If By Bid: The good and bad in annual transportation procurement events

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There is a lot of controversy concerning the value of conducting an annual transportation procurement event – or what is typically called an annual bid. I do not shun controversy. On the contrary, I try to take a stand on any topic regardless of how fraught with controversy it might be. I have been asked about annual bids and so here is how I feel about them.

If when you say annual bid you mean that event that unites a shipper’s transportation planning, operations, and finance teams into a joint effort to establish a common plan and budget, where the strategy and priorities of the company are made clear and concrete; if you mean where the participating carriers are allowed to fairly and completely examine the detailed operating plans, policies, and volumes for that shipper over the next year in order to determine those lanes that best fit their existing network and price accordingly; where carriers are provided opportunities to express how important different lanes are to them through the efficiency of a reverse auction rather than through the provision of free meals, tickets, and other gifts; if you mean where the outcome of the event is an optimal assignment of qualified carriers to clearly defined pieces of business at fair market prices, then I am obviously for annual bids.

But, if when you say annual bid you mean those events that take months and thousands of man-hours to prepare, that feature exceptionally inaccurate estimates of freight volumes across thousands of lanes; if you mean those events where carriers are given one week to reply and tend to bid on volume that is five times their total available capacity; where the only data provided is last year’s total volume and the ‘target’ bidding rates are below the cost of fuel; if you mean those events that feature 26 rounds of bidding where carriers are encouraged to “be creative” only to have all submitted tours and packages of lanes broken into independent lane rates; where being awarded volume on a lane does not necessarily translate into ever receiving any freight on it; if you mean those events where after the carriers submit their bids the shipper runs 999 different scenarios for six months yet ultimately awards each lane to the lowest bidding carrier; if you mean where the final assignment results are published nine months after the carriers submitted their bids and the primary acceptance rates crater within three months, then I am certainly against annual bids.

This is my stand. I will not retreat from it. I will not compromise. But I will thank Judge Noah Sweat and his “If-By-Whiskey” speech for the inspiration to affirm both sides of the issue and agree with whichever side the reader supports.

The Freight Market Intelligence Consortium from DAT iQ can help you hone your procurement strategies to get the most reliable capacity when and where you need it.

The point of this is to state the obvious: Annual bids are exceptionally important to shippers to set their plans and budgets, but all too often they are poorly executed and create problems for both shippers and carriers that persist throughout the year. I admit it was a lot easier to write the “against” paragraph than the “for” because there are so many ways to run a bad bid.  (Feel free to send me a note with your favorite best / worst annual bid experiences – I promise to be discreet!)

Or, to be more general, there are many ways for a shipper to have poor transportation procurement practices. The annual bid is just one aspect of how shippers procure transportation services from its carriers.

Improving the transportation procurement lifecycle

Over the next few weeks, DAT iQ will publish a series of stories that discuss several ways to improve the transportation procurement lifecycle – from planning to monitoring. These stories will address the shipper’s perspective since they define the process that the carriers have to follow. This is not to say that carriers don’t exhibit bad behavior at times, but how the shipper designs and runs their transportation procurement process will tend to bring out the best, or worst, in the participating carriers. Shippers set the tone.

Over the course of this series, we’ll see how a shipper’s ability to better capture, analyze and monitor their freight network as it evolves throughout the year is central to procuring capacity.

The first step, of course, is for a shipper to actually capture their transactional data at the appropriate level of granularity, detail and usefulness. This goes beyond just the average rate paid on each lane over the last year. A shipper needs data readily available on each transaction that details date and time of booking, pick up, and delivery; origin and destination geographic and facility information; live load vs. drop trailer; and any other load, carrier, or network characteristics.

Without automating this data collection and making it repeatable, gathering the info becomes an all-hands-on-deck effort. One reason why shippers on average take over four months to run a bid is because collecting data from multiple disparate sources is still an incredibly manual and painful process.

Custom data solutions

For the vast majority of shippers, the accuracy of the historical data is more important than its immediate timeliness. In other words, it is more valuable to know that movements from Chicago to Atlanta were live load on both ends with tight appointment windows and tended to be concentrated on Fridays, than knowing what the spot rate from Sheboygen, WI, to Topeka, KS, will be tomorrow.  Real-time rate information is highly critical to brokers, carriers and the very few shippers that can delay or modify their shipping schedule to meet changes in the spot rate topography.

So, if you are a shipper and do not have any of this data readily available, establishing a collection process that is both scalable and repeatable will make life much easier. After that, you can conduct the analysis to fully understand your network, your carrier base and how to better match the two.

DAT iQ can help with both through the Freight Market Intelligence Consortium.

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