P procurement Trends for 2013

Transcription

1 In partnership with: The World s Leading Source for the Supply Chain Profession. Transportation Procurement Benchmark Study: Flat Market, Tactical Focus Written By: Eric Johnson IT Editor and Research Director Sponsored by: Published June 2013

2 Executive Summary Welcome to our fifth annual transportation procurement benchmark report. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and the Retail Industry Leaders Association (RILA), surveyed roughly 230 transportation buyers on procurement practices, processes, technologies and results. Winners Each American Shipper benchmarking study seeks to highlight best practices by parsing companies who deliver excellent results winners from the average and sub-par performers. ii Executive Summary To create a clearer comparison between winners and the average performers, this year s study has limited the winners category to shippers exclusively. Other winners criteria are as follows: Keep contract freight rates from increasing more than 5 percent from 2012 levels. Incorporate considerations other than price, such as environmental sustainability, into the bid analysis process. Implement awarded contracts within two months. Based on these criteria, winners account for 24 total respondents, with a heavy representation (63 percent) from the retail and wholesale community. Manufacturers make up the remaining quarter of this category. Transportation Rates and Spending Trends Rates over the past year rose gradually on the domestic and international side, with international rates rising slightly higher. More than half of respondents say their international and domestic spend increased, while a slightly smaller percentage in both categories say their rates rose. About a third of the market on both sides said their rates remained the same. Negotiation timeframes remained roughly the same as in Nearly three-quarters of shippers conclude their negotiations within three months of starting, while winners are considerably more likely to wrap up their negotiations within two months time.

3 Timing and Assessing Bids Rates continue to be forefront in the minds of transportation buyers, with a larger percentage saying it was the highest priority in procurement decisions than a year ago. Winners, however, are more likely than laggards to say that capacity assurances are the priority, not just rates. In either case, the trend of fixation on rates established a year ago has intensified, not diminished this year. Winners, however, are noticeably more effective at negotiating their bids quickly, and implementing those successful ones within two months. To qualify as winners, shippers must implement bids within two months, but less than two-thirds of laggards do so. Retailers, meanwhile, implement bids within two months 40 percent more often than manufacturers. iii Technology and Outsourcing More than 70 percent of winners and even 60 percent of laggards say their transportation procurement process is informed by freight payment data, an encouraging sign that shippers see value in closing the procure-to-pay loop. There is, however, the question of how far along that evolution shippers actually are. Using freight payment data from a previous year to drive yearlong procurement targets is a far cry from employing payment data to feed into smaller, more continuous procurement events. Executive Summary In terms of how shippers procure transportation, nearly half use a manual or spreadsheet approach, up from 42 percent a year ago. But small and midsized shippers are twice as likely to use such an approach, while large shippers are nearly three times as likely to use a system to manage procurement activities.

4 Technology Adoption Nearly 90 percent of respondents say they have no plans to automate their procurement process, or that it s at best on their company s five-year plan. What s discouraging, especially for vendors, is the fact that this has changed little in the four years that American Shipper has benchmarked transportation procurement. It appears shippers are in no bigger hurry than they were four years ago to jump to a new system, or outright invest in automating a currently manual procedure. iv Indeed, anecdotally, it also appears there has been little truly groundbreaking technology development in the procurement landscape over the past year, a factor that might very well broaden shipper malaise toward this investment. The reality is that procurement is not always near the top of the investment priority ladder for shippers being asked to automate the length and breadth of their enterprises. Executive Summary Current vs. Critical Functions When it comes to what respondents considered their most critical procurement functionalities, winners overwhelmingly choose pricing visibility and integration with spreadsheets or a TMS. Laggards more frequently chose bid optimization, with pricing visibility second. American Shipper s qualitative research suggests shippers are increasingly bidding in shorter and more frequent cycles. Given that change, what our research this year suggests is that those winners are focusing more tightly on the tactical elements of their bidding process the functions that enable them to quickly implement bids they re putting out rather than more sweeping, sexy functions like robust optimization engines. That may well be a short-term development in a flat market.

