Solutions should not be more complicated than the problems they are trying to solve!

Knowledge Based Freight Transportation Negotiations Co-authored by MPC Computers

Executive Summary

Negotiating freight costs / services has many meanings.  For some shippers it simply means that whatever is being charged must be reduced. This attitude telegraphs the posture of the negotiations and eliminates the potential of “knowledge based transportation negotiations”.  Likewise, some carriers, perhaps better described as spoilers, chase down their competitors’ customers and offer freight rates and charges that are lower than the current level.  These approaches are not necessarily “bad”; but they are incomplete!  They lack a proper foundation for a mutually advantageous business relationship because they immediately fail to recognize each partner’s assets as well as the relationship’s assets.  In order to overcome this inherent failure, changing the perspective from “cost and service negotiations” to freight transportation negotiations should suffice.

All relationships that seek mutual benefit must satisfy the fundamental requirement for “balance”.  When the scales are tipped, the natural balance is destroyed and the ability to mutually exploit the purpose of the relationship is cancelled.  Freight transportation negotiations are a complex process consisting of alternative methods of approach, strategies and objectives as well as a multitude of steps.  Because the results we seek are dependant on these activities, the “balance” remains at risk.  To assure success, the “balance” must be respected and secure at all times.  How we approach freight transportation negotiations will significantly influence our ability to achieve the balance; and will determine the relationship’s ability to provide the identified benefits and objectives. 

There are many aspects of freight transportation negotiations, not the least of which are cost and service, that must be effectively treated in order to establish meaningful and sustainable relationships.  The importance of establishing and maintaining excellent shipper/carrier relationships is best demonstrated from the perspective that carriers are the equivalent of the “corporate life bloodline to the marketplace”. 

Freight transportation negotiations will specifically determine our freight costs; services and respective levels; and they will most assuredly impact customer service and satisfaction.

The purpose of this paper is to challenge the notion that freight transportation negotiations are simplistic and should only consider cost and/or service.  By challenging this fundamental notion, examination of the process will result in new perspectives, methods of approach, and answer the questions, "why freight transportation negotiations should be knowledge based". 

Freight transportation negotiations can be driven by: opportunity; schedule or both.  Other reasons such as: cultural changes; acquisitions; mergers; distribution patterns; and product changes, but not limited hereto, can also be responsible for entertaining this activity.  Whatever the reason, the cause should also become a consideration when identifying the project’s goals and objectives.

This white paper is co-authored by MPC Computers LLC and TransportGistics, Inc.  Through this collaborative effort, TransportGistics has the opportunity to share with our readers a highly successful and current example of “knowledge based freight transportation negotiations”.

Freight Transportation Negotiations

Freight transportation negotiations address all of the activities associated with and attendant to the freight itself and its travel throughout the supply chain.  Included in this general description of freight transportation are:

1.   Transportation Costs---the costs associated with conveying the freight from, to and between activity points

2.    Freight Costs---costs associated with the handling of the freight

Freight transportation negotiations are a business activity that has significant influence on corporate performance and directly effects customer service and satisfaction.  Operationally, transportation is the life force of the entire supply chain; without transportation nothing moves.  Freight transportation is pervasive. Freight costs are a significant part of the overall corporate budget. 

Knowledge based freight transportation negotiations require the necessary expertise, skill, knowledge, education, technology, defined goals and imagination for proper treatment and positive results.   Absent the proper respect and understanding for transportation, its negotiations could result in negatively affecting corporate performance.

Understanding the freight transportation value proposition is possibly the most difficult of all business functions and activities.  There are a limitless number of transportation value propositions and all of them are probably correct and respectively appropriate.  Recognizing the importance of establishing a well defined value proposition that can be effectively articulated is the challenge.  One of the barriers to articulating the proposition to other than transportation and logistics personnel is that transportation has always been taken for granted.  For the most part, it always works, at least to some degree or another and historically many believed that it was completely controlled, if not directly, then indirectly by the government. To the credit of the transportation and logistics professional they have always assured the uninterrupted flow of goods, perhaps not smooth at all times, but nonetheless the flow of transportation could be counted on.  Consequently, other business areas have never had to understand or appreciate what it is that allows the freight to flow. 

