P procurement Trends for 2013

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In partnership with: Written By: Eric Johnson IT Editor and Research Director

Transportation Procurement

Benchmark Study:

Flat Market, Tactical Focus

The World’s Leading Source for the Supply Chain Profession.™

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Ex E cutiv E Summar y ii

Executive Summary

transportation rates and Spending trends Winners

Welcome to our fifth annual transportation procurement benchmark report. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and the Retail Industry Leaders Association (RILA), surveyed roughly 230 transportation buyers on procurement practices, processes, technologies and results. Each American Shipper benchmarking study seeks to highlight best practices by parsing companies who deliver excellent results— “winners”—from the average and sub-par performers.

To create a clearer comparison between winners and the average performers, this year’s study has limited the “winners” category to shippers exclusively. Other winners’ criteria are as follows:

• Keep contract freight rates from increasing more than 5 percent from 2012 levels.

• Incorporate considerations other than price, such as environmental sustainability, into the bid analysis process.

• Implement awarded contracts within two months.

Based on these criteria, winners account for 24 total respondents, with a heavy representation (63 percent) from the retail and wholesale commu-nity. Manufacturers make up the remaining quarter of this category. Rates over the past year rose gradually on the domestic and international side, with international rates rising slightly higher. More than half of respondents say their international and domestic spend increased, while a slightly smaller percentage in both categories say their rates rose. About a third of the market on both sides said their rates remained the same. Negotiation timeframes remained roughly the same as in 2011. Nearly three-quarters of shippers conclude their negotiations within three months of starting, while winners are considerably more likely to wrap up their negotiations within two months’ time.

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Ex E cutiv E Summar y iii technology and Outsourcing timing and

assessing Bids Rates continue to be forefront in the minds of transportation buyers, _{with a larger percentage saying it was the highest priority in}

procure-ment decisions than a year ago. Winners, however, are more likely than laggards to say that capacity assurances are the priority, not just rates. In either case, the trend of fixation on rates established a year ago has intensified, not diminished this year.

Winners, however, are noticeably more effective at negotiating their bids quickly, and implementing those successful ones within two months. To qualify as winners, shippers must implement bids within two months, but less than two-thirds of laggards do so. Retailers, meanwhile, implement bids within two months 40 percent more often than manufacturers.

More than 70 percent of winners and even 60 percent of laggards say their transportation procurement process is informed by freight payment data, an encouraging sign that shippers see value in closing the procure-to-pay loop. There is, however, the question of how far along that evolution shippers actually are. Using freight payment data from a previous year to drive yearlong procurement targets is a far cry from employing payment data to feed into smaller, more continuous procurement events.

In terms of how shippers procure transportation, nearly half use a manual or spreadsheet approach, up from 42 percent a year ago. But small and midsized shippers are twice as likely to use such an approach, while large shippers are nearly three times as likely to use a system to manage procurement activities.

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Ex E cutiv E Summar y iv

Nearly 90 percent of respondents say they have no plans to automate their procurement process, or that it’s at best on their company’s five-year plan. What’s discouraging, especially for vendors, is the fact that this has changed little in the four years that American Shipper has benchmarked transportation procurement. It appears shippers are in no bigger hurry than they were four years ago to jump to a new system, or outright invest in automating a currently manual procedure.

Indeed, anecdotally, it also appears there has been little truly ground-breaking technology development in the procurement landscape over the past year, a factor that might very well broaden shipper malaise toward this investment. The reality is that procurement is not always near the top of the investment priority ladder for shippers being asked to automate the length and breadth of their enterprises.

When it comes to what respondents considered their most critical procurement functionalities, winners overwhelmingly choose pricing visibility and integration with spreadsheets or a TMS. Laggards more frequently chose bid optimization, with pricing visibility second. American Shipper’s qualitative research suggests shippers are increasingly bidding in shorter and more frequent cycles. Given that change, what our research this year suggests is that those winners are focusing more tightly on the tactical elements of their bidding process—the functions that enable them to quickly implement bids they’re putting out rather than more sweeping, sexy functions like robust optimization engines. That may well be a short-term development in a flat market.

current vs. critical Functions

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t a B l E OF cO nt E nt S 1

Figures

F i g u r E 1 : Industry Segments ...4 F i g u r E 2 : Company Sizes ...5 F i g u r E 3 : Job Titles ...5

