Logistics Procurement – Performance Management

Logistics Procurement – Performance Management

by LSCMS Shippers’ Council

 

Shortly after the outset of COVID, in early 2020, supply chains have been disrupted across the globe. With constrained and somewhat erratic demand and supply – not just of products and materials but also capacity with carriers of all modes – rates have been extremely volatile.

Rates are now starting to stabilise and for ocean freight especially, we are seeing rates closer to pre-COVID levels. Freight procurement is the mainstay of any supply chain professional but price is not the be-all and end-all.

The Shippers Council of the Logistics & Supply Chain Management Society comprises close to 30 of the largest shippers or beneficial cargo owners (BCOs) in the Asia Pacific. The following are some suggestions and insights from this assembled group of experts.

 

KEY AREAS OF PERFORMANCE MANAGEMENT

 

When engaging with mainline operators (MLOs), going out to bid and running a Request For Quotation (RFQ) is complex enough but this is simply one part of a complex and dynamic process to ensure optimum performance from a rates and service perspective. Logistics Managers need to address other elements namely:

    • How do we measure ocean freight spending against market levels?
    • What tools we can use to benchmark ocean freight and carriers’ service reliability?
    • How do we measure carriers’ performance and what criteria do we use during a Quarterly Business Review (QBR)?

 

Regardless of whether an enterprise opts to enter into Long Term Contract Rates of between one and two years versus quarterly, named account or commodity rates versus Freight All Kind (FAK), online or spot rates, there are various tools at a BCO or shipper’s disposal.

 

Types of Ocean Freight Contract

 

POSSIBLE TOOLS FOR BENCHMARKING RATES

 

Like in any industry, we gather market Intelligence through our own network. This network  could be customers, other shippers and also carriers, and 3PLs. Whilst extremely relevant and well-intentioned, these perspectives are however often anecdotal and could to some extent be biased.

 

In today’s commercial environ, we are quite fortunate in that these qualitative insights can often be reinforced with more quantitative data.  Some examples of these would be the Xeneta Shipping Index, Freightos Freight Rate Index, Container Trade Statistics Price Index, and the Drewry World Container Index. The list is resources an enterprise can avail itself of is ever-growing and evolving.

Source: Xeneta Products – Compare Freight Benchmarking Solutions

For more information on the various container freight rates indexes such as Shanghai Container Freight Index (SCFI), FBX Freightos Index, World Container Index, and S&P Global Platts Container Rates, please refer to Container Freight Rate Index: Overview, Types, and Methodology (marineinsight.com).

 

As data is more readily available and as these tools evolve with a longer and larger dataset, the concerns around the accuracy of the information they provide are less questionable. The time lag, especially in the dynamic environment we have been operating in these last couple of years, from when the transaction or shipment is handled to the time it is collated and thence released may not capture trends quickly enough for some of us to react and respond.

Additionally, the data is often historical and does not and cannot reasonably be expected to factor in situations such as trade and armed conflicts, natural disasters, and unforeseen incidents such as the accident in the Suez Canal in March 2021.

 

POSSIBLE TOOLS FOR MEASURING CARRIERS SERVICE RELIABILITY

 

Alongside effective rate management, carrier service reliability is also of paramount importance to any BCO or shipper. Paying lower rates is useless if transit time reliability is less than optimum. Effective logistics management is all about place and time utility and getting the right product, at the right time, to the right place in the right quantity and in the right quality.

Unfortunately, despite their best intentions carrier service reliability continues to remain elusive throughout the years and as rates continue to correct themselves, we will see an increase in blank sailings, slow steaming, and even less service reliability from carriers.

Market publications and resources like Sea Intelligence and market updates from the likes of  Flexport and others combined with Supply Chain Visibility Tools and carrier data such as Booking Lead Time reports can help paint an accurate and fair assessment when comparing the performance of one MLO against another.

 

MEASURING CARRIER PERFORMANCE

 

Overall and perhaps not surprisingly, the council recommends that both objective and subjective metrics be put in place to measure the performance of MLOs and carriers.

 

By combining the quantitative and qualitative elements highlighted above with the experience and gut instinct – and ideally, the collective wisdom of experts (such as this shippers’ council) – the well-informed and equipped logistician can make the best decisions possible that will allow his or her enterprise to achieve optimal logistics performance.

 

CARRIERS SCORECARDS: PERFORMANCE INDICATORS

 

Recognising the need and the importance of such measures, the shippers’ council launched the KPI in 2021.

Most companies outsource >50% of their logistics services and we are often challenged with escalating logistics rates with poor reliability.

The KPI is a qualitative index (not a definitive scorecard) that provides an unbiased perspective to shape our logistics service providers’ mindset and actions.

The survey of each LSPand their respective mode may take only 1 minute or so to complete.

All shippers names and companies’ responses are kept in confidence and responses are aggregated and will not be used for any purpose other than the compilation of the survey results.

Recently launched for the second time, we will want to encourage all BCOs and shippers to complete this survey that looks at the performance of not just MLOs but also air, express, LCL, and surface carrier performance.About the LCSMS Shippers’ Council” heading_tag=”h5″ alignment=”left”]

The Shippers’ Council is made up of Logistics leaders from companies that are most admired for their Supply Chains, as well as Thought Leaders from industry and academia, all of which are progressive within their own supply chains, research and application. The Shippers Council forms the voice for Shippers and BCO’s where likeminded experts collaborate within a shared community to influence global logistics excellence, and support sharing of ideas and benchmarking of best practices.This article and the views contained therein was prepared or accomplished by the LSCMS Shippers Council. The opinions expressed in this article are strictly those of the LSCMS Shippers’ Council and not attributable to a specific individual or enterprise.[vc_text_separator title=”MORE FROM THIS EDITION” border=”no”][vc_single_image image=”19245″ img_size=”medium” qode_css_animation=””][ult_layout layout_style=”4″ list_style=”6″ s_image=”0″ s_excerpt=”0″ s_categories=”0″ s_metas_o=”0″ s_metas_t=”0″ quick_view=”0″ taxonomies=”post_tag” price_font_weight=”” atcb_font_weight=”” title_font_weight=”normal” title_font_style=”normal” title_text_transform=”capitalize” metas_font_weight=”” excerpt_font_weight=”” filter_font_weight=”” tab_font_weight=”” pagination_font_weight=”” title_font=”Lato” title_font_size=”12pt” i_taxonomies=”350, 351″ d_i_filter=”350″]