Continuing on with our tips from Spend Management Expert's John Haber, we open up the transportation sourcing kimono with insights from a former UPS pricing insider.
- $1 million can be better than $10 million: Sometimes, leverage only gets you so far. This is sometimes true for transportation spend. If you require frequent pickups with only a few items each time that are sent all over the place then your negotiation position is not as good as someone who loads a truck full once a week. Additionally, if you ship in a "reverse-commute" fashion -- for example, needing trucking services from Florida -- you're in luck! Normally, backhauls from Florida run empty, so if you can bring this kind of business to a carrier, you can get them to offer great rates.
- Build your "should cost": John recommends applying this direct spend thinking process to shipping -- start out by getting the data from your ERP -- with WMS (Warehouse Mgmt. System) and TMS (Transportation Mgmt. System) holding much valuable data. Build your own costing models around three elements. First, price benchmarks including: mode, services, geographic locations, and industries served. Second, cost to serve: pick-up cost (loading), number of packages, frequency of pick-ups, etc. Third, don't forget line haul (between hubs) and sortation costs.
Such an approach lets you run a delivery cost analysis to determine the "should cost" and what is a reasonable profit margin. With this analysis, you are fully armed with your own price benchmarks and can defend your position with existing suppliers as well as give potential suppliers a clear picture of your needs and your level of preparedness.
Stay tuned as our discussion with John continues.