumb is that as freight costs rise

due to tendering lower in the routing guide, service goes down, as you have a

carrier or driver less familiar with your lanes, customers, and requirements.

This often is reflected in lower on-time performance.

• Give Backs When a carrier accepts a load, what percent of your loads do they give back?

If this happens, it typically puts you in a position to spend more money, due to

the last-minute nature of the situation, while also increasing the chances that the load will fail, regardless of what you pay.

Section 1 | Measure

• Load Expirations You obviously want your carriers to accept your loads, but if they cannot, it is

better for them to reject those loads in a timely manner than allow them to

expire. Expired loads only add time to the overall tender process.

Understanding this is important. Is the appropriate carrier contact not seeing

the loads? Do the carrier contacts require additional training?

• Claims Ratio Do some carriers have more associated claims than others in your network?

Is it something that the carrier is doing? Is it related to how your product is

packaged or loaded?

• Invoice Accuracy When operating as a Shipper of Choice, it is important to

ensure your carriers are being paid agreed to contracted

rates. If your process includes paper processes, is there

a way to use technology? Do you have a system that

can account for, and approve, accessorials incurred

post-tender?

Section 2 | COMMUNICATE

Section 2 | Communicate

1. Selecting Your Audience

Being a Shipper of Choice is not lip service; it is an intentional action. Once you have gone through the process of understanding your data (surges by commodity, season, region, customer, carrier/facility capabilities, etc.), designed a carrier strategy, and identified priorities within your business, it is important to communicate internally and to your carrier partners.

From there, your metrics can be leveraged with all key stakeholders: leadership, functional groups, and carriers:

Leadership • Clearly present the transportation strategy and why it is important. • Understand overall transportation costs and high level representations of individual performance metrics (freight as a percentage of revenue, OTP, TA, etc.) with explanations for each. • Identify the problem areas and demonstrate the mitigation plan for reducing risk to the organization. • Obtain the financial and operational commitments required. At this level it’s the dollars that matter, so the only way you move forward with your transportation strategy is getting buy-in from upper management.

Section 2 | Communicate

Functional Groups • Load planners need to know their Routing Guide Compliance and the

financial impacts of tendering off the Routing Guide.

• Distribution centers need to know they’re being measured on their trailer

counts and occurrences of detention and how their improvements can

financially benefit the organization.

• Customer service cares about customer satisfaction, so timely and complete

deliveries matter most. Some groups may look toward the perfect order metric:

order entry accuracy, warehouse pick accuracy, on-time delivery, shipped

without damage percentage, and correct invoicing. • Provide regular scorecards and dashboards, highlighting deficiencies as well as goals and defining action steps needed to improve.

Section 2 | Communicate

Carriers • Communicate with carriers frequently at the lane level by talking about specific

tactical items, individual lane performance, and areas for improvement.

• At the management level, review business needs and outlook, their overall

service performance, and explore further partnership opportunities and their

ability to support those opportunities.

• Solicit feedback associated to wait times, payment cycle time, and any other

areas of your transportation strategy to ensure that you are not setting yourself

or your carrier partners up for failure.

• If needed, explore solutions associated with implementing a short-term,

dedicated solution, paying deadhead miles, etc. Stay proactive to help ensure

your partners can handle an unexpected spike in volume.

• Communication is a two-way street. Make sure you listen to support your

partners. Consistent communication is key; your carrier partners are very busy,

and their phone is ringing off the hook with opportunities from new and

existing shippers.

Section 2 | Communicate

2. Dashboards

The metrics you measure and make visible should ensure you are living up to your goal to be a shipper of choice. It’s all about increasing responsiveness and communication. Are you:

Two tools to consistently show your progress toward your transportation goals and

partnership commitments are Executive and Planner-level dashboards.

Fulfilling your financial obligations?

Following through on your RFQ commitments?

Keeping a core set of carriers and keeping freight among a trusted set of suppliers?

Section 2 | Communicate

Executive dashboards give the C-Suite the visibility into the health of the

supply chain. Here’s an example executive dashboard:

Some other ideas of metrics to include could be:

• Load volume and spend by carrier

• Days to pay

• Number of carrier partners utilized per period

• Detention as a percentage of freight spend and load volume

• Freight as a percentage of revenue shipped

Section 2 | Communicate

Planner dashboards allow each individual to see what performance levels are for

the areas they execute.