F i g u r E 4 : Transportation Modes Managed ...6

F i g u r E 5 : Annual Transportation Spend—International vs. Domestic ...8

F i g u r E 6 : Contract Freight Rates—International vs. Domestic ...9

F i g u r E 7 : Most Important Aspect of a Carrier’s Bid—2009–2013 ...10

F i g u r E 8 : Most Important Aspect of a Carrier’s Bid —Winners vs. Laggards ...11

F i g u r E 9 : Carrier’s Ability to Respond to Online Bids 2011–2013 ...11

F i g u r E 1 0 : Timing of Procurement Events—Winners vs. Laggards ...12

F i g u r E 1 1 : Length of Negotiations ...13

F i g u r E 1 2 : Timeframe to Implement Bid Results ...13

F i g u r E 1 3 : Does the Freight Payment Process Feed into Procurement Processes? ...14

F i g u r E 1 4 : Technology Procurement Platform ...15

F i g u r E 1 5 : Technology Procurement Platform—Large Shippers vs. Small & Medium Shippers...15

F i g u r E 1 6 : Inhibitors to Technology Adoption ...16

F i g u r E 1 7 : Plans to Automate Procurement 2009–2013 ...17

F i g u r E 1 8 : Which Modes Will be Automated? ...18

F i g u r E 1 9 : Drivers to Technology Adoption ...18

F i g u r E 2 0 : Most Critical Mode to Automate ...19

F i g u r E 2 1 : Current Delivery Model for Systems-Based Shippers ...20

F i g u r E 2 2 : Current Procurement Functionality—Winners vs. Laggards ...21

F i g u r E 2 3 : Critical Procurement Functionality—Winners vs. Laggards ...22

F i g u r E 2 4 : Current vs. Critical Functionality ...24

F i g u r E 2 5 : Contract Management Platform ...25

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S E cti O n i: intr O ducti O n 3

Section I: Introduction

S t u d y B a c K g r O u n d

Welcome to our fifth annual transportation procurement benchmark report. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and the Retail Industry Leaders Association (RILA), surveyed roughly 230 transportation buyers on procurement practices, processes, technologies and results. The 28-question survey was launched May 2, 2013. Qualified respon-dents are freight buyers, including manufacturers, retailers and third-party logistics providers (3PLs). This is the first edition in our annual three-part series covering the lifecycle of freight from procurement through payment. All reports are made available for download from www.AmericanShipper.com.

t E r m i n O l O g y

In the interest of being succinct and direct, this study uses several terms or acronyms you may not be familiar with. These explanations and defini-tions should be kept in mind when reviewing the results that follow. Logistics service providers (LSPs) are companies that charge a fee for supply chain services, including but not limited to transportation, distribution, warehousing, and customs clearance services. A third-party logistics provider (3PL) is a non-asset-based LSP.

It is important to note for the purpose of these reports the term “auto-mated” or “systems-based” does not mean a task is managed without human interaction. Instead, automated procurement means a company is employing a substantial amount of technology to support its trans-portation buying process, allowing staff to interact where necessary to solve problems and optimize the process. Similarly, the term “manual” does not mean the process is managed without the use of computers, Internet access, or other fundamental business tools. It’s assumed that companies managing procurement manually employ spreadsheets and other support tools.

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S E cti O n i: intr O ducti O n 4 H y P O t H E S i S

American Shipper approaches each benchmarking exercise with a set of assumptions to prove or disprove. In the case of this study these include:

1. International and domestic transportation rates will continue to gradually rise. This was borne out in Figure 6.

2. Buyers will focus more on service levels and less on rates in their procurement process. In reality, shippers actually said rates were more important than service this year, than last, as seen in Figure 9. 3. The majority of transportation buyers will not yet have linked

their freight payment process to their transportation procurement process. Shippers indicated, however, they have largely linked these two processes, according to Figure 13.

4. The majority of transportation buyers will have little interest in long-term contracting. This was largely true, with the vast majority of respondents suggesting in Figure 26 they use long-term contracts sparingly, or not at all.

d E m O g r a P H i c S

Qualified survey participants included transportation buyers from all industry segments, but this year, there was a higher proportion of retailers (30 percent) and lower proportion of 3PLs (28 percent), than last year. Process and discrete manufacturers (19 and 14 percent, respectively) and other shippers (9 percent) complete the picture.

F i g u r E 1 : Industry Segments

208 total respondents Retail/Wholesale

Intermediary (includes 3PL, Forwarder, NVOCC, OTI, Brokers) Process Manufacturing Discrete Manufacturing Other Shippers 30% 28% 19% 9% 14%

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Survey respondents represent companies of all sizes, though like last year, companies with $1 billion or more in annual sales make up more than 40 percent of the respondent pool. The study makes many comparisons between the results from these large companies and their small and midsized peers with less than $1 billion in annual revenue. Our research has shown this is a key delineation point in terms of how processes like procurement are planned and executed.

