Strategic Freight Procurement enhancements in TM 9.3
1. Target rates in RFQ
How can the shipper ensure that all the invited carriers respond within an acceptable range of values?
The shipper who performs the procurement wants to ensure all the invited carriers quote within an acceptable range of values. The acceptable range could be defined with a target rate for the specific port pair/location pair and a tolerance value which is a percentage. For example, if the shipper specifies that the target rate as 100 USD and tolerance as 10%, then the range is between 90 and 110 USD. The shipper would just let the carrier know the target rate and compute the acceptable range internally and use it during evaluation to identify the outliers. The target rates would help the shipper converge to the optimal rates faster with lesser number of negotiation rounds.
• The shipper sends out the RFQ document to the various carriers
• These RFQs have the various charge types modelled in the calculation sheet and rate tables
• The rates proposed by the carriers could vary for each charge type
• To inform the carrier of the rate expectations of the shipper, the shipper can now provide such information in the rate table and calculation sheet.
• The shipper would enter his expected rates in the rate table and calculation sheet in the ‘target value’ column.
• Along with the target rate values, the shipper can also enter a ‘tolerance’ (in %) for each target rate.
• The tolerance would not be made available to the carrier, but would help the shipper to filter out the responses which lie outside the tolerance defined for the given target rate.
2. Optimization of carrier responses using offered transit times
How can the shipper ensure his shipment is delivered on time? How can the business share allocation be influenced to the various carriers based on the shipment delivery time?
The optimizer takes into consideration offered transit times by carriers which influences the optimizer proposal of business shares.
It is possible to model the transit time input to the optimizer as a cost input. The cost is calculated as a function of the deviation of the offered transit time from the requested transit time. The cost is directly proportional to this deviation. Since it is a cost minimization carrier selection optimizer, an increase in cost in the optimizer input results in a decrease of business share proposal.
Usage in responses’ optimization:
3. Historical spend based optimization
How can I influence my optimizer, based on the historical quantities and cost, to get the most optimal target share allocation for my carriers?
Within the comparison cockpit, the optimizer currently evaluates the responses from the various carriers and allocates a proposed target share of each carrier. The optimization is done based on the cost and capacity proposed by the carrier.
Rate based optimization (existing from TM 9.1):
In the above optimization possibility, there exists no way to influence the optimizer based on the historical logistical parameters like the historical demand and spend values. There is insufficient information available in the RFQ to simulate costs and the error probability introduced by the uncertainty of rate lookup with average loads is quite high.
With the integration of historical spend based optimization, the optimizer considers the historical spend value and quantity while proposing a more accurate target share allocation to the carriers. The historical spend based optimization works by performing actual charge calculation with the new rate values from the carriers on existing historical freight orders which are present in the system.
The historical spend value is the amount that is derived from simulating the historical freight orders in the TM system with new rate values provided by the carriers.
The historical quantity refers to the quantity picked from these historical freight orders, which were used to derive the spend value.
How does it work?
a. Determine relevant historical freight orders from historical data present in the system. In case of an RFQ use the structure of RFQ and rate table to determine the relevant historic freight orders.
b. Calculate the cost for shipping historical capacities using current carrier response rates to compute the historical spend value. The step is repeated for all the carriers for a particular RFQ to get the historical spend value and quantity per carrier.
c. The historical cost is weighed with the forecasted capacity and the projected cost is determined. This projected cost is provided as an additional input to the optimizer.
With the invocation of the optimizer now with historical spend based optimization in place,
• the optimizer proposes target shares which are weighted by historical shipment, which ensures that cost simulation takes place using the actual freight order data
• Rate look up with actual historical capacities reduces the error probability since the optimization and cost calculation are performed on the order data and not just the RFQ data
• Aggregated cost based optimization enables inclusion of multiple rating structures/rate tables and complex calculation sheets during comparison since it reuses charge calculation which considers all complexities and possibilities that a normal freight order calculation performs.
• Aggregated cost based optimization takes away the necessity of structural match
• Aggregated cost based optimization enables inclusion of multiple rating structures during comparison
4. Concurrent users in RFQ
How can I allocate several experts to work on multiple transportation requirements of an RFQ simultaneously, to arrive at a suitable business share proposal for all my transportation requirements?
A freight agreement RFQ master assignment is a business document that the analyst user of the shipper or logistics service provider (LSP) could use to evaluate rates from carriers for transportation services. Usually, the RFQs are relatively large in number in terms of transportation requirements and lanes. Assuming that each transportation requirement needs to be analyzed by an expert, it is possible to create multiple RFQ assignments from the master RFQ document and hand out to each analyst.
A purchasing manager can create a freight agreement RFQ master assignment from a freight agreement RFQ master item. The manager creates the freight agreement RFQ assignment to delegate the task of response analysis to analysts. The analyst has expertise in analyzing responses for a trade lane/MOT/shipping type as the case may be. The analyst determines the optimal capacities to be allocated to carriers, from the carrier responses for a particular transportation requirement and merges the results back to the freight agreement RFQ master item.
How does it work?
The shipper can distribute the work to compare carrier responses in RFQ to the responsible persons/departments. The responsible persons/departments could work on comparison, estimation and business share allocation independently at the same time.
The shipper can create multiple RFQ assignments for one master RFQ. The RFQ user copy shall contain a subset of the items / rate tables that shall be processed by the responsible person.
5. Optimization using historical carrier performance (Bonus/Malus input during optimization)
How could the shipper influence the optimizer with historical carrier performance?
Historical carrier performance could be provided as an input (as cost) to the optimizer. The historical carrier performance is computed based on configured carrier KPIs in the system and with the historical freight orders and invoices. The performance score is then converted into a cost which is either a positive or a negative cost. A negative cost indicates good performance score and vice versa.
Do check out the podcast session on Strategic Freight Procurement enhancements in TM 9.3
Do check out the blog on Strategic Freight Procurement in TM 9.1