5 Table of Contents Executive Summary... ii Section I: Introduction...3 > Study Background...3 > Terminology...3 > Hypothesis...4 > Demographics...4 > Winners Defined...7 Section II: Trends in Transportation Rates and Spending Section III: Timing and Assessing Bids...10 Section IV: Technology and Outsourcing...14 Section V: Contracting and Contract Management...25 Section VI: Best Practices...27 Appendix A: About Our Sponsors...28 > JDA Software Group, Inc > SAP...28 Table of Contents Appendix B: About Our Partners...29 > CSCMP...29 > Retail Industry Leaders Association (Rila)...29 Appendix C: About American Shipper Research...30

6 Figures FIGURE 1: Industry Segments...4 FIGURE 2: Company Sizes...5 FIGURE 3: Job Titles...5 FIGURE 4: Transportation Modes Managed...6 FIGURE 5: Annual Transportation Spend International vs. Domestic...8 FIGURE 6: Contract Freight Rates International vs. Domestic...9 FIGURE 7: Most Important Aspect of a Carrier s Bid FIGURE 8: Most Important Aspect of a Carrier s Bid Winners vs. Laggards...11 FIGURE 9: Carrier s Ability to Respond to Online Bids FIGURE 10: Timing of Procurement Events Winners vs. Laggards...12 Figures FIGURE 11: Length of Negotiations...13 FIGURE 12: Timeframe to Implement Bid Results...13 FIGURE 13: Does the Freight Payment Process Feed into Procurement Processes?...14 FIGURE 14: Technology Procurement Platform...15 FIGURE 15: Technology Procurement Platform Large Shippers vs. Small & Medium Shippers...15 FIGURE 16: Inhibitors to Technology Adoption...16 FIGURE 17: Plans to Automate Procurement FIGURE 18: Which Modes Will be Automated?...18 FIGURE 19: Drivers to Technology Adoption...18 FIGURE 20: Most Critical Mode to Automate...19 FIGURE 21: Current Delivery Model for Systems-Based Shippers...20 FIGURE 22: Current Procurement Functionality Winners vs. Laggards...21 FIGURE 23: Critical Procurement Functionality Winners vs. Laggards...22 FIGURE 24: Current vs. Critical Functionality...24 FIGURE 25: Contract Management Platform...25 FIGURE 26: Use of Long-Term Contracts...26

7 Section I: Introduction STUDY BACKGROUND Welcome to our fifth annual transportation procurement benchmark report. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and the Retail Industry Leaders Association (RILA), surveyed roughly 230 transportation buyers on procurement practices, processes, technologies and results. The 28-question survey was launched May 2, Qualified respondents are freight buyers, including manufacturers, retailers and thirdparty logistics providers (3PLs). This is the first edition in our annual three-part series covering the lifecycle of freight from procurement through payment. All reports are made available for download from 3 TERMINOLOGY In the interest of being succinct and direct, this study uses several terms or acronyms you may not be familiar with. These explanations and definitions should be kept in mind when reviewing the results that follow. Logistics service providers (LSPs) are companies that charge a fee for supply chain services, including but not limited to transportation, distribution, warehousing, and customs clearance services. A third-party logistics provider (3PL) is a non-asset-based LSP. Section I: Introduction It is important to note for the purpose of these reports the term automated or systems-based does not mean a task is managed without human interaction. Instead, automated procurement means a company is employing a substantial amount of technology to support its transportation buying process, allowing staff to interact where necessary to solve problems and optimize the process. Similarly, the term manual does not mean the process is managed without the use of computers, Internet access, or other fundamental business tools. It s assumed that companies managing procurement manually employ spreadsheets and other support tools.

8 HYPOTHESIS 4 American Shipper approaches each benchmarking exercise with a set of assumptions to prove or disprove. In the case of this study these include: 1. International and domestic transportation rates will continue to gradually rise. This was borne out in Figure Buyers will focus more on service levels and less on rates in their procurement process. In reality, shippers actually said rates were more important than service this year, than last, as seen in Figure The majority of transportation buyers will not yet have linked their freight payment process to their transportation procurement process. Shippers indicated, however, they have largely linked these two processes, according to Figure The majority of transportation buyers will have little interest in long-term contracting. This was largely true, with the vast majority of respondents suggesting in Figure 26 they use long-term contracts sparingly, or not at all. Section I: Introduction DEMOGRAPHICS Qualified survey participants included transportation buyers from all industry segments, but this year, there was a higher proportion of retailers (30 percent) and lower proportion of 3PLs (28 percent), than last year. Process and discrete manufacturers (19 and 14 percent, respectively) and other shippers (9 percent) complete the picture. FIGURE 1: Industry Segments 9% 14% 19% 3 Retail/Wholesale Intermediary (includes 3PL, Forwarder, NVOCC, OTI, Brokers) Process Manufacturing Discrete Manufacturing Other Shippers 28% 208 total respondents