Transportation procurement largely remains the domain of managers and staff, with survey participation this year by job title nearly identical to last year’s, with one exception: The number of staff who took this year’s survey rose nearly 50 percent, while the number of executive or C-level respondents fell by 33 percent.

F i g u r E 2 : Company Sizes

160 total respondents

Less than $100 Million

Between $100 Million and $1 Billion More than $1 Billion

26% 31% 43% F i g u r E 3 : Job Titles 161 total respondents 6% 10% 16% 24% 45%

C-Level (CEO, COO, CFO, etc) Executive (SVP, VP, GM, MD, etc) Director

Manager Staff

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Respondents to the American Shipper study are typically tasked with managing at least one mode, and that held true in this report. Indeed, it is a continuing trend across this benchmark series to find transportation managers tasked with more responsibilities. So it’s not surprising to see nearly three quarters of respondents to the survey stating they manage up to five modes. This study seeks to take a high-level view of these multi modal shippers’ global procurement activities, recognizing there are vast differences in the procurement of each mode.

F i g u r E 4 : Transportation Modes Managed

0% 20% 40% 60% 80% 100%

Other, please specify Ocean Transport (other, non-containerized) Rail/Intermodal Parcel/Small Package LCL Ocean Airfreight Truckload Less than Truckload (LTL)

FCL Ocean 87% 86% 82% 76% 73% 68% 61% 36% 4%

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S E cti O n i: intr O ducti O n 7 W i n n E r S d E F i n E d

Each American Shipper benchmarking study seeks to highlight best practices by parsing companies that deliver excellent results— “winners”—from the average and sub-par performers.

In order to create a clearer comparison between winners and the aver age performer, this year’s study has limited the “winners” category to shippers exclusively. Other winners’ criteria are as follows:

• Keep contract freight rates from increasing more than 5 percent from 2012 levels.

• Incorporate considerations other than price such as environmental sustainability into the bid analysis process.

• Implement awarded contracts within two months.

Based on these criteria, winners account for 24 total respondents, with a heavy representation (63 percent) from the retail and wholesale commu-nity. Manufacturers make up the remaining quarter of this category. This year’s report also introduces the concept of laggards—i.e. all shippers that aren’t winners—providing a more stark contrast between those companies at the head of the procurement class and those trailing behind.

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S E cti O n ii : t r E nd S in t ran SPO r t a ti O n r a t ES and S PE nding 8

Section II: Trends in Transportation Rates

and Spending

Freight transportation costs are forever a moving target for those tasked with procurement. Internal and external dynamics make the international and domestic transportation modes almost permanently volatile, and the past year was hardly different.

This study endeavored this year to segment out respondents’ domestic and international spend and rates to gain a more detailed appreciation for where changes in those categories were coming.

Persistent overcapacity in both the ocean and air freight sectors over the past year would lead to the conclusion that it was, in theory, a buyer’s market on the international side. Looming governmental regulations on domestic trucking markets have shippers skittish about a driver shortage that could narrow capacity, theoretically making it a seller’s market. But the study shows that international spend and contract rates rose roughly in line with domestic spend and contract rates.

F i g u r E 5 : Annual Transportation Spend—International vs. Domestic

175 total respondents 27% 24% 30% 31% 23% 18% 13% 6% 11% 16% International Domestic 0% 5% 10% 15% 20% 25% 30% 35% Decreased by 5% or more Decreased by less than 5% Remained unchanged Increased by less than 5% Increased by 5% or more

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S E cti O n ii : t r E nd S in t ran SPO r t a ti O n r a t ES and S PE nding 9 Also notable: 58 percent of respondents said international freight spend increased and 55 percent said domestic freight spend rose, while more than half reported higher international contract rates and 45 percent noted higher domestic rates.

F i g u r E 6 : Contract Freight Rates—International vs. Domestic

173 total respondents 19% 17% 32% 28% 30% 30% 16% 4% 7% 18% International Domestic 0% 5% 10% 15% 20% 25% 30% 35% Decreased by 5% or more Decreased by less than 5% Remained unchanged Increased by less than 5% Increased by 5% or more

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S E cti O n iii : t iming and aSSESS ing Bid S 10

Section III: Timing and Assessing Bids

Figure 7 lies at the very heart of the procurement process, measuring what shippers see as the most important dimension. Last year, this report noted rates increased in importance relative to service for the first time since American Shipper began benchmarking procurement activities. It seemed shippers were back to eschewing elements outside price. This year, that trend has continued, with 61 percent of respondents saying price is the most important aspect of a carrier’s bid, up from 58 percent in 2012 and 48 percent in 2011. Indeed the importance of service has trailed off as rates have become more important.

