Dr. Chris Caplice on a Balanced Approach to Transportation Procurement

Chain Reaction is Sourcing Journal’s discussion series with industry executives on logistics challenges and solutions. Here, Dr. Chris Caplice, chief scientist at DAT Freight & Analytics, discusses how the transportation company uses its tech to help shippers optimize procurement and navigate market shifts.

Name: Dr. Chris Caplice 

Title: Chief scientist

Company: DAT Freight & Analytics

What is DAT Freight & Analytics?

DAT Freight & Analytics operates the DAT One truckload freight marketplace and DAT iQ data analytics service for freight shippers, brokers and carriers. DAT iQ pricing models are trained on $1 trillion in market transactions submitted by freight shippers and brokers and provide benchmark spot and contract pricing on virtually every trucking lane in North America.

What are the main things brands and retailers could do right now that would immediately improve logistics?

Big swings—optimizing your supply chain network, nearshoring or reshoring parts of your supply chain, warehouse automation—require executive buy-in, capital and a lot of time.

Immediate improvements come from doing a better job handling what you can control today. Two things you can do right now are stop trying to plan for unpredictable events and focus on effects instead and take a balanced approach to transportation procurement. You’ll be less likely to face price and service shocks when you’re unable to cover the load with a primary carrier.

How can companies plan for disruptive supply chain challenges?

Don’t waste time trying to predict specific events. Instead, prepare for their effects.

Events and effects are different. For instance, last year, low water at the Panama Canal led to longer transit times from the Pacific Rim. More than a few companies now have detailed playbooks on what to do next time there’s a drought in Panama.

How should retailers adjust transportation procurement during disruptions?

Transportation requests for proposals (RFP) typically result in carriers being designated as primary and alternate options for specific lanes. When a primary carrier rejects a load, the waterfall process begins. Loads are offered to backup carriers in a predefined order until someone accepts the tender.

As you move deeper into the routing guide, your leverage decreases and costs rise. Studies from MIT FreightLab show rates increase from 8 percent above primary for the first alternate to 35 percent for the tenth alternate. Time is another factor: Offering loads to alternate carriers can add hours to tendering.

A failed routing guide proves that RFPs and contract carriers alone are insufficient if you value supply chain efficiency. It’s better to have a portfolio of dedicated, contract and dynamic relationships.

What adjustments can supply chains make to be more efficient, especially with transportation costs expected to rise?

There are three adjustments to consider as we enter an inflationary market, all designed to take price risks off the table.

First, consider pre-bid awards on key lanes to core carriers at reasonable target rates. Keeping incumbents on important lanes provides consistency of service at a market-adjusted rate.

Second, calibrate your carrier mix and size. This isn’t to say you should double your carrier base, but consider awarding multiple carriers some level of business throughout this cycle when negotiating power is swinging to transportation providers. Similarly, ensure a mix of asset and non-asset providers to leverage as the market tightens.

Third, tamp down savings expectations for a bid. Saving a percentage or two during a bid while heading into a period of higher transportation prices can lead to service and capacity problems as the market tightens. Also, avoid making decisions based on simple year-over-year comparisons—there are far better ways to benchmark your performance.

Are you optimistic about supply chains in the coming years?

Absolutely. For all the uncertainty and volatility in supply chain management, we’ve seen more talent, technology and investment dollars come into the business in the last five years. Supply chain-specific data and market intelligence have transformed how organizations evaluate their performance and manage costs.

Through it all, core principles and carrier key performance indicators (KPIs) remained constant: On-time delivery, on-time pickup and carrier acceptance ratios matter as much as ever. Whatever disruptions you face today, focus on the fundamentals and you’ll have a much better chance of long-term success.