9 FIGURE 2: Company Sizes FIGURE 3: Job Titles 26% 16% 6% 1 43% 24% 31% 45% Less than $100 Million Between $100 Million and $1 Billion More than $1 Billion C-Level (CEO, COO, CFO, etc) Executive (SVP, VP, GM, MD, etc) Director Manager total respondents Staff 161 total respondents Survey respondents represent companies of all sizes, though like last year, companies with $1 billion or more in annual sales make up more than 40 percent of the respondent pool. The study makes many comparisons between the results from these large companies and their small and midsized peers with less than $1 billion in annual revenue. Our research has shown this is a key delineation point in terms of how processes like procurement are planned and executed. Section I: Introduction Transportation procurement largely remains the domain of managers and staff, with survey participation this year by job title nearly identical to last year s, with one exception: The number of staff who took this year s survey rose nearly 50 percent, while the number of executive or C-level respondents fell by 33 percent.

10 FIGURE 4: Transportation Modes Managed FCL Ocean 87% Less than Truckload (LTL) Truckload 82% 86% Airfreight LCL Ocean 73% 76% Parcel/Small Package 68% Rail/Intermodal Ocean Transport (other, non-containerized) Other, please specify 4% 36% % total respondents Section I: Introduction Respondents to the American Shipper study are typically tasked with managing at least one mode, and that held true in this report. Indeed, it is a continuing trend across this benchmark series to find transportation managers tasked with more responsibilities. So it s not surprising to see nearly three quarters of respondents to the survey stating they manage up to five modes. This study seeks to take a high-level view of these multi modal shippers global procurement activities, recognizing there are vast differences in the procurement of each mode.

11 WINNERS DEFINED Each American Shipper benchmarking study seeks to highlight best practices by parsing companies that deliver excellent results winners from the average and sub-par performers. In order to create a clearer comparison between winners and the aver age performer, this year s study has limited the winners category to shippers exclusively. Other winners criteria are as follows: Keep contract freight rates from increasing more than 5 percent from 2012 levels. Incorporate considerations other than price such as environmental sustainability into the bid analysis process. Implement awarded contracts within two months. Based on these criteria, winners account for 24 total respondents, with a heavy representation (63 percent) from the retail and wholesale community. Manufacturers make up the remaining quarter of this category. 7 This year s report also introduces the concept of laggards i.e. all shippers that aren t winners providing a more stark contrast between those companies at the head of the procurement class and those trailing behind. Section I: Introduction

12 Section II: Trends in Transportation Rates and Spending Freight transportation costs are forever a moving target for those tasked with procurement. Internal and external dynamics make the international and domestic transportation modes almost permanently volatile, and the past year was hardly different. This study endeavored this year to segment out respondents domestic and international spend and rates to gain a more detailed appreciation for where changes in those categories were coming. 8 Section II: Trends in Transportation Rates and Spending FIGURE 5: Annual Transportation Spend International vs. Domestic 35% 3 25% 2 15% 1 5% 27% 24% Increased by 5% or more 3 31% Increased by less than 5% 23% 18% Remained unchanged 13% 16% Decreased by less than 5% Persistent overcapacity in both the ocean and air freight sectors over the past year would lead to the conclusion that it was, in theory, a buyer s market on the international side. Looming governmental regulations on domestic trucking markets have shippers skittish about a driver shortage that could narrow capacity, theoretically making it a seller s market. But the study shows that international spend and contract rates rose roughly in line with domestic spend and contract rates. 6% 11% Decreased by 5% or more International Domestic 175 total respondents

13 FIGURE 6: Contract Freight Rates International vs. Domestic 35% 3 25% 32% 28% 3 3 International Domestic 2 15% 19% 17% 16% 18% 1 5% 4% 7% Increased by 5% or more Increased by less than 5% Remained unchanged Decreased by less than 5% Decreased by 5% or more 173 total respondents 9 Also notable: 58 percent of respondents said international freight spend increased and 55 percent said domestic freight spend rose, while more than half reported higher international contract rates and 45 percent noted higher domestic rates. Section II: Trends in Transportation Rates and Spending

