How much money can you really save from a transportation procurement bid? Probably not as much as you might like, but enough to pay for the bid with a good return.
I recently returned from the CSCMP conference in Atlanta where I attended a great session, jointly presented by folks from C.H. Robinson and researchers from Iowa State University. They have taken a very similar statistical modeling approach to the one I covered in a recent post [..the challenge of transportation rates] to answer questions around the impact of transportation bids and this result is in the public domain.
You can download a copy of their white paper "Stale Rates Research: Benefits of Frequent Transportation Bids” here. This study uses relatively little data (~$1 billion in spend) but it all comes from one Transportation Management System (TMS) which should allow for cleaner and richer data up front.
To skip to the chase, the team found that there is an immediate impact to transportation rates from conducting a bid, but:
- The immediate rate reduction is relatively modest at $15 per shipment on an average lane cost of about $900 (~1.7 %)
- The value of the cost reduction decays quickly and is completely gone in about 12 months as conditions change, individual lane rates are adjusted or the lowest-rate carriers take proportionally fewer loads .
- Across a year, the immediate impact of a freight rate bid is only about $5 per shipment.
That does not seem like much on an average $900 spend per shipment.
However, they also found that there is a consistent discount associated with frequent (at least yearly) transportation bids that does not decay. Presumably this reflects a level of comfort from carriers that any rates they agree to now can be revised in a reasonable time-frame. Shippers that hold at least annual freight bids :
- save, on average, $25 per shipment in addition to the immediate impact
- save about $30 per shipment in total (about 3.3% on the average shipment of $900.)
If you have a billion $ in freight spend , 3.3% is about $33 million. As freight bids seems to cost tens of thousands of dollars and certainly not millions, that looks like a good return and I imagine C.H.Robinson will see some of that business to help repay their investment in this study.
Then again, if anyone is telling you that their spiffy new procurement or reverse-auction system is going to help you save 10%-15% on your freight bills, you may not want to commit to that saving with your boss.
I think 3% freight savings is right on the money: definitely worthwhile but perhaps not the biggest thing you should be working on in the supply chain. What do you think?