The metrics that matter most at this level are a little different:

• Routing Guide compliance

• Frequency of detention by carrier, customer,

facility, and/or supplier

• Timeliness of loads being appointed

• Number of corrective action plans

received/resolved from carriers

• Percent or number of rate change requests

received from original tendered amount

Each audience has a different set of needs and level of detail required to make

sure your organization is maintaining your commitment to being a Shipper of

Choice. Work with your different audiences to find that level of detail that gives

the needed visibility to make informed, data-driven decisions concerning the

transportation strategy.

Section 2 | Communicate

3. Scorecards

Shippers of Choice have established a carrier scorecard, and most have established a cadence of distributing it on a monthly basis. If you are just starting out with carrier

scorecards, begin by communicating how to use the scorecard. Also explain what is expected of your partners, i.e. if a carrier’s score is less than X, then the carrier needs to submit a corrective action plan.

Section 2 | Communicate

What many shippers will find is that with a scorecard, carriers will want to focus

on what is wrong with the scorecard. When rolling out your scorecard, encourage

feedback, but also state the reason for the scorecard: you use the tool to

compare partners in a way that is consistent with all partners. Be aware that

factors will exist that could impact a score (items that are out of the control of

the carrier/driver), and work with your carriers to come to a mutual

understanding and interpretation of the scorecard.

Scorecards will require patience, time,

and clear communication. It is extremely

important to have a plan that spells out

your touch-point cadence as well. Then

sticking to your plan and doing what

you say is vital to demonstrating

you are a Shipper of Choice.

Metrics help ensure that all

parties are doing what’s

expected of them.

Section 3 | CONTINUOUS IMPROVEMENT

Section 3 | Continuous Improvement

Metrics aren’t just about reviewing your performance and validating strategies.

Once the data is compiled, there are difficult but essential conversations that

need to take place. Specifically, “How do we get better?” Two ways to enable

continuous improvement can be to identify future risks and leverage capacity

planning for greater carrier partnerships.

Before a bottleneck or disruption impacts their transportation strategy,

a Shipper of Choice has already run the analysis to identify future pain

points. To do this, you need to leverage a number of data sources.

Look in the rear view mirror–study your historic seasonal trends;

then consider plans for the future, for example, layering in data

from your Annual Operating Plan. This will help identify areas of

change (“We are going to triple current volumes in these 200

lanes during Q3.”) Then leverage market rate benchmarks to

help identify areas of risk; where are you paying above or

below market? And why? Find where your current rates

and routing guides suggest a capacity risk to your

supply chain and call those out.

Section 3 | Continuous Improvement

In parallel to the benchmarking effort, validate tender acceptance by carrier

relative to your routing guide’s capacity commitments. At this point, you have

great visibility to areas requiring attention and the data needed to have

productive conversations with your carriers. Using benchmarking data along with

carrier performance data, you can work with your trusted carriers to build

capacity to meet your future needs.

Continuous improvement is just that: continuous. Look to your transportation strategy to determine areas to measure and metrics that will help you unlock that continuous improvement.

Section 2 | Communicate

Conclusion and a Tale of Hope

Being a Shipper of Choice in the current freight environment may be the last chance for shippers to solidify relationships with carriers before the capacity crunch gets really bad. Overall metrics are important to understanding your entire business and to make data-driven decisions. Shippers have scorecards for their carriers, and it is important to know that carriers are measuring their shippers as well.

A major CPG brand was coming out of a restructure and determined that the supply chain could not sustain the future growth of the business. Their delivery model was simply too costly and transportation, as a percentage of revenue, was unsustainable. They needed to start from the beginning, reviewing their distribution model, their warehouses, and their carrier network. The largest issue they found was that their network of carrier partners was non-existent. Their internal practices alienated their would-be carrier partners, and it finally came down to transactional exchanges.

By establishing a core carrier program, defining service expectations and scorecards, reviewing their volumes and metrics, setting priorities, and working to establish carrier partnerships, the brand was able to re-establish a dynamic and flourishing supply chain. Their new supply chain model looks drastically different from the previous model, and they now dominate their marketplace.

They are now a Shipper of Choice, and the supply chain is the differentiator.

Section 1 | Measure

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costs while building better supply chains together.

For additional information, contact LeanLogistics today.