Shippers want more from carriers than low rates
By Sarah Stone -- Purchasing, 11/19/1998
When they're faced with choosing a carrier, purchasing managers know it's a decision that can cost their organizations a fair percentage of the yearly budget. So, as might be expected, one of the first considerations usually is cost.But many carriers, whether small local outfits or multinationals, have honed their operations to the point that cost alone just isn't enough to tip the scales in one carrier's favor. So what makes a carrier stand out from the pack?
Service takes the prize
Over and over shippers cite service as the most important ingredient besides pricing in their decision to go (or stay) with a particular carrier. (See our special "Spotlight On Strategy" report in the July 16, 1998 issue.) But "service" is a broad category. What exactly are they looking for?
Some shippers use a number of carriers on a trial basis and then select the ones they have the most success with. The first thing they usually look for is on-time delivery. As JIT inventory practices become more widespread across manufacturing, it is critical for purchasing managers to know that the materials and supplies they need will be there when they're needed, often down not only to the day but to the hour.
For example, when Colgate-Palmolive presented its "International Carrier Of The Year" award to Hub Group Canada, the first category it cited was on-time performance; and TMC Transportation, out of Des Moines, won public recognition from Deere & Co. for achieving a 100% on-time delivery record. For many shippers, a record of at least 95% on-time delivery is required for the carrier to get the contract.
Other companies investigate carriers prior to endorsing them, sometimes without the carriers' knowledge. Sauer-Sunstrand, which manufactures hydraulic power systems, did just that, and awarded a large contract to Emery Worldwide. "We needed a unified company approach to transportation," says purchasing manager Merle Brandeland. "The other key criterion was the logistics providers' internal communications network. Our supply chain is integrally tied to our customers' production lines. If our transportation is thrown off by a day or two because of unreliable transportation or communication, we run the risk of shutting them down."
Consolidated Stores last year implemented a quantitative system for measuring on-time delivery, safety, customer service, and claims reporting of the carriers moving retail goods from distribution centers to its 2,280 stores. The company had a specific goal in mind, according to Harold A. Wilson, senior VP, distribution and transportation. "We wanted to instill some competition among our carriers in addition to price," he said. "When we go out and hire someone to provide this service to our stores, which are our 'customers,' it's not something we take lightly--we really do our homework." If a carrier doesn't measure up, it is replaced.
Where's the stuff?
Not so long ago, finding out where a given shipment was while in transit came down to guesswork and a whole lot of phone calls. Now, sophisticated online tracking systems, that even a year or two ago would have made a given carrier stand head and shoulders above the competition, are practically standard. For example, UPS has partnered with the likes of IBM, AT&T, and Open Market to create systems that allow customers to mesh their UPS tracking information directly with their manufacturing, inventory control, and sales functions, thus making it possible to shave days or even weeks off sales cycles.
Tracking capabilities can play a big part in the decision-making process. Hewlett-Packard selects carriers in one of two ways. First, for "enterprise carriers" who handle shipping for the entire corporation, bids are solicited and the decision is made at the corporate level, based on service, cost, reliability, and other factors such as fleet size. For regional runs and transporting to local airports, though, the decision is made locally. "Besides price and service record, we tend to favor carriers with web-page tracking," says Vin Lombard, physical distribution manager for the Andover, Mass., facility. "Customers, both internal and external, can go in and find what they need, which takes the pressure off our transportation department." Conversely, HP will terminate a relationship with a carrier after repeated instances of damage, loss, and transit-time problems.
Other carriers are using the Internet and EDI (electronic data interchange) in various ways to improve not only tracking but all phases of the shipping process to the advantage of shippers. For example, organizations are offering such value adds as price calculators (TNT), secure document delivery (UPS), import/export management (Emery), and even ISO 9000 certification programs for member carriers (International Warehouse Logistics Association) online or via EDI. The decision by S.C. Johnson Wax to name Prime, Inc. (Springfield, Mo.) as its "Truckload Carrier Of The Year" was based partly on Prime's exceptional 100% EDI compliance. And as some of the ERP giants such as SAP and baan move toward greater and greater integration of enterprise resource planning with so-called 'front-office' functions, carriers' tracking abilities will likely be able to integrate with the logistics systems of shippers in ever more sophisticated ways.
Special problems need special solutions
Certain issues like price and on-time delivery are common to all shippers. But several types of freight require special handling. For example, hazardous-material transport has particular requirements that carriers must be able to work with. Safety regulations and record-keeping are essential parts of the shipping process that not all carriers can handle with equal ease. In some cases, too, special containers or materials are required for hazmat shipping.
Oxychem, a major shipper of such hazardous materials as chlorine, caustic soda, and other industrial chemicals, has awarded its "Carrier Of The Year" title to Norfolk Southern in a tie with Canadian National Railway. The criteria the shipper used were safety, consistency of service, accuracy of documentation, and overall reliability.
Eastman Chemical also recognized Norfolk Southern for its service as a hazmat (specifically coal) carrier. "It is critical to our success that we have partners, such as Norfolk Southern, who can deliver coal consistently," says Barry Dale, director of logistics for Eastman. One of the ways Norfolk Southern rose to the challenge was by building a coal-handling facility where industrial coal is transloaded from railcar to truck, thus facilitating the delivery to the plant.
Other special needs may include refrigeration for perishables or other temperature regulation for fragile or live cargo, extra security, special documentation, or unusual delivery situations. These special needs will naturally dictate the choices logistics buyers make, but even with those requirements, a carrier that makes customer service its priority is going to stand out from the crowd.
Tomorrow's relationships
What will relationships between carriers and shippers look like in a year? Five years? No one can predict with certainty, but two trends clearly stand out. First, electronic information will become a more important part of the equation as carriers develop increasingly sophisticated ways to let their customers track shipments, compare prices, and expedite complicated transactions in what may ultimately become an entirely paperless process. That day is not yet here, though. "We are not basing our choice of carrier on functions that integrate right into our systems yet," says Hewlett-Packard's Lombard. "But probably down the road, we will."
Second, shippers and carriers will have less and less of an arm's-length relationship and will become more synergistic. Carriers already have on-site agents stationed at their largest customers' facilities, and long-term contracts make the concept of "partnership" more than just a buzz word. Elaborately integrated e-commerce and tracking functions will put carriers right on shippers' desktops. And more and more, carriers will collaborate with their customers to build dedicated facilities for distribution and handling. It is clear that the days of simply buying the services of whatever carrier happened to be cheapest for a particular shipment are long gone, and the days of close shipper-carrier affiliation, with shippers taking more and more responsibility for the transportation function, are here.
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