As upscale retailer Restoration Hardware sources more of its products from overseas markets, its demand for ocean freight has increased to the point where traditional bid processes were no longer efficient. As a result, the company has leveraged online ocean bid optimization technology from provider GT Nexus of Alameda, Calif. and says the benefits go beyond improved rates.

In a recent interview with Purchasing, Kim Kuesel, director of international logistics at Corte Madera, Calif.-based Restoration Hardware says the company currently sources about 65% of its product from overseas markets, primarily from contract manufacturers in Southern China. The majority of that freight comes to the U.S via containerized ocean shipments and eventually comes to one of our four U.S. distribution centers. About 5% of its freight comes from Europe via ocean and air freight is used only when absolutely necessary.

When Kuesel came to Restoration Hardware a year ago from another retailer, the company had contracts with three ocean freight carriers and one non-vessel operating common carrier. The company's international ocean freight contracts were typically negotiated with carriers individually and carriers submitted bids either by e-mail or in Excel spreadsheets. Contract information was stored in binders, but additional charges and surcharges were often not entered or easily found in the binders.

"So that made it very difficult to negotiate with carriers or even audit our freight bills accurately because we didn't know what our 'all-in' rate was with each carrier," Kuesel says.

Kuesel had experience with online bidding of ocean freight contracts using GT Nexus at a previous job and thought it would be a useful solution at Restoration Hardware. "We thought we could really open up the playing field with the use of an online bidding tool because we would not have to manually crunch all of the numbers and spreadsheets," she says.

Kuesel invited 15 ocean carriers to participate in the online bidding process. The first round of bidding basically asked carriers to submit their "first pass" bids on the lanes listed by Restoration Hardware to establish a baseline. After reviewing those bids, certain carriers were asked to provide more information or refine their bids.

In subsequent rounds, Kuesel used the optimization technology in the GT Nexus tool to add constraints and run various scenarios and analyze the total cost implications of each. "For example we wanted two carriers in certain lanes and we wanted to see what would happen if we chose to ship direct to Baltimore or ship to Norfolk and truck from there," she says. "Not only are we comparing rates but we're able to determine if we need to change our business processes in some cases to reduce total cost."

The optimization and scenario-building process did uncover some surprises. One carrier, in particular, seemed to have very aggressive rates in the first pass round, but once certain constraints were applied, it became clear that carrier would actually cost more.

"At first we wondered if the information coming from the tool was correct for that carrier," says Kuesel. "But when we reviewed it closely it was definitely correct. But we never would have seen it without the visibility and the optimization capabilities of the tool."

By the end of the bid, Restoration Hardware had contracted with five ocean freight carriers. Kuesel expects to realize 10–15% total savings by year end.

But the benefits of using an online tool don't end after the contracts are finalized. Restoration Hardware's ocean freight contracts are stored in the GT Nexus tools and all amendments to those contracts are entered there, providing a repository for the most updated contract information. That visibility into exact rates and all the information behind the rates allows for accurate freight audits.

"It takes out all of the guessing between you and the carrier when you're looking at the freight bill," Kuesel says. "We can look at the rate and quickly validate we're being billed accurately and move on."

Kuesel says selling this type of complex technology internally is not as difficult as it may seem. As more supply chain professionals become exposed to online bidding and optimization tools, the benefits begin to sell themselves. "But you have fully understand how the technology will impact your total spend before you start trying to sell it internally," she points out. "And you need to fully understand your own processes to get the most out of these kinds of tools. There's a lot of potential to them and you want to maximize what they can do, which requires investing some time and resources to them. The more qualified your are on this kind of tool, the more you'll get out of it."


With ocean rates high, freight audits are more important.