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Reducing uncertainty in freight transportation procurement
Securing sufficient truckload transportation capacity is a challenge for most shippers. The dominant design currently used across North America is to run an annual reverse auction collecting rates from carriers on each of their freight lanes (origin-destination pairings) and then feeding these rates into the shipper’s transportation management system (TMS), which then uses a routing guide to determine which carrier to tender a load to when a particular shipment materialises. Unfortunately, the routing guide frequently fails. This results in the shipper having to use backup carriers or the spot market, thereby incurring much higher rates. This paper explains why the current dominant design arose in the first place and why it is no longer sufficient. Four promising practices that can improve the transportation procurement process for shippers, carriers and brokers are presented and discussed: Data-driven analysis, transportation portfolio management, dynamic contracting and continuous procurement. These practices are meant to complement the current procurement methods in order to reduce the risk and level of uncertainty for all parties by making the procurement process more dynamic and responsive to the market.
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Chris Caplice is the Chief Scientist for DAT Freight and Analytics. In this role he pioneered the development of the Freight Market Intelligence Consortium (FMIC). He is also a senior research scientist at MIT and serves as the executive director of the MIT Center for Transportation and Logistics (CTL) as well as the co-director and founder of the MIT FreightLab — a research initiative that focuses on improving the way freight transportation is designed, procured and managed. He received a PhD from MIT in transportation and logistics systems, a MSCE from the University of Texas at Austin and a BSCE from the Virginia Military Institute. Chris was named the Silver Family Research Fellow in 2016.
CitationCaplice, Chris (2021, December 1). Reducing uncertainty in freight transportation procurement. In the Journal of Supply Chain Management, Logistics and Procurement, Volume 4, Issue 2.