When buying transport, there are several pitfalls. In the coming period, I will highlight some of them. Today, I show how quickly transport buyers fly off the handle by prescribing a graduated scale.
Transport procurement is complex! Why? Rates are often not transparent due to huge opaque rate tables. The often large scales by which load meters and cubic metres are converted to kilograms, and the postcode zonings always differ per service provider. For each service provider participating in an RFP/Tender, you get yet another table for each country+location combination. Not to mention any (fuel) surcharges that also impact the tariff. Even the most seasoned Business Advisor and/or Excel Specialist would rather not burn his hands on it.
The "solution" used by many transport buyers, and even most online Tender Tools / Procurement software programmes; we prescribe a fixed table/staffing and create a template from that for the participating service providers to fill in! Because we can then compare these easily(er). I like to call this a "Killing Template". A template that on the front end saves the buyer time. But which in many cases prevents the real strengths of the service providers from coming to the fore at the back end, thereby throwing away euros by the bucketful. Let me illustrate this with a simple calculation example:
Imagine we prescribe the template below to a pair of service providers. In this example, the focus is on around 40 smaller shipments up to 500 kilograms. We have therefore created a template, with a neat graduated scale running from 0 to 500 kilograms in increments of 100 kilograms. To keep the calculation example manageable, we have zoomed in on 1 postal code (area) and weights up to 500 kg, normally the scales are much larger!
In this example, we get back the tariff tables below from the two service providers as the "best offer".
We then take our 40 shipments (for convenience, 2 shipments per weight category), and put behind them the rates that come from the tables. Thus, we translate both service providers' rates into actual costs for the shipment profile, or accurate decision information.
The analysis reveals that we should choose service provider A on the basis of price (assuming the quality and service of both carriers are the same). Having the shipments done with service provider A costs €5,792, which is €384 (about 6%) cheaper compared to service provider B. At first glance, you might think: well done, tie it up and for the time being we are done with that awkward and time-consuming tendering for a while.
But now imagine that provider A happens to have exactly the same pricing structure as our template, but provider B normally uses a different tier itself, with smaller increments. Or a price per 100 kg, per kg or some such other quotation format. If we had let service provider B use its own template, the received table would have looked like this, for example:
We see that for the prescribed weight categories a to e, the rates are exactly the same in both quotations. In other words, the service provider B has spent a lot of time and energy to neatly paste their rates from their own graduated scale into the prescribed template (which, incidentally, regularly involves errors, in my experience). Now If we do the analysis again, the analysis is going to show why prescribing a template is "killing". If we again translate quotes into costs:
Now imagine that we do not categorise the shipment profile per 100 kg now, but we are going to calculate the actual weight of shipments using table of service provider A and the 'own detailed' table of service provider B. Then the cost picture looks like this:
Logically, service provider A is charged exactly the same cost, i.e. the €5,792. Service provider B, using its own tier, comes out at €5,620, and is now suddenly almost 3% cheaper than service provider A instead of 6% more expensive!
Prescribing a scale in a template has been "Killing"! Service provider B's strengths did not show up well. Because of provider B's prescribed template, almost 10% was more expensive than it could have been for your shipment profile. Thus, the outcome of the procurement process becomes suboptimal, resulting in wrong choices.
This is not a theoretical story; in every project we are asked to take care of, we see differences in the staffing levels. In this example, we are only talking about weight zoning, but postcode zoning is also often different and fixed templates sometimes unintentionally filter out (regional) strengths of service providers. Conclusion: querying in 'own templates', (which most software providers facilitate) will often save many percent and is therefore just "Killing"! In addition, it creates unnecessary work and errors on the service providers' side.
In the end, you go to the barber for a nice haircut because they can cut better than you can do yourself. For transport procurement, it makes sense to go to a specialist with analysis software that can incorporate the strengths of service providers in their own format!
There are many more pitfalls and opportunities in organising and managing transport, more on that later.