For winners, however, price is only the most important aspect 50 percent of the time—right around the level of all respondents back in 2011. For that extra 10 percent of winners, capacity guarantees are the most important factor in a carrier’s bid.

61% 63% 53% 58% 48% 27% 37% 39% 49% 9% 1% 42% 3% _{0% 0%} 2009 2010 2011 2012 2013 0% 10% 20% 30% 40% 50% 60% 70%

Other (Risk, Sustainability, etc.) Service

Price

F i g u r E 7 : Most Important Aspect of a Carrier’s Bid—2009–2013

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S E cti O n iii : t iming and aSSESS ing Bid S 11 50% 60% 29% 30% 21% 10% Winners Laggards 0% 10% 20% 30% 40% 50% 60% 70% Capacity guarantees Service level guarantees

(includes transit time, on-time delivery, damage) Price quoted for services

F i g u r E 8 : Most Important Aspect of a Carrier’s Bid —Winners vs. Laggards

Very little headway has been made by carriers in using e-procurement tools to meet their shipper customers’ needs. Shippers still reported similar levels of satisfaction in their carriers’ ability to respond to online bids this year and last, with 40 percent still saying their carriers are “fair” or worse. Somewhat optimistically, the percentage of respondents who said their carriers were “very good” rose from 10 percent last year to 14 percent this year.

14% 49% 49% 48% 23% 22% 25% 14% 16% 2011 2012 2013 20% 30% 40% 50% 60%

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Winners see value in a systematic process for timing their procurement events. These events are linked to seasonal and somewhat predictable demand changes in their supply chains, and are not linked to variable factors like the availability of resources, or tightness in capacity. Those last ditch, or ad hoc, processes are not a best practice.

This year, the difference between winners and laggards came into sharper focus, particularly in terms of taking advantage of favorable negotiating conditions. Winners focus on those periods because they are prepared ahead of time to do so. Conversely, laggards continue to be twice as likely to run procurement events only when the resources to do so are available. About 80 percent of laggards conclude their negotiations within three months—with that group split pretty equally among one-month, two-month, and three-month timeframes. Winners, on the other hand, predominantly take two months or less to conclude their negotiations, with 75 percent of winners taking one or two months, and 96 percent wrapping things up within three months. In addition, it seems that two months is a sweet spot for negotiation length, with 54 percent of winners completing their process in that timeframe.

Winners

Laggards

0% 10% 20% 30% 40% 50% 60%

Procurement events are based on our fiscal calendar Procurement events are scheduled when capacity tightens Other, please specify Procurement events are run when resources are available to manage the process Procurement events are timed to take advantage of favorable negotiating conditions Procurement events are scheduled during an established negotiation time frame or season

58% 52% 46% 35% 13% 25% 4% 8% 4% 2% 4% 13%

F i g u r E 1 0 : Timing of Procurement Events—Winners vs. Laggards

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One of the critical elements of procurement is carrying successful bids into the implementation phase. Winners, by definition, complete this process within two month. Only 64 percent of laggards, on the other hand, complete the bid implementation within this timeframe. Interest-ingly, this year saw some drastic differences from last year’s report among retailers and manufacturers. Last year, more manufacturers said they implemented bids within two months; this year, retailers met that timeframe 40 percent more often than manufacturers.

0% 10% 20% 30% 40% 50% 60% More than six months Four–six months Three months Two months One month 23% 54% 21% 29% 21% 28% 4% 17% 0% 3% Winners Laggards F i g u r E 1 1 : Length of Negotiations 173 total respondents 20% 30% 40% 50% 60% 31% 23% 25% 26% 52% Retail/Wholesale Manufacturing F i g u r E 1 2 : Timeframe to Implement Bid Results

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S E cti O n iv : tE c H n O l O gy and Out SO urcing 14

Section IV: Technology and Outsourcing

A central tenet of American Shipper’s benchmark series is to understand the procure-to-pay cycle in more depth. This year respondents were asked to what extent their freight payment process feeds into their procurement processes. Using the richness of freight payment data to better inform procurement—i.e., which are the best modes and carriers to use within a given route, or to benchmark rates internally or externally—is crucial to closing that loop.

