Getting More from Your Trusted Carriers: Re-grading Relationships for Long Term SuccessPosted by: Steve Beda
10 Considerations for Using Scorecards to Build Best-in-Class Carrier Partnerships
Imagine this. You’re doing your job as a global executive in transportation. You present to your ever-questioning leadership – and have easily gathered all of the facts to have them ready at your fingertips. The spend, the problem hot spots (before they happen) and the clear, transparent understanding of where problems lie, or opportunities might exist. At your desk: no angry emails, no complaints, no stack of invoicing and paperwork. Everything is running on time and, for once, you are free to do your actual job. Pretty fanciful, right? But while this scenario might be a little rose tinted, it’s actually more within reach and doesn’t require the kind of macro culture shift or heavy lifting that many in modern transportation logistics assume it does. Sometimes the answer begins with something relatively simple.
We are talking about scorecards – and their pivotal but gravely undervalued – role in delivering best-in-class carrier relationship management and long-term success beyond our capacity-strained, ultra-competitive market. If you’re in any kind of decision-making role, if you bear responsibility for how the rubber hits the road – and the cost when it does – then it’s absolutely time to take a new look at scorecard strategies and everything that’s changed.
Why Now- reintroducing the scorecard
To be clear, after several decades, scorecards aren’t new, so if you are asking yourself “don’t we already do that?” – that’s a valid question. But much has changed (and dramatically) in the global transportation logistics world – to the point where the decades old paperwork, simple spreadsheets and manual labor of traditional scorecards can’t supply the kinds of sophisticated and data-driven knowledge needed to succeed in a competitive industry and amid intense market conditions.
Re-thinking scorecard tools and strategies isn’t a nice-to-have anymore, it’s become operationally essential. Why? Capacity limitations, a fragile supply chain still recovering from the impacts and shortages of the Covid-19 pandemic, labor shortages, climbing fuel prices, and the likelihood of price inflation as shippers continue to pay whatever rates are needed to get the job done. All have combined to create the perfect storm in which carriers are firmly in the driving seat. The risk of ongoing supply chain disruption is so great that the White House just issued a 250-page report on ongoing shortages across manufacturing, food, agriculture and semiconductor sectors and created a White House task force to begin addressing the problem. In short, when so much rides on the quality, stability and durability of your relationships with your carriers and their performance, when the risk of a primary carrier failing can impact your business, profitability and reputation, managing and evaluating every aspect of those relationships must become a top priority.
What scorecards do- data-driven foundations
Scorecards today have become way more than a simple rating system for which carriers are performing. They’re a foundational tool for helping to assess carrier capabilities and setting both the operational practices and performance expectations to best align partners with the values that are important to our operations and organizations. They also create a collaborative and mutually-focused measurement standard between shipper and carrier that can help both parties understand expectations, assess whether those are met (or not) and create an ongoing opportunity for continuous process improvement strategies.
The best scorecards today are designed for the data-driven world we live in, where consistent, quality data and information help drive informed decisions from carrier negotiation to contract completion. Using general and carrier specific KPIs to measure performance and a wide variety of other criteria can also help answer the big questions: is my carrier meeting standards? Are rates too high for services provided? If my primary carrier fails what is the operational risk and impact to bottom line and reputation?
Let’s take a closer look at the ten key components and measures of the modern scorecard.
The old saying don’t put all of your eggs in one basket is a global, centuries-old truism for a reason, and especially so when it comes to global transportation logistics. In a market where carriers already have too much control, the risk associated with a primary carrier, that is essential to an operation, is so impactful that this form of risk assessment could be the single most important aspect of scorecard carrier evaluation. Any risk assessment KPIs for primary carriers should allow a weighted assessment for risk. In other words, the more important a carrier relationship is to keeping an operation running smoothly and effectively, the more critical it is to evaluate that carrier meeting or exceeding performance standards.