Freight transportation negotiations is a practice and a process that engages carrier and shipper for the purpose of arranging and settling the business rules and costs associated with and attendant to the freight and movement thereof.    Knowledge based transportation negotiations will recognize the importance of addressing all of those items that would be part of the “cost accounting ledger” as well as those areas of the business that the cost accounting ledger items involve.

The information presented below clearly demonstrates that, first and foremost Jeff Nielsen has a keen understanding of MPC’s business, its culture, goals and objectives.  His recognition of the importance of understanding and maintaining current freight transportation market knowledge is another mission critical attribute that is shared by successful transportation and logistics professionals throughout the world.  These characteristics have been demonstrated by all of our previous co-authors and portrayed in the following white papers:  “Freight Transportation Purchasing Philosophy”; “Purchasing Freight Transportation Effectively”; “The Role of the Logistics Leader in Driving Supply Chain Value”; and “Contract Carriage Agreements, Matching Expectations and Deliverables”.

The MPC Approach and Process:  Primary and Secondary Collaborative Partnerships

Strategy

MPC employs a dual sourcing approach to its carrier selection process for key transportation and logistics services.  Dual sourcing concurrently considers a primary and secondary carrier within each mode.  Its purpose fosters a healthy competition amongst qualified carriers while driving the best of each to the process. Within this dual souring approach is a strategy of developing collaborative relationships.  Dual sourcing promotes both innovation and cost containment.  Collaborative relationships enable partners to protect margins by working closely with MPC to improve operations, while still meeting MPC’s service expectations.  This strategy has allowed MPC to exceed its customer’s service expectations, increase the use of technology, and maintain a competitive cost edge.

Partnership Selection Processes

MPC’s corporate culture fosters organized, fast responses to market changes, with emphasis on exceeding customer’s expectations.  In the last twelve months, MPC formally negotiated with three distinct groups of transportation providers:  international freight forwarders; domestic small package carriers; and ocean carriers.  MPC’s goals:

1)      thoroughly understand the market, services and pricing;

2)      establish or improve collaborative relationships;

3)      improve service to MPC’s customers;

4)      maintain a competitive cost edge.

Negotiation by Mode

International Freight Forwarders

A formal Request for Proposal (RFP) process was employed with nine international freight forwarders.  MPC developed the proposal in four weeks, with the forwarders allowed six weeks to respond.  The specific twenty-one page RFP document articulated MPC’s goals, and gave a detailed look into MPC’s needs.  By being so thorough and explicit, MPC was able to gauge the partner potential of each forwarder, while receiving concise information.  In the end, MPC chose to keep one incumbent forwarder, and replace the other incumbent with a high-powered forwarder using a team approach.  Both forwarders utilize technology to increase information flow, are cost conscious, and provide superior services.

Domestic Small Package Carriers

For the review of domestic small package services, MPC employed an informal process to address all the formal RFP topics.  Three small package carriers were chosen to collaboratively review the needs of MPC.  Simultaneously, the strengths and weaknesses of each integrator were analyzed.  This process provided MPC a detailed look into services and pricing offered in the market.

MPC selected a new primary carrier, and fully integrated the new carrier during MPC’s busiest months.  Collaboration was so good during the integration phase; the transition phase began one week ahead of schedule.  The new primary carrier brought enabling technology to MPC, increasing customer satisfaction.  We continue to develop ways that meet service needs and increase operational efficiencies, with the goal of maintaining a pricing edge.  It’s thought about daily, and formally reviewed each quarter. 

Ocean Carriers

For the yearly review of ocean carriers, more of an adversarial market, MPC continued to negotiate only with carriers willing to look at the entire market dynamics.  The carriers came out with a strong stance on increasing import rates by $700 per 40’ container.  MPC pointed out that in addition to the rate paid for an import container, MPC offers carriers more utilization of equipment.  Through a “match-back” program, MPC ocean import containers are unloaded in Idaho, and then reloaded with Idaho area exports.  MPC and area exporters benefit with reduced inland transportation rates, and the carriers benefit with increased utilization.  The success of this program demands collaboration, and is profitable for all involved.