In that regard, the findings this year are encouraging. Nearly three quarters of winners, and 60 percent of laggards, say freight payment informs procurement. However, only 8 and 14 percent, respectively, believe strongly that the payment process is tightly linked to procure-ment. Additionally, a quarter of laggards, and even 16 percent of winners, say these processes are completely decoupled.

Even for those who say payment is used to improve procurement, there is the question of how far along that evolution they are. Using freight payment data from a previous year to drive yearlong procurement targets—in terms of carrier and mode choices—is a far cry from con tinuously using payment data to feed into smaller, more continuous procurement events. 0% 10% 20% 30% 40% 50% 60% 70% Strongly disagree Disagree Uncertain Agree Strongly agree 14% 63% 8% 46% 13% 17% 8% 19% 8% 5% Winners Laggards F i g u r E 1 3 : Does the Freight Payment Process Feed into Procurement Processes?

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The degree to which shippers use spreadsheet or manual-based systems to procure transportation services not only stagnated this year—it apparently regressed. Nearly half of the respondents to this year’s survey say they use such an approach, compared to 42 percent a year ago. Only a quarter of respondents use a system of some kind—though that’s slightly higher than the 23 percent who last year said they use a system.

Manual or spreadsheet based A mix or hybrid of the above

Automated using a general purpose procurement system Automated using the procurement module of my transportation management system or another logistics/transportation Automated using a transportation specific procurement system Outsourced managed service

None of these options

48% 21% 10% 4% 2% 6% 9%

F i g u r E 1 4 : Technology Procurement Platform

Automated using the procurement Outsourced managed service Automated using a transportation speciﬁc procurement system A mix or hybrid of the above

Manual or spreadsheet based 36%

67% 30% 16% 18% 2% 7% 2% 5% Large Shippers Small & Medium Shippers F i g u r E 1 5 : Technology Procurement Platform—Large Shippers vs.

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But when this choice of procurement platform is broken down by size of shipper, we see some serious discrepancies emerge. Small and midsized shippers use the spreadsheet or manual approach at nearly twice the rate of large shippers (again, those defined as having sales of more than $1 billion). Only 10 percent of small and midsized shippers use a procurement system of any kind, compared to 28 percent of large shippers. Large shippers also more frequently use outsourced providers to manage procurement, as well as a hybrid approach.

It appears, based on Figure 16, that smaller shippers struggle with resistance to change and expertise hurdles when it comes to adopting procurement technology. Sixty percent said one of those two factors has prevented them from investing in a system. Larger shippers said they have yet to adopt a system, or upgrade to a better one, primarily because the return on investment isn’t worthwhile, or because the market doesn’t provide them with the functionality they need. It should not be over-looked, though, that a significant swathe of respondents in both categories said they were happy with their existing system.

Large Shippers

Small & Medium Shippers

0% 10% 20% 30% 40% 50% 60%

We do not have the technical expertise to make a change Other, please specify Organizational resistance to change Available systems do not provide the functionality we require Current system or process meets our needs

Lacks return on investment _31% 50%

36% 45% 27% 7% 14% 36% 9% 12% 0% 24%

F i g u r E 1 6 : Inhibitors to Technology Adoption

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From a technology provider’s standpoint, Figure 17 seems a little discouraging. More than the fact that 87 percent of respondents say they have no plans to automate, or that it is at best on their company’s five-year plan, is the fact these responses have changed little in four years. It appears shippers are in no bigger hurry than they were four years ago to jump to a new system, or outright invest in automating a currently manual procedure.

Indeed, anecdotally, it appears there has been little truly groundbreaking technology development in the procurement landscape over the last year, a factor that might very well broaden shipper malaise with regard to investment. The reality is procurement is not always near the top of the investment priority ladder for shippers being asked to automate the length and breadth of their enterprises.

69% 69%_67%_67% 63% 8%11%13% _7% 16% 4% 6%11% 9% 6% 20%17% 18% 9%12% 2009 2010 2011 2012 2013 0% 10% 20% 30% 40% 50% 60% 70% 80% On our company’s 5 year plan Budgeted for

the next 12 – 24 months Budgeted for

the next 12 months No plans

to automate

F i g u r E 1 7 : Plans to Automate Procurement 2009–2013

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For those respondents who do plan to automate at some point in the next five years, it’s encouraging to note their plans include more modes than in last year’s study. For instance, 49 percent said this year they plan to automate for full ocean containerloads (FCL), compared to just 22 percent in 2012, and 36 percent said they plan to automate for air freight, compared to just 3 percent last year. Large shippers are much more likely to look at automating truckload, less than truckload (LTL), FCL, and air, suggesting at some point they desire to homogenize their broad portfolio of modes.