It’s possible, of course, to mitigate this kind of risk with secondary carriers but in reality, if a primary carrier goes offline, there will more than likely be service or technology constraints of some kind that prevent an instantaneous, or even expedited, switch to a secondary carrier in the middle of whatever disruption or larger crisis is occurring. Nonetheless, implementing a multi-carrier technology solution and managing that through the sophisticated and real-time tools of a Transportation Management System and Warehouse Management System is advisable. As is assessing the risk level of primary, and all, carriers, and during negotiations do whatever is possible to remove whatever carrier constraints might exist. This will put you in the best possible position if things do go wrong in your supply chain.
Not everything comes down to cost, but in a competitive market with limited capacity, cost and relativity to other carriers can become an important consideration and measure for any carrier relationship. Simply put, a carrier must be cost competitive, but it becomes more challenging to measure when carriers operate in more specialized industries, specific geographies or provide highly specialized services. Moving a temperature-controlled vaccine from point A to point B under tight guidelines and protocols, for instance, is very different to trucking a cell phone, for instance, and pricing will reflect this. In the same way, the ability to rush transportation of replacement machinery parts when critical plant operations go offline will carry a different value than standard weekly or monthly inventory delivery.
For effective measurement and scoring, separate carriers into a) commodity and b) specialized service categories, then apply appropriate constraints in each category within your shipping profile. With commodity contracts you may award a carrier who charges a higher price with a lower score, while specialty carriers fulfilling more challenging, technical or specialty services might not come under the same cost evaluation. The challenge in doing this effectively – and with many other measures – is effectively collecting, standardizing and evaluating data from maybe hundreds of carriers across geographies around the world, many with their own individual methods of completing RFPs at the start of a contract as well as routine documentation during implementation. In a best-in-class operation, the only way to manage all of this effectively and at scale is through the tools offered by modern, sophisticated Freight, Audit + Pay technologies and possibly specialist partners to manage the process.
Measuring carrier quality seems like an obvious given, but a comprehensive assessment is more than just rating a carrier as a high- or low-quality partner. For instance, are products and shipments damaged frequently or often in transport? Or does your carrier maintain a high standard of service and deliver within timeline and other parameters? Measuring additional factors seemingly as simple as the number of shipments with no loss or damage versus those impacted in some way, creates a percentage of service quality that can be mapped into a set of tolerances that are acceptable. Highly complex, multi-modal or specialized category shipments may carry an increased tolerance for loss or damage compared to more routine shipments.
Measuring carrier quality is also important as loss and damaged product impacts your ability to provide good customer service and meet consumer expectations and requirements. Measuring quality in this way can be as simple as charting the number of shipments with no loss or damage versus the number of shipments with loss or damage. That percentage can easily be mapped into a set of tolerances you set for your carriers to meet or exceed and is easily measured using FAP tools, allowing you more time to focus on more complex tasks in your operation.
If you’ve spent any time at all managing global freight and coordinating shipping partners around the world, you’ll know billing accuracy for some carriers can be an elusive goal. Many are still mired in paper billing systems that are outdated, inefficient and prone to inaccuracies, while the vast majority may also use non-standardized billing terms and codes that are individual to their own companies and systems. All of this, unfortunately, means inefficient processing and a drain on time, energy and resources that can be better spent on more valuable parts of your business. If you haven’t yet insisted on a transition to EDI billing, it’s time to consider bringing in a freight audit partner who can help not just with that transition but also manage the implementation of billing systems that standardize data across carriers to make scorecard measurement of invoices with, and without, exceptions more efficient.
Like quality measures, service performance or on-time delivery is simply the number of shipments that meet service commitments vs. the number that fall short, mapped by tolerance in each category. Make sure that you or your FAP partner take time to normalize services across modes so that carriers can be measured in a like to like manner. Performance is a critical measure in DTC shipments – a category which saw a massive 70 percent increase in volume during 2020 with no sign of reverting to pre-pandemic levels anytime soon. Here, the ability to manage cost while meeting critical 48-hour, and sometimes same-day, delivery expectations from the consumer can now become the only yardstick of carrier success. Don’t forget to assign weights to your measures as you scorecard your partners.
