Advanced Bid Design – Robust Lane and Carrier Classification
By Ben Cubitt, Senior Vice President of Consulting and Engineering and Cindy Bosecker, Director of Procurement, Transplace
There are three critical phases or elements of a truckload bid event – the upfront development of bid strategy, the execution of the bid, and the use of scenario management tools to drive final bid assignments. This post is focused on the middle phase – bid execution – and shares Transplace’s tips on how to use advanced robust lane and carrier classification to optimize bid results.
Every shipper understands that “a lane is not always a lane” and that not all carriers are created equal. Given that, there are two types of lane classifications that need to be considered. The first is overall lane requirements and freight characteristics. These include lane requirements like live load or drop trailer, typical order lead time (less than 24 hours, 24 to 48 hours, greater than 48 hours, etc.), and equipment required.
The second classification assists in the bid analysis and segments lanes into sourcing groups that align with strategic goals or requirements. The exercise of classifying lanes up front leads the team to really think about what lane types are in your network and which have special requirements or profiles that will impact final carrier selection. Many shippers have not historically taken the time up front to do so, as they are weighed down by just the effort required to plan, execute and manage the rollout of a bid.
Tips to Improve Lane Segmentation and Classification:
- Evaluate how lanes are segmented for business purposes (inbound, outbound, by site, by product family) – How do YOU look at the network?
- Classify lanes based on service expectations which will allow tolerance testing for change. For example, understanding which of your customers are low risk or high risk from both a service perspective and a penalty perspective may change how you select carriers. Which customers have especially demanding on-time delivery KPI’s or large penalties for late or even early deliveries? Which lanes deliver to customers or plants that may impose heavy fees for “line down time” or “spoiled or damaged” production materials if a delivery is late?
- Shippers generally want to classify lanes as internal replenishment lanes, customer delivery with flexibility lanes, or critical tight time window lanes. These classifications help a shipper evaluate scenarios where more aggressively priced carriers or higher service profile carriers should or should not be favored.
- Include indicators on how the lane will be assigned (by lane, by origin, by a particular grouping).
- Shippers may want to look at the bid lanes for a particular product family or for a geographic region holistically, and therefore the segmentation should be included up front.
In addition to lane segmentation, shippers should also carefully evaluate their carrier base prior to a bid event. Carriers, both new and existing, should be classified by capabilities, strategic alignment, or other criteria.
Keys to Carrier Classification and Alignment with Bid and Strategic Carrier Management Strategy:
- Define characteristics of each carrier that you plan to use to evaluate e.g. asset versus broker, minority owned, customer approved, Smartway certified, etc.
- Identify carrier equipment capabilities and make sure it is called out in the information.
- Evaluate your existing carrier base and set tiers within the program for carriers that you want to target to grow, maintain, or reduce their existing business through the bid awards.
- Segment carriers based on performance and/or how strategically aligned they are with your company. You may be comfortable using some carriers anywhere, but others may be restricted to certain areas of the business. Defining that up front saves significant time on the back end.
- Classifying carriers into strategic groupings that combine both historical performance (tender acceptance rates, on-time pick-up and delivery, volume moved, etc.) and core carrier bid goals (grow volume, stay at or near same levels, limited usage, etc.). Three or four levels seems to work best and typical groupings are either Tier levels (Tier I, II, III) or other easy-to-use names (Platinum, Gold, Bronze) or (Strategic, Core, Niche, Local).
Carriers are being inundated with bids and shippers have to strive to improve both how carriers evaluate their bids and how the shippers evaluate the carrier’s bid responses. Best-in-class procurement technology platforms, like SciQuest, enable shippers to reach new levels of bid performance. Make sure you are prepared to fully leverage the capabilities of these tools and that you design your RFP to help facilitate a more optimal bid outcome.
The bottom line? If you need to drive a higher level of performance from your TL bid event, your success is increasingly driven by your upfront bid design. The time spent segmenting your lanes and classifying your carriers makes the final bid scenario review more efficient and more impactful. Intelligently focused bid design will drive a stronger post bid core carrier group, increase savings and match service and cost performance with actual lane requirements.
Want more information? Please join us for a webinar on Thursday, July 10th to learn more about how to develop bid strategy, robust bid execution and optimal bid awards. REGISTER HERE.