Large Shippers Small & Medium Shippers 0% 20% 40% 60% 80% LCL Ocean Rail/Intermodal Ocean Transport (other, non-containerized) Airfreight Parcel/Small Package FCL Ocean Less than Truckload (LTL)

Truckload _50% 67% 62% 47% 57% 45% 48% 32% 43% 32% 38% 21% 19% 21% 10% 16%

F i g u r E 1 8 : Which Modes Will be Automated?

Centralize procurement activities Save time on procurement activities Visibility to rates and capacity Manage complexity Improve data mangement

Efficiency _76% 64% 56% 55% 55% 54% F i g u r E 1 9 : Drivers to Technology Adoption

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The factors compelling shippers to seek procurement automation have changed little from a year ago, though there remains a divide between large and small and midsized shippers in this regard. On a shipper-wide basis, however, efficiency and improvement of data management head a list of compelling motivations. What’s encouraging is that this year and last, fewer than half of respondents say lower rates are driving procurement technology decisions. Shippers clearly see efficiency, accuracy, and visibility are the key motivators, and rates are more influenced by outside factors.

Figure 20 provides striking insight into the state of procurement auto-mation. Winners see as much value investing in automating truckload activities as they do FCL, despite the more entrenched nature of auto-mated procurement activities in the trucking world. Laggards, on the other hand, remain more focused than winners on automating truckloads and less focused on automated ocean transportation. Perhaps this is a reflection of winners having more truly global supply chains, or they have more easily seen the benefits of domestic procurement automation and seek that efficiency on the international side of their operations.

Winners Laggards LCL Ocean Parcel/Small Package Rail/Intermodal Airfreight Less than Truckload (LTL) Ocean Transport (other, non-containerized) FCL Ocean Truckload 43% 53% 43% 32% 7% 5% 0% 5% 0% 4% 7% 2% 0% 0% 0% 0%

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For those shippers that employ a systems-based approach to transporta-tion procurement, there’s a fairly even spread between those that use an installed system, those that use a software-as-a-system (SaaS) model, and those that use a hybrid. We have noted elsewhere in our benchmark research while SaaS, or cloud-based, platforms are growing in popularity, many shippers continue to use, or even prefer installed systems.

Winners, like last year, are more likely to have pricing visibility, historic cost access, and the ability to integrate these details with spreadsheet or transportation management systems (TMS) from their procurement technology. Interestingly, laggards have made some noticeable improve-ments in functionality over the past year, including the ability to award bids to multiple carriers on a single lane and bid optimization.

Licensed installed software Software-as-a-service/On-demand A mix or hybrid of these

None of these

Software available on a project basis

28%

26% 21%

6%

19%

F i g u r E 2 1 : Current Delivery Model for Systems-Based Shippers

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S E cti O n iv : tE c H n O l O gy and Out SO urcing 21 Winners Laggards 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Carrier scorecards Incremental bidding Network level volume coverage/commitment Pre-bid awards Other, please specify Conditional or expressive bids Contract management Pre-bid request for information Building/awarding subsets of the network Rate benchmarking Spend analysis Customization of platform (such as data fields) Line-item awards by carrier Best and final pre-bid commitments Bid optimization (includes what if analysis and scenerio building) Lane/Trade level volume coverage/commitment Multi-carrier awards per lane Multiple rounds of bidding Post bid award summaries Base rate plus accessorials pricing visibility Historical cost visibility Integration with spreadsheets such as Excel, XML or my TMS

Baseline or all-in pricing visibility 63% _79%

56% 64% 47% 64% 58% 57% 40% 50% 47% 50% 54% 50% 44% 50% 49% 43% 30% 43% 42% 36% 32% 36% 47% 29% 33% 29% 26% 29% 25% 21% 28% 21% 16% 21% 1% 1% 19% 7% 9% 7% 18% 7% 23% 7%

F i g u r E 2 2 : Current Procurement Functionality—Winners vs. Laggards

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S E cti O n iv : tE c H n O l O gy and Out SO urcing 22 Winners Laggards 0% 10% 20% 30% 40% 50% 60% 70%

