What is freight or logistics procurement and is there a difference between the terms procurement, purchasing and buying? We explain why procurement is of added value to your organisation. And we take a closer look at the increasingly ‘in demand’ managed freight procurement.
What is procurement?
Procurement is defined as activities aimed at controlling and directing the incoming goods flow until the goods are taken into production. Procurement is a broader concept than purchasing and also includes material requirement planning, inventory management and transportation. With procurement, careful thought is given before the purchase is made. Procurement is of great value to organisations. Why it is so important for the success of an organisation, you can read below.
What is Freight procurement?
Or often called logistics procurement. It is a niche space within logistics. There are few publications on it and statistics and market information is hardly available. Most companies use Excel and e-mail based processes to manage their transport buying. But there is a change coming. We see a fast-growing interest from companies in sourcing platforms and doing this buying process in a more automated and digitized way. It seems many companies are making budgets available to step up their freight sourcing game. This leads me to believe that there will be massive growth in this in logistics e-sourcing for the coming few years. This shift will bring not only a lot of value to shippers but also to carriers who will be able to improve their processes as well and lower their costs in responding to RFQ’s and tenders.
Procurement more than operational management of procurement
Procurement management is more than the operational management of procurement. Organisations that deploy the procurement process well, understand the main objectives of the organisation and know how to connect the organisation’s strategy with those of suppliers and end customers. Procurement is about actually adding value to both internal and external processes.
As a procurement manager, you can create value for your organisation and society in a wide range of areas. You can reduce supply risks, contribute to product innovation, join forces with suppliers to increase sustainability and thus contribute to the commercial and business results. As a procurement professional, you are working on socially relevant issues.
Why is procurement management of added value?
Thinking strategically about the procurement policy ensures that purchases are not made on the basis of gut feelings, but that actual thought is given to the purchase. Think for example about the conclusion of contracts with suppliers, with which agreements are laid down.
What is Managed Freight procurement?
Because of extreme demand and complexity in the logistics service industry, logistics procurement is often the first line of defence to make a difference, impacting a company’s bottom line, or securing supply chain success and stock. on the future of logistics procurement. Because of our experience in the logistics market, from a forwarder pricing analyst position, and procurement teams from the shipper’s side, we understand tenders from the inside out and we have worked with hundreds, if not thousands of tenders. If you like to help to make your customers and carriers life better, run tenders with a fantastic platform with the expertise of a virtual team. Within our solution, we handle support, sales, analysis and account management.
When resources are short, market dynamics unpredictable, capacity limited and costs enormously increasing you may want to move away from running a multi-million freight sourcing event from a spread sheet….
Pieter Kinds – Founder and CEO Freightender
3 Developments of Freight procurement in 2021-2023
- Logistics procurement is evolving. No longer is it only about yearly RFQ’s but shippers now need the flexibility to run quarterly bids, monthly reviews and mini-bids. Automation of calculations, comparisons, analysis and awarding is now more important than ever.
- Holistic tender and procurement data. For the shipper and forwarder reader of this post that takes a holistic view at logistics procurement in AIR and OCEAN, Freightender has a unique NEW feature. We connect RFQ’s that are run on our platform with internal tender management processes forwarders run to streamline their quotation processes. WITH ONE CLICK OF A BUTTON: COPY. No other provider is able to streamline logistics procurement processes between buyer and seller like Freightender. This delivers a lot of value to both the shipper and the forwarder.
- Tender processing method shift. We have already indicated that the majority of tenders are currently still being handled manually. With the rapid adoption of cloud software, we see that e-sourcing platforms are also being used more rapidly. It is expected that in the next 6 to 10 years a shift will take place, whereby:
- Manual tender processes are replaced by e-sourcing platforms;
- Logistics Consultants will only retain their market share if they offer their services using an e-sourcing platform.
Buying logistics today requires doing more and smaller RFQ’s or mini-bids. Digitization is key to keep up with those changes. Automate processes where possible!
Pieter Kinds – Founder and CEO Freightender
Difference between e-procurement and e-sourcing
Procurement of transport services was one of the first supply chain activities in the online world during the dotcom boom years in the late 1990s. It started with a number of specific industry platforms, which took off but was short-lived. The quality of the software was not yet good enough and suppliers often resisted the new way of buying. Particularly for transport services, the e-auctions, as they were called, turned out not to be the most ideal platform for purchasing these services. The first experiences with these platforms are therefore a negative memory for many users.
The terms e-procurement and e-sourcing are frequently used interchangeably, which means it is not always clear which process is meant.
E-procurement, also known as Supplier Exchange, is an activity at the operational level. E-procurement is part of the entire procurement process that includes elements such as load bidding, vendor management, catalogue management, purchase order integration, order status, shipping notice, e-invoicing, e-payment, and contract management.
E-sourcing is an activity at the strategic level. It is the methodical process of structuring a group of suppliers with the aim of maintaining a competitive cost and service level.
An e-tender is an event in which the buyer invites multiple providers to supply various information items, in addition to price, within a set period of time. For example, service capacities, transit times, prices or a complete proposal with creative solutions may be requested. In an e-tendering process, bidders never see which prices are being offered. E-tenders have a longer duration and are more solution-driven than price-driven. Terms such as RFx (Request for Price/Proposal/Information), RFQ (Request for Quote) and RFS (Request for Solution) are frequently used in this context.
Still think Excel is the best tool for running a freight RFQ?
Current day, there are, in general three methods to manage freight tenders:
- Manual – Still the majority of transport tenders are marketed using spreadsheets and email. A transport or procurement department creates and manages the entire process itself without outside help or tender software.
- Outsourcing to a consultant – A growing group decides to outsource the tender process to a consulting firm. They have the expertise, manpower and tools to manage a process on behalf of a client. The main driver for a company to do this is the lack of manpower and knowledge to execute a complex and labour intensive tender process.
- E-tools – Adoption of e-tools (online/cloud software) is growing steadily. This means that more and more tenders are offered via an online platform. A shipper may be able to do this himself or use an e-sourcing specialist who does the execution on behalf of the customer.
What are the benefits of e-sourcing?
Using an e-sourcing or e-procurement platform has advantages for both the buyer and the supplier. These include:
- Improved quality and user experience through the use of high-quality online software;
- Improved control over the procurement process;
- Time savings for the procurement team and the suppliers;
- Well-structured data for the suppliers;
- Better possibilities for pre-screening suppliers;
- Better and faster feedback to suppliers;
- Fixed price templates to enable ‘apples to apples’ comparisons;
- Better and faster analysis and modelling tools;
- Transparency to all parties;
- Faster implementation of achieved savings;
- Higher ethical standards through audit trails in the system.
Is Excel still KING in logistics procurement or is digital procurement and e-sourcing changing the way logistics is being purchased?
Quick benefits of the digital process over the manual process:
- The digital process gives real-time visibility while people work from home.
- Digital gives structure to the process while automating most processes
- Better carrier management
- Online Q&A
- A platform can make millions of calculations in seconds….
- Process and selection accountability is transparent
- No EXCELlent skills needed to run a tender
High-powered automation with millions of calculations to give you the best tender scenario and results or a manual Excel exercise to handle a multi-million freight budget? How does your logistics procurement future look like?
Last but not least…
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