Small Package Freight: How Do You Negotiate Savings?

I recently had the chance to interview Rick Ankrum -- Rick is a procurement veteran with a few decades from the buying side of the negotiation table, most recently as a Senior Purchasing Manager at Sysco in Houston, Texas. Rick has published ebooks on both small freight and electricity procurement. After our recent interview with John Haber of Spend Management Experts, Rick wanted to share some of his thoughts on the subject. Here's what he had to say:

Don't be afraid to dive into the details! – Many small package freight shippers avoid analyzing their spend because they don't know what to do with the information they get. Negotiating a master agreement also appears to be a mystery with outside consulting companies promising to bring savings that actually only scratch the surface of what can be done. In many cases, the promised savings are based on examining missed delivery cost recovery and do not really address the bigger issues of how to get the best rates and services.

Understand your data – Data rules small package freight just like it does other spend categories. Getting your shipping data is sometimes difficult but there is gold buried in them thar' information hills. Some carriers guard "your" information like they own it, which in turn makes spend analysis troublesome. You should absolutely request detailed shipping data from all of your carriers and begin dissecting the information for these key elements:

  • Shipping service breakdown
  • Origin points
  • Destination points
  • Zone shipping breakdown
  • Shipment weight breakdown
  • Surcharge breakdown

Success example – In one situation, a shipper found that the majority of their shipments fell into the minimum cost structure so they knew this should be their negotiation focus. Without the spend data they would not have known this.

Take the longer view – look at a multi-year time period to discover seasonality. Two or three years of data will provide more insight than one year.

Engage stakeholders early on – while you digest the data, start locating the stakeholders in your organization. These can be hard to locate because the spend at the micro level could look quite inconsequential while on the macro level it would be substantial. You will need the support of these people as you move forward with implementing changes. Remember to include the stakeholders in the agreement negotiations so they will understand the terms and conditions. For example, you do not want accounting delaying payments that might negate a discount you've negotiated.

Know your T&Cs – small package freight agreements cover terms and conditions not found in other types of agreements. What do you negotiate? What moves the needle with carriers? Consultants do not want you to know too much or they are out of a job.

Current contracts? – if you have an existing agreement, get it out and read the fine print. If you do not have an agreement, the starting point will depend on the shipping volume you bring to the table. Getting carriers interested is not always easy. They want to see volume, and your best leverage will be how they perceive your ability to move from one carrier to another.

"That's not good enough" – when negotiating, this is a phrase you will want to become familiar with. Using this phrase at key points in the negotiations will uncover options. When these options come to light you will need the spend analysis to know what you can give in order to get what you need.

We thank Rick for his solid advice and insights -- you can reach him here for further discussions. At Spend Matters, we always welcome input from those with insights into this and other more challenging spend categories. Contact Sheena Moore if you're interested in submitting a guest post: smoore (at) spendmatters (dot) com.

- Thomas Kase

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