Line-item awards by carrier Rate benchmarking Other, please specify Building/awarding subsets of the network Carrier scorecards Conditional or expressive bids Incremental bidding Network level volume coverage/commitment Post bid award summaries Pre-bid awards Pre-bid request for information Contract management Lane/Trade level volume coverage/commitment Multi-carrier awards per lane Multiple rounds of bidding Spend analysis Bid optimization (includes what if analysis and scenerio building) Customization of platform (such as data fields) Historical cost visibility Base rate plus accessorials pricing visibility Best and final pre-bid commitments Integration with spreadsheets such as Excel, XML or my TMS

Baseline or all-in pricing visibility _42% 64%

43% 24% 36% 11% 36% 27% 21% 24% 21% 15% 21% 47% 14% 22% 14% 13% 14% 18% 14% 7% 14% 16% 7% 2% 7% 6% 7% 4% 7% 11% 7% 4% 7% 9% 7% 13% 7% 11% 0% 0% 0% 6% 0% 11%

F i g u r E 2 3 : Critical Procurement Functionality—Winners vs. Laggards

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When it comes to what respondents considered their most critical procurement functionalities, winners overwhelmingly choose pricing visibility and integration with spreadsheets or a TMS. Laggards more frequently choose bid optimization, with pricing visibility second. Figure 24 highlights a gap between what shippers have and what they consider vital. For instance, 41 percent of respondents said they had post-bid award summary capability, but only 4 percent consider that function critical. Meanwhile, 44 percent had bid optimization capability, with 38 percent considering it critical.

American Shipper’s qualitative research suggests shippers are increasingly bidding in shorter and more frequent cycles. It’s an area we’ll explore in greater detail in future research. But given that change, what our research this year suggests is those shippers are focusing more tightly on the tactical elements of their bidding process—the functions that enable them to quickly implement bids they’re putting out rather than more sweeping, sexy functions like robust optimization engines. That may well be a short-term development in a flat market. After all, there’s often no need to overthink things when demand, capacity and rates aren’t fluctuating wildly.

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S E cti O n iv : tE c H n O l O gy and Out SO urcing 24 Current Critical 0% 10% 20% 30% 40% 50% 60% 70%

Other, please specify Network level volume coverage/commitment Conditional or expressive bids Incremental bidding Pre-bid awards Building/awarding subsets of the network Pre-bid request for information Customization of platform (such as data fields) Carrier scorecards Best and final pre-bid commitments Contract management Rate benchmarking Line-item awards by carrier Multiple rounds of bidding Post bid award summaries Lane/Trade level volume coverage/commitment Spend analysis Bid optimization (includes what if analysis and scenerio building) Historical cost visibility Multi-carrier awards per lane Integration with spreadsheets such as Excel, XML or my TMS Base rate plus accessorials pricing visibility

Baseline or all-in pricing visibility _39% 62%

57% 31% 54% 22% 51% 20% 51% 26% 44% 38% 43% 20% 43% 8% 41% 4% 41% 13% 38% 10% 37% 9% 30% 21% 29% 10% 28% 14% 25% 17% 24% 4% 24% 12% 18% 5% 17% 5% 14% 9 % 11% 13% 3% 0%

F i g u r E 2 4 : Current vs. Critical Functionality

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S E cti O n v : cO ntracting and cO ntract m anag E m E nt 25

Section V: Contracting and Contract

Management

2012 was the first year this study examined contract management in greater detail, so it was interesting to note this year that the use of manual processes to manage contracts declined from 54 percent to 48 percent— somewhat the opposite of what was seen on the procurement side. No surprise that small and midsized shippers are far more likely to use a manual approach than larger shippers—66 percent more likely, in fact. Again, this makes sense. Larger shippers tend to have more complex supply chains and, in general, are more likely to see the value in using a systems-based approach for the entire procure-to-pay loop. Using a system to manage the contracts that are procured using a system is a logical step in that regard.

0% _10% _20% _30% _40% _50% _60%

Automated using the contract management module of my transportation management system None of the above Outsourced managed service Automated using a transportation speciﬁc system Automated using a general purpose contract management tool Mix or hybrid of the above

Manual or spreadsheet based 36%

60% 30% 12% 12% 4% 12% 4% 5% 9% 3% 9% 3% 4% Large Shippers Small & Medium Shippers F i g u r E 2 5 : Contract Management Platform

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S E cti O n v : cO ntracting and cO ntract m anag E m E nt 26

This year respondents were also asked about their use of long-term contracts—a hot topic, particularly in the ocean transportation world. Yet, uptake of these long-term mechanisms doesn’t appear to be all that popular. Nearly three quarters of respondents say they use long-term contracts for less than 25 percent of their transportation contracts. In reality, the number may be closer to zero for many of those respondents. Roughly one quarter of winners and laggards say they use them to some degree, with about one in five winners using them for 25 to 49 percent of their contracts. Again, use of long-term mechanisms differs greatly by mode, but in general there’s no grand move by shippers to push for them, despite their purported benefits.