14 Section III: Timing and Assessing Bids Figure 7 lies at the very heart of the procurement process, measuring what shippers see as the most important dimension. Last year, this report noted rates increased in importance relative to service for the first time since American Shipper began benchmarking procurement activities. It seemed shippers were back to eschewing elements outside price. This year, that trend has continued, with 61 percent of respondents saying price is the most important aspect of a carrier s bid, up from 58 percent in 2012 and 48 percent in Indeed the importance of service has trailed off as rates have become more important. FIGURE 7: Most Important Aspect of a Carrier s Bid Section III: Timing and Assessing Bids % 53% 48% Price 61% 58% 27% 37% 49% Service 42% 39% For winners, however, price is only the most important aspect 50 percent of the time right around the level of all respondents back in For that extra 10 percent of winners, capacity guarantees are the most important factor in a carrier s bid. 1% 9% 3% Other (Risk, Sustainability, etc.) total respondents

15 FIGURE 8: Most Important Aspect of a Carrier s Bid Winners vs. Laggards Winners Laggards % 3 21% 1 Price quoted for services Service level guarantees (includes transit time, on-time delivery, damage) Capacity guarantees 195 total respondents 11 Very little headway has been made by carriers in using e-procurement tools to meet their shipper customers needs. Shippers still reported similar levels of satisfaction in their carriers ability to respond to online bids this year and last, with 40 percent still saying their carriers are fair or worse. Somewhat optimistically, the percentage of respondents who said their carriers were very good rose from 10 percent last year to 14 percent this year. FIGURE 9: Carrier s Ability to Respond to Online Bids Section III: Timing and Assessing Bids % 49% 48% % 22% 25% % 1 14% 14% 16% 11% 2% 2% 3% Very good Good Fair Poor Very poor 160 total respondents

16 FIGURE 10: Timing of Procurement Events Winners vs. Laggards 52% 58% Procurement events are scheduled during an established negotiation time frame or season Procurement events are timed to take advantage of favorable negotiating conditions 35% 46% Winners Procurement events are run when resources are available to manage the process Other, please specify 4% 8% 13% 25% Laggards Procurement events are scheduled when capacity tightens 4% 2% 12 Procurement events are based on our fiscal calendar 4% 13% total respondents Section III: Timing and Assessing Bids Winners see value in a systematic process for timing their procurement events. These events are linked to seasonal and somewhat predictable demand changes in their supply chains, and are not linked to variable factors like the availability of resources, or tightness in capacity. Those last ditch, or ad hoc, processes are not a best practice. This year, the difference between winners and laggards came into sharper focus, particularly in terms of taking advantage of favorable negotiating conditions. Winners focus on those periods because they are prepared ahead of time to do so. Conversely, laggards continue to be twice as likely to run procurement events only when the resources to do so are available. About 80 percent of laggards conclude their negotiations within three months with that group split pretty equally among one-month, two-month, and three-month timeframes. Winners, on the other hand, predominantly take two months or less to conclude their negotiations, with 75 percent of winners taking one or two months, and 96 percent wrapping things up within three months. In addition, it seems that two months is a sweet spot for negotiation length, with 54 percent of winners completing their process in that timeframe.

17 FIGURE 11: Length of Negotiations % Winners Laggards % 23% 29% 21% 28% 17% 1 One month Two months Three months 4% Four six months 3% More than six months 173 total respondents 13 One of the critical elements of procurement is carrying successful bids into the implementation phase. Winners, by definition, complete this process within two month. Only 64 percent of laggards, on the other hand, complete the bid implementation within this timeframe. Interestingly, this year saw some drastic differences from last year s report among retailers and manufacturers. Last year, more manufacturers said they implemented bids within two months; this year, retailers met that timeframe 40 percent more often than manufacturers. FIGURE 12: Timeframe to Implement Bid Results % Retail/Wholesale Manufacturing Section III: Timing and Assessing Bids % 26% 23% 25% 2 1 One month Two months 9% Three months 6% 8% Four six months 6% 8% More than six months 2% 6% Never implemented 160 total respondents