Collaboration Works

The strength of MPC’s transportation strategy was put to the ultimate test at the end of 2002.  MPC utilizes west coast ports for her ocean imports.  These imports are vital to MPC’s just-in-time manufacturing process.  In collaborative consultation with MPC’s ocean carriers, customs broker, and trucking partners, a flexible contingency plan was developed that insured an uninterrupted supply chain.  At the first hint of slow downs, the plan was implemented.  For many companies, the west coast port dispute increased transportation costs.  MPC was able to avoid increased costs related to ocean moves, and the supply chain operated with no negative customer impact.

Collaboration Empowers MPC

The results of each partner selection process empower MPC to meet and exceed our customer’s expectations, increase the use of technology, and maintain a competitive cost edge.  The competitive environment keeps partners innovating to differentiate themselves, and to be mindful of costs.  The collaborative relationships enable partners to protect margins by improving service operations, solicit MPC to make changes beneficial to their operations, and meet MPC’s service expectations.  MPC’s partners know exactly what is needed.

The keys to MPC’s collaborative relationships are:

1)    Account representation – partner representative must be empowered within his/her organization;

2)   Knowledge – partner knows what they can provide, and the customer articulates what is needed;

3)  Change management – both entities must be open to modify processes, and take measured risks together;

4)    Trust – nurture it and never break it.

The strategy of collaborative relationships, within a dual sourcing approach has proven to be rewarding for MPC and its partners.

Conclusion

Freight transportation negotiations are a very important and necessary activity that has far reaching effects on multiple business processes and relationships.  Knowledge based freight transportation negotiations will allow the transportation and logistics professionals the opportunity to achieve world class corporate performance and excellence.  The ensuing relationships will be asset rich and simultaneously enhance each partner’s unique attributes. 

Transportation and logistics are professional disciplines rich with information and knowledge.  The keys that will open those doors may vary from company to company; but the characteristics of world class excellence lie within each professional.  Through knowledge based freight transportation negotiations each partner operates in an enriched environment allowing their combined resources to fulfill tomorrow’s promise.   

Continuation

Please consider this white paper as a continuum in this subject area; succeeding white papers will address common issues and address them with common solutions.  We encourage our readers to direct any relevant questions or comments to papers@transportgistics.com.

Disclaimer

The information presented herein represents the opinion(s) of the author(s), but not necessarily the opinion of TransportGistics, Inc.  This white paper is not presented as a legal position or opinion.

About the Author

MPC Computers LLC

Jeff Nielsen is the Director of Global Logistics & Compliance at MPC Computers, a build-to-order computer manufacturer.  He earned his B.A. from Brigham Young University; his M.A. in International Transactions from George Mason University; and is Six Sigma certified.  Jeff is fluent in Spanish, and lived in various Latin American countries for 2 1/2 years.  His commitment to education is portrayed in his services to the Idaho trade community as the Vice-Chairman of the Idaho District Export Council. 

 

Jeff has been with MPC since 1997 where his overall responsibilities are: ensuring that the MPC just-in-time supply chain is uninterrupted; that finished products are delivered cost effectively; and the customers’ expectations are met.  Within these mission critical responsibilities, Jeff negotiates and manages the freight transportation contracts for international and domestic services with freight forwarders; ocean carriers; small package express carriers; less-than-truckload carriers; full-truckload carriers; and warehouses.

 

MPC Computers LLC, headquartered in Nampa, Idaho provides award-winning desktops, notebooks, servers, and related services to the federal, state and local government, education, small and medium business, and consumer markets.  In addition to its direct sales channel, MPC products are sold through leading resellers nationwide.  Formerly MicronPC, the Company changed its name to MPC Computers and is held by Gores Technology Group, an international acquisition and management company.