0% 10% 20% 30% 40% 50% 60% 70% I don't know Less than 25 percent 25-49 percent 50-74 percent 75-99 percent 100 percent 8% 6% 0% 6% 0% 6% 17% 6% 71% 67% 4% 10% Winners Laggards F i g u r E 2 6 : Use of Long-Term Contracts

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S E cti O n vi : B ES t Practic ES 27

Section VI: Best Practices

An analysis of the winners provides a picture of how best-in-class firms are procuring transportation. In brief, here are some of the key traits of a winner:

• They fixate less on rates and more on securing capacity when procuring transportation.

• They plan procurement activities to coincide with the seasonality of their business, not only when resources are available to bid. • They use systems when their procurement requirements become

sufficiently complex.

• In a flat market, they bid more often and for shorter periods, focusing on the tactical elements of procurement.

• They use freight payment data to better inform their procurement process.

• They prioritize the successful implementation of bids over excessive optimization concerns

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aPPE ndix a : aBO ut Our S PO n SO r S 28

Jda® SOFtWarE grOuP, inc.

JDA® Software Group, Inc., The Supply Chain Company®, offers the broadest portfolio of supply chain, retail merchandising, store operations and all-channel commerce solutions to help companies manage the flow of goods from raw materials to finished products and into the hands of consumers. JDA’s deep industry expertise and innovative cloud platform help companies optimize inventory, labor and customer service levels. As a result, JDA solutions have become the standard for the world’s leading retailers, manufacturers and distributors.

To learn more, please use the following contact information: www.jda.com | [email protected]

Worldwide Headquarters | Scottsdale, Arizona, U.S.A. Worldwide +1 480 308 3000 | Office +1 480 308-3421

S a P

As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device— SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 238,000 customers to operate profitably, adapt continuously, and grow sustainably. For more information, visit www.sap.com.

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aPPE ndix B: aBO ut Our P ar tn E r S 29

Appendix B: About Our Partners

c S c m P

Council of Supply Chain Management Professionals

Founded in 1963, the Council of Supply Chain Management Professionals is the leading worldwide professional association dedi-cated to education, research, and the advancement of the supply chain management profession. With approximately 9,000 members globally, representing business, government, and academia from 63 countries, CSCMP members are the leading practitioners and authorities in the fields of logistics and supply chain management.

Please visit www.cscmp.org to learn more.

rEtail induStry lEadErS aSSOciatiOn (rila)

RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and operate more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad. For additional information visit www.rila.org.

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aPPE ndix c : aBO ut a m E rican S H iPPE r rESE arc H 30

appendix c: About American Shipper Research

B a c K g r O u n d

Since our first edition in May 1974, American Shipper has provided U.S.-based logistics practitioners with accurate, timely and actionable news and analysis. The company is widely recognized as the voice of the international transportation community.

In 2008 American Shipper launched its first formal, independent research initiative focused on the state of transportation management systems in the logistics service provider market. Since that time the company has published more than a dozen reports on subjects ranging from regulatory compliance to sustainability.

ScOPE

American Shipper research initiatives typically address international or global supply chain issues from a U.S.-centric point of view. The research will be most relevant to those readers managing large volumes of airfreight, containerized ocean and domestic intermodal freight. American Shipper readers are tasked with managing large volumes of freight moving into and out of the country so the research scope reflects those interests.

mEtHOdOlOgy

American Shipper benchmark studies are based upon responses from a pool of approximately 30,000 readers accessible by e-mail invitation. Generally each benchmarking project is based on 200-500 qualified responses to a 25-35 question survey depending on the nature and complexity of the topic. American Shipper reports compare readers from key market segments defined by industry vertical, company size, and other variables, in an effort to call out trends and ultimate best practices. Segments created for comparisons always consist of more than 50 responses to keep the potential margin of error to a minimum.

liBrary

American Shipper’s complete library of research is available on our Website: AmericanShipper.com/Research.

Annual studies include:

• Global Trade Management • U.S. Export Compliance • U.S. Import Compliance • International Transportation Management • Transportation Procurement • Transportation Settlement cOntact

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