18 Section IV: Technology and Outsourcing A central tenet of American Shipper s benchmark series is to understand the procure-to-pay cycle in more depth. This year respondents were asked to what extent their freight payment process feeds into their procurement processes. Using the richness of freight payment data to better inform procurement i.e., which are the best modes and carriers to use within a given route, or to benchmark rates internally or externally is crucial to closing that loop. 14 In that regard, the findings this year are encouraging. Nearly three quarters of winners, and 60 percent of laggards, say freight payment informs procurement. However, only 8 and 14 percent, respectively, believe strongly that the payment process is tightly linked to procurement. Additionally, a quarter of laggards, and even 16 percent of winners, say these processes are completely decoupled. Section IV: Technology and Outsourcing Even for those who say payment is used to improve procurement, there is the question of how far along that evolution they are. Using freight payment data from a previous year to drive yearlong procurement targets in terms of carrier and mode choices is a far cry from con tinuously using payment data to feed into smaller, more continuous procurement events. FIGURE 13: Does the Freight Payment Process Feed into Procurement Processes? % 46% Winners Laggards % 14% 13% 17% 8% 19% 8% 5% Strongly agree Agree Uncertain Disagree Strongly disagree 175 total respondents

19 FIGURE 14: Technology Procurement Platform 2% 9% 1 4% 6% 21% 48% Manual or spreadsheet based A mix or hybrid of the above Automated using a general purpose procurement system Automated using the procurement module of my transportation management system or another logistics/transportation Automated using a transportation specific procurement system Outsourced managed service None of these options 179 total respondents 15 The degree to which shippers use spreadsheet or manual-based systems to procure transportation services not only stagnated this year it apparently regressed. Nearly half of the respondents to this year s survey say they use such an approach, compared to 42 percent a year ago. Only a quarter of respondents use a system of some kind though that s slightly higher than the 23 percent who last year said they use a system. FIGURE 15: Technology Procurement Platform Large Shippers vs. Small & Medium Shippers Manual or spreadsheet based A mix or hybrid of the above 16% 3 36% 67% Large Shippers Small & Medium Shippers Section IV: Technology and Outsourcing Automated using a transportation specific procurement system Outsourced managed service Automated using the procurement module of my transportation management system or another logistics/transportation system Automated using a general purpose procurement system None of these options 2% 7% 2% 5% 3% 5% 5% 5% 18% total respondents

20 But when this choice of procurement platform is broken down by size of shipper, we see some serious discrepancies emerge. Small and midsized shippers use the spreadsheet or manual approach at nearly twice the rate of large shippers (again, those defined as having sales of more than $1 billion). Only 10 percent of small and midsized shippers use a procurement system of any kind, compared to 28 percent of large shippers. Large shippers also more frequently use outsourced providers to manage procurement, as well as a hybrid approach. 16 Section IV: Technology and Outsourcing It appears, based on Figure 16, that smaller shippers struggle with resistance to change and expertise hurdles when it comes to adopting procurement technology. Sixty percent said one of those two factors has prevented them from investing in a system. Larger shippers said they have yet to adopt a system, or upgrade to a better one, primarily because the return on investment isn t worthwhile, or because the market doesn t provide them with the functionality they need. It should not be overlooked, though, that a significant swathe of respondents in both categories said they were happy with their existing system. FIGURE 16: Inhibitors to Technology Adoption Lacks return on investment Current system or process meets our needs Available systems do not provide the functionality we require Organizational resistance to change Other, please specify 7% 14% 9% 12% 27% 31% 36% 36% 45% 5 Large Shippers Small & Medium Shippers We do not have the technical expertise to make a change 24% total respondents

21 FIGURE 17: Plans to Automate Procurement % 67% 67% 69% 63% No plans to automate 2 17% 18% 11% 13%16% 11% 8% 9% 9% 12% 7% 4% 6% 6% Budgeted for the next 12 months Budgeted for the next months On our company s 5 year plan 84 total respondents 17 From a technology provider s standpoint, Figure 17 seems a little discouraging. More than the fact that 87 percent of respondents say they have no plans to automate, or that it is at best on their company s five-year plan, is the fact these responses have changed little in four years. It appears shippers are in no bigger hurry than they were four years ago to jump to a new system, or outright invest in automating a currently manual procedure. Indeed, anecdotally, it appears there has been little truly groundbreaking technology development in the procurement landscape over the last year, a factor that might very well broaden shipper malaise with regard to investment. The reality is procurement is not always near the top of the investment priority ladder for shippers being asked to automate the length and breadth of their enterprises. Section IV: Technology and Outsourcing

