Get creative!

In a seller's freight market, the buyer is the painter and the bidding project is the canvas

David Hannon, Managing Editor -- Purchasing, 10/6/2005

Companies with complicated disparate divisions or regional operations often have the most difficulty in sourcing and managing the transportation operations. As the parent company grows by acquisition of business units or expansion into new regions it becomes paramount for logistics buyers to aggregate and leverage the volumes in bidding projects.

In today's seller's market for transportation services, buyers need to be a bit more creative in that process, and target priorities beyond price to increase or create competition in bidding events and find ways of differentiating providers both locally and nationally.

Los Angeles-based Roll International is about as diverse as a company would want to get. Its divisions include the Franklin Mint collectibles maker, Teleflora floral delivery service and Fiji Water, a bottled-water company based in the Fiji Islands. Josh Rosenzweig has the daunting task of being director of strategic sourcing at Roll International, and oversees the company's very diverse transportation spend (a rare common thread between the various business units), which includes refrigerated ground freight in the U.S., small parcel in Europe, ocean freight from China and everything in between.

About a year ago, the company created a centralized shared-service organization for strategic sourcing of various spend areas, including transportation and logistics. The first move, Rosenzweig says, was to get all of the company's logistics managers on board and get their input on what their priorities were.

"We have created a team for each contract," he says. For example, Roll created a team of all the largest users of ocean freight across its businesses, and is gathering up their requirements—what they need from ocean carriers—which can vary greatly depending on which business unit they work in.

"For example, the floral business has more seasonal demand and needs more flexibility from carriers in shorter timeframes, given the nature of the product being shipped," Rosenzweig points out. "But the Fiji water business needs more steady capacity and lower cost because it is a low-margin business. But it's all good freight to certain providers, so we're targeting the providers who can service both companies and are interested in picking up these contracts."

With such a wide variety of requirements and lanes, Roll is planning to do its next round of contract bidding through Procuri's e-sourcing tool, mostly so the information will be stored centrally.

"[E-sourcing] makes it a lot easier to communicate with suppliers and have a lot of suppliers/providers in a single bidding event, which is good for competition," Rosenzweig says. "If you're dealing with carriers, the different contacts might be located in different regions of the world and in various time zones. Instead of just trying to track each one down, the communication is all centralized online. You can just broadcast the information and create controls around the process. If you need an NDA signed, you put it there and the supplier does not progress until the NDA is signed."

With transportation capacity a continuing issue for many shippers, Rosenzweig says online sourcing also expedites the process of finding out which carriers can provide needed capacity and at what cost. In the shipping-heavy businesses Roll plays in, that is a key component of its sourcing strategy.

"Even if there are only a couple of bids, the e-sourcing lets you know the state of that particular market, assuming you invited all the right players. It can't hurt. There's only upside."

Roll is planning to put its transportation spend out to bid in January, with the biggest opportunities being ocean, FTL and LTL. Rosenzweig says FTL may go to a spot market since it ships a lot direct to customer, Roll doesn't have many dedicated high-volume lanes for FTL.

"Getting people to commit assets to that kind of lane is difficult," he says, but at the same time, he's considering shifting some of that to more regular lanes for more consistent volumes that are more attractive to carriers. "We can combine some LTL to FTL and run it with drop-offs on the way."

John Pellegrino is region transportation services manager at United Stationers Supply Co. (USSCO) of Des Plaines, Ill. He is one of four regional managers responsible for leveraging USSCO's $140 million transportation spend, the vast majority of which is outbound. USSCO divides it transportation spend into two main categories: fleet deliveries and variable-expense operations which are mostly small package and LTL.

Pellegrino says the company recently re-bid its $40 million small-package services contract to reduce waste in its operations. This project was particularly challenging because USSCO has been a long-term customer with both FedEx and UPS but also wanted to create some competition in the market, which is always difficult with so few suppliers.

"Obviously it was a competitive process where one of those providers had more of the business and the other was competing to get more of it," he says. One of the main priorities for USSCO beyond price is service level outbound to its customers from small-parcel providers. On many orders, USSCO guarantees delivery the next day, which means its small-package provider has to do a lot of night sorting and delivery to customers overnight. While pricing in today's market is difficult to negotiate, specific service issues like this can come into play.

"Our customers want later cutoff times [on how late they can order and still receive the shipment the next morning]," says Pelligrino. "One of the two providers was able to give us a later cutoff time and better night sort capabilities, which helps us provide better customer service and increase our sales."

The challenge USSCO has in bidding out its LTL services is that most of its shipments go from DC to customer in shorter, more diverse lanes, which are typically handled best by smaller, local carriers. However, those carriers may not provide the most competitive rates, so to increase competition in the bidding process, Pelligrino invites some larger, regional carriers that provide local service to bid on the contracts.

And the fleet operations are left up to each regional manager. Pelligrino is responsible for the company's South region and decided to put the fleet operations in the hands of a third-party logistics provider. A year ago, USSCO ran a bidding project and hired TNT Logistics to handle its fleet operations in the South, based on a combination of price, service and location (TNT is based in the South and has more knowledge of the market's needs).

Pelligrino realizes the benefits of creating competition in all bidding projects, but says e-sourcing is not necessarily the answer. "I am familiar with it, but I think it's somewhat impersonal. In my mind, it's too focused on cost. With our service-heavy business, our providers represent us in the field, so we found it's better to negotiate with them in person to set the tone for the partnership."

One thing both Rosenzweig and Pelligrino agree on is the cooperation required between procurement and logistics in leveraging a company's transportation spend.

"You need logistics and sourcing to work in conjunction," says Rosenzweig. "I was fortunate enough to have someone on my team that had done a lot of sourcing of logistics in the past. The person closest to that individual market—a local logistics manager—will know what is needed to handle the transportation requirements in that market and also who the players are in that market—both who's currently servicing that region and who wants to be servicing that region."

"Our model for sourcing is: We want smart people to create competitive environments. They don't need to be experts in the spend area—they need to be able to solicit the advice from the operations people and create the competitive event, no matter what area it is."

Pelligrino says USSCO's transportation sourcing is a combined effort as well. As a regional transportation services manager, he works with his three counterparts around the country to aggregate our volumes in LTL and small parcel for bids.