Why It’s Important to Become Your Carrier’s ‘Preferred Shipper’

By: Robert J. Bowman, SupplyChainBrain
October 09, 2017

If you thought the act of purchasing transportation was as simple as paying a carrier to haul your freight – well, think again.

The pendulum of power can swing in either direction. One moment it’s the shipper who calls the shots, benefiting from a glut of capacity. And in the next, the market has tightened, and the carrier can afford to be choosy.

Skilled transportation managers know better than to change their strategy with every market shift. Through times of oversupply and drought, with rates high and low, they work hard to become “preferred shippers” in the eyes of their carrier partners.

You might wonder why a huge shipper like Procter & Gamble would bother. Isn’t it powerful enough to command carrier obedience at all times? Shouldn’t it be able to dictate rates, routes and service without cozying up to transportation providers?

P&G doesn’t think so. Jack Oney, former director of purchasing for supply chain and logistics, says the consumer products giant strives to create a culture of the “elite shipper.” It views logistics contracts as much more than fleeting transactional deals.

Oney, who now runs his own firm, Jack Oney Legal and Business Consulting Services, spent 27 years with P&G before retiring last January. Speaking at the SCOPE Fall 2017 conference in Los Angeles, he said the company has “an engineering mindset.” That results in transportation managers who are “intentional, methodical, but sometimes risk-averse.”

Everything that happens within P&G is given a project name, said Oney. The rule helps internal experts to organize their thinking, and gain a clear idea of their priorities. (It also serves to “brand” each project, perhaps contributing to its continued survival in a large organization where countless initiatives are always vying for executive support.)

Projects don’t exist at P&G for their own sake. Oney said the company ensures the completion of key initiatives through its decision-making tool known as PACE — for process owner, approver, contributor and executor. The four designations specify who’s in charge of a given effort, and who can offer input. “There’s only one of the first two,” said Oney. “Everyone can be the last two.”

As it does when considering the purchase of any service, P&G undergoes a “make versus buy” determination from the start. It asks whether the service in question is part of the company’s core competency, who’s best positioned to mitigate the risk that’s attached to it, and who’s the best entity for cleaning up any messes when things go wrong.

The decision on whether or not to outsource is accompanied by what Oney calls “Strategy 101” — the determination of “where you’re at, where you want to be, and how you’re going to get there.” Suppliers who win, he said, “are the ones who can define the current state.”

With these basic techniques in hand, P&G sets out to craft tight and long-lasting relations with carriers and logistics providers. At the outset, it has an intimate understanding of its costs, and seeks to eliminate waste and errors in the transportation chain wherever they occur.

Freight audit is one area that tends to be undervalued, Oney said. It’s more than something that dutifully gets performed at the end of a process, prior to the “OK to pay” decision. On the contrary, P&G views audits as a strategic way to recover value and prevent loss. In addition, it takes an elastic approach to pricing and payment models, allowing for the unique nature of each freight move and carrier relationship.

Network optimization is equally crucial. By truly understanding its current state, Oney said, the shipper can identify any gaps in efficiency, or problems that might make it undesirable to a carrier.

It’s not an issue of inadequate capacity, Oney said. “The problem is that your freight isn’t very desirable.” Shippers need to partner with carriers on issues such as equipment flexibility, trailer scheduling and better yard management. In addition to making the shipper a more attractive account, the effort can uncover some surprising opportunities for cutting costs.

For example, P&G’s effort to streamline the movement of ocean freight — called, fittingly, Project Orca — resulted in a 65-percent reduction in ocean rates, simply by educating the appropriate individuals about how much “free” time they really needed for their containers at the port.

For surface transportation, P&G follows detailed routing guides for its carriers. But it’s careful not to impose unrealistic key performance indicators. “Make sure you’re being fair,” says Oney.

There’s always the question of whether to go exclusively with a single carrier in any given corridor or spread the business around — to “play the market,” as Oney puts it. He said the emphasis should be on managing the health of the network. And that priority usually leads to multi-year contracts with a handful of trusted partners.

The preferred shipper, Oney said, will bring its “A-team” to the table with carriers, emphasizing personal relationships and a single point of contact for each major service provider.

Opportunities for saving money should be shared between both parties. Another speaker at SCOPE Fall, Dave Venberg, senior director of transportation and logistics with Ardent Mills, said the big flour-milling and ingredient company has reduced transportation costs by 8 percent, and network costs by 10 percent, over the last three years. “We give carriers back 50 cents for every dollar of efficiency we save,” he said.

As for the carrier, it needs to shower attention upon its V.I.P. accounts. “Don’t act like a commodity,” advised Oney. “Show up and explain why you have more to offer than just a box being moved.” Both sides need to view their relationship as more than an exchange of money for service. Only then can the shipper be assured of a continuous supply of quality service in good times and bad.