Put simply, people matter too. It can be easy to forget the importance of human relationships, skill sets and reliability in the drive for data learnings and efficiencies. With any carrier, whatever their modal or other specialty, a key factor in the success of your business relationship is their rep. Do they understand and respond to your needs at both the big picture/strategic and operational levels? Do they problem-solve effectively and in a timely manner? Do you feel heard and supported as an organization? While these measures can be subjective and lean more qualitative than quantitative, they’re essential benchmarks of success especially for your company stakeholders, procurement officials and upper management.
Everything from fuel pricing to equipment availability is in a constant state of flux. Pricing pressures, capacity constraints and high expectations from consumers require shippers to adapt to survive – and they need the same from every carrier. In industries like pharma there is a huge swing toward home-shipment of pharmaceuticals and prescriptions that don’t require the middleman of the local pharmacy. This kind of landscape shift, kickstarted in 2020 for practical reasons during pandemic restrictions but now widely adopted for lifestyle convenience, meant not just a quick, adaptive mind-set from carriers but the practical and logistical changes needed to evolve. Carriers set up to deliver in bulk to pharmacies needed to switch gears to provide time-sensitive, temperature controlled, residential and last mile operations. As this trend continues, one important definition as you rate carrier adaptability to market change is measuring not just the ability to change but the willingness to do so and the effectiveness when carriers do make adjustments.
As more carriers transition to EDI and other data-led processes, the question of data quality becomes crucially important. Whatever kind of carrier performance or compliance measure we’re assessing, it is pointless unless the data received is of high and usable quality – meaning it’s delivered in standardized formats with normalized values and set definitions so FAP tools can analyze accurately for meaningful insights. A carrier’s primary role is to provide delivery of products and goods, of course, but while performance is a critical metric don’t forget to measure data quality and compliance to your standards and requirements. Putting strong, clear data governance standards into place as part of a best-in-class FAP process will, over time, lead to greater visibility into actual spend, identify inefficiencies and spotlight problem hot spots in your carriers and operation. Failing to do this can and will, unfortunately, lead to operational disruption downstream.
Scale, Capacity, Financial Strength
The events of the past 18 months have made many shippers risk averse and acutely aware of just how bad a situation can become when any, but especially a primary, shipper encounters problems. To try and disaster proof future carrier relationships, it’s a good idea to also scorecard the status and viability of their business: a carrier’s current scale, available capacity and financial stability. Can your partner scale over time as you grow, or perhaps more quickly if business booms? Do they have the stability and capital to ride out market problems and fluctuations? Consider background checks and financial reviews as part of this process and score your carriers against their potential risk to the smooth and consistent operation of your supply chain. Do all of this and you will soon determine if your carriers are the right partners for the long haul in all senses of the word.
Weighting Scores and Building the Perfect Scorecard
As you build your scorecard process or work with a partner, know that not all criteria should be scored with the same weight, especially when it comes to a carrier’s risk of disruption. Carriers that pose a higher risk to the overall supply chain should be weighted heavily on their performance, specialty services and their capacity to meet your forecasted shipping volumes both now and down the line. Based on the specific services and lanes covered, if no clear alternative carrier option is available, a lower score in certain areas creates more risk than with other carriers.
Consider too, and closely monitor, market conditions which affect the way you and your carrier do business. The pandemic-imposed capacity issues and supply chain difficulties are currently giving the advantage to carriers and forcing higher prices on shippers. But collecting, analyzing and measuring data over time with more detailed, sophisticated scorecards and FAP tools will begin to give shippers the visibility, understanding and conviction to make smart carrier choices while establishing a solid strategic plan that balances risk, cost and service quality for best-in-class operations. You’ll quickly understand not just which partners are performing or charging the most but develop a crystal-clear picture of how each carrier operates, where their strengths lie and how they integrate with your business strategy and overall vision for your future. An A+ outcome for any global logistics executive as well as their leadership asking those tough questions.