22 FIGURE 18: Which Modes Will be Automated? Truckload Less than Truckload (LTL) 47% 5 62% 67% Large Shippers Small & Medium Shippers FCL Ocean 45% 57% Parcel/Small Package Airfreight 32% 32% 43% 48% Ocean Transport (other, non-containerized) 21% 38% 18 Rail/Intermodal LCL Ocean 1 16% 19% 21% total respondents Section IV: Technology and Outsourcing For those respondents who do plan to automate at some point in the next five years, it s encouraging to note their plans include more modes than in last year s study. For instance, 49 percent said this year they plan to automate for full ocean containerloads (FCL), compared to just 22 percent in 2012, and 36 percent said they plan to automate for air freight, compared to just 3 percent last year. Large shippers are much more likely to look at automating truckload, less than truckload (LTL), FCL, and air, suggesting at some point they desire to homogenize their broad portfolio of modes. FIGURE 19: Drivers to Technology Adoption Efficiency 76% Improve data mangement 64% Manage complexity Visibility to rates and capacity Save time on procurement activities Centralize procurement activities 56% 55% 55% 54% Improve value (cost, service, risk) assessment Achieve lower freight rates 44% 44% Scalability 29% total respondents

23 The factors compelling shippers to seek procurement automation have changed little from a year ago, though there remains a divide between large and small and midsized shippers in this regard. On a shipper-wide basis, however, efficiency and improvement of data management head a list of compelling motivations. What s encouraging is that this year and last, fewer than half of respondents say lower rates are driving procurement technology decisions. Shippers clearly see efficiency, accuracy, and visibility are the key motivators, and rates are more influenced by outside factors. Figure 20 provides striking insight into the state of procurement automation. Winners see as much value investing in automating truckload activities as they do FCL, despite the more entrenched nature of automated procurement activities in the trucking world. Laggards, on the other hand, remain more focused than winners on automating truckloads and less focused on automated ocean transportation. Perhaps this is a reflection of winners having more truly global supply chains, or they have more easily seen the benefits of domestic procurement automation and seek that efficiency on the international side of their operations. FIGURE 20: Most Critical Mode to Automate Truckload FCL Ocean Ocean Transport (other, non-containerized) 7% 5% Less than Truckload (LTL) 5% Airfreight 4% Rail/Intermodal 7% 2% Parcel/Small Package LCL Ocean % 43% 43% 53% Winners Laggards 79 total respondents 19 Section IV: Technology and Outsourcing

24 FIGURE 21: Current Delivery Model for Systems-Based Shippers 6% 19% 21% 26% 28% Licensed installed software Software-as-a-service/On-demand A mix or hybrid of these None of these Software available on a project basis 80 total respondents 20 Section IV: Technology and Outsourcing For those shippers that employ a systems-based approach to transportation procurement, there s a fairly even spread between those that use an installed system, those that use a software-as-a-system (SaaS) model, and those that use a hybrid. We have noted elsewhere in our benchmark research while SaaS, or cloud-based, platforms are growing in popularity, many shippers continue to use, or even prefer installed systems. Winners, like last year, are more likely to have pricing visibility, historic cost access, and the ability to integrate these details with spreadsheet or transportation management systems (TMS) from their procurement technology. Interestingly, laggards have made some noticeable improvements in functionality over the past year, including the ability to award bids to multiple carriers on a single lane and bid optimization.

25 FIGURE 22: Current Procurement Functionality Winners vs. Laggards Baseline or all-in pricing visibility 63% 79% Integration with spreadsheets 56% such as Excel, XML or my TMS 64% Historical cost visibility Base rate plus accessorials pricing visibility 47% 64% 58% 57% Post bid award summaries Multiple rounds of bidding Multi-carrier awards per lane % 5 54% 5 Lane/Trade level volume 44% coverage/commitment Bid optimization (includes what if 5 49% analysis and scenerio building) 43% Best and final pre-bid commitments Line-item awards by carrier 3 43% 42% 36% Customization of platform (such as data fields) Spend analysis Rate benchmarking Building/awarding subsets of the network Pre-bid request for information 32% 36% 29% 33% 29% 26% 29% 25% 21% 47% Contract management Conditional or expressive bids 21% 16% 21% 28% Other, please specify 1% 1% Pre-bid awards Network level volume coverage/commitment Incremental bidding 7% 9% 7% 7% 19% 18% Carrier scorecards 7% 23% Winners Laggards 21 Section IV: Technology and Outsourcing 79 total respondents

26 FIGURE 23: Critical Procurement Functionality Winners vs. Laggards 22 Section IV: Technology and Outsourcing Baseline or all-in pricing visibility 42% 64% Integration with spreadsheets 43% such as Excel, XML or my TMS 24% Best and final pre-bid commitments 11% 36% Base rate plus 36% accessorials pricing visibility Historical cost visibility Customization of platform 27% 21% 24% 21% (such as data fields) 15% Bid optimization (includes what if 21% analysis and scenerio building) 47% Spend analysis 14% 22% Multiple rounds of bidding 14% 13% Multi-carrier awards per lane Lane/Trade level volume 14% 18% 14% coverage/commitment 7% Contract management 14% 16% Pre-bid request for information 2% 7% Pre-bid awards 7% 6% Post bid award summaries Network level volume 7% 4% 7% coverage/commitment 11% Incremental bidding Conditional or expressive bids Carrier scorecards 7% 4% 7% 9% 7% 13% Building/awarding 7% subsets of the network 11% Other, please specify Rate benchmarking 6% Line-item awards by carrier 11% Winners Laggards 77 total respondents

27 When it comes to what respondents considered their most critical procurement functionalities, winners overwhelmingly choose pricing visibility and integration with spreadsheets or a TMS. Laggards more frequently choose bid optimization, with pricing visibility second. Figure 24 highlights a gap between what shippers have and what they consider vital. For instance, 41 percent of respondents said they had post-bid award summary capability, but only 4 percent consider that function critical. Meanwhile, 44 percent had bid optimization capability, with 38 percent considering it critical. American Shipper s qualitative research suggests shippers are increasingly bidding in shorter and more frequent cycles. It s an area we ll explore in greater detail in future research. But given that change, what our research this year suggests is those shippers are focusing more tightly on the tactical elements of their bidding process the functions that enable them to quickly implement bids they re putting out rather than more sweeping, sexy functions like robust optimization engines. That may well be a short-term development in a flat market. After all, there s often no need to overthink things when demand, capacity and rates aren t fluctuating wildly. 23 Section IV: Technology and Outsourcing

28 FIGURE 24: Current vs. Critical Functionality 24 Section IV: Technology and Outsourcing Baseline or all-in pricing visibility 39% 62% Base rate plus accessorials 57% pricing visibility 31% Integration with spreadsheets 54% such as Excel, XML or my TMS Multi-carrier awards per lane 22% 2 51% Historical cost visibility 26% 51% Bid optimization (includes what if 44% analysis and scenerio building) 38% Spend analysis 2 43% Lane/Trade level volume 43% coverage/commitment 8% Post bid award summaries 4% 41% Multiple rounds of bidding 13% 41% Line-item awards by carrier 1 38% Rate benchmarking 9% 37% Contract management 21% 3 29% Best and final 1 pre-bid commitments 28% Carrier scorecards 14% Customization of platform 25% (such as data fields) 17% Pre-bid request for information 4% 24% Building/awarding 24% subsets of the network 12% Pre-bid awards 5% 18% Incremental bidding 5% 17% Conditional or expressive bids 9 % 14% Network level volume coverage/commitment 11% 13% Other, please specify 3% Current Critical 79 total respondents

29 Section V: Contracting and Contract Management 2012 was the first year this study examined contract management in greater detail, so it was interesting to note this year that the use of manual processes to manage contracts declined from 54 percent to 48 percent somewhat the opposite of what was seen on the procurement side. No surprise that small and midsized shippers are far more likely to use a manual approach than larger shippers 66 percent more likely, in fact. Again, this makes sense. Larger shippers tend to have more complex supply chains and, in general, are more likely to see the value in using a systems-based approach for the entire procure-to-pay loop. Using a system to manage the contracts that are procured using a system is a logical step in that regard. 25 FIGURE 25: Contract Management Platform Manual or spreadsheet based Mix or hybrid of the above Automated using a general purpose contract management tool Automated using a transportation specific system Outsourced managed service None of the above Automated using the contract management module of my transportation management system 4% 4% 3% 5% 3% 4% 9% 9% 12% 12% 12% 3 36% Large Shippers Small & Medium Shippers 160 total respondents Section V: Contracting and Contract Management

30 This year respondents were also asked about their use of long-term contracts a hot topic, particularly in the ocean transportation world. Yet, uptake of these long-term mechanisms doesn t appear to be all that popular. Nearly three quarters of respondents say they use long-term contracts for less than 25 percent of their transportation contracts. In reality, the number may be closer to zero for many of those respondents. Roughly one quarter of winners and laggards say they use them to some degree, with about one in five winners using them for 25 to 49 percent of their contracts. Again, use of long-term mechanisms differs greatly by mode, but in general there s no grand move by shippers to push for them, despite their purported benefits. 26 FIGURE 26: Use of Long-Term Contracts Section V: Contracting and Contract Management % 6% 100 percent 6% percent 6% percent 17% 6% percent 71% 67% Less than 25 percent 4% 1 I don't know Winners Laggards 163 total respondents

31 Section VI: Best Practices An analysis of the winners provides a picture of how best-in-class firms are procuring transportation. In brief, here are some of the key traits of a winner: They fixate less on rates and more on securing capacity when procuring transportation. They plan procurement activities to coincide with the seasonality of their business, not only when resources are available to bid. They use systems when their procurement requirements become sufficiently complex. In a flat market, they bid more often and for shorter periods, focusing on the tactical elements of procurement. They use freight payment data to better inform their procurement process. They prioritize the successful implementation of bids over excessive optimization concerns 27 Section VI: Best Practices

32 Appendix A: About Our Sponsors JDA SOFTWARE GROUP, INC. JDA Software Group, Inc., The Supply Chain Company, offers the broadest portfolio of supply chain, retail merchandising, store operations and all-channel commerce solutions to help companies manage the flow of goods from raw materials to finished products and into the hands of consumers. JDA s deep industry expertise and innovative cloud platform help companies optimize inventory, labor and customer service levels. As a result, JDA solutions have become the standard for the world s leading retailers, manufacturers and distributors. 28 To learn more, please use the following contact information: info@jda.com Worldwide Headquarters Scottsdale, Arizona, U.S.A. Worldwide Office Appendix A: About Our Sponsors SAP As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 238,000 customers to operate profitably, adapt continuously, and grow sustainably. For more information, visit

33 Appendix B: About Our Partners CSCMP The World s Leading Source for the Supply Chain Profession. Council of Supply Chain Management Professionals Founded in 1963, the Council of Supply Chain Management Professionals is the leading worldwide professional association dedicated to education, research, and the advancement of the supply chain management profession. With approximately 9,000 members globally, representing business, government, and academia from 63 countries, CSCMP members are the leading practitioners and authorities in the fields of logistics and supply chain management. Please visit to learn more. 29 RETAIL INDUSTRY LEADERS ASSOCIATION (RILA) RILA is the trade association of the world s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and operate more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad. For additional information visit Appendix B: About Our Partners

34 Appendix C: About American Shipper Research BACKGROUND Since our first edition in May 1974, American Shipper has provided U.S.-based logistics practitioners with accurate, timely and actionable news and analysis. The company is widely recognized as the voice of the international transportation community. In 2008 American Shipper launched its first formal, independent research initiative focused on the state of transportation management systems in the logistics service provider market. Since that time the company has published more than a dozen reports on subjects ranging from regulatory compliance to sustainability. SCOPE 30 Appendix C: About American Shipper Research American Shipper research initiatives typically address international or global supply chain issues from a U.S.-centric point of view. The research will be most relevant to those readers managing large volumes of airfreight, containerized ocean and domestic intermodal freight. American Shipper readers are tasked with managing large volumes of freight moving into and out of the country so the research scope reflects those interests. METHODOLOGY American Shipper benchmark studies are based upon responses from a pool of approximately 30,000 readers accessible by invitation. Generally each benchmarking project is based on qualified responses to a question survey depending on the nature and complexity of the topic. American Shipper reports compare readers from key market segments defined by industry vertical, company size, and other variables, in an effort to call out trends and ultimate best practices. Segments created for comparisons always consist of more than 50 responses to keep the potential margin of error to a minimum. LIBRARY American Shipper s complete library of research is available on our Website: AmericanShipper.com/Research. Annual studies include: Global Trade Management U.S. Export Compliance U.S. Import Compliance International Transportation Management Transportation Procurement Transportation Settlement CONTACT Jim Blaeser Publisher American Shipper BlaeserJ